Investment Game – Cashflow VS Appreciation
Why do you invest in Kansas City compare to other area like Los Angeles?
People like to invest in real estate because it appreciates over time. So it’s always a good idea to invest in places where it’s experiencing growth. However, there is another big factor that you need to take into consideration, which is cash flow. When buying and holding a property, there are many costs involved such as mortgage, property tax, insurance, and property management fee. It is important to know how much the holding cost will be for certain property before buying the property. If you are going to lose money each month holding the property, you have to make sure you can afford it. You need to know if your current income can support you & the property. Also, plan out how long you are going to hold the property and calculate the holding cost. That way you will know the exact cost of the whole invest instead of just the asking price.
In areas like Los Angeles where it has a higher potential for appreciation, it’s always a good idea to invest there when the property value is rising. Even it means taking some negative cash flow, the potential for appreciation might still outweigh it. But when property value goes down, it goes a lot faster than other cities too. So not only you need to consider the negative cash flow each month, you also need to consider how much you lost in equity. In my opinion, the only time to go into high price & high appreciation cities is when it’s starting to see appreciation. Typically a real estate
cycle last 5~10 years, so you still have plenty of time to get into the market and let it grow after you see the initial growth.
Where do you invest when it’s in the down turn?
There are several reasons why it’s good to invest in Kansas City.
1. Compare to more desirable places like New York or California, it doesn’t appreciate as much as fast. However, at the same time, it doesn’t depreciate as much either. So it makes a good place to invest for cashflow when the market is in the down turn.
2. Right now, if you want to purchase a property that rents for $800 a month in Vancouver, you will be looking at condos that are at least $250,000. But if you want to find a property in Kansas City that generates $800 rent, they will only cost you $50,000 to $70,000.
3. Even though the whole United States is experience the real estate bust due to the sub-prime mortgage, there are still some cities that are doing pretty well because of its own economy. For Kansas City, it’s undergoing the biggest revitalization since in the 1980s. A total of 15 block area of the down town core is being tear down, reconstruct, or expand. New constructions includes new indoor professional sport stadium, H&R Block headquarter, Kansas City convention center expansion, and whole new mixed use area called Kansas City Power & Light District. The total public and private investment is estimated to be about 5 Billion dollars.
The most amount of adjustable rate mortgage is issued between 2002~2005. Typically this kind of mortgage changes interest after 5 years. This is why we start to see huge amount of foreclosure flooding the market in 2007. We expect that there will still be huge the amount of foreclosure coming to the market until year 2010. That’s when the market condition will become normal, and could be a good time to start investing in markets like Los Angeles. At that time, you can easily refinance the properties in Kansas City then invest in other market, or even use the cashflow from Kansas
City properties to pay for the holding cost of the properties in other market. Not to mention by that time, the properties in KC would have made you 3 years worth of cashflow and have the potential for appreciation.
So remember, there are different investing methods when the market is up, or when the market is down. You can’t just rely on one method to be successful in real estate investment.
~Wholesale Opportunity Available~
Last month, we have finally had an offer accepted. Our record had been buying one house every month. But this time, it took us more than 3 month to get this property accepted. I think it’s because we were trying to get the best deal, and finally we were able to find it. This particular property actually has the highest projected cashflow than any other single family houses that we have bought, and we want to pass the saving down to our buyer. So here is how it works:
- This is a wholesale deal so you buy the property as is.
- We give you all the contact of my power team member so you can renovate and have this property rent out. We have worked really hard qualifying and interviewing our team members. And they have done a great job for our other projects. Although we don’t make any guarantees, we know they would do a good job for your project.
- Throughout the time from renovating to renting it out, I will provide my expertise and guidance to help you if you have any questions.
- After you rent out the property, you can then relax and start collecting rents.
Here are the numbers:
6620 Lydia, Kansas City, MO 64131
Cash Flow: $308+ per month
Wholesale Price: $22,500
1.5 Stories
Single Family House
3 Bed 1 Bath
1186 sq. ft.
4356 sq. ft. Lot
$12K~15K Rehab
Rent: $750 to $800 per month
Note: the cashflow is based on you use financing with 30 year mortgage @ 7% interest rate. If you use all cash to do the whole project, you will have at least $560 of cashflow each month.
If you or you know someone who might be interested in investing in real estate, please let us know. We give out referral fees to people who help us getting the deal done. ^^
