Kansas City, MO Buy and Hold - Good Deal or Red Flag?

Question

Hi All,

I came across a property I found through a wholesaler at a local Real Estate Investor meeting, it's not on MLS. It's been rehabbed and is move in ready. Here are the details:

Purchase price: $17,000

2 Bed, 1 Bath, 760 sqft

Expected rent: $600-650

Class C Neighborhood, turn-key, 10% property mgmt fees

Given the price, we'd be able to pay cash for it, so we'd have no financing expense. After taxes, prop mgmt, CapX, utilities, etc. it would cash flow $300+.

Being from CA, this price point almost seems too good to be true. This would also be our first out of state property as well. Any red flags I should be looking for here or does this sound like a good deal?

Thanks for your input!

Gordon Cuffe · Answer

@Megan FaustmanI can help out. I asked my property manager drive down the street on Wabash and here are her remarks copy and pasted

This neighborhood looks really rough. It's not a big block and there are 5 boarded/abandoned houses, a vacant lot and lots of trash.  The house next door to this house is in really rough shape and someone dumped a bunch of tires, so unfortunately it makes this house look bad too.

the house address is 5401 Wabash ave.  I am having a local kc wholesaler check out the house tomorrow with a potential buyer. We shall see what he thinks.

I don't understand why a person from Kentucky would comment on the Kansas city area.

Dawn Vought · Answer

Take a look at the house (and the neighborhood) through Google or MSN Maps.  5401 Wabash Ave looks like it had some fire damage, which in and of itself is fine as long as you know that the fire damaged part is being replaced and not just covered over.  If this is your first house that you're looking at in KC, I would stick with another area.

Jay Hinrichs · Answer

@Megan Faustman  do some comparison shopping ..

as others have stated this is urban core ghetto and its what we affectionately call Trash flow properties... Only suitable for a local who owns numerous units like it and knows and understands the demographics and the tenant base..

If you buy this you will I predict lose at least 80% of your 17k and everything else you put into it thinking your upgrading it.

but be glad you asked.... you can buy sub 30k properties in the mId west and do marginally OK but you must buy them in little burgs outside of major metro areas.. the properties won't have the criminal aspect like these have but the cities are very Poor .. and your tenats will be minimum wage and one flat tire from missing rent.. but you won't get killed going there and your property won't get stripped etc.

Mike D'Arrigo · Answer

@Megan Faustman This is what's called a unicorn. There's no such thing as a "C" class property for $17,000 that rents for $600. The rent alone will tell you that this is in a low income, rough area. A typical C class property in a neighborhood that you're not afraid to walk in in Kansas City will rent for $700-$800. If you want to send me the address, I'd be happy to give you my thoughts.

Donnie Strybos · Answer

Just be realistic about the expectations and do a gut check before diving in. We have about a dozen homes in the Kansas City MO area (KCMO). We are there because the bang for the buck / ROI / Cap rate is much better there than where I live in Austin, TX. You can buy six homes for what one cost here. You can pull in $500 - $700/ rents in KCMO per door. Be aware though that when you buy in those areas (some call it Mid-town, others call them hood homes, that when your tenant move out, they may very well take the kitchen sink, and everything else they can sell. Get strong, attentive property management that is not afraid to go into the areas and check on your properties. Get comfortable with the eviction process. So is the cash flow good, yes when its rented. Will you spend $3k -$5k rehabbing the place every 18 months, probably.

If your looking for capital appreciation, your in the wrong area of town. One last thing, don't believe Zillow or eAppraisal for the values. $17k is about right for a rehabed and occupied home.

Best of luck but know what your getting into before you do it or you'll be selling in two years for $5k and glad to get rid of it.

Andy Robison · Answer

Depending on where its located I can check the house out tonight on my way home from work. Shoot me a PM with the address and I'll drive the neighborhood. $17k price point makes me think of a place that I wouldn't drive through without a weapon on my leg.

David Jones · Answer

Wabash 5401 is very far south and very Far East. That's not good. It is not a transitional neighborhood and will not be one for a long time. If it were closer to west by eight blocks it would be worth a great by and hold.

Cliff Harrison · Answer

Use caution.  It's possible to find great wholesale deals, but most of the great deals are not 'move in ready'.   Even a free property won't cash flow in some parts of the city.  What streets is it on/near?

What figures do you use for estimating CapEx and Vacancy expenses?  Did you verify the two bedroom rent on rentometer.com?

Thanks

Cliff

Brandon Holley · Answer

If you want to send me the address in a PM, I can look at the actual house and neighborhood and give you my .02.

Matt R. · Answer

I know I'm late to the party on this one, but you might look at http://homicide.kansascity.com/ .  This site is compiled by the local newspaper, and includes all the homicides in town for 2012, 2013, and 2014.  It has about the first half of 2015 as well, but it quit updating in June 2015 for unknown reasons.

Assuming the 5401 Wabash address is accurate, and looking within about 5 blocks...

2012: 5 people killed: 5 blocks west, 5 blocks south, 4 blocks southwest, 5 blocks northwest.

2013: 4 people killed: 3 blocks west, 1 block south, 5 blocks northeast

2014: No people killed (2014 was pretty low in most parts of KC)

Several local police departments, including the KC MO police, have their own crime mapping, but they only go to their city limits.  The one above covers the entire metro area.

Kansas City, MO Buy and Hold - Good Deal or Red Flag?

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