Need Your Advice ASAP, Kansas City

16 Replies

Heres the deal: I have been working on acquiring a multifamily unit to live in one side and rent out the other in the Kansas City Metro Area. I have been in negotiation with the seller of a duplex and sent over my final offer. Here is the final counter offer and I would like to see if you experienced verterans believe it is a solid deal at this price point. The duplex is in independence missouri so if you are experienced in this market, i would love your opinion. My final offer was 95k with the seller providing a home warranty and covering closing costs. This is the counter:

The seller just got back with me and this is what he can do -- He currently has a First American Home Warranty basic plan on both units. They will allow him to extend that plan to a new owner for $560 so the seller will pay that for one year. $1,100 in closing costs only. $96,000 sale price. The property will be sold as is. The buyer can do all inspections but seller will repair nothing.

133 e. elm street independence mo

Purchase price: 96k

NOI: 1200

Cash flow: 680

Cap Rate: 13.4

Comps: 95k

I am looking a this as if I would be renting both units, even though I will be occupying one of them.

Your help is greatly appreciated!

@Logan Freeman

I agree with Engelo, that part of Independence is OK, but I've seen properties that offer a better bang for your buck around there. If you're purchase price is $95,000 and the comps are $96,000, I would definitely keep looking, even if the cash flow appears good. In Kansas City, the cash flow is usually pretty good regardless, but you want to have some built in equity up front.

@Logan Freeman I like Independence and that's in a pretty good area. You don't really give enough details to say whether this is a good deal or not. How did you come up with your NOI? Have you done a detailed break out of the operating expenses? How much is the rent? What vacancy factor are you assuming? How many beds and baths per side?I'm also not sure how you figured your cash flow of $680 off net income of $1200. That would mean your mortgage payment was $520. And based on your numbers, the CAP rate is 12.5% not 13.4%. I would pay less attention to comps and more attention to sharpening your numbers. I take comps with a grain of salt. It's hard to get good comps on multi-family properties. So the question for you is whether $680 is worth $96,000. Is that a good enough return for you?

Originally posted by @Andrew Syrios :
@Logan Freeman

I agree with Engelo, that part of Independence is OK, but I've seen properties that offer a better bang for your buck around there. If you're purchase price is $95,000 and the comps are $96,000, I would definitely keep looking, even if the cash flow appears good. In Kansas City, the cash flow is usually pretty good regardless, but you want to have some built in equity up front.

Thanks mate,

Especially in KC. There are much better numbers around.

If it was turn key the premium paid could make it a bit more plausible.

Thanks.

As Mike D'arrigo said, many more details needed to evaluate this one. Please break down how you come up with a cash flow of $680. The seller started at 105k last August and has had it for 99k for 3 months, if it was a bargain it would be gone. Built in 1920 but it does look pretty nicely updated.

First off, Thanks guys for all your input so fast!

I am working on posting the whole spreadsheet so you can see all the numbers I am assuming.

@Mike D'Arrigo

I emailed you through your site, would like to speak with you today if possible. Email is [REMOVED]

Logan, I live in KC also and agree you can do much better. Average rent in this area is $750 per side, so you are looking at $1500 rent total. This unit historically has rented for $695/side, so $1500 is on the high side even.

With $1500 rent, assuming 50% expenses, you now have $750 NOI to cover your debt service. Assuming 30 year note at 5% with 0 down that is a payment of $515/month, with a cash flow of $235 max. Usually on duplexes your expenses will be more than 50%, closer to 55-60%, so your cash flow is squeezed pretty good.

Good luck!

@brady hanna

Thanks for the input Brady. Do you have any examples of a situation on a property in this area that is producing the types of numbers you like to see on your investments? I have been looking for about 2 months now, and visited multiple properties with elm seemingly being the best choice as of now.

BP is not letting me send colleague requests for some reason....would like to connect and talk strategy with you, Thanks again for the advice all!

This isn't complicated. What's the rents you would get from both units? What's your P&I mortgage payment? How much are you putting down?

Numbers: Assumptions

Purchase price: 96,000

Down Payment (4%): 3840

Closing Costs: +-2500-seller is paying 1100

Loan amount 92k with a payment of 495$ monthly

Gross monthly income:1,500

Property Taxes (annually): 1500

Insurance annually:1500

Maintenance reserve (5%)

Vacancy allowance (10%)

Now for the Cash flow Analysis:

Gross scheduled income: 1500

vacancy allowance:150

total operating income:1350

taxes:125

insurance:125

maintenance:75

minus total operating expenses:1025

minus mortgage payment:495

Net operating income:530x12=6360 annually

By no means am I an expert at running these numbers, would love feedback

Price is to retail for the area, you would be better of finding something retail in Parkville. I know this city well and everybody else that thinks Independence is ok, hasn't seen the decline from the meth epidemic from the late 90's. I really won't consider anything from there unless it is east of 291.

This has more potential in my eyes:

http://www.zillow.com/homes/for_sale/Kansas-City-MO-64109/2108265334_zpid/86348_rid/days_sort/39.078875,-94.542117,39.052785,-94.59177_rect/14_zm/1_fr/

Anyone else have an opinion on the numbers?

Also BP is not letting me send colleague requests or messages. Please send me requests.

Looking to work with someone on a deal for me to move into as owner occupied in kansas city metro area. All ideas welcome, wish I could put my email or contact info in here.

Thanks!

Your numbers look good to me. I use 10% for maintenance, which might be a good idea for something built in 1920.

You often hear people say "you make your money when you buy", I don't think this deal will do that for you.

By good I think @Brant Richardson means correct, not that it's terribly profitable. I guess I'll play devils advocate on this.

@Logan Freeman I'd let this thing die on the vine at the current price, as you managed to shave only $3k off the asking price. This thing has been on the market for around 250 days, and the current asking price is $99k. Maybe the seller will sharpen his pencil and come back to you with a real counter-offer. If you could clip this place at $80k, that would make it a very strong deal - see below analysis:

https://docs.google.com/spreadsheet/ccc?key=0As41cTV1LkrzdDQ0MDI3VThnTURRdVQ5bU9sZWlKMEE&usp=sharing

To me a 14% CoC on a duplex in Independence at retail price is just... meh. Not penicillin and not strychnine, that is wont help or hurt you.

Can I ask about the details of the negotiation? What was your starting offer and what did the counters look like?

Thanks for all the replies, I will not be moving forward with this purchase. Great advice guys, NOW I am looking for a deal so if you have properties you have or are an agent. Im buying. multifamily properties in the metro area. Let me know

Shoot @William Robison a note. He's been very helpful for me and might be able to point you in the right direction.

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