Kansas City MO Investing Out of state - Feedback Needed

Starting Out
7yFollow

Kansas City MO Investing Out of state - Feedback Needed

Krish Das
Aurora, CO · Member since 2016 · 20 posts · 2 votes

Hello,

I am an out of state investor trying to buy a portfolio of houses in Kansas City MO Zip code 64130 and 64128. All the houses are more than 100 years old and the rents are between 550 and 700 per month. I am looking for advice on potential issues that I should be aware of, and whether it will be a good deal or not. The house prices are between 35-40k, conditions are both good and bad (some need minor to moderate repairs). I would love to know about the rental market, the rental season, the pros and cons about those zip codes areas, things I should be aware of. Your feedback is valuable, since I would like to evaluate whether i will end up with some lemons or not (good deal or bad deal). The street names and the zip codes are as follows:

Monroe Ave, 64130

E 43rd St, 64130

Euclid Ave, 64130

Park Ave, 64130

S Benton Ave, 64130

Myrtle Ave, 64128

Bales Ave, 64128

Indiana Ave, 64128

Thanks,

KD

0Reply
62 views

Most Popular Reply

Pinder Cheema
Specialist · Yuba City, CA · Member since 2019 · 5 posts · 5 votes
7y

Hi @Krish Das, I think you need to understand that you are not going to attract stable and long-term tenants. Most of the class D tenants stay for 9-12 months and usually leave behind a long list of problems thereafter. This means that you will spend a significant amount of CapEx funds maintaining your property, which will eat most of your net cash flow year after year. Another thing about class D properties is that you will almost always have to under-price the rent to drive normal occupancy. There is never a dearth of class D rental properties, but there is always a shortage of good class B and C properties in every MSA. As mentioned by the others, management is always going to be a struggle for both you and your prospective property manager. I would always go with a property manager that specializes in class D properties, however, even the best property managers feel burned out over the constant day to day struggles of managing a class D property. The best possible scenario for a class D property would be to rent to section 8 tenants, however, there are always caveats associated with section 8 as well. All in all, class D properties always look great on paper, but there are several caveats that almost always doom the NOI forever. I agree with @Lee Ripma that you should maybe check out the areas you are investing in as that will totally change your prospective of class D properties.

1Reply
See this reply in the discussion

14 Replies

Jump to latestLatest
  • Corey Hawkinson
    Rental Property Investor · Bloomington, MN · Member since 2019 · 404 posts · 542 votes
    7y

    @Krish Das I’ll give you a general answer, while I’m also just bumping this so hopefully a bigger KC expert will see this and give you better information. I lived in KC for 2 years so I know a little, but I’m far from an expert.

    Those zip codes are decent enough. Not anyone’s favorite part of KC, but the price you’re potentially paying reflects that. I do like the KC market and I think you can make decent money with the right set up.

    Try searching for Kansas City posts to find people who know a lot more than me. Then contact a few. Lots of great people from KC are part of this community. They can be great contacts to have.

    0Reply
  • Ernesto Hernandez
    Realtor · San Francisco, CA · Member since 2017 · 408 posts · 361 votes
    7y

    I'm not active in KC but I am in Indy where the economics have similarities. 

    100 year old houses with $550-$700 rents is concerning forma couple of reasons. 

    1. Those are typically D class, maybe C class neighborhoods based of rent rates alone. 

    2. You won't cash flow well. With the slim margins, capex will eat you up. 

    I shoot for $900, MAYBE $800 minimum.

    0Reply
  • Lee RipmaPro Member
    Rental Property Investor · Prairie Village, KS · Member since 2015 · 2k+ posts · 2k+ votes
    7y

    All of the properties you listed are in the same demographic group, modest income homes. More info here: http://downloads.esri.com/esri_content_doc/dbl/us/tapestry/segment59.pdf

    Monroe Ave, 64130

    The average household income in this area is $47,708 and the median household income is $36,845.

    E 43rd St, 64130

    Same as Monroe

    Euclid Ave, 64130

    The average household income in this area is $41,241 and the median household income is $30,727

    Park Ave, 64130

    Same as Euclid above 

    S Benton Ave, 64130

    The average household income in this area is $48,664 and the median household income is $39,082. 

    Myrtle Ave, 64128

    The average household income in this area is $38,578 and the median household income is $30,050. 

    Bales Ave, 64128

    The average household income in this area is $36,403 and the median household income is $20,013. 

    Indiana Ave, 64128

    The average household income in this area is $43,053 and the median household income is $32,039

    Both of the zip codes are on my don't buy here list. Most people would consider these areas "urban core." However the incomes listed do work for my model, I usually make sure that median household income is at least 27k where I will buy. Look up some of the crime stats for these areas. I was actually surprised by how decent the demographic data was in these areas. 

    Map shows the areas with low median household income. The lower the income the more you are getting in the D class areas. 

    Podcast Guest on Show #373
    0Reply
  • Pinder Cheema
    Specialist · Yuba City, CA · Member since 2019 · 5 posts · 5 votes
    7y

    I will be honest, all of those areas are solid class D areas and you will likely have to deal with the usual ramifications of investing in class D areas.  FYI 64130 was listed as the "murder" factory of Kansas City and in general the 64128-64130 areas have higher crime and high tenant turnover.  From my experience, you are overpaying for homes in the 64128-64130 if you are paying 35-40K and they need repairs.  Most homes in this area sell for far less than that.  Moreover, home prices have seen a recent dip in the Kansas City area and I would possibly try to negotiate a better deal.  Portfolio deals can be tough, especially for out of state buyers.  I personally think you can get better solid returns investing in a different area of the Kansas City metro.  Do you have an agent you are working with?  I would be happy to put you in touch with my Kansas City agents/resources.

    0Reply
  • Luther Wilson IIIPro Member
    Real Estate Broker · Kansas City, MO · Member since 2017 · 538 posts · 292 votes
    7y

    Hey, @Krish Das, we have quite a bit of experience in this market in these areas.  I'd be happy to talk shop with you.  What's the next step for you?  Hit me up if you want to talk sometime.

    - Luther

    0Reply
  • Krish Das
    OP
    Aurora, CO · Member since 2016 · 20 posts · 2 votes
    7y

    @Lee Ripma

    Thanks for your feedback.

    Looks like these are all lower income areas. I checked the crime on Trulia and most of them are showing low, other than few.

    Looks like I need to do some negotiation on the pricing. Do you know how is the renter availability? Or how to find a good property manager?

    0Reply
  • Krish Das
    OP
    Aurora, CO · Member since 2016 · 20 posts · 2 votes
    7y

    @Corey Hawkinson

    Thanks Corey, I am looking for some feedback too.

    0Reply
  • Krish Das
    OP
    Aurora, CO · Member since 2016 · 20 posts · 2 votes
    7y

    @Ernesto Hernandez

    Thanks Ernesto. Do you say that at 550-700 rent, all will be eaten by capex and nothing will remain in hand? Then how that model works? There are plenty of houses in that rent range in Kansas City MO. Where is the room to play at that rent range?

    0Reply
  • Krish Das
    OP
    Aurora, CO · Member since 2016 · 20 posts · 2 votes
    7y

    @Pinder Cheema

    Thanks for the feedback Pinder. I was wondering what specialized skills do I need as out of state investor, if I want to invest in those notorious zip codes. Like I know, a good buying price, a good PM etc. What do you say? What are my risks?

    0Reply
  • Lee RipmaPro Member
    Rental Property Investor · Prairie Village, KS · Member since 2015 · 2k+ posts · 2k+ votes
    7y

    @Krish Das

    I think you should go to KC and checkout these areas. I know there are PMs who specialize in the lower end props but I’m not sure who they are because I don’t invest in those areas. You can invest in any area you know and understand, so go get to know KC!

    Podcast Guest on Show #373
    1Reply
  • Pinder Cheema
    Specialist · Yuba City, CA · Member since 2019 · 5 posts · 5 votes
    7y

    Hi @Krish Das, I think you need to understand that you are not going to attract stable and long-term tenants. Most of the class D tenants stay for 9-12 months and usually leave behind a long list of problems thereafter. This means that you will spend a significant amount of CapEx funds maintaining your property, which will eat most of your net cash flow year after year. Another thing about class D properties is that you will almost always have to under-price the rent to drive normal occupancy. There is never a dearth of class D rental properties, but there is always a shortage of good class B and C properties in every MSA. As mentioned by the others, management is always going to be a struggle for both you and your prospective property manager. I would always go with a property manager that specializes in class D properties, however, even the best property managers feel burned out over the constant day to day struggles of managing a class D property. The best possible scenario for a class D property would be to rent to section 8 tenants, however, there are always caveats associated with section 8 as well. All in all, class D properties always look great on paper, but there are several caveats that almost always doom the NOI forever. I agree with @Lee Ripma that you should maybe check out the areas you are investing in as that will totally change your prospective of class D properties.

    1Reply
  • Krish Das
    OP
    Aurora, CO · Member since 2016 · 20 posts · 2 votes
    7y

    @Pinder Cheema

    Great feedback Pinder!

    Looking for more people who are already Investing there (in state or out of state)...

    0Reply
  • Luther Wilson IIIPro Member
    Real Estate Broker · Kansas City, MO · Member since 2017 · 538 posts · 292 votes
    7y

    How many properties, what's the asking price and why are you so intrigued by this type of deal?

    If you have money like that then why go for low-end, bottom of the barrel, properties instead of leveraging the capital for property acquisitions in nicer, less risky areas?

    By the way, good luck finding a solid property manager who's worth a lick...  If they're even willing to take these on has got to make you wonder a bit about their mind-set, credibility, experience, and truthfulness, doesn't it?

    0Reply
  • Gordon CuffePro Member
    Investor · Roseville, CA · Member since 2009 · 1k+ posts · 587 votes
    6y

    @Krish Das I live in CA and invest in KC. One of my rentals is in the 64130 zip code. It is near 43 rd, 44th and Bellefontaine ave. There are blocks in the 64130 zip code that have many vacant homes so it is street by street. My rents went from 650 to 725 recently so there is demand for the better streets in 64130. The challenge has been the property manager. He kept my vacant a few months this summer when I finally said I am renting it out myself, they found someone and asked for a 2nd chance. I gave them one last chance and I have other pm's in the wings just in case. Those prices are not like the deal of the year prices so if your not in a hurry, you can look some more to try and find better pricing. There are other areas in kc where the prices are 85k to 95k and rents from 950 to 1000 and you can get loans on them. 

    0Reply
Join the conversationCreate a free account to reply, vote on answers and follow this thread.
Log InJoin for Free