We have a ton of out of state and even out of country buyers looking at the turn key rentals in Kansas City because they are way way cheap.
Here in Kansas City and many other midwestern towns you can purchase a rental property, in fairly decent condition that for $20,000 to $80,000 depending on the location relative the the “bad” area or the “good” area of town and depending on the true condition of the property that will rent anywhere from $600 to $900 a month.
Here at the MAREI office we get quite a few callers from that property owner that got dazzled by either the pitch man selling them the house. Or the saw a great presentation on great houses in Kansas City, and went shopping on their own with out knowing a lot of things about owning a rental property, let alone owning a rental property out of state.
So before you jump in with both feet and go buy a rental property anywhere and especially out of state I have five steps you need to take first.
1. Learn what landlording and the management of the property is and what it isn’t. It’s not as easy as buying an already rented cash flowing property and collecting checks. There is tenant screening, property maintenance and repairs, tenant counseling, local codes, and costs associated with the property being vacant. So before you buy rental property, visit your local Real Estate Investment Association and ask them to direct you to a good course on being a landlord so you can learn the basics.
2. Learn how to work the numbers. What are all the associated expenses with owning a rental property. We just ran across a great article on Bigger Pockets that breaks the numbers down very well. You can read it here. You need to know about all your fixed expenses like taxes, insurance, utilities, and property management as well as variable expenses like vacancy, repairs and capital improvements. Yes, you need to save a portion of each rent payment received to replace that roof and furnace in 20 years.
3. Learn to Manage the Manager. If you are going to hold rentals in any numbers and actually make money out of the proposition, you need to embrace a property manager. Now you may be lucky and have only one rental that is easy for you to manage that brings in a few bucks, but go out of area or have more than 2 rentals and you need a Property Manager. So again, hit up your local REIA where you live to see what common standards are for the Property Manager and if you are investing out of state, find the REIA where you invest to find out how property managers work, find out if there are any recommended or if there are any to stay away from.
If you do live out of state, and are investing in Kansas City rentals for example, also talk to other people from out of state who invest in Kansas City . . you can find them at your local REIA or on chat groups online and get their recommendations for Property Managers. Also talk to the local REIA group members to see where they can direct you. Nothing beats flying into the city where you live a couple of times BEFORE you buy and planning your trip around the REIA meeting so you can meet real live people in the area so you can spend the week following up with them and getting their recommendations and referrals and hiring a property manager.
4. Learning the Area. Because prices can vary so widely on rental property, you may want to spend some time visiting the areas where properties are located. Find out what the area around a $20,000 house might be like vs the $40,000, the $60,000 and the $80,000. You and your selected property manager might be A-ok with a $20,000 property, but you would rather learn the pitfalls on this type of house before you buy it rather than after . . . is the neighborhood all rental, could be important if you need to sell fast. Do houses get vandalized more often . . . very important if your house goes vacant. Are there excessive rules and licensing requirements on rentals? Do the utility bills follow the rental? How are the schools in the area, does that affect your ability to rent quickly. Will your property manager even take on properties in your chosen area. The time to learn all this is BEFORE you buy, not after you own the house and run into problems.
5. Now that you have a basic understanding of being a landlord, know how to work the numbers, have found a property manager and know your area. Now it’s time to define what it is you want to buy and how you propose to purchase. Define size of property, desired location, desired condition, already rented or vacant, price of property and anything of importance to you. And then determine how you will purchase . . . all cash, with a bank loan, seller financing . . how do you want to buy the house. And what happens should there be disaster and you need to sell the house. . . what is your contingency plan for the property.
If you have taken the time to go through these five steps you are now ready to go out and start shopping for your rental property. .