BiggerPockets

My niece and I are thinking of buying out of state rental property in Las Vegas, Laughlin or Tucson.

I have $40,000 sitting in the bank earning 2% interest. I contribute 29% of my salary to a 401K plan which is not doing too good at the moment.

We both live in San Francisco and own our own houses. We can't afford to buy investment property in our area.

Got this loan for $250,000: Only thing left for approval is signature
About $5,000 for closing costs

6.5% for $200,000 for 5 yrs. - int. only

9% for $50,000 for 5 yrs. - int. only
This is for stated income only as my niece is self employed.

The second loan of $50,000 is for the 20% down payment.

Should we put 20% of our own money for the down payment?

1083.00 lst mortage
375.00 2nd mortage
12.00 garbage
15.00 sewer
60.00 house insurance
100.00 property tax
1645.00 TOTAL

We could probably rent this in NV for about $1200 a month. So we are losing money to begin with.

I could decrease my 401K to 6% instead of the 29%.

We both owed no debts whatsoever. Both our credit scores are in the 780+ range.

I know this doesn't sound too good an investment, with the negative cash flow. We haven't found a property yet. We are looking more to Laughlin as there are more people looking for rentals compared to Las Vegas. We could also buy a condo in Laughlin for less than $250,000 and might realize a positive cash flow.

Property management in Las Vegas and Laughlin is 10% of the rental.

I have a husband who lives 70% in SF and 30% in Laughlin. Husband could do the maintenance and management in Laughlin for the first year to save money.

What are your thoughts? We have to start somewhere.

There are only two reasons you should even possibly consider this deal.

1. You are not self-employed / you do not currently have a way to spend pre-tax money for business expenses.

You said your niece is already self-employed so this doesn't really apply to you (both of you anyways).

2. You are banking on major appreciation.

I have no idea what appreciation is like in that area, but it would have to be an annual appreciation of 10% or more to even consider this deal.

Here is my reasoning. Even with no vacancies and no maintenace $ your ROI on this property is less than your cost of borrowing. You make money on spread and this deal is worse than leaving your money in a bank account at 2%.

Perhaps you should consider buying out-of-state or trying to rehab in LV instead. You make most of your money on a deal when you buy the property. Or maybe you should partner up with someone in an area that can put your money to better use? For example, here in Ohio you can get a multi-unit with positive cash flow for less than $200K.