Market Spotlight: Kansas City, Missouri | Think Realty
Profiles Regional Investor

Market Spotlight: Kansas City, Missouri

The KCMO Market’s Unique Personality Suits Real Estate Perfectly

Kansas City, Missouri (KCMO), has been shaping the region around it since its inception in a tattered document describing the area penned by a deserting French soldier and illegal fur trader. Étienne de Veniard was, as a result of his desertion and subsequent efforts to avoid authorities, the first European to explore the lower Missouri River and the area of the country that would eventually become KCMO or, as the travel brochures describe it, “The Heart of America.” He wrote a description of the area in an attempt to redeem himself with his superiors and was rewarded with the command of the first fort in the area. It was an auspicious beginning for a unique market that rewards bold and persistent ingenuity to this day.

KCMO continued (and continues) to benefit from that unique blend of innovation with a dash of “outlaw.” From the beginning, that combination has led to new inroads in urban planning and design, groundbreaking advances in transportation and aviation, and cultural growth ranging from jazz and barbeque to fierce, grassroots legislative action when the citizenry felt it necessary. It’s a good combination for real estate investors, and the ones who are active in the area are well aware of this.

“I just like Kansas City,” said Marco Santarelli, CEO and founder of Norada Real Estate Investments. Norada is active not just in the Kansas City metro area but also in five key markets in the surrounding area. “Of course, it’s not just a gut feeling. It’s the broad economic base, the relative affordability of housing in the area, population and job growth: the whole package,” he added.

Santarelli is notoriously adamant about what he calls “market agnosticism,” which requires an investor to forego any emotional investment in a potential deal or market in order to evaluate by hard numbers alone. “It has to be about the economics and the fundamentals,” he explained, “and when those things stop making sense, you exit that market.”

A Broad Base in Every Sense

When Santarelli refers to Kansas City’s “broad base,” he’s referring to economic factors like housing growth, population growth, and job growth. However, he could just as well be speaking literally. The city has an area of more than 319 square miles, making it the 23rd-largest city by total area in the United States. That 319 square miles is home to more than 146 federal agencies, 31 national company headquarters, and four hospital and healthcare systems.

Local employment options run the gamut from automotive manufacturing to tax-return processing (Kansas City hosts one of only two locations in the country where the IRS still processes paper returns) to engineering in a variety of capacities, including bomb assembly at the National Nuclear Security Administration site operated by Honeywell, where 85 percent of the non-nuclear components of the U.S. nuclear bomb arsenal are produced and assembled.

Thanks to job diversity and steady employer growth, Kansas City has an unemployment rate of just 4.1 percent, compared to a national average of 4.4 percent. Those jobs and the local economy have contributed to a steady growth in the local population as well. Between 2010 and 2017, the metro area added more than 90,000 residents, placing the total population at more than 2.1 million.

Kansas City is also developing a reputation as fertile ground for startup businesses. Chicago-based venture firm M25 Group recently ranked the city 12th of 54 midwestern cities, and Think Realty parent company Affinity Worldwide plays an active, incubatory role in the entrepreneurial community both via funding and providing support and resources.

M25’s managing director, Victor Gutwein, said of the city, “Kansas City has put a lot of resources and community activities into promoting their [startup] environment.” 

The Affordability Factor

Of course, as is frequently the case when an area starts to grow and real estate appreciates rapidly, housing affordability becomes an issue for some residents. There are murmurings of this in some local media publications already. So far, however, Kansas City seems to be largely withstanding the “affordability crisis” affecting most major metro areas in the United States today. While Kansas City home values are certainly rising, “Kansas City is still one of the most affordable markets in the country,” observed Santarelli.

He added, “The last two years the market has appreciated more, measurably, than its long-term average. While that is fine, I do watch that sort of trend closely because it can herald an area becoming unaffordable.”

Even in the event that owning a home in Kansas City does become less affordable and homeownership increasingly attractive, turnkey rental owners and landlords will likely still have plenty of potential renters to choose from. At present, the metro area is swiftly building a population of renters who are, as a generation, more inclined than any other to prefer renting over buying: Millennials.

According to ATTOM Data, Kansas City is the fifth-best market for Millennial single-family rentals with an annual gross rental yield of 11.2 percent. In that report, Millennials were defined as “anyone born between 1979 and 1994, limiting [the study population] to Millennials at least 20 years old in 2014 and likely to be potential homebuyers.”

Kansas City Strategy

As with most markets, your real estate investing success in Kansas City will rely largely on your ability to find good deals on properties that meet your strategic requirements. Fortunately for investors hoping to enter this market, the financial barrier to entry is still relatively low and the market allows for a variety of investment strategies, including making use of the Kansas City Land Bank (see p. 50 for details on this strategy).

As we noted earlier, the Kansas City metro area is unusually large, which necessitates investors examine neighborhoods and other local delineations carefully before opting for one strategy over another. “For me, there are five key areas in KCMO, and they are not so much the city but the outer suburbs,” observed Santarelli. He cited Independence, Grandview, Raytown, Lee’s Summit, and Blue Springs as the top neighborhoods on his list for acquiring properties to renovate either for retail sale or to turnkey investors.

Think Realty Resident Expert and executive vice president Ben Rao also invests in Lee’s Summit, both buying-and-holding and buying-and-flipping. In keeping with the area’s reputation for business incubation, Rao also recently began developing an entrepreneurial incubator and associated event space in the building formerly home to the downtown Lee’s Summit post office. “There are so many ways to evolve in this market and use different strategies on the real estate side,” he said of his projects.

Also of note, HomeUnion recently ranked Overland Park, a submarket of Kansas City in the state of Kansas, seventh in its “Top 20 ZIP Codes with the Highest Real Estate Returns.” The real estate management firm cited and annualized total return of 6.2 percent for the 66223 ZIP code. The study based that ranking five-year projections for cash flow and appreciation in the local single-family residential market.

“It’s simple why I like Kansas City and the surrounding area so much,” said Santarelli. “We find good inventory there; the numbers make sense, and the neighborhoods are very sound.”

The J. C. Nichols Memorial Fountain (above) is one of the most famous in the “City of Fountains.” The figures originally resided on a Long Island estate in New York before the Nichols family brought them to Kansas City in 1951. Kansas City began municipal support for fountain installation in the late 19th century as part of its park-and-boulevard urban design. Originally, most of the fountains served the practical purpose of providing drinking water for people and animals. They were part of an early initiative to “make Kansas City a good place to live,” the slogan of the city’s first manifestation of a Chamber of Commerce.

KCMO Personality

Kansas City has been full of personality from its earliest days. Whether blatantly opting out of Prohibition during the 1880s or engineering groundbreaking (for the time) construction of railroad bridges that would establish the municipality as one of the busiest train centers in the country just before the turn of the 20th century, the city has always had its own special sense of itself and, usually, gotten its own way.

Here are just a few of the personality traits and personalities that shaped Kansas City and the surrounding region:

Walt Disney: The founder of the House of Mouse (right) moved to Kansas City with his family in 1910 when he was nine years old. Urban legend states that about a decade later, he created the predecessor to today’s beloved Mickey after taming a mouse in his KC office. Disney fed that legend, stating that he trained the mouse to run inside a circle on his drawing board late at night. Prior to Disney’s success, he reportedly lived in his Kansas City office, Laugh-O-Gram Studio, and took weekly baths at Union Station.

The Pendergast Bosses: James and Tom Pendergast were mob bosses, plain and simple. However, their leadership of the city between 1890 and 1940 resulted in the Kansas City boulevard and park system that led to the city’s nickname, “City of Fountains,” the evolution of the area into a central transportation hub for both rail and air, and massive construction. While the impetus for that construction was largely based in the use of Pendergast Readi-Mix Concrete, the brothers’ dedication to building up the area was ultimately a largely positive side effect.

Sadly, violence often accompanies mob boss rule in any metro, and Kansas City was no exception. While the Pendergasts are often credited with everything from the city’s jazz scene to its specialty barbeque, they also brought with them gangster activity that resulted in regular violence during their tenure in city office.

Joyce Clyde “J.C.” Hall: J.C. and Rollie Hall founded Hallmark Cards in 1910, founding the business on the sale of Valentine’s Day greetings. Hallmark Cards, Inc. is headquartered in Kansas City and employs more than 5,100 local residents.

Henry Perry (Kansas City-Style Barbeque): Henry Perry was allegedly the first restaurateur in KCMO to serve up what was then considered “Memphis-style barbeque” in the early 1900s. The recipe evolved as the restaurant changed hands, with more molasses going into the mix along with other secret ingredients. Perry’s former establishment eventually became Gates Bar-B-Q, a family-owned business that remains in the Gates family and operational to this day.

KCMO At A Glance

Mid-America Association of Real Estate Investors (MAREI)

American Rental Property Owners and Landlords Association (ARPOLA)

Greater Kansas City Chamber of Commerce

Kansas City Convention Center

Kansas City Official Website

ATTOM Data Solutions (800) 550-4802