In this episode, one of the show’s trusted local property partners, Makaylee, talks about the real estate scene in Kansas City, Missouri. Learn why the city is considered as one of the perennial cities for real estate with great cash flow and strong appreciation rates. Makaylee shares why people should invest in the city’s real estate as she talks about its stable economy over the years and what could be expected from it in the future. Lastly, Makaylee dives into the rental market in the city and the benefits of having a great economy.
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Market Spotlight: Kansas City, Missouri
The Midwest is one of the most affordable places to live in the country and Kansas City is at the heart of this region. Kansas City is a large, prosperous, self-sufficient and culture-rich city located along the Missouri River. Cashflow has been very good for the longest time in Kansas City and appreciation rates have been strong. Kansas City has been one of those perennial markets that we’ve been in for several years. With me is Mackaylee, one of our trusted local property partners. Mackaylee, welcome to the show.
Thank you for having me.
It’s great having you on. I love Kansas City. I have five rentals in there myself. I love to invest in the markets that I love and Kansas City happens to be one of those things. Let’s talk about Kansas City. I know that you are ingrained to that market and you provide us some great inventory. Let’s begin with the question of why do you like Kansas City? Tell us about the market.
For a variety of reasons, but I myself have been in the real estate industry for the past few years in Kansas City. I’ve gotten to watch the market appreciate a lot with the rental demand and also with the home prices as well. A lot of investors who I’ve been working with years ago experienced a lot of equity in their houses. While that’s not always expected with real estate investing, it’s definitely an added benefit. That’s been a lot of fun. The market has been growing. There’s a growing population, new jobs, our unemployment rate is well below 4%, which is lower than the average in the US. At the same time, rental demand is still there. You may personally live here. The Midwest is very affordable. Everybody would agree with that. It’s very easy to get around. Overall, there are a lot of things to do out here as well. That’s a few reasons why.
Kansas City is a beautiful city. I get up there once or twice a year. I’m amazed at how many fountains there are all over the place. What is the story with all the fountains?
There are a lot of fountains everywhere. There are most fountains in Kansas City than in any other city. You’ll see them whether you’re coming down from the airport or if you’re on Country Club Plaza or different parts of the area. They’ll do cool things. We have the Chiefs and the Royals here. During St. Patrick’s Day, they’ll change the color of the fountains so there will be green, red or blue. It’s definitely a cool attraction.
Kansas City is a pretty large city. I don’t remember what the population is. I recall it being over about two million people, but you can correct me on that. How big is the city population-wise and maybe geographically? I don’t expect you to know exactly how many square miles, but just some perspective for our audience.
We mostly invest in Kansas City, Missouri, not to be confused with Kansas City, Kansas, which are right next to each other on the border of the states. The population is around 2.2 million for the entire Metro. From pretty much all the way up from the airport up north in Kansas City, down to South Kansas City and all the way east to Blue Springs is the boundaries that we cover. We’re basically covering all different types of areas as well in demographics.
If I came up to you off the street and I asked you why should I be investing in the Kansas City market, what would you say?
It’s the stability. It’s a market that has been stabilized for a while and it keeps growing. A few years ago, the downtown area of Kansas City, it was maybe 50% occupied. You go there and everything is almost 100% occupied, I would assume. There are lots of new high-rises and condo lofts being built. There’s a lot of new construction going on around the city and a lot of big businesses moving in. The stability of the economy here will be a good reason to invest.
I track 405 markets. They’re major markets around the country. I’ll call Tier one and Tier two markets. If you include the tertiary, smaller markets, you could count over 600 of them. I track what is going on in terms of growth momentum, price appreciation and all that stuff and I rank them. The ranking is not a critical factor. It’s more about the growth and momentum for me in picking markets that we work in, represent and offer investment opportunities in. The Kansas City market is ranked 82 on that list of 405, which is excellent because anything that’s in the top 100, 150 is showing growth and momentum. That’s a big plus for the city of KC. The other thing I want to throw in here as part of this episode, so our audience has a frame of reference to how things are relative to other markets.
I like to look at market momentum and this is a percentage. It’s 81% which is very high and shows that there has been and is continued signs of price growth. It’s not to be a speculator. We don’t want our clients, investors and your clients as well investing purely for appreciation because that’s gambling if you ask me. You have to have the cashflow. The fact that there is a strong momentum, it tells us that there’s going to be at least another few years of continued price growth which is good if you’re wanting to create wealth. That puts Kansas City in what I call a wealth phase. It’s still and has been for the last few years in a strong wealth phase. The last thing I want to comment on, being a bit of a propeller head and a numbers guy, I look at rent growth in a market and I ranked that relative to the rest of the country. Kansas City is at 71%, which means it’s very much in the top third of markets that are experiencing positive rental growth. Can you comment if you know anything about what’s going on in terms of rental demand and rent growth in the market because it’s been very strong for the last few years?
There was a big employer, Cerner, that’s located in Kansas City. They have a few offices here. They’ve built a campus down in South Kansas City, which was 16,000 jobs for the area. Things like that are happening. When that’s happening, not only are people moving in from out of state to live here for that reason. A lot of people were moving in this state as well because of the cost of living. I’ve met with many investors who were moving to Kansas City because of the lower cost of living. Between that and the employer, that is what’s keeping up with the rental demand.
Cerner being a major employer and everything else going on is a good segue way to talk about the economy. If you were to describe the local economy of Kansas City, what would you describe it as and what is going on there? What are other major drivers if you know of any?
Besides employment, our Kansas City Chiefs are doing good.
They are. That’s great for you guys.
Honestly, there’s been a lot of hype with that. Sports teams are pretty big out here. The cost of living, the jobs, there hasn’t been a lot of inventory with multifamily properties. What I’ve seen in the past few years is a lot of investors, hedge funds or whoever comes in and start construction on large 100, 200-unit multifamilies. If you put that in a condensed area, that’s going to definitely create a lot of growth and demand right there. I’ve seen that happen a lot. That’s probably another factor.
You have below US average unemployment. The US unemployment rate is hovering around 3.9%. When I checked, Kansas City had an unemployment rate of about 3.6%. Anything under 4% or 5% is considered very low to essentially zero because you’re always going to have transitioned. If you have 3% or 4% of unemployment, when you factor in the transition of people coming in and out of jobs, it’s essentially zero. That’s a great sign for the economy having very low to no unemployment. I don’t know if you have any comments about the job market and any changes going on there, but I know that you guys have had some very good momentum or increase in the job markets. There has been year over year job growth. I don’t think it’s all because of Cerner, but you have a vibrant economy with a lot of diversification. That helps to drive the overall job market. Any thoughts on that?
I would agree. It’s very diverse. Besides Cerner, there are other jobs like factory jobs. There’s a Ford plant up north. I know it employs a ton of people. Honeywell, Sprint and Hallmark are based out of Kansas City. There are a lot of big employers and things like that around. That’s what I would say contributes.
One major thing about the city that I almost forgot is it’s a logistical hub. You have rail coming in and out from every direction of the city. What’s the significance of the rail industry with Kansas City?
I don’t have too much knowledge on that, so I don’t want to speak as much. I did hear that there is going to be some new construction or reform with that. There is a certain area in Kansas City where there’s a lot of traffic for that. That could correlate over to more jobs and everything here.
That’s exactly it. The fact that you have a significant footprint when it comes to logistics and you have rail lines that tie essentially the entire country to a central point in the Midwest means that there’s a lot of industry tie to that logistical industry of rail. That’s a huge positive because it’s not hard to pick up and move elsewhere if you have manufacturing or goods that need to be shipped. You’re married to a logistical center, whether it be Memphis, Tennessee, for FedEx or Kansas City because you have a lot of rail lines coming in and out. You have to move goods around and rail and trucking are the only ways to do it, so you have to have a rail. That’s a big positive for future jobs and job growth.
If you’re looking for a market with stability, Kansas City is probably one of those great stable markets because it is so important to the movement of products, goods and services, but mostly goods around the country. That’s all a net positive. Let’s talk about properties. You put out a lot of great inventory that our clients seem to gobble up. Let’s zoom down into the neighborhoods and then the properties. Can you comment a little bit about the types of neighborhoods that you focus on and what those neighborhoods are like? We’ll talk more specifically about the property.
What’s a little bit different about us is we do invest in all different areas. We would consider an A, B or C-grade area. C-grade being mostly a tenant-occupied area. They are typically older houses. You’re going to get the highest cashflow in these areas. It comes with more risk, all the way to the A-grade area, which is lower cashflow areas. A lot of the times higher price points and higher rents as well. We’re in all different areas like that. We’re going from probably $60,000 house all the way to $180,000 house.
You answered one of the questions I want to ask you and that’s the price range. Let’s take that question one step further. If you were to look at the price range of those $60,000 to $180,000 properties, what would the corresponding or related monthly rent be relative to those properties?
The rents, for the most part, are hitting that 1% rule for the B and C-grade products. Whenever we go up to the A-grade product, typically, we’re not hitting that anymore. An example, $125,000 property might rent for $1,150 rent. We’re not quite at that 1% but being the taxes and everything is lower in Kansas City, which is another great reason to invest here. There’s still a good return.
There’s a variety of price ranges and neighborhoods available in Kansas City. The rent-to-value ratio or RV ratio is close to 1%. What’s true in every market as you get into more expensive properties, that rent-to-value or RV ratio starts to drop. That’s the give and take with investing in rental properties, you may increase your appreciation potential in A-grade neighborhoods since stability and quality of tenant, but you give up a little bit on the cashflow or cash-on-cash return. There’s nothing wrong with that. It’s what is the investment product you’re looking for that meets your investment goals. What is the median price in Kansas City? When I first started investing in Kansas City about a few years ago, it was in the low $120,000. I’ve completely lost track of where that’s at. Where are we at?
For us or for the whole including homeowners and everything?
That’s an interesting twist on my question. If you know both, why don’t you answer both?
I don’t know exactly what the median home price for the whole of Kansas City. I’m dealing mostly with investors. I would say the median purchase price for an investment property is $100,000.
I want to guess that the median home price is probably in the $140,000 range and not that this has any effect or impact on our clients, the real estate investor. It’s interesting to see how a market changes year over year over time. Are you finding it difficult to find inventory in these various neighborhoods? I know one of the common complaints we have with our various builders and property providers is that they’re having an increased challenge of finding properties that they can take over, renovate and produce as turnkey rent-ready properties. Are you finding that in Kansas City or is that the anomaly?
We have on our acquisitions team a very experienced and knowledgeable acquisition manager who knows the areas, has a lot of connections through wholesalers, auctions, MLS and agents. The market is tightening up in Kansas City. It’s a lot more competitive because there are other companies and individuals chasing after the same idea with flipping houses or making them rentals. It’s getting more competitive. We’re fortunate enough where we can still have a lot of opportunities because of our buying power.
Let’s talk about the rental market and your management services. What comments do you have about the rental market? What trends are you seeing? How strong is it? Investors are reading this saying, “Kansas City sounds like a great market. I’ve heard of it before. I’ve looked into it, maybe I haven’t, but now I should. I’m interested or I’m intrigued.” What can you tell us about the rental market as a whole?
To summarize everything, the rental market is a high rental demand in the past several years. We’ve been able to raise the rents year after year, which is a good thing. We do both subsidize and non-subsidized housing. We’ve had good success with both. We have a very low vacancy rate being that our properties are fully updated and they have new mechanicals, new appliances, central air and fresh paint. They become attractive and people are willing to pay market or above market rate for that. Overall, the management that we have in place to help with the entire investment is beneficial if you are out of state.
Is Missouri a landlord-friendly state? Is it pretty easy to remove a tenant if there is an issue and it gets to the point where you have to have an eviction?
It is. We’re more landlord-friendly.
At a 30,000-foot level, describe your company’s management services. What do you do? More importantly, what don’t you do? It’s always good to know that there is management but full-service management if and when it’s available.
After you closed on a property with us, you’re able to opt-in to the management that we have in place already. Most of the time we’ve already got a tenant in place for the closing. It’s pretty smooth to handoff. I’ve got a full breakdown of all the fees and everything that they charge, but they charge 8%. It’s a little bit lower than the average 10% that I typically see. Between the two markets that we’re in, they manage over 1,000 properties. They’ve got their hands full and they’ve got a lot of experience, which goes a long way.
Is there anything that I didn’t ask you that you’d like to share for our audience?
Nothing off the top of my head.
This is a good overview of the Kansas City market and the opportunity there. For our audience, I’ve personally invested. I’ve got five rentals in the KC market. I love Kansas City. It’s a great place. It’s a beautiful place and a great place to live. There a lot to see and do. From an investment perspective, it’s a great place. Mackaylee, thank you for all the great work that you do. It’s been an honor having you on the show. Thank you for that.
No problem, thank you.
If you are interested in learning more about Kansas City or the investment opportunities there, contact your investment counselor here. If you don’t have an investment counselor, fill out the form on our website. We’ll connect you with one of our six counselors and get you a free strategy session so you can learn more about how to grow your portfolio. If you have a question about real estate investing, be sure to email that over to us or click the Ask Marco! button at the top of the website. If you haven’t already, please remember to subscribe, help us spread the word and share the show with other like-minded individuals. Visit us on iTunes and leave us a rating and review. Thank you for reading. We will see you in our next episode.
– – – – – – – – – – – – – –
Download your FREE copy of: The Ultimate Guide to Passive Real Estate Investing.
Identify great tenants using SmartMove. Visit www.TenantScreening.com and Save 25% using podcast code NORADA25.
Try LandGlide FREE for a week by visiting www.LandGlide.com/PassiveInvesting
Get your FREE coffee mug by leaving us a Rating and Review on iTunes. Here’s how.
See our available Turnkey Cash-Flow Rental Properties.
Please give us a RATING & REVIEW (Thank you!)