I am a local real estate owner with 10 doors in JoCo, and I am having the hardest time finding more doors to add to my portfolio. I have been searching for over a year and a half to grow my business, but it seems like prices have gone up so much that it is no longer feasible to buy any homes for rentals.
As an example I mostly invest in the Olathe area, and my properties I bought range from $79,000-$100,000 for 2 bedrooms. Now these type of homes only 3 years later are selling for $150k or more. I don’t see how anyone can make money in the current conditions especially when you’re using a lender, what am I missing?
Probably raised rents and cash buyers, my guess is the area is seen as more stable than it once was thus leading to higher prices and lower cap rates.
If it helps to give perspective, what you're seeing is not unique just to the KC metro. Many areas of the country have seen home values rise quickly in past few years, thus resulting in lower (or 'compressed') cap rates.
The good news is for your current portfolio = equity gains. You might think of it like the stock market, where you dollar cost average and if you invest over time some low and some at higher prices If the area and home are good quality it may make sense for you, just know that at the outset your cash flow will be much lower. Or seek out wholesale type opportunities but those have their own challenges (i.e. a lot of rehab typically).
This won't make you feel any better but I have the same problem. I found BiggerPockets in part because I was casting a wide net looking for possibilities after pricing out a set of drawings this past winder for possible spec house to build this spring to sell or rent and then deciding new construction prices and market risk in my area seemed to high for me. So I'm new here. Looks like you are new also. I wonder if you found BP too because you were looking for ideas to grow?
Yes, Scott P. I have been following BP's for about 3 years, but no new info to really help. I have been to a lot of Marei group meetings too but it hasn't helped either. I think the market needs to find a balance because it is not sustainable
@Andrew Hartley only time would tel if the new appreciated value is the new norm or would prices ease back. it is likely that the KC market a a whole is maturing and prices would stay high.
Rents are unlikely to keep up with appreciation. unless there is a correction the yield would be lower.
Have you tried to work with wholesalers and target some off market deal?
@Hadar Orkibi a lot of the investors I am working for are finding 1% properties in the KU med area. I think Johnson county demand is stretching beyond what makes a good investment property as owner-occupant buyers are driving prices higher. However in Wyandotte and specifically the KU med area, the competition isn't there as much from owner occupant buyers and the prices are more reasonable. I know that doesn't help you if you don't want to venture out of JoCo though. :-) Probably the only way to get there in JoCo is buying distressed and improving to rental grade. Have you tried that at all?
Thanks @Micah Thomas , I'm focused on Multifamily not SFR.
1% Is no deal for MFR. Expenses and underwriting process is totally different.
Andrew, I'm still buying in Johnson County but almost exclusively with cash and foregoing the buyers agent. Have you tried door knocking?
I don't claim to predict markets but I think you'll do well if you have some patience and cash reserves. A lot of investors are buying high and are wayyy over leveraged. As Buffet says, we'll see who's skinny dipping when the tide goes out. On top of that, over 7 million people are 90 days (or more) late on car payments, college debt is exploding, and people are doing cash-out refinances like crazy. This party can't go on forever. :)