So today I have made a little progress toward my first SFR purchase in KCMO. I think I've found a realtor to work with, but I'm still confirming whether he's the right guy for me, since I'm looking at a lower price range and have some pretty high standards and would like to build a 3-5 unit portfolio in the area. I'm planning to get a prequal this week so that I can move quickly on the right opportunity.
About me: I'm living in San Diego, where I was born and raised. I have one SFR renting with positive cash flow in AZ, which is the house I lived in for 4 years before coming back to SD this year. However, if I was crunching the #s today, it wouldn't meet my 2% target for rent to unit cost, so I probably wouldn't buy the house again!
Any words of wisdom or recommendations about where / how to look for a place? I'll also need a property manager when this is all said and done.
@Katy C. Congratulations on your purchase. I wouldn't be so hard set on 2%. I'm making a property work that is barely making a 1% rule. It is also in the NYC metro area and positive cash flow is unheard of. There are ways to make it work. I suppose it depends on the area. Good luck out there.
You mentioned that you are looking at lower priced properties but didn't say what lower priced is to you. There is a lot of cheap homes in the inner city in Kansas City, but in my opinion, those are a mistake. Personally, I think it's best to stay outside of the 435 loop. I like the Bannister Heights area and the suburbs such as Raytown and Independence. If you go further east, Blue Springs is good but much more expensive. My recommendation would be to find a property manager first. A good property manager can give you some good advice and direction and keep you from buying in the wrong areas. Bottom line: Stay out of the inner city. Feel free to reach out if you'd like some advice.
Awesome Katy. AZ is great. Keep in mind the 2% rule is not found in any textbook or taught at any of the 4800 USA universities and colleges. Yes, we like to get 2%, but it is not a known metric correlated to prudent investment decisions backed by any accredited academic institution. Thanks, matt
@Jon Huber , I agree. The 2% is a target and the ability to reach that is one of the reasons I'm looking in KC rather than somewhere a bit closer, but I would be happy with something around 1.5%.
@Mike D'Arrigo I have been checking out Raytown, but from what I hear it can be hit or miss. Hopefully something that needs only a little bit of work or is move-in ready. For the first one, I'd like to stay under $60k. In AZ, I have a property manager I know and trust. KC is a whole new ballpark and the family I have with rental properties there are all DIYers. What's your experience been with renters in Raytown and Independence?
I agree with @Jon Huber The 2% rule is somewhat arbitrary and difficult to achieve these days unless 1. You buy cheap properties in bad areas or 2. You do a lot of the work yourself. The bottom line is what is most important. There are plenty of properties with 1% to 1.5% rent ratios that have good ROI's and sometimes better than those with higher ratio's.
It's not a rule to live or die by, but I still believe targeting 1.5-2% is a good litmus test for me to start finding out whether a property might meet other ROI goals. Again, it's a target, not a hard requirement.
We've had good luck with Raytown and Independence. Any "C" class neighborhood can be hit or miss but I find Raytown and Independence to be more homogenous than many other markets. We see good, consistent ROI in these areas. The inner city within the 435 is not hit or miss. It's pretty much miss. These are very difficult areas. If you want to stay under $60K, you are going to be in rough areas where I think you will be very disappointed. For a little more ($70K), you can be in much better areas in the suburbs where your return will be much better. Don't get lured in to the so called high returns of cheap inner city properties. They rarely materialize.
I consider the rule like a weather report. It is 70 degees and sunny today. At the same time knowing a storm could be brewing off shore and make that rule -2%. The overall climate of your investment is much more important and valued as far as rules go. Thanks, Matt
Ah, yes, I am looking at the map now and everything I've been considering is outside the 435, which is good news! There are some nice 3/1.5 houses that have some real potential. What I'm not sure about yet is the rent I can get in those specific areas. I guess I should begin my search for a PM so that I don't get in somewhere too sticky. Thanks guys
Anybody know a good attorney in kc area? And property manager that is good?
In the areas that I'm talking about you should be able to get $900-$950 but this time of year of course is challenging.
I wholly reject the 'outside 435 loop', I own multiple, multifamily buildings and I make a lot of money on them plus force significant appreciation. Yes, there are some areas that are dicy but welcome to America! I have a solid PM and know my market though, so I can buy in areas others wouldn't because they aren't familiar with real estate cycles, or aren't willing to do the work.
With that yes, I know a PM as well as an attorney that is an old pro are KC real estate.
Finally, don't believe everything you read in spite of their intentions.
@Katy C. KC is an awesome market ... love to help anyway I can!
@Katy C. Just came across your post and wanted to welcome you to the KC market. I like the Raytown area too. I have one property there now and may have another soon. Let me know if I can help in any way!
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