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I want to flip Kansas City area houses

“I want to flip Kansas City area houses, what area is the best?”

Than Merrill from TV's flip this house will be speaking in Kansas City on March 27, 2010. Visit MAREInet.com for more information.

 

As a Realtor, in the Kansas City area that works with investors and as someone who invests in the Kansas City area myself, I get asked this question a lot.

So let me answer this for you.

First, what does “flip” mean to you? 

Are you going to buy and then resell “as is” with out doing anything to the property?  Or are you going to buy and renovate and resell? 

The next question is who do you want to target as a buyer?  If your target is cash investor buyers your area may be different that if you are targeting first time home buyers.  And if your target is the investor buyer, do you have a ready pool of cash investor buyers?

So let’s look at the two target buyers cash investor buyers vs first time home buyers.

The cash investor buyer, you need to market a lot and build up your buyer’s list for this.  Here in Kansas City you will find some cash investor buyers, but more than likely you will be looking to build a pool of investor buyers from all over the country first.  When you have that in place you can go to town here in Kansas City.  There are 100’s of homes in the area in all price ranges from $5,000 houses in the very urban core of Kansas City Missouri in zip codes like 64109, ,64110, 64123, 64124, 64125, 64126, 64129, 64130, 64131 and 64134.  You can go to south Kansas City in areas like Ruskin and do the same thing in almost the same price range in zip codes like 64134.  And there are areas of Raytown and Independence.  There are a few owner occupant buyers in these areas, and there are investor buyers. 

Because of the current economy, the investor buyers are going to be short on loans, so targeting the cash buyers is where you will need to look.  If this is your target, you need to put a team in place to manage all these properties properly in the urban core and this is where the problem arises for almost everyone in the urban core areas of Kansas City – finding a good property manager is a daunting task.

Your other option is to target first time home buyers.  If this is your target you will be looking in areas where there are homes selling probably in a price range of between $100,000 to $150,000 all fixed up.  You want to find an area where there are not a lot of foreclosures or houses for sale.  If I check out a subdivision and there are currently 5 houses for sale that are all short sales or foreclosures and all the sold comparables in the area are also foreclosures, plus a lot of expired & canceled listings, I would tend to look for a different area.

My personal favorite is a area where houses were built in 1950 or newer.  With one or two normal sales and listings (not short sale or bank owned).  Not a huge amount of turn over.  Good or decent schools and a clean neighborhood when I drive through it.  Areas where I can see a track record of nice homes being sold.  This tells me that if I buy and renovate a home that it will sell. 

For my first time home buyer houses I will probably be looking at areas outside of the urban core, avoiding the zip codes listed above.  Areas like Kansas City just east of State Line over to about Holmes.  Some areas of South Kansas City like Red Bridge.  Some areas of Grandview, Some Areas of Raytown, Lee’s Summit, and Blue Springs.  Also Johnson County and then areas north of the River & in Wyandotte County (I am not qualified to speak of north of the river or in Wyandotte- not my market).

Then you have a third option.  The small multi family 2 – 4 unit.  These can be investor properties or owner occupied.  And right now because investors cannot get financing, these properties are selling at 50% or more less than what they have sold for the past 10 years.  There are deals out there, all over the city in all sizes and ages.  My thought would be to purchase say a duplex, fix up one unit to be the owner occupied unit and then get the other unit(s) in nice rental shape and rented up.  Then sell to an owner occupant FHA to live in the 1 unit and rent the rest.  But I have not yet tried this option.

I have bought and sold in all of the areas of Jackson County Extensively and probably the best advise I can offer is to follow the money.  As the saying goes, he who has the money makes the rules  . . . and this is true in flipping houses.  Your target buyer who has the money and can buy will dictate where you are going to flip your houses.

So do a little research on the Kansas City Market.  If you visit our web site RealtyResourceKC.com you will find links to different areas in Kansas City and on MAREInet.com you may find some helpful info in the Member Resources.  Attend some networking events with other investors and also with Realtors to see what they think is the hot place to be.  See where the houses are selling, then find a house in that area that you can make prettier than the rest (or rent better than the rest) and sell it at the same average price or a little lower and you will have a formula for succees.

To learn more about flipping houses you might check out the show Flip this House and find your way to Kansas City on March 27th when their star Than Merrill will be speaking at our local Real Estate Investment Association – (more info at MAREInet.com)

722 Hawthorne, Independence, MO 64053 – $19,999

722 Hawthorne, Independence, MO 64053

Sold Fast for Full Price

• Three Bedrooms
• 1 Bath
• Kitchen & Living Room
• Build in 1915
• Vacant and Available NOW!

This does need minor work, but could quickly be ready for a tenant.  Established neighborhood.

Interior Photos:  click here 

Map:  click here 

Comparables:

• 9406 E Winner Rd is 3/1 listed for $29,000
• 711 S Overton is 4/1 listed for $30,000
• 9608 E 9th St is 3/1 pending at $64,525
• 9305 E 9th St 2/1 sold for $24,500 october
• 705 Hawthorne 2/1 sold for $35,000 November
• 9808 E 9th St  2/1 sold for $55,000 May 09

8308 Corrington, KCMO 64138 – $89,900

8308 Corrington, Kansas City, MO 64138

• Four Bedrooms
• 2  Baths
• Living Room on Main, Family Room on lower level
• Tax Records show 1600 sq ft, previou listing says 2179
• Build in 1950
• Tenant moving out

Looking for your next rehab?  This one is it.  Great location with Kansas City address, but in Raytown Schools.  Previous listings tell use it is schools are Westridge Elementary, South Middle School, and Raytown South High School.  Beautifully treed lot.

Interior Photos:  click here  (photos when home was occupied)

Map:  click here  Just west of I435 and north of 83rdstreet, this area has a lot of  large “estate” lots and newer homes.

Comparables:

• Subject home sold in 2006 for $152,000 in 8 days
• 7224 E 84th Street is 3 bed, 2 bath home, short sale that needs soe work, pending at $100,000
• 8341 Corrington, 4 bedroom, 2 full & 2 Half bath 2 story.  3000 sq ft, currently showing for back ups at $190,000.
• 7217 E 84th St:  3 bedroom 1 bath, 1300 sq ft home on 1.5 acres.  Built in 1940, sold for $110,000 in 2009

516 SE Sherry Lane, Blue Springs –

516 SE Sherri Lane, Blue Springs, MO 64014

• Three Bedrooms
• 2  Baths
• Great Room with Fireplace, Lower Level Family Room
• Build in 1983
• 1200 Square Feet
• Clean out and Updates Started 

This home is a must see.  Previous owner took great care with this home.  Home just vacated and our contractor is getting started with a bit of spruce up.

Will be available soon.

Interior Photos:  click here  (photos when home was occupied)

Map:  click here

Updating to be completed:

• Custom Interior Paint
• Refinished Hardwoods in Kitchen & Dining Room
• Newly stained back deck

Listing & showing a rental property

There is a lot of stuff that goes on in a real estate office during the week and  I wanted to share some with you.

We have a nice rented rental property for sale.  It is listed in MLS and realtors call in and want to show it.  Never mind the listing says it is tenant occupied with a 1 year lease, that we need 24 hours notice, the buyer needs to be preapproved, and oh by the way here are a bunch of inside photos, a inspection from an inspector and an invoice as to what was repaired on the inspection.

Have the agents that call have an owner occupant buyer that wants to look at in in a few hours.  Our first question is does their buyer want to live in?  . . . of course. . . . Do they mind waiting a year until the tenant’s lease runs out? . . . well no they would mind. . . . So why do they want to look at this house?

Other agents call with investor buyers and they too want to look at it in a few hours.  Ok, so you have an investor buyer . . . have they looked at the photos online to see if they might like the house? . . . well no . . .. Have they reviewed the inspection that has already been completed? . . . . well no . . .. Have they looked at the list of repairs we have made? . . . no again. . . . Have they ever bought an investment property? . . . . hmm . . . not sure . . . . So how are they going to pay for this property?    . . .. hmmm. . ..  Are they paying all cash or are they getting a loan? . . . A loan I think . . . Ok so do they have a preapproval letter for a loan of less than $40,000, for a rental house and do they have the required down payment money and closing cost fees? . . . again, I am not really sure.

These second agents just can’t figure out why we would not drop everything we are doing, disrupt the tenants life, just to show their buyer a property because they want to see it.  If you are a landlord who have ever had a house for sale, you understand.  If you can’t figure out why this is problem, I will explain it to you.

A tenant in a Kansas City rental or in any rental for that matter has rights.  While they don’t own the property it is their home and the landlord, realtors and potential buyers just can’t go in and look at it any time.  There are contractual agreements that say how much advance notice the landlord must give the tenant to be in their property.  Most are 24 if not 48 hours.

Second, because tenants can be difficult and not actually let potential buyers and their agents into a house, even with an advanced scheduled showing, it is advisable that a representative from the landlord be present at the showing, with their own key, to let the potential buyers in the house.  So you have to schedule with not only the buyer and their agent, but the tenant and the landlord represenative.

Third, if you disrupt tenants too much they can get upset to say the lease and many have been known to move out.  Now the landlord has no tenant in their paying the rent, and they are loosing money.  And potential buyers like the property less because there is no rental income coming in.

So if you are a buyer or have a buyer looking for a turn key rental that is already rented.  Be sure of a few things:

1.  The buyer is qualified to buy – and in some areas and price ranges, that means they need to be cash buyers, getting an investor loan for less than $50,000 is really tough.  Talk to the lender and be sure that what the buyer wants you to show them is what the lender would be willing to write a loan on.

2.  Be sure the buyer likes the area.  Before showing houses in a particular neighborhood, have them drive through that neighborhood to be sure they would be ok owning a house there – it could be too close to some industry, or have too many boarded up houses, or be too close to a river or something that might be a deterent to the buyer buying.  If they can’t drive by – use google maps and bing.com maps to take a photo view of the area first.

3.  Get as many photos from the seller as possible so they can “see” the house before going to look at it.  Sellers and listing agents, save your tenants & yourself a lot of headaches and get lots of pics or a virtual tour to show potential buyers, especially on a rental so the potential buyers can “see” it before they actually walk in.

4.  If t here is an inspection and recent repairs made, be sure to review that.  It may be that the inspection shows repairs needed that the buyer and their lender may not be willing to deal with.  Know that in advance.

5.  Get a copy of the lease, rent payment records, what ever they have to show money coming in and expenses going out – we do this in apartments before we go look at them, so we need to do it on houses that are rented too.

6.  Then when the buyer is sure they want to buy after doing all the reviews, that the price they would pay would be ok with the seller, and that the cash is there for purchase or the lender is ok with the price range, the property location, and the length of time that the seller has owned the property, then and only then is it time to schedule with the tenant and everyone involved a visit to the inside of the home.  In many cases, at least at our office the buye has reviewed everything and has the property under contract and the first time they see it is at the inspection with the inspector.

Think about it – if you are buying a rental property, that has a good repair history and a good rental history, why is it so important to see the house?  You are buying an income stream, not a place for you and your family to live.  So isn’t it more important to be sure that you like the area, that the property cash flows the way it is supposed to and that you can fund it first.  Then worry about the fact that the home is in the repaired condition that the seller says it is.

What do yout think.  I would love to get some input from other landlords and sellers of rental property out there.  Maybe we are being a little protective of our tenants, but we still seem to sell a lot of rented property this way and the buyer’s who do buy, have never asked us why we work this way.

7030 Agnes, KCMO – Rented $800 month section 8

7030 Agnes, Kansas City, MO

3 Bedrooms

1 Bath

Living Room

Dining Room

Sun Porch

1210 Square Feet, Rehabbed in 2006, Rented since 2006 to same tenant, $800 a month section 8. 

Listed for sale by Audwin Harvey with Harvey Lidell 816-803-4496

• 1210 Sq Ft
• Built 1919, Rehabbed 2006
  • Roof
  • HVAC
  • Mechanicals
  • Kitchen
  • Bath
  • Interior Paint & Carpet & Fixtures
  • Exterior:  Roof, stucco, paint, gutters, porches
• Taxes $259 per year
• Starting price $30,000 cash, fast close, bring all offers
• Should appraise around $39,000
• Click for Interior Photos:  http://picasaweb.google.com/TuckerOneProperties/7030Agnes?feat=directlink

This one is tenant occupied, please do not bother tenant, call listing agent.

I Can’t Afford a Property Manager

We have a property managment company that rents space in our office.   So we hear a lot from people that tell us that they can’t afford a property manager, but do we have any ideas on how to get their property leased up.

For example, Investor Bob has a nice house for rent in Independence.  His mortgage payments each month on average are about $750 a month and if it were rented it would rent for $800 a month.  So if he paid a property management company to rent it up, it would cost probably somewhere around $300 to $400 and then $80 a month for them to manage.  Overall he would be out maybe $30 a month to pay the property management company.

This home has been vacant for 2 months. and he is desperate to rent it up, it has cost him two months of mortgage payments at $750 each being vacant.  He has bought a sign to put in the yard, he is advertising on craigslist, and I am assuming paying about $50 a week to advertise in the local newspaper.  On top of the mortgage, he has utilities to pay and has to drive over there several times a week to check on the place.  All in all with advertising, mortgage payment, gas to drive over and check on it, he is out probably about $900 a month.

Now would a property management company lease the property up faster, maybe -maybe not, but consider:

Most property management companies have advertising running for tenants 52 weeks a year so tenants are coming in every day, so they may get a tenant faster.

Most property management companies are advertising on online sites that send their properties out to a lot of different web sites so the home gets maximum exposure, getting more people looking at the property and renting it up faster.

Most property management companies have discounts with screening companies and screen tenants with in the lease up fee, so they probably screen tenants better than the average landlord with 3 or 4 properties and keep tenants longer.

So you can’t afford to pay a property management company a lease up fee – give them a huge fee of $500 and then 10% of the rent monthly.  Go through 2 tenants in 1 year and the most you might pay would be $1800 with the property management fees, plus 2 months of mortgage payments being vacant of $1500 or a total of about$3,300.  That’s figuring a month vacant each time it needs to be leased up, and with a property managment company, that screens better than the average landlord, you are probably not going to have to lease a property up twice in one year.

Now if my landlord friend does this on his own, figuring he ends up having to lease the home up 2 times in a year, he will probably have 2 months vacant both times at $900 a month for the mortgage, utlities and advertising for a total of $3,600, plus he will have to pay to screen the tenants, go through the time and hassel of driving over to the place multiple times to show to potential tenants, etc.  Figure in his time and it’s costing him about $4,000 a year to manage the property himself.

I don’t know but it seems to me that he can’t afford to not hire a property management company! 

Is this you, do you need a property management company?  Please email me your questions and we can maybe give you some answers and direct you to a few property managers in your area.

Lending your ROTH

I just posted a new blog on converting your IRA or 401k to a Roth with links to more information from Equity Trust Read the on the MAREI message board.  You can go to MAREInet.com to read.

Then the question becomes what can you do with a Roth IRA or any IRA for that matter – Invest in Real Estate and Notes. If you want to invest in real estate, don’t have the time or the knowledge, or even the cash up front to do it now, consider using a self directed IRA to invest in real estate as a private lender. For example, many investors, myself included buy and sell houses in the same day. We may buy for $10,000, $30,000, $50,000 or even $100,000. We have a seller all lined up and a buyer who is going to purchase from us on the same day, but in between we need to borrow funding for a day – 10 minutes really. Your IRA could wire in the funds to the title company for a transactional funding and you could earn a flat fee on your money and the title company would wire your funds and your profit back to your IRA on the same day.

Or you may find an investor like us again who buys, rehabs and sells to owner occupant buyers.  To buy and rehab a house means funds are tied up for 3 to 4 months, sometimes a little more and sometimes a little less.  Houses cost between $60,000 or so and $90,000 on average and need about $20,000 to $30,000 in repairs.  We utilize a private lender who wires in fund for our purchase and then wires in rehab funds in 2 or 3 installments.  When we sell, we pay our lender their money back plus interest.  Interest is what ever we negotiate it to be with our lender.  (by the way, we are always looking for a private investor to fund a deal or two a year – call us if you would like to learn more at 816-523-4400)

Two live examples:

Transactional funding, Investor buys for $70,000 and sells the same day for $75,000.  Private lender wires in $70,000 to fund the deal and the title company wires back $71,000 a few hours later.

Rehab house, Investor buys house for $81,000, Private Lender wires in $81,000 at closing to pay for purchase of house (secured by mortgage and promissory note for purchase price plus a specific amount for rehab funds to be coming).  Lender then wires in $10,000 to the investor to start rehab, 2 weeks later lender wires investor another $10,000 for rehab, and in 2 weeks another $10,000.  Lender has wired in a total of $111,000.

Investor has home rehabbed and then lists it on the market for sale at $150,000, finds a buyer, pays the realtors involved, pays the closing costs and wires back $150,000 to the lender at closing along plus $2,025 in interest on the $81,000, $575 or so in interest on the $10,000 draws.  The private lender sends a few wires and earns in 3 months $2,600 or so (10% interest) on the deal in 3 months.  Do that 4 times a year and your retirement fund is now $10,400 richer.

Want to find out more about private lending – go back to some old articles in this blog:

• http://tuckerone.wordpress.com/2009/05/04/real-estate-investing-model-and-private-lenders/
• http://tuckerone.wordpress.com/2009/05/05/our-real-estate-investing-model-protecting-our-lenders/

Please don’t try to wholesale HUD Houses to me!

Here at Tucker One, we buy and wholesale houses.  We are cash buyers and for the right house we can close tomorrow if you can get the title work done and cleared.

Then after we buy, we may renovate and sell or we may sell as is with out doing any work.

So that means we don’t buy listed properties much.  We may buy directly from the seller through their listing agent.

But please, if you have gone to the mls and put a house under contract, don’t turn around and try to wholesale it to me.  Too much of a paper for my end buyers to get any type of good financing and be able to buy from me.  I would think that  most wholesale investors across the country would say the same thing.

And guess what we have access to MLS, so when you send me a property, the first thing we do is check mls to see the last time it was sold to get photos and house details, and if it is currently pending, we can see that.  If you just bought it, we can see what you paid. 

So please don’t try to wholesale me HUD or REO properties that are currently listed in the MLS, we aren’t buying.

Listing agents, if you have a short sale, and estate, or a very motivated seller, please give us a call.  We would love to buy directly from your seller, no paper trail problems there.

Dough for a Day

You may have heard the term Dough for a Day or transactional funding.

You see the days of the double close with out any money in the deal seems to be going away.  So if you are a wholesale seller who gets a property under contract, goes out and finds a buyer and then funds your purchase with the proceeds from your sale – everyone closing all in one day, you may be finding that you can’t do this anymore.

The title companies are saying hey, wait a minute, you need to bring funds to the table for 5 minutes.  You need a lender that does not need a ton of paperwork, one that knows what you are doing and is willing to lend you the funds for 5 minutes or so based on the fact that you already have a buyer.

So it kind of works like this – you find a great deal and tie it up with a contract say for $25,000  Then you go out and find a buyer to buy from you for say $30,000.  Title company works everything up and has everyone sign to buy and sell, buyer brings his $30,000 and closing costs, your lender brings in $25,000 and your closing costs, title changes hands and you get a check for $30,000 less $25,000 to the original seller, less your closing costs, less the fee you paid to the lender. 

So what do you end up with, that depends on the lender, but in a typical transaction with these numbers you might expect to pay the lender back their $25,000 plus another $1000 for their troubles, so you net instead of $5,000, about $4,000.

Yes, $1,000 is a lot of money to give up to someone for doing a little bit of paperwork.   But the lender has the money and with out the lender, the deal may have never been made. 

If you have a Kansas City deal all wrapped up and you have the buyer all wrapped up and you just need the funding for a few minutes, you might post on some of the message board that you are looking for transactional funding.  Many of our members at MAREI have Self Directed IRA funds just sitting there doing nothing and they may be willing to fund you for a day.

For example a husband and wife might have an IRA account each with $15,000 – total of $30,000.  So in the deal above, they could fund it with $500 going to the Husbands account and $500 going to the Wifes.  If they did 3 or 4 deals with you in a year, they make $3k to $4k into their IRA accouns and you make $12k to $16k in profit.  Not bad huh?