Landlord & Flippers in Kansas City’s Urban Core Need to Wake Up:
Vacant + Rundown + Blighted = New Laws to Control the Masses
John Wood, Kansas City’s Director of Neighborhoods and Housing Services wants stronger state legislation to bolster the requirement that investors with LLC’s, which often include out-of-town owners, have a local representative responsible for upkeep on these properties so they don’t fall into such disrepair.
Dalena Taylor, Kansas City’s Neighborhood Preservation Manager, contends that fines for not registering rental property or maintaining property are too small to get an owner’s attention and that there needs to be a better way to collect penalties across state lines. Her quote in a recent KCStar article “The laws need to be changed, for one, with stiffer penalties on the owners”
So what is happening?be
There are many factors at work.
First over all the urban core is aging. These homes built in vibrant neighborhoods in the 1920s – 1930’s for the most part were where families grew up. But some where along the line, suburban living and urban sprawl came along and people fled the city. Living and working in the suburbs where there were better schools and safer streets. As people left for the burbs, houses were sold and through the years many of these houses have been sold to landlords.
Not that no one wants to live in Kansas City’s urban core, but take a look at what’s there. In the suburbs you find good schools for the children to learn. In the suburbs you find clean and maintain parks for the children to play in. You find shops and dining establishments for the families to spend money and for the teenagers to find their first jobs. You find grocery stores and little shops 5 minutes from home.
Check out Kansas City’s urban core and what do you find? Unaccredited and failing schools since going back for decades. It is an area they call a food desert because there is no place to buy groceries or get your perscriptions filled. There is no place for anyone to work, unless you head downtown. No clean parks.
So the city officials content it is all the real estate investors fault for buying a house and not taking care of it. However they miss this fact. The local real estate investors for the most part DO NOT WANT TO OWN in our urban core. Why? Because they can drive through it and see what is going on.
While there are some areas that still have a strong neighborhood that fights to keep the yards clean and the outsides of the homes maintained. There are even more areas where no one cares. There is crime, drugs, prostitution and just plain blight with more houses torn down and gone that are left standing.
So for the most part, in these blighted areas who wants to own the property.
For a person who has the income and credit to purchase a home, do you want to buy where it is not safe for your kids to play outside in the yard and where there is not a good school system to send them to where they can learn, play sports, take part in school activities and . . . . gasp . . . go get a part time after school job flipping burgers for minimum wage. Or do they want to buy a house in the suburbs?
So if homeowners don’t want to buy them, who is left? That leaves landlords to buy the properties. However, if you are a landlord and want a quality paying rental houses do you want one in an area that is near where there are jobs for the tenants to work, places for your tenants to shop and good schools for your tenants to send their kids?
The fact is that the local landlords for the most part avoid the urban core because it is not a good investment unless you are able to keep paying tenants in the houses. Because when you have one or two houses on a block, where everything else is vacant or torn down or falling down, the second that tenant moves out, you need to board that house up tight to hopefully keep the vandals out of the house and the copper, heating and cooling systems, kitchens, bathrooms and even the carpet from getting stolen.
So whose left to buy these properties . . . the local home buyers don’t want them. The local landlords don’t want them. But hey, you can buy a house in Kansas City Missouri – CHEAP! That’s the word on the street on the east coast, on the west coast, in Australia and in Dubai. And guess what, the houses that are being purchased in our urban core are going to these out of area people.
Here is what is happening. Out of area investor sees the ad or the sales pitch. Buy Kansas City rental property! There are areas of Kansas City where buying a rental property is a good investment and the buyer needs to first build their team in Kansas City, then buy the property and have it locally managed and maintained. But unfortunately these out of area people are not doing their home work.
They see that they can buy a cash flowing rental property for $30,000 and they work the numbers and see riches. For those that don’t do their homework, they just see that monthly check coming in. They don’t see the bad schools, the vacant lots, the boarded buildings, the trash and the weeds. They don’t see that when that tenant decides to move or worse yet, just stops paying and has to be evicted that the house is almost always going to be vandalized – that is unless you have a good alarm system and good team on the ground managing the property.
So this investor who just spend the only $30,000 they have on a rental property and have collected a few months rent, now have a vacant house that has been either torn up by the evicted tenant or ripped and stripped by copper thieves and is going to take another $5,000 to $10,000 to get the house back into shape to rent. After one or two rounds of this, the investor is stuck. They can’t rent the property because it is no longer livable and they can’t fix it up because they have no money.
The next step is it becomes abandon to in 3 to 5 years be hopefully sold for back taxes, or abandon to the bank who does not want to foreclose because they don’t want the problem.
So what do we need. More laws restricting and fining the landlord? We tried that a few years back didn’t we. We had a new law that all rental properties need to be registered. If you don’t register your rental property in Kansas City Missouri you will get fined $50 or something like that, however, you are more likely to get a fine for a bandit sign that for failing to register your rental property. And does the law apply to vacant property. If a person or an LLC owns a property that is not currently rented or being offered for rent, it is essentially abandon because they gave up, is it a rental.
Personally I don’t have the answer.
As a leader of this group and an investor in the urban core for a time, I attended a monthly meeting that at the time was called a Vacant Property Task Force. But after two years of attendance an nothing really being talked about of any value, I stopped attending and stopped investing in the urban core.
I do know putting more fines and restrictions on the landlord owner is not the answer. Right now the only investment in the urban core seems to be the landlord owner, so why would you want to make it more prohibitive for the landlord owner to buy the houses.
I think the solution is going to have to be a many faceted approach. The city has been visiting other areas where the blighted urban core has been revitalized to see what they have done, and having consultants come up with plans. They need to start implementing these plans and following the models from successful cities. They need to work with the real estate investor and landlord to find solutions, not fine them more to chase the out of their city.
If you invest in the Kansas City, I invite you to share your knowledge and expertise and see if we as the local real estate investment community could come up with some sort of way to work with the city. If you are out of state and looking at Kansas City as an investment, I urge you to take some time to build your local team and investigate areas to invest. You can buy highly profitable rental property in the city with quality management, but you can also get taken to the cleaners and become an owner of just another vacant property in a sea of vacant properties.