Why Kansas City, Missouri?
The Investment Game ˇV Cash Flow vs Appreciation
Q: Why do you invest in Kansas City, Missouri as compare to other cities like Los Angeles, California?
A: People like to invest in real estate because it appreciates over time. So itˇ¦s always a good idea to invest in places where itˇ¦s experiencing growth. However, there is another big factor that you need to take into consideration, and that is cash flow. When buying and holding a property, there are many costs involved such as mortgage payments, property tax, insurance, and property management fees. 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. Is your current income going to support you and the property? Also, plan out how long you are going to hold the property and calculate the holding cost so you know the exact cost of the investment.
In areas like Los Angeles where it has a higher potential for appreciation, itˇ¦s always a good idea to invest there when the property value is rising. Even if it means taking some negative cash flow, the potential for appreciation might still outweigh it. But when property value goes down in California, it goes down a lot faster than other cities too. So you not only need to consider the negative cash flow each month, you also need to consider how much you lose in equity. In my opinion, the only time to go into high price & high appreciation cities is when you are starting to see appreciation. Typically a real estate cycle last about 5 to 10 years, so you still have plenty of time to get into the market and let it grow after you see the initial growth.
Q: Where do you invest when the market is going down?
A: There are several reasons why itˇ¦s good to invest in Kansas City now.
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Stable Cash Flow Market - Compare to more desirable places like New York or California, Kansas City doesnˇ¦t appreciate as much and as fast. However, at the same time, it doesnˇ¦t depreciate as much either. So it makes a good place to invest for cash flow when the market is in the down turn.
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Lower Price & Higher Rent - 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, it will only cost you $50,000 to $70,000.
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Follow the Big Money - Even when the entire United States is experiencing a real estate bust due to the sub-prime mortgage crisis, there are still some cities that are doing pretty well because of its own economy. For Kansas City, it is undergoing the biggest revitalization since in the 1980s. A total of 15-block area of the down town core is being tear down, reconstructed, or expanded. New constructions include new indoor professional stadium, H&R Block headquarter, Kansas City convention center expansion, and a whole new mixed used area called Kansas City Power & Light District is being built. The total public and private investment is estimated about 5 Billion dollars. All these revitalization efforts attract more people to live and work within downtown Kansas City, Missouri.
The most number of adjustable rate mortgages were issued between 2002 and 2005. Typically this kind of mortgage resets its interest rate 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 numbers of foreclosure coming to the market until year 2010. That is 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 and then invest in other markets, or even use the cash flow from Kansas City properties to pay for the holding costs of the properties in other markets. Not to mention by that time, the properties in KC would have already provided you three years worth of cash flow and have the potential for appreciation. The tenant will also have paid down your mortgage during these three years and your equity will have increased in addition to appreciation.
Downtown Kansas City Revitalization ˇV $4.5 Billion in New Development
 The City is undergoing major revitalization. Billions of dollars have been invested into just the downtown area. The new Sprint Center arena, which holds numerous concerts and shows every month, draws people from all over the metropolitan area and even from other States into the Kansas Cityˇ¦s downtown area. The Sprint Center arena can seat 18,500 people for events such as college basketball and, perhaps, a professional basketball or hockey team. It is home to the National Association of Basketball Coaches Hall of Fame and The College Basketball Experience. With concerts and other events, the arena is expected to draw nearly 1.3 million visitors in its first year alone. This definitely increases the businesses of local hotels, restaurants and shops, etc. Upcoming events include Tim McGraw, Coldplay, American Royal Rib America Festival and much more. (Photo: Big 12 Championship; Source: www.sprintcenter.com)
 The Power and Light District is an $850 million development of new restaurants, entertainment, nightlife and shopping that spans eight blocks in the heart of downtown. The 3 million square feet development is one of the largest projects in the Midwest. The new businesses in the District create jobs and help fuel the economic development of the entire city. Within this mix-used development, there are also residential, office, and retail spaces. KC Live! which is one block within the District features a full-concert stage. Most of the live concerts and events held here are free to the public and this is the only place where guests are allowed to walk throughout the open-air block with their purchased liquor beverages. Click here for photos, virtual tour and more of the Power and Light District.
In addition to the Sprint Center, the Power and Light District, other notable development include the H&R Block World headquarters, the new IRS campus in downtown, Kauffman Performing Arts Center, the expansion of the Bartle Hall Convention Center, the renovation and expansion of nearby hotels, theaters, historical buildings, etc. For a more complete list of development happening in downtown, please check out ˇ§The Urban Renewal Business Reportˇ¨ from the City Managerˇ¦s Office.
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