Kansas City, Missouri Rental Property Analysis HELP!!!

Member since 2019 · 11 posts · 4 votes

6y

Destin,

First off am not trying to rain on your parade this is just how I see it. Do you think your ant will you ant let you get the house ready and have it rented before you close on the house? This would eliminate the holding cost. In Kansas City we do not get that much snow I would say that you could count on shoveling at most 8-10 time a year not requiring $600 in annual cost. Here you can count on mowing at most 8 months a year not 12. Just wondering why would you not put the yard and the snow removal on the tenant? On the pest control bugs are not that bad unless the house has termites already, you might look to having this done twice a year. I have this done in the fall and spring and pay about $75 each time. If you are looking to BRRRR this proprity there is not enough equity and you are going to have 60 – 70K in capital locked up in the propriety, that is ok if you have enugh to do the next deal.

I do not see 35k in equity I see more around 7k in equity if everything goes as planned.

PP: $225,000

CC: $ 5,625

HC: $ 6,000

RHC: $ 23,000

Total $253,625

Looking at the monthly income it looks like you are about -$460/m with the numbers you provided I assumed that you mortgage payment is about 780/m. So, the monthly income would change depending on your mortgage. Let me know if I am way out of wack. Best of luck

2 Reply

Alex Olson

Real Estate Broker · Kansas City Metro · Member since 2015 · 2k+ posts · 1k+ votes

6y

Originally posted by @Destin E. Thomas:

Hello,

Rookie investor in need of some guidance with regard to a potential long-distance rental property in Kansas City, MO. My aunt is going to be selling her Single Family Home (currently off-market) and wants about $220k-$225k. It is in good condition and she says just needs a new roof (I’d still get it inspected), and given the closest comps in the area are about $260k at minimum, I inquired about buying it from her (for both the discount and the immediate equity of about $35k-$40k).

This would be my first long-distance rental property (and my first property in general), so I’ve run the analysis numerous times and just can’t seem to make the numbers work (even with the discounted price). For those of you experienced investors (and even better anyone based out of Kansas City, MO or with experience investing in this city), do you have any opinions/suggestions/critiques about the inputs I used for my numbers (below)?

P.S. I used a lot of conservative rules-of-thumb figures (given that I am a rookie) in my numbers obtained from Brandon Turner’s books, as well as from podcasts, webinars, blog posts, and YouTube videos of other investors, until I gain the experience to know how to calibrate my numbers organically.

P.P.S. No seller/owner financing because she is getting too old and sadly might not be around much longer, so she's not going to want to postpone cash payout.

If anyone can provide any input, it would be very much appreciated. Thank you!!

Purchase Price: $225,000

Closing Costs: $5,625

Misc. Costs: $2,500

6-month Cash-Reserve: $9,204

6-month Holding Costs: $6,000

Approx. ARV: $260,000

Approx. Repair Costs: $23,000

Down Payment: $56,250 (25%)

Interest Rate: 3.8125%

Points: 2%

Loan Term: 30 Years

Approx. Gross Rent Income: $1,743

Property Taxes: $277/month

Landlord’s Insurance: $238/month

Repairs & Maintenance: 10%

Vacancy: 8%

Capital Expenditures: 10%

Property Management Fees: 10%

Electricity: $0 (tenant to pay)

Gas: $0 (tenant to pay)

Water & Sewer: $0 (tenant to pay)

HOA: $33

Garbage: $10/month

Lawn Care: $100/month

Pest Control: $50/month

Snow Removal: $50/month

I would stay away from this type of deal. It is not a typical KC flip or rental property. It simply needs to be sold. Or fixed and sold but you won't really make much money on it.

2 Reply

Destin E. ThomasPro Member

OP

Investor · Los Angeles, CA · Member since 2020 · 30 posts · 8 votes

6y

Hi Grant!

Thank you so much for taking the time to go through so much of the detail in your response!

> I hadn’t thought about talking to her about getting the place rent ready & rented out before closing to eliminate some of the holding costs, that’s a great idea! I’ll have to re-run the numbers with that scenario for sure!

> I will also re-run the numbers by cutting back on the snow removal, lawn care, and pest control frequency as well (she didn’t mention any current “bug” problems, so I just assumed that was a normal expense that a landlord would have to take care of just in case);

> Not necessarily trying to BRRRR this property, I just included the estimated rehab/repair cost of $23k for the new roof and a buffer for anything unexpected that might come up in an inspection. With the discounted price it has remanence of a BRRRR, but just "normal" fixes (besides the roof CapEx) and anything cosmetic I would estimate at this time (and thanks for clarifying the equity also!);

> My apologies, I forgot to mention the mortgage payment and cashflow/CocROI. You pretty much got it almost exactly anyway haha. The Rental Property Calculator gave: Mortgage (P&I): $787.50/month; negative $464/month cash-flow; and negative 5.26% CoCROI.

Thank you so much once again for the help with that! Still a big learning curve on my end, but it’s those baby steps that count hahaha.

Thanks Grant and take care!!

0 Reply

Destin E. ThomasPro Member

OP

Investor · Los Angeles, CA · Member since 2020 · 30 posts · 8 votes

6y

Hi Alex!

Thank you so much for your response! I think you may be right. I’m going to try to re-run the numbers just out of curiosity (based on Grant H Willcott’s response) to see how close it would get, but I predict this might be a deal that might not work out in my favor at this time. I just didn’t want to pass up a potentially good opportunity (if it was one), but thank you once again and I appreciate the insight!

Take care Alex!

0 Reply

John Daley

Real Estate Investor · Kansas City, MO · Member since 2015 · 63 posts · 19 votes

6y

That looks like a better deal for the seller than the buyer. If ARV is $260k and it needs $23k in work than she is basically going to net the same selling it to you than doing the repairs herself (out of pocket) and listing with an agent and paying 6% commission at closing. I think you should get a bit more of a discount if you are making the repairs and she is saving the cost and hassle of making it ‘retail ready' and putting it on the market. And definitely have tenant be responsible for lawn maintenance, snow removal and utilities.

1 Reply

Destin E. ThomasPro Member

OP

Investor · Los Angeles, CA · Member since 2020 · 30 posts · 8 votes

6y

Hey @John Daley!

Thanks so much for your input! Yes I agree, I had started thinking about asking for more of a discount because I would be paying for the new roof and any discoverable repairs, as well as saving her the hassle of doing it herself like you said. Just out of curiosity, I may need to re-run the numbers with more of a discounted price to see what my true “maximum allowable offer” would be to make this work (fingers crossed). And thanks for clarifying the lawn care, snow, and utilities! It always felt like kind of a grey area for me figuring out who should be paying those, so I’ll definitely take your advice on that! Thanks again John!

0 Reply

Dustin MorrisPro Member

Rental Property Investor · Salem, VA · Member since 2017 · 113 posts · 39 votes

6y

@Destin E. Thomas

There’s a lot of expenses there and rent is not really strong relative to the overall purchase price and other money you’ll have in the deal. Doesn’t meet 1% rule for a LT hold, if you’re looking to flip that may be a different story. It’s possible to do a rent to own to get rid of some other expenses but it still may not CF like you want. Managing a rent to own from a distance would be a challenge for sure

1 Reply

Destin E. ThomasPro Member

OP

Investor · Los Angeles, CA · Member since 2020 · 30 posts · 8 votes

6y

Hi @Dustin Morris!

Yes I agree, the rents weren't as strong in the area as I had hoped as well and the reserve expenses (Repairs/Maint., CapEx, Vacancy) just take up so much of the CF that lowering them any further just wouldn't make sense. Unfortunately I'm "stuck" in California so rent to own wasn't a viable option and LD investing was on my mind, but even so, every way I've looked at it so far just doesn't work (as far as the numbers). Thanks so much for the input, it is much appreciated!

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Kansas City, Missouri Rental Property Analysis HELP!!!

Kansas City, Missouri Rental Property Analysis HELP!!!

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