Are you in the market for buying an investment home in Kansas City? Do you know what you are looking for or are you hoping the right property will find you? In our latest post, we will discuss what to look for when buying an investment home in Kansas City so you have a better chance of creating some real profits.
A smart investor looks at many pieces of the investing puzzle before purchasing an investment property. There are a lot of variables at play, differentiating a good investment from a bad one. Below are a few of our tips on things to look for as well as a few questions to ask yourself before buying investment real estate in Kansas City.
What To Look For
A Good Neighborhood
You don’t want to take the chance on a property if it’s in a bad neighborhood. You will more than likely encounter trouble finding quality renters and keeping them, damages to your property, and the inability to get the rental amount you need/want will be seriously inhibited. While it is one thing to invest in an up and coming area that is experiencing trackable growth and improvement, it is another to buy a house in a poorly performing area. Rarely will buying in a bad neighborhood pay off, and it will require much more work to do so as well as drastically increasing your risk.
Low Vacancy Rates
Keep a close watch on all of your options when considering buying an investment home in Kansas City. Are there many properties available in a particular area? What kinds of prices are they fetching? How long are rentals available before being snatched up? Do as much research as you can to ensure you don’t run into problems finding a tenant for your property. If there is a lot of competition out there, you might consider some sort of addition or upgrade to help your property stand out. However, low vacancy rates suggest there is a high demand in the area, so finding a great tenant shouldn’t be a problem.
Tenants In Place
Having tenants in place before you buy, will save you a ton of time as well as creating an instant stream of income. Since the property will already be occupied, you won’t be spending all of that time marketing, showing, answering questions, etc. You won’t have to interview and screen potential tenants, hoping you are able to get the right person in there right away. With tenants in place, you will immediately be bringing in income from the property as opposed to having to hold a vacant property while you wait for that right fit. There are A LOT of properties in MLS that are for sale by an investor and that already have a great long term tenant in place that just wants to stay.
Demographics Of Area Renters
Who are the people renting in the neighborhoods you’re watching? Depending on who the area is attracting, you can market your property accordingly. If there are many families in the area, focus on the spaciousness of the house and proximity to local parks and schools. If it’s a younger, single crowd, you can highlight the features of the house that make it great for entertaining. Or discuss nearby restaurants and nightlife. Just always make sure you are abiding by fair housing laws. There are certain words you cannot put into marketing/advertising even if you know who your target market is because it could be viewed as excluding a certain group of people. This most certainly would not be how you would want to initially introduce your available property to the market.
Questions To Ask Yourself
Have You Run The Numbers?
Never ever just dive into the purchase of an investment property without doing thorough research and crunching those numbers. Doing a very thorough cash flow analysis on the property. Some investors use the 1% rule which states you should be able to rent the house for 1% of the home’s value each month. When renovating a property, most investors never pay more than 70% of the property’s ARV or after repair value. There are calculators to help with this as well as article after article and video after video to explain it in more detail but that is because it’s such an important piece for any investor.
How Many Renovation Projects Do You Want To Take On?
You never want to bite off more than you can chew. Make sure the needed renovations and repairs are manageable and not too expensive. If you are new and not 100% sure on the important things to look for then getting an inspection on a property that you’re interested in can be the difference between buying a fantastic investment and avoiding a money pit.
What Are Your Financial Goals?
It is important to know what you want to achieve with the property and what you want your overall financial picture to look like. Make a detailed and SMART plan, so you can work toward achieving your goals instead of just winging it. For example, set a goal to acquire 2 new properties each year. Over time, this can amount to many rentals, and a substantial amount of cash coming in each month. Allow your goals to grow and flourish as your business and knowledge base does the same! An annual re-evaluation is always a good idea to see if the goals of the year or months prior are still the best to meet your longer term goals.
Will You Need A Property Manager?
The more properties you acquire, the more likely you will need the help of a property manager to keep your sanity. You’ll also want to hire one if the investment property isn’t in close proximity to where you live. Finding the right property manager can help to free you up from much of the day to day work while making sure your tenants are paying rent and are happy living in the home. You can become more hands-off, spending your time doing the things you love while still enjoying the benefits of having those streams of income each month. We know a great property management company here in Kansas City if you would like a recommendation.
How Will You Finance The Property?
Getting a loan for an investment property is typically more difficult than getting a traditional mortgage. Plan on putting down at least 20% for the down payment, and if possible, paying for the house in cash. Many investors find a great lender who they work with on each transaction and that knows they are reliable and their business model. Ask other investors in your area for recommendations and most will be happy to share who they have found.
Do You Have An Exit Strategy?
Not every investment goes according to plan. It’s important to have an exit strategy in place in case the property isn’t producing as it should. You should be able to resell the property quickly and know when it is time to do so. Understand how much you can afford to lose. Sometimes you have to cut your losses and walk away.