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I laugh when I see these get rich quick schemes that give you one amazing success story and fail to mention the thousands of people who drained hard-earned money on books, tapes and motivational speeches that don’t even come remotely close to the same results as the carrot that led them there. If you are reading this far you to fell subject to the same persuasive advertising and potentially misleading statements (carrots). Since you are here, read what I am up to and maybe you will get more out of this than just tape cassettes & photos of Tony Robbins.

How do you sell 30 properties in one of the worst economies while most lenders are hoarding their money rather than giving it out? Well that is what we intend on finding out.

I have 30 properties as of this post that I am trying to sell, not a portfolio of distressed bank owned properties, but fully occupied turn-key properties that yield positive cash flow and have been maintained by yours truly for 1-4 years in the Kansas City metro area. With a surplus of other properties on the market that are just not good purchases and plenty of properties owned by banks that come with no guarantees, warranties and host of potentially devastating surprises I felt it was a good time to bring some good inventory to the local market and price them aggressively below appraised/acquisition values.

Many investors only want the best deals, the easiest way to sift through all the investments out there is on paper. This inevitably turns the investors to look to the neighborhoods that are the cheapest with the highest rental income, thus giving you the best return for you money. This is on paper and typically not realistic and representative of what actual returns are. Let’s pause a second here and talk about Cap Rates. A wise man told me that capitalization rates tell you everything you need to know about a property before you ever step foot on it. Capitalization rate (commonly known as “Cap Rate”) is the net operating income divided by the purchase price (see here for another explanation) and the purpose of the Cap Rate is to find the value of the investment compared to other investments, a measuring stick if you will that can measure any type of property that produces income. That same wise man told me that if the Cap Rate is too high there is something wrong with the property (functionally, location, etc.), the numbers or both. If the Cap Rate is too low then the investment is being sold on speculation that it will one day be a good deal. The idea is to buy right where it makes sense, a safe balance in the middle that is both profitable now and in the future.

This type of investor typically uses this generic approach to evaluating investment properties and you will find that 95% of all investors will say I want a “10 cap”. This is also how most real estate agents derive a purchase price for the property (in essence adding a few zeros to the income) without actually evaluating the property, expenses, tenants, upside, downside, potential value, actual value, deferred maintenance, etc. The reality is most people don’t know how to evaluate properties unless you have managed rentals or owned them long enough to have been through it all in terms of surprises and problems. Most investors are green (figuratively not literally) and the education process can be a costly one.

That is why I educate all my clients with the ins and outs while saving them from making many of the mistakes I have witnessed here in the Kansas City area. The truth is that money is the easy thing to find, the good deals are the ones hard to come by. So telescoping out from the points laid out before here, how do you convince investors that what you have are good deals with great returns (even though the Cap Rates aren’t the highest around) and the fact that they are being sold for below their actual value so that the timing is perfect for these investments? How about I tackle this from the other direction.

Mr. Foreclosure you are a tricky one. You look so attractive on paper since you are priced dirt cheap but all you really are is speculation. In theory you will be occupied in a very timely manner and in theory all of your components work and no major work is required. Everyone likes the idea of adding value, flipping properties & getting the most out of a dying horse but most aspiring developers lose everything due to the unforeseeable, the uncalculated holding expenses and the poor management of their assets. Foreclosures often come with evidence the previous owner felt the emotional impact of losing the investment. That manifests itself in the form of stolen fixtures, busted drywall (or lathe & plaster in our neighborhood) and smells you’re not quite sure if its safe to take in. Once  you turn the utilities on you can find a wide variety of functional issues that can cut deep into your profit margin. This can typically only be done after closing since most lenders don’t keep the utilities on while the property sits, waits and deteriorates.  Once you have repaired and restored the property the task of occupying the vacancy poses another hurdle to overcome. Rents are anything but stable these days and your best bet is to anticipate the lowest market rents in your initial projections. Successful marketing can get you leads but this economy is producing plenty of unqualified tenants with awful credit. A hasty choice in tenants can lead to your greatest losses in court costs, lost income, attorney fees and your own headaches. With all the variables these foreclosures are a high risk venture that can potentially have a tremendous payout, but again that is in theory. I can tell you countless stories of investors who think these investments are “no-brainers” or “so cheap how can I lose” and they end up spending more resources fixing issues and dealing with problems that they wish they never laid eyes on the pro forma based on speculation.

The good news: We are offering properties with a track record of performance. We know the tenants by their nicknames and we know this business. We are not selling speculation here, we are selling turn-key properties that make money now. We are offering carrots you can eat. To find out how many we have sold to date or if you are interested in where these investments are, shoot me an email: tmarcus@chiefpropertieskc.com

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