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The most overused term in Kansas City is “loft”. The revitalization of the deteriorating downtown led way to the great loft race. Like most of the mid-west claiming the reluctance to move as fast its coastal counterparts, the mix-use trend of renovations came close to five years too late. The local buzz of a new arena, alleged sports teams and lofts galore paved the way for another booming trend for overpriced and functionally obsolescent open spaces generously given the title loft living. The real winners, the original developers who used TIF grants and abatement to purchase, improve and pitch to speculators who have timed it all wrong in the current state of affairs. Lofts=condos=most volatile=worst investment in peak market conditions. Now these owners and/or poorly shortsighted investors focus on renters instead of suculant 1st and 2nd generation buyers and still have trouble convincing prospective tenants that the high rents are worth the trendy moniker.

In much the same local cattle drive mentality of last year we are led to believe foreclosures are the best bet in town. Enter the tunnel vision that can aslo be know as lottery fever. You focus so much on the idea that you waste so many resources and time chasing something that is rarely a good deal with a good result.

Foreclosures mean different things to different people. In one part of town foreclosures means every other house on the block owned by a previous out of state investor that has now been bundled into a package of homes that are sold for $1,000 to $20,000 each by the lender unfortunate enough to have picked them up in the secondary market when their vision was also skewed by limitless access to money, credit & loan officers savvy not to inform the borrows the real repercussions of their loans. It is not uncommon to have auctions where 100 properties are being sold in a cut-your-losses and liabilities display from lenders. These properties are $1k to $20k for a reason, rough areas and no chance for future appreciation…unless you land an investor who wants exactly that (they are out there).

Another part of town will see new home developments half empty and most of the development being foreclosed on. The product of over-building and over-extended builders has led to lonely occupants and ghostly club-houses. At least you get the community pool to yourself. That is until the maintenance crew peels out after one too many bounced checks from a defunct home owner’s association. These new developments will probably change hands a time or two and just when the market shifts the next big development will overshadow that outdated and never really unique architecture & facades that no longer has the great sales tag of “new”. The values will plummet due mostly in part to the inviting land sprawl that is Kansas City and we will be left with more distinctly unattractive housing tracts to litter the horizon.

The best foreclosures to pursue are woven into the established neighborhoods and owned by a private lender somewhere out of state. This pearl can also be found when families inherit properties from trusts or estates and the heirs don’t want to hassle with the property and sell it without much thought or effort. In both cases the newly gifted owners have a loss threshold and should have a good idea what they have with the advent of zillow.com and other websites that can indicate values with some degree of accuracy. The observation remains that these properties are never sold for dirt cheap prices, they are often tremendous deals but not of the looting variety. The owners might sell for a 20% discount but where affluent neighborhoods retain their values, there to you will find a buyer with little trouble at that price.

So the conundrum is born with the general public to investors. Sift through the headlines and pop-ups and recognize that the buzz word “foreclosure” does not equate to the best deal. If you are looking to buy your first home, this is the best time to buy for obvious reasons. In the before mentioned scenario you can buy a home at a 20% discount in a great neighborhood. That is a great deal. But for the investor, these areas won’t yield prices that cover your expenses and long-term speculative equity increases is a very risky venture in a part of the country that does not see sharp increases consistently. The right buy can make sense but the very best deals are sold to insiders before they hit the general public or the over zealous agent inflated pricing found in the conventional channels.

In every market being in the right place at the right time always yields the best result with an educated perspective of what the market actually is. Don’t ignore the first word in “distressed properties” as you scour the marketplace. 90% of properties with this tag truly are junkers and take quite a bit of capital that can work better for you in a different vehicle. Take the high risk and speculative value guessing game out of the equation by looking into turn-key properties that will yield immediate results.

The benefit of these misnomers is that when the cattle drive one direction, opportunities in open spaces remain. This may be obvious, but the lottery has such large rewards because everyone thinks they have a chance of winning the grand prize. The actual odds are laughable when you really consider them. Like the lottery, you can throw sizable amounts of cash into your attempts at riches in foreclosures, but very few actually make money.

If you are interested in learning more about these opportunities in both the single family or multi-family properties. Contact me at tmarcus@chiefpropertieskc.com

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