Investing in Kansas City from Afar

We have so many people and companies investing in Kansas City real estate.  That is a good thing and a bad thing.

As we are the local Real Estate Investment Group, we get calls from out of state and out of country buyers who are in three camps.

First are the big hedgefunds that are buying 100’s if not 1000’s of Kansas City houses.  Before they start buying they come to town and do a lot of homework to put together a team to manage, review, acquire the properties and to manage them after purchase through rehab and holding as rentals.  These guys are not trying to turn a huge profit, but more likely trying to make the properties break even so they can sell them off now with some sort of seller financing scenario where they make the profit or sell them in a few years when the values come up.  Their strategy is buy and hold short term . . . three to five years.

These people are doing well in Kansas City.  It is important to note that they have economies of scale.  When you buy 100 to 1000s houses, if 10 are not doing well, the others will keep you going.  Also when you have that large of a number of houses you can attract the right team players who stand to earn a huge profit over the next few years servicing this large group of houses.  It is in their best interest to do a good job because if they don’t they get fired and a new team player comes in.

It is also important to note that the hedge funds for the most part are buying in better areas.

The Second Camp of out of state buyer is the wholesaler.  The wholesaler is someone who has access to a lot of out of state buyers.  The wholesaler is always working to keep a team going to help with the acquisition, the renovation, and the management of the property so that he or she can service the out of state buyer.  They are going for the houses that they can buy really cheap, preferably already fixed up and rented so they can flip it immediately to the end buyer.

Now here it is important to note that some of these wholesalers have a great team in place that will do a very good job of managing the properties they sell.  It is also important to note that a large group of them do not.  These wholesalers often find several local suppliers to buy the houses from and then turn around and immediately wholesale them on to a buyer on the coast or out of country.  They talk a good game of managing the properties locally, but once the check clears they are often gone.

So if you are buying houses in the midwest from a company like this, I highly recommend doing a bit of research.  How long have them been in business.  How many properties do they manage.  Do they have customers who will give good reviews who purchased 2 to 3 years ago?  One great resource would be your local REIA group where you live, has anyone else in your coastal city done business with them that you could personally sit down and talk with.  Next you should talk to members of the REIA group in the Mid-Western city  to find out more about the company and their reputation locally.

I personally have had calls from people who have purchased from several local companies that I know has a horrible reputation on the coast as well as here locally.  If these people had done a bit of due diligence on the seller and the property, they might have saved tens of 1000s of dollars.

The last camp of buyer is the end buyer for the wholesaler.  They want to buy 3 to 5 properties in a cash flowing market to build up their retirement.  Great plan.  But just because you can buy a house cheap and the rent is supposed to be really high, does not mean it’s a good deal.

I was reading an article on Bigger Pockets the other day from Andrew Syrios that gives you a good run down of things to look at if you are in this camp.  The article is “The Dangers of Investing Out of State.”  I highly recommend reading the article.

I would also suggest you add connecting with the local REIA.  Because we have so many out of state investors looking at the Kansas City market, we have a special Internet Only Membership just for the out of state investor who will not be attending meetings but want access to connect with members and the forum.

I would much rather talk with an out of state investor before they buy the property than get the call from a very distraught person who spent all $30,000 of her self directed IRA account acquiring and renovating a property to only have a non-screened tenant placed in the property by a seller wanting a warm body to satisfy the buyers need for inflated rent.  Who then went on to have to pay to have this warm body evicted, then more money to get the house rentable again.  And now be out of money.  She is tired of dealing with 1 house in Kansas City and just wants to sell it and get her money back, the IRA has no more money to invest in the property and what is it worth.  Well I offered her $5,000 maybe.


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