Going Out of Business is the Best Thing for a Land Bank, and KCLB Can’t Wait
As other real estate investing markets are reaching their plateaus, the Kansas City, Missouri, market is just getting started. Thousands of potential real estate investments, residential and commercial, are waiting to be put back into productive use in Kansas City. That is great news for real estate investors aware of the area’s hidden gem, the Kansas City Land Bank (KCLB).
According to the U.S. Department of Housing and Urban Development (HUD), a land bank is a “public or community-owned entity created to acquire, manage, maintain, and repurpose vacant, abandoned, and foreclosed properties.” As such, KCLB’s goal is to repurpose the properties in its inventory and then literally close its doors for good.
“Our goal is to go out of business,” said Ted Anderson, KCLB’s executive director. “The real estate market has been hot for the past five or six months,” he added. This rising market heat means that KCLB likely offers investors one of the best opportunities to buy low in the area right now. “If you want to buy a property to rehab, I think we’re the best deal in town right now,” Anderson said.
How the Bank Began
Just as it did much of the rest of the country, the housing crash hit Kansas City hard. The local government struggled with idea of what to do with an over-abundance of abandoned and derelict properties. They decided to try an approach deployed successfully in other cities, and on August 28, 2012, an amendment was signed and passed by the Missouri Legislature and the governor authorizing the establishment of KCLB as a corporate body. The purpose of KCLB is to sell abandoned properties to individuals who will put them back into productive use and get them back on the tax rolls. Many times, those individuals are investors.
Plenty of Properties to Choose From
“In 2012, [KCLB] got 750 properties. The next year was roughly 600,” said Anderson. “The first year I was here , I think we got 500 and some change, and last year we got 360.”
As of August 2016, KCLB had approximately 4,200 properties for sale. Of those listed properties, 800 have a structure of some kind on the physical property. The list of properties includes vacant lots, lots with structures, and some commercial land with and without commercial buildings. Clearly, the county would prefer to sell them and not leave them vacant.
“We know it’s hard to redevelop the city one property at a time, here and there,” said Anderson. “We think that it will take some big developments to get some of those properties off our books.”
The city’s redevelopment difficulty is where real estate investors come into play. KCLB knows not everyone who resides in the neighborhoods that have a lot of land-bank properties can afford to buy a home. In fact, approximately half of the city’s residents are in rentals, creating an attractive space for investors interested in buy -holds, fix-and-flips, and wholesaling. Granted, KCLB would prefer community residents purchase the homes, but the organization is designed to incorporate real estate investors into the equation.
A Close Relationship with Investors
“We understand there are a lot of agencies who don’t like investors. We vet our investors,” said Anderson. “We’ll run a background check on the responsible parties, the LLC or corporation or however you’re organized. Once we do that, we only have to do it again once a year. If you want to buy several properties from us we’ll run that vetting process [during your first transaction] and then things are easy from there on out. We’ll show you how to fill out the application and how to search for properties. We know half the people in this city rent [so] we like to have a good relationship with investors.”
Properties range in price from literally zero to more than $200,000. To ensure that KCLB is being fair with their listing prices, a board of directors prices the properties based on two-thirds of the property’s previous year’s tax bill. Each property is assessed before it is placed on their listing site and may include a “dangerous building assessment.” If the assessor determines that the structure is unsafe but the foundation is in good shape, the structure will be removed and the foundation left.
Anderson and the team at KCLB are motivated to sell these properties and get the neighborhoods back to functioning and thriving communities. Not only does the land bank represent profit potential for real estate investors, but working with KCLB is a great way to help rebuild the community in areas still suffering from the housing crash.
How to Apply to Buy from KCLB
Applying for a property on the KCLB list is a simple process:
1. Research and select property using the KCLB Property Search button.
2. Fill out application. Make sure to list your intentions for the property such as buy-hold for rental or fix-and-flip. Be honest with your exit strategy and intentions.
3. Scope of work. The applicant must have a schedule of work to be done with completion dates.
4. The bid for the property will be included in your application. KCLB allows bidders to include the renovation cost in the purchase price.
5. Turn in application with all requested information. This will help the process go faster.
The approval process takes anywhere from two to four months and all closings are completed at the KCLB offices. The board of directors only meets twice a month to approve applications, so some planning and patience is helpful when they run into a title issue or inaccurate property descriptions which make the process longer. A non-monetary deed of trust is placed on the property by the board and after the purchase is approved. This is to ensure the purchaser follows through on their commitment to improve the property. The deed stays on the property for a total of three years to make sure the property won’t end up back on the courthouse steps.
9 States Where Land Banks Are Working
According to the Urban Land Institute (ULI), prior to 2008 only five states had legislation permitting the formation of land banks. However, by 2014, there were 120 land banks and land-banking programs in the United States due, in large part, to the housing and financial crises in the mid-2000s.
ULI cited nine states where state legislation specifically enables the creation of land banks. Although these are not the only states in which land banks may be created since municipal areas can create land banks without state support, land banks are highly concentrated in these states:
• New York
• West Virginia
Does Your City Have a Land Bank?
Wondering if your favorite market has a land bank holding hidden “gems” for your portfolio? Here’s how to find out:
1. Take your search online
There are dozens of national and local lists detailing the locations of land banks around the country. However, not all land banks are the same, and not all resource materials are unbiased. If your market is not on one list, check another source before writing it off.
2. Identify your land bank’s goals
KCLB was created to redevelop languishing properties. Not all land banks serve this purpose, and not all land banks work with investors. Once you have identified your market’s land bank, contact the organization directly to find out what purpose it serves and how to best work with it as a real estate investor.
3. Explore advantages and restraints on your investing
Many land banks have a number of regulations that govern how they will work with investors and how any buyer may use properties purchased from the land bank. Make sure that your investing strategies meet their criteria, since failing to do so could result in your being banned from working with a land bank or even legal action against you.