Why Kansas City?
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Originally founded in 1838, Kansas City, MO straddles the border between Missouri and Kansas at the confluence of the Kansas and Missouri Rivers. The region covers roughly 9,193 square miles (about the size of New Jersey), with its 2.5 million residents residing in 18 different counties in Kansas and Missouri. With its rich history of jazz music, its signature barbecue scene, as well as a thriving job market, KC is a vibrant cultural crossroads that offers ample opportunity to capitalize on low cost of living and affordable real estate. These are but a few of the many reasons that KC is one of the best cities to live, work and invest in.
KC is smack dab in the middle of the United States, allowing more than 55 million Americans to reach it in less than a day’s drive! Additionally, one can fly to both coasts from KC in less than three hours, making KC one of the most accessible cities in the entire country. With a premier public and performing arts scene, enthralling professional sports, and world renown barbecue, you owe it to yourself to visit soon! And who knows: maybe you’ll even discover your next investment property while you’re there!
Kansas City is a bustling metropolis with major upside when it comes to real estate investing. To give you an idea of the current state of the KC market, here’s a snapshot of its population, workforce, and cost of living:
Population: 2,157,584
Population growth since 2010: 6% (5% national avg.)
Workforce with bachelor’s degree: 37% (32% being the national avg.)
Tech talent employment growth in last 5 years: 26% (6th highest among the largest tech markets in the U.S. and Canada)
Industrial completions since 2012: 34.6 million sf
Multi-family rental units: 134,603
Cost of living index: 86.2 (U.S. = 100)
A growing population is a good sign of a strong economy, as a strong economy can support a booming housing market. Since 2010, the Kansas City population has gone up 6% versus the national 5%. It’s been growing at a slightly faster rate than the national average but is expected to pick up in the coming years.
One of the biggest factors contributing to KC’s market growth is its downtown revitalization over the past few years. There has been $7.3B of public & private projects completed or under construction (2000 - Q4 2018). From 2014 - Q4 2018 there have been 4,500+ downtown multifamily units completed. These commercial and residential improvements have led to a projected increase of 33% in downtown population from 2018-2025.
Recent market trends have solidified Kansas City’s reputation as a place that boasts affordable properties with strong cash flow. Although KC real estate has appreciated at a slower rate than other U.S. metros, average sale prices are up 6.5% ($229,306) from 2018-2019, increasing at a faster rate than major cities like Denver, Nashville, and Austin. The average days on market has dropped 4.8% to 40 days. Mortgage rates are at a three year low (4.02% for 30-year fixed). Even as this market continues to stay hot and competition increases, there is ample upside for the savvy investor.
The KC job market remains steady and boasts the 14th fastest metro area job growth in the nation at 1.67%. The unemployment rate is even with the national average at 3.8%, making the city a prime place for job hunters, specifically those with backgrounds in trads, transportation, utilities, information technology, marketing and healthcare industries. Some of the most notable employers in KC include H&R Block, Hallmark, Cerner, Garmin, Sprint, and more. KC has been recognized as one of the nation’s top emerging technological and entrepreneurial hubs, so the upside of employment, as well as investing, is tremendous.
Knowing where to look
With any city, prospective investors need to have a clear feel of the prime neighborhoods. There may be great deals on one street, while the very next street over might be entering into a more run down, crime heavy area. Kansas City is no different. Some of the places to invest in great properties include the following:
Waldo - Westport - Midtown: With a huge variety of investing properties, as well as close proximity to downtown, investors will find a solid mix of residential and commercial properties, as well as a consistent pipeline of inventory.
Downtown: KC’s urban core continues to improve, especially areas like the River Market, Columbus Park, the Crossroads. With many new investors flocking to these areas, know that real estate prices are rising considerably, but there remain many great properties still ripe for the taking.
Surrounding suburbs: areas like Gladstone, Blue Spring, and Platte City (to name just a few) are great for finding single and multi family properties. Although not in the heart of the downtown action, these areas are only a 15-25 minute commute.
If you’re seeking less turnover and great tenants, then look to the suburb communities with schools of a 5+ rating. If multifamily and young professional tenants are your desired demographic, then Midtown may be the place for you. Remember, when narrowing down your desired neighborhoods, it all comes down to your specific financial goals.
What is the KC downside?
In spite of the predominantly strong investing market, there are some challenges. One such challenge is that the current state of the housing market favors the sellers, as high demand allows them to list their homes at prices much higher than the appraised values; this makes it difficult for investors to come up with more than the typical 3-20% down.
If considering short term rental investing in KC, it’s important to familiarize yourself with the short term rental regulations, including an ordinance passed in 2018 stipulating the need to register your short term rental with the city to avoid a $200 first offense fine.
Increase in demand leads to increasing rental rates, which have increased more than the national average since 2012. For example, between 2012 and 2018 the average rent of 3 bedroom homes increased 23% compared to the national rate of 17%. If you have a solid team in place and develop a creative approach to finding and purchasing properties, you don’t need to let the uptick in competition and increase in price prevent you from finding the perfect property in KC.
A final word of advice for prospective investors:
When it comes to investing, especially OOS, it’s paramount to have your investment strategy and team clearly established before you jump in. Your goals will determine what type(s) of properties you’re looking for, which in turn impacts the neighborhoods you can explore, what budget you are working with, whether you’re more focused on cash flow or long term equity, and what your exit strategy will be.
Where financing is concerned, it’s always ideal to have cash (liquidity), get preapproved for more than you’ll need, work with a strong realtor who knows the market well, know your credit score and keep it strong (don’t do anything to harm your credit as you begin looking for properties), don’t complicate offers with too many contingencies. Do your due diligence in understanding the city (or at the very least working with a realtor who is familiar). And if you’re one of the intuitive investors who’s considering KC, take some time to come explore and learn about how you can own your own piece of this great city.