BiggerPockets

We bought a North Las Vegas house for $270,000 in 2005 and the plan is to move there 10+ years later to retire.
But like the most of Americans that we just glad we still have job now and have to delay our retirement.
The house in Las Vegas only worths about $100,000 now.
With the current rent that we still need to put out $400+ to cover the mortgage.
Not to mention the months we couldn't find the tenant and the money we spent to fix the damage from previous tenants.
That house is like a black hole to drain our saving and will be continue for many years.
We won't walk away from this property, no short sale nor foreclosure, as long as we can cover the lose.
I currently have almost additional $30,000 saving and am thinking to buy another house in Las Vegas, and hope to balance out our lost.
I mean with the low interest rate (may not really low for investment property) and low home price, we can get positive rental income to cover the rental from another property, but I understand there will be risk when we cannot find a tenant.

My questions are:

(1) Do you think if this is a good idea?
(2) Is anyone familiar with Las Vegas housing market? Is 2011 a good time to buy?
(3) Can I find a house with $150,000 ($30,000 down payment) in a good location, then rent it out for $1,100?
The house we may stay after 10 years. I always dream to have a house in the hillside to overlook the lights in Las Vegas Strip.
(4) How is the rental market in Las Vegas?
(5) Do we plan too early for our retirement? Should we invest $30,000 in some where else (where?) to get a better return?

Thanks.

1. No. $1,100 in rent on a 150k purchase is not a good deal in terms of cash flow! Plus, I dont like the idea of long distance landlording.

2. I dont know and anyone who says they do is guessing.

5. How far away from retirement are you? Mike's idea is good if you know what your doing.

Good Luck

We are 3.5 hours north of you, Lewistown PA. Recently bought our first rental for 22,000 and it rents for exactly 600. It was almost exactly 30,000 in total investment. So that's kinda ironic.

I think this is a terrible idea. You are under the illusion that your only expense with the second property will be the mortgage payment. The reality is that, at best, you're going to break even on it, so you're not helping yourself at all with respect to your original house, which is bleeding you of $5,000 a year.

Let me ask you a question. You are upside down on a property by more than half its value; the house you paid $270,000 for is now worth only $100,000. (What exactly do you owe?)

So, here's the question. Why don't you just walk away? I am not suggesting you do this, but why don't you?

Bryan Patton, thanks for the information! Is $22,000 for a condo? It is a good idea to check out the areas within few hours driving distance. I think I would need to find good real estate agent in the areas that I am not familiar with.

We owe $188,576.39 on the Las Vegas house. First of all, the walk away will impact our 800+ credit score, right? Secondly, it is kind of irresponsible to do that since both my husband and I still have jobs with stable financial status comparing with millions others are under water. I would think many of you will agree on me.
Investment means risk. Risk means lessons. Lesson means grows. That is why I am here to ask for advices because we made a bad investment. Walk away is not part of lesson. I do investment only when I have ADDITIONAL cash, not just because I have cash. And I will make sure I have other funds to cover the risk. Your opinions are welcome. I believe people walk away for their own reasons, but we just CANNOT do that.

Doing a "strategic default" is a hard decision. I applaud you for wanting to stick it out. That said, over the next 25 years you're going to pay something like $350K to pay off that loan, and you'll end up with a house that might be worth $200K. Not sure how much you've already sunk into this investment, but its a significant drain on your future. My guess would you will pay on this property at least another 10-12 years before its value catches up with with the loan balance, allowing you to sell without bring cash to the table. If you're willing to put that cash into the sale in order to escape, and especially if you can continue to save more, you could be out sooner. Doing a short sale (if possible) or a foreclosure is going to cost you 200-300 points off your credit score. Whether its better to get rid of this financial albatross and suffer that pain now or to stick it out. Once upon a time I'd have agreed with sticking it out. Now I'm not so sure. You're paying a very high price to maintain your integrity and credit score.

Whatever you do, do not pay $150K for $1100 in rent. That's not a "That is true that 150K for $1,100 rent is not too good" deal. That's a horrible rental. If that's the best deal you can find, absolutely do not invest in rental real estate unless you have some inside knowledge that values are going to skyrocket wherever you're buying. Pretty sure that's not the case anywhere in Vegas.

The most you can pay for $1100 in rent and be at least break even is $90K. Maybe you want to speculate on future values. Maybe you need a tax shelter (check with your CPA, this is WAAAY overrated, IMHO, on rental properties). Maybe you just want to build future retirement wealth. But if you're buying rentals, at least buy ones that don't cost you each and every month. You already have one of those.

The ding of a successful Short Sale today would not have an impact on your scores 10-12 years from now, however, the cost to struggle with this under water property will last long behind that same time.

Create yourself a spreadsheet, take out the emotions and look at the numbers. Maybe the end results will sway your decision to attempt a short sale. And, if the short sale isn't successful, then you have your morals to fall back on.

In any case, good luck, I wish you two the best!

This is turning out to be a great thread.

Kudos to the OP for wanting to live up to their obligations, and everyone who has chimed in with their suggestions.

Personally, I have gone back & forth as to whether I should invest in Las Vegas. I have several friends & colleagues who made the move out there. Though none of them are real estate investors, they are cognizant enough of their environment to tell me that, simply put, Las Vegas, the community, was, and still is, overbuilt.

That doesn't mean you can't find a deal in Las Vegas, it just means you have to know what you're going up against. It also means you have to really know your neighborhoods, and what each neighborhood is trending towards. One tract of 2005 built houses might be inching towards 80% renters while another might be 80% owners.

To the OP: if you want to retire in Las Vegas, right now would be a great time to acquire the house you want to retire in. Since you are adamant about paying off that loan, here are my initial suggestions:

If you already own that house (the house you "overpaid" for), then what you do with that $30,000 is up to you.

If the house you overpaid for is NOT the house you want to retire in, then it's time to do some (window) shopping at the very least.

Another investment idea would be this: since paying down that overvalued mortgage would only return you the interest rate at which you're paying, how about taking that $30,000 to buy at a note at a 12% yield, and using that income stream to pay towards that "negative" amount you're bleeding out every month? No landlording, just a way to "right your wrong."

I agree with Max's last comment - kudos for taking responsibility.That said, a short sale option may be in order as Stan suggested. Not a long term hit to credit,and you give the lender the "option" toaccept less, so you stay on the side of reponsibility.

I am familiar with Vegas and you can buy rental properties there in decent neighborhoods for $50-$70k and get $1100-$1300 monthly rent which equals true cash flow. Using your cost averaging suggestion, you could help your recovery efforts. I would NOT suggest u buy a home there for$100k+ to rent for $1100 - cash flow loser.

(B.1) Can I really trust any Realtors indicate they have such property in long distance which can turn into cash flow?
Where can I find those good Realtors?

NO. For realtors, definition of Cash Flow = Rental Income - PITI. There are tons of more expenses to consider other than PITI. Are you only looking for properties in Las Vegas? I would try to find some investors on this website that are based in LV area and see if they can recommend someone, but I would still do tons of due diligence before buying another property. Make sure you post the details of the property you are considering on this website. Investors here can help you make a more informed decision.

If we (not rich, still have steady income) can walk away with Short Sale, who is taking the lose? Is the bank?

Yes, the bank will be taking the loss. But the bank's loss will be another investor's/homeowner's gain.

Would that lose spread out to the lending industry?

Yes

Would that worse the economic even further?

Yes, but probably not as much as a foreclosure would. IMO, foreclosures are much worse for the economy than SS are.

I have a young friend who cannot refinance his home due to under value of his house and also worried about his job. He said his friend stops to pay the mortgage because the mortgage is more than the home value even his friend still has job and still live in the house. I hope my young friend won't follow the same. My point is if we do that, then other people with steady income may think they should do the same. I think there should be a regulation to prevent this. If you think back the housing bubble that one of scenarios is so many people using false income to buy/invest houses and the collapse lending system let that happened for years. Don't you see the similarity here if people walk away with cash in another hand?

Again, I really respect your thoughts and values. Honestly, I have no idea what I would do if I were in your situation. I like to think I will do the right thing and stick it out. I agree that we shouldn't try to take the easy way out of our problems. If we make a decision, then we need to own up to it and take full responsibility. I understand that it's a lot easier said than done.

Good luck to you with your next investment decision. Now that you are on this website, I am sure it will turn out a lot better than your previous one. Please feel free to post any questions that you may have.