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Posted over 7 years ago

Let's Run The Numbers Pt.1

It's a rainy Friday here in Kansas City so I thought it would be fun to run the numbers on a property I found on Trulia. This is just an exercise to start looking at neighborhoods in the Kansas City market and to get some more experience understanding what the market looks like here. Any and all suggestions are welcome. 

Ok, first things first, I recommend some appropriate music. May I suggest some  Neil Young. Great, got that covered. 

Now, I suggest you grab some coffee. Ok, check. 

Here is our first property,  3409 Holmes St. in Kansas City, Mo. This is located in the North Hyde Park neighborhood of KC which is centrally located and is about a ten-minute drive from downtown. It's surrounded by single-family homes and multi-family properties. This is more of an urban location with a younger population with a relatively high level of education. These are people who are younger and enjoy the benefits of an urban area. While, this means there is probably a demand for this area it is a specific type of demand. It is not families who are going to stay for awhile but younger people who may move after 12 months.

What do the numbers look like? Well, they are asking $100,000 for the property. Does it need work? Looking at these grainy cell-phone photos I would say it probably does. For the sake of this post lets skip that part and assume you get the house for less than $100,000 and you put in some money to fix it up some and you end up with $100,000 all in. Below is an example of what that would look like. 

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 I wanted to look at what the numbers would look like under three different downpayment scenarios - 10, 15, and 20 percent. This results in a variance in cash flow, cash-on-cash ratio, and cap rate. What does this mean? Under all three scenarios, the property cash flows successfully but depending on what the investor what's to put down will determine her cash-on-cash ration and cap rate.  In addition, while the property cash flows successfully, the $1,000 in rent does not meet the 2% rule threshold. The importance of this fact is left up to the individual investor. 

Is this a good investment? I don't know. It matters how much work needs to get done on the property I think. It's hard to judge by just looking at the photos but it looks like it needs some work. If an investor could keep his total expenses near $100,000 though and she is able to rent the apartment for $1,000 a month it might be worth it. 


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