All Forum Posts by: Lee Ripma

@Jin Zhang

I would only measure pros and cons against a goal. So I would rephrase the question as: what are the pros and cons of Kansas City for buy and hold small multifamily when my goal is cash flow or what are the pros and cons of Kansas City if my goal is fix and flip SFH with large margins on each project. I'll still try to answer the question:

Pros of Kansas City for buy and hold small multifamily rentals:  

Hybrid market so you get some cash flow and some appreciation (con if you want only cash flow or only want appreciation) 

Inventory of 2, 4, and 5-50 MF buildings (not true of a lot of markets that only have SFH and very large complexes 100+ units)

Relatively low property taxes, although check for the city and state you are in (e.g. Overland Park, KS vs Kansas City, MO) 

Very landlord friendly, worst case eviction is usually 8 weeks + $500 + lost rent (cannot comment on individual cases and this is not legal advice) 

Large diverse metro area - variety of jobs, companies, people can have a career in KC. Lots of medical in KC - hospitals, medical school, etc. Medical destination with excellent care.

Arts and culture of a large metro and THE BEST football team (plus the Taylor Swift boost!) 

Affordable relative to the rest of the US so great place to work remote or just enjoy a reasonable life without being hugely cost burdened 

Cons: 

A lot of older than 1980s construction (you 100% can be successful with these properties just have more to check during due diligence) 

Need to be mindful of market rents in the area and not overspend on renovations where there is not ROI to do so, you can't usually exceed $2 sf on rental rates and average price per sf is 1.25-1.5 sf (neighborhood, unit type, and finish level specific).

KC is not a boom and bust market, you don’t get the high highs or the low lows. Note this can be pro or a con depending on your strategy. You don’t get CA level appreciation in Kansas City.

Some areas are high crime so need make sure you understand the neighborhood you are investing in, like any city all locations are not equal.

Very car centric city, mass transit is not widely used, people don’t walk, they drive outside of a few very walkable locations in heart of the city. 

Weather - you need to make sure tenants are warm in the winter and cool in the summer. You also have snow removal and salting when you own apartments and it can be pricey. Weather also makes insurance more expensive - wind and hail damage properties. 

Clay soils mean that drainage is really important to prevent foundation issues. Very common to have structural issues caused by soil movement. 

That’s a few to help you understand what I see as pros and cons of small MF buy and hold investing. It is what I personally do and I help clients do. It really can be a great market for real estate investing, depending on your goals! 

@Francisco Milan 

I'm a big fan of buying real estate and doing cost segregation studies. You can still get something closed before year end! Condos actually give you the biggest bang on deprecation because such low land value but any RE will do! 

@Kent Fang ching - Hi Kent, checkout my podcast #373 I was in a very similar boat when I picked Kansas City from San Diego. There are duplexes in KC that will return the numbers you are looking for. 

This is not legal or tax advice. I am also a real estate professional and I use DIY cost seg to do algorithm based cost seg studies. I am a huge fan of DIY cost segs (I have compared with kbkg) feel free to reach out for my friends and family discount code with DIY. 

@Noam Koren

The historic northeast is like any C area, with good PM you can have great cash flow and with bad PM you can have very bad results (trashed units, non-paying tenants, evictions). I personally owned in the historic northeast and had great cashflow and never had crime issues and that was on the "bad" side of Independence Blvd when I was still out of state! I only sold the property because my partner wanted to, it was a great rental for us. I see quality tenants in the historic northeast, they get good value and like living in older buildings. So I am a fan of the historic Northeast. When looking for areas to invest in I basically advise that you find deals that are available, vet the locations, and then underwrite the deals if you would invest in the locations. With low inventory, this is a more efficient approach than targeting specific areas, IMHO! 

@Joe Derobertis

The median household income is $18,508. 

However, this area does have a growing population adjacent and high forecasted median income growth. I wouldn't count it out but it's not a C location, it's lower. 

Map courtesy of VestMap. 

@Darryl George

VestMap.com does exactly this. I would argue you don't need to see the metrics daily, seeing the current income, demographic group, crime is enough but you can also look at background rates of appreciation, which I love. 

DSCR non-QM residential loans are not the same as commercial loans. I suggest commercial loans with local banks. Link to article below that explains the FAQ I get on them. I'm a broker in KC and yes, you can get a commercial loan on a deal under 5 units!

https://www.vestmap.com/post/the-real-estate-investors-guide...

Take a look at that article and feel free to ask any follow up questions. We have a network on local commercial lenders who we use in the KC market. 95% of the deals we do close with a local commercial lender. 

@Sam Howell

You could do a RES or a commercial loan. Right now commercial loan rates are 7.25% with a 25 year amortization and 5 years fixed. RES rates are lower with a 30 year amort and you can buy down the rate but that is increased closing costs on top of already high closing costs. This is a good article to check out regarding the pros and cons of commercial loans! 

https://www.vestmap.com/post/the-real-estate-investors-guide..

@Aj York - cash flow is 100% possible in KC. In the last two years more of what was cash flow has gone to debt service but rates are starting to come down and it's more a balanced buyer's and seller's market. There is a lot of 2 and 4 unit inventory in KC and I think a fourplex is a fantastic first investment property!