Lately I have been getting an overwhelming amount calls from across the country from novice investors asking about the foreclosure market in Kansas City.
Can we really buy properties in Kansas City for $5000 -$10,000?
Can we really get hard money loans with no money down?
Are there really lenders in Kansas City that will sell rented foreclosures in their portfolio and owner finance them with almost nothing down?
I have to admit to them that the answer to their questions is yes, it is true.
My problem comes when they ask me to help facilitate these deals for them.
My answer is No.
Don’t get me wrong. Selling investment properties is my passion. I am very good at it. It has done very well for me and allows me to enjoy a comfortable lifestyle. It allows me to sleep very well at night.
I have to tell them no because most of the deals that sound too good to be true are really just that.
Typically, the above mentioned scenarios are high risk properties in high risk areas.
The amount of rehab needed is difficult to calculate due to the theft and vandalism that can occur the minute the workers leave for the day.
The cash flow is difficult to calculate due to the undesirability of the area and for the majority of tenants leaving you wondering if the property will be occupied more than it is vacant.
The true return is hard to calculate because the hard money loans must be refinanced in 6 months and because there are no good comps, most conventional lenders won’t touch these properties.
The owner financed scenario is worse because they are letting you assume the note of some other uninformed investor that owed 200-300% of actual value and wasn’t able to refinance and let the property go back. The tenant only looks good on paper and hasn’t paid in months, the rehab was a cosmetic Band-Aid, and you don’t have any better chance of refinancing than the last guy.
The last issue is this.
There are good reasons conventional financing is tough right now. Close to half of the foreclosures in our market are investor properties.
Investors with good intentions and lots of enthusiasm, but they lacked the proper guidance and cash reserves.
Proper guidance to make wise decisions on the properties and the areas they were investing in.
Cash reserves to cover the “Oh Crap” factor.
Oh Crap, My tenant moved out and it took me 3 months to replace them.
Oh Crap, The furnace went out. Its $2500 to fix it.
Oh Crap, My hard money note is due and I can’t refinance.
This is truly a snapshot in time to make lots of money in Real Estate. There are some great deals available right now.
Be a Conscientious Objector and help your client say No when it matters most.
;)
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