Investor · Las Vegas · Member since 2019 · 4 posts · 1 vote
Hey Everyone,
I’ve been reading a lot and I am interested in building passive income. I have a potential business partner who will go 50/50 on our first deal so we can get our feet wet in this business. What should I know or look out for before we buy? (Looking at a Single family home to purchase)
Horeb, I work in the Las Vegas area and currently have one single family rental in St. George, UT. I’d be happy to connect you with some realtors in the area that could help you hunt for your first deal. I’m in know way an expert. However, if it were me I’d look at rentometer to see what the different areas of Las Vegas are renting for. This will help you estimate what your rents will need to be at in order to cash flow out of the gate. I like value add stuff. If you can find something that needs minor repairs you will get it cheaper and you can later improve it for forced appreciation. Find the ugly duckling amongst the swans. Feel free to reach out!
How are you planning to finance the deal? Do you have a target area? Price range? Are you looking for turnkey or something that could use some work? What are your objectives for this purchase? Why Las Vegas? Sorry to bombard you with questions.
@Horeb Gallardo Property management is key as it can make or break your investment in the long run. I'd recommend reading Brandon Turner's book on managing rental properties to start.
We will most likely get a loan and put between 10-20% down. We’re looking into the southwest area and we’re open to something turnkey or a home that needs work. We definitely will go with a home were we feel we’re getting a killer deal. We really want to get into this business and by purchasing the first home it’ll be a step In the right direction that’ll hopefully give us real Insight into what we will deal with and expect. We both recently purchased our own homes in Las Vegas (primary residence) but currently live in California, he and his wife will be moving into their home soon and my wife and I won’t be moving to Vegas for another few months.
Horeb, I work in the Las Vegas area and currently have one single family rental in St. George, UT. I’d be happy to connect you with some realtors in the area that could help you hunt for your first deal. I’m in know way an expert. However, if it were me I’d look at rentometer to see what the different areas of Las Vegas are renting for. This will help you estimate what your rents will need to be at in order to cash flow out of the gate. I like value add stuff. If you can find something that needs minor repairs you will get it cheaper and you can later improve it for forced appreciation. Find the ugly duckling amongst the swans. Feel free to reach out!
There are lots of opportunities in Las Vegas but make sure you fully analyzes the investments you're looking at. Las Vegas has a booming economy but it also has endless amounts of cheap housing and low barriers to home ownership given the low home prices. I was an investor in Las Vegas from 2012- 2018 and did very well but be prepared to manage though some rough times. LV has some very transient areas and the although the low purchase prices can be appealing, they also tend to come with low rental prices. For example, you can by a condo for 70K that rents out at $800/ mo. You're GRM is roughly 13.7 which isn't too bad but then come the expenses which can add up. For example, your HOA which can be extremely high in LV can take $100- $200 off the top + insurance, taxes, etc. which can bring you NOI to $500- $700/mo. You're now at a cap of 8.5+ which is great but the downside of lower rent units is that when you're AC blows out and you need to replace it you'll be out $3- 4K which was your entire year's profit...
I know I'm throwing a lot of info out there but my goal is to have you fully analyze your investment before jumping in to a property. Turnover and vacancy expenses/ risk are very significant in the LV area. Feel free to reach out if you have any questions about what we did or how we did it in LV.
Yes, we did a few multi family investments in the area. You have much better economies of scale but your purchase price is, of course, going to be higher. One of the main factors of being successful in LV or any other similar area if knowing how to manage properly. Its said that you make money in real estate at the time of purchase; not at the time of sale but although you have to buy right to have a good investment, you better know how to manage it properly while you own it or it's just going to be a world of problems.
My partner and I are actively looking at the Vegas market for multis. I was just curious on your outlook of the market. Demographics are all over the place. However, the market is posed to explode and it seems more and more jobs are headed this way. You can’t beat experience. You’ve already lived it. Your opinion would be greatly appreciated.
You can do very well investing in LV but I would argue that the market has already exploded. It exploded years ago. For example, I bought my first condo in LV off Lake Mead Blvd. in 2012 for $40K. It was renting for $650/ mo and had a HOA of $190/mo with almost not property taxes. I paid all cash so there was no mortgage or interest expense. Overall, it was a great cash producing investment as a roughly 13.5 Cap. I wish I could have taken a loan out but at that time there were so many HOA's in default that they were beyond what banks would loan on. I ended up selling that specific home in Jan of 2018 for $80k and the new owner is renting it for $700/ mo after putting about 5K in new floors, paint and finishes. His cap is probably between 6 and 7 which is still a good return but its very indicative of how far the LV market has come.
Moreover, remember that areas like LV get hit extremely hard in the event of a downturn. In fact, I don't think home prices have made it back to their 2007/ 2008 highs. Make sure to do a comprehensive evaluation of your investment before pulling the trigger.
Las Vegas median SFR high was $315k in Jun'06. Current SFR median as of Jan'19 was $300k. I bought multi's in 2014-2016, and appreciated immensely. Though cashflow was my goal, and returned 10-12% ROI annually, did not expect such huge appreciation.
Since you are from Bay Area, then Las Vegas prices seem really low. It really depends on your goal.
I will steer away from Multi family in Las Vegas as it's too risky and not worth the headaches you are going to encounter because of the tenant pool there. They mostly operate on cash...unless you are planning on investing north of $4 to $5M then Vegas is a market worth analyzing and considering but you are in the lower end of that budget, I will not recommend it.
There is an expert I know in that market (100% honest and will give you the real truth about that market) that you should talk to before making any decisions on Vegas. I was going in the same direction as you and I am glad I found him. His name if Eric Fernwood (look him up on BP), you will not find a better expert than him on the Vegas market...best of luck!
When looking at properties, get rental rates from someone other than the realtors who want to earn a commission by selling you a house. They can often be overly optimistic about potential rents.
I would also strongly recommend you broaden your search to all of Las Vegas, not just the southwest part of town. Not so easy to get cashflow pricing in the SW.
I was asking the same questions myself when i first started diving into the real estate industry last year. Here's some information that i hope will help you out:
1. Brain storm a high level business plan of what you wish to do in real estate. Do you want to retire early? How much net cash flow are you trying to receive from each property? What do you think will be enough for you to live comfortably? 70k annually? How many homes do you have to buy to get to that point? Having this basic guideline will help (at least for me it does) you identify if the particular property in question falls in line with your game plan.
2. Narrow down up to three cities/regions where you would like to invest in and stick to those three areas. The reason i say this is because it is VERY easy to switch from one city to another on your realtor or zillow app which will make you feel like you're just treading water with no real momentum occurring.
3. Do a thorough research of the real estate agents. You want someone who is honest, efficient and knowledgable of the industry. You also want someone who understands the type of real estate you're trying to buy. The real estate agent should know that you're not looking for granite countertops or vaulted ceilings etc and that you want low maintenance. Yelp/zillow/realtor.com all have ratings for the real estate agents so you can scroll through there and see what their previous customers have said. In this industry reputation is very important.
4. Do a thorough research of the property management companies in the cities you are interested in. The reason i say this is because you will be trusting this company with your investment so you need to make sure that they meet your standards. Call them and ask them what their vetting process is for perspective renters? How much are the fees to manage your property etc. Also ask if you can speak to a referred customer. This will help you figure out how they do business and what to expect if you decide to go with them. It doesn't even hurt to go out to the perspective city and meet the property management team. It will give you some peace of mind seeing the city and what kind of properties that are out there.
5. ASK TONS OF QUESTIONS! Go to meetups! if you don't have any around you create one! There are tons of knowledgeable people who are passionate about this industry and can speak for hours about it.
6. Use the bigger pockets tools to analyze properties. I use the rental property calculator and its awesome. That being said you will see that 90% percent of the properties you analyze will not meet your requirements. Don't let this scare you. You'll find that one property that ticks off most of the and it'll be so sweet once you close on it and you get that monthly check.
I feel like I'm forgetting some things but hopefully this gets you moving in the right direction! I am also in San Jose so let me know if you'd like to meet up some time to discuss!
What is a good cash on cash rate that people are aiming to get? I have been running numbers in Vegas and I’m finding like 8% am I not looking hard enough? What do people aim for? Do most people put 20% down? I ran numbers on 20% down and it generates like 200-300$ month cash flow. What do you think?
Hey Brandon. If you want to get together sometime I’ll show you a spreadsheet with my properties at my purchase price and current values and you can do the math yourself. Don’t forget, the cashflow isn’t your only profit, the principle payment gets added on. I don’t think people who need to count on a positive $100 or $200 cashflow should invest in real estate. IMHO, most people who invest in real estate won’t ahve their life changed by a $200 positive cash flow or if it was negative $200. The positive sounds better but you’re going to replace water heaters, especially in Vegas every 6-10 years, appliances, ac units, etc...
LMK if/when you have some time and I’ll share history as well as current info.
I appreciate the offer. I am very interested in meeting up sometime. I understand cash Flow is not everything. But, If you are not yielding positive cash flow then you will be speculating on appreciation to come? I do not claim I am an expert but I do not think anybody has a crystal ball as to what the market is going to do in the next few years so I do not like to account for appreciation when I do not know if it will ever come. I do understand that they will be paying my mortgage and the principal will be going down but I still need to generate positive cash flow for it to be worth it right?
No, I'm sorry. What i meant is a property can be "making money" with a negative cash flow.
I bought a lakefront home a few years ago in MN I plan to retire to in the semi-near future. So I went with a 15 year loan. The rental income is $2700/mo. $32,400/year. But the payments are $3,126/mo or $37,512/year. So the cash flow is NEGATIVE $426/mo or $5,112/year. But the income $32,400 minus the expenses including $11,000 in interest and $5,000 in HOA fees, $6,000 in taxes and $400 in insurance means it produces almost exactly $10,000/year in income.
So negative $426/mo cash flow can still equal $833/mo in income. Sure its gone up $150k in 3 years as we'll but pretend it didn't. I wanted it paid off. Change the 15 year loan to 30 years and the payment drops $900/mo and now its cash flowing positive $475 but the extra interest expense would be insane, an extra $125k.
Plus, the interest is deductible now while its a rental. I don't itemize the personal part of my taxes under the new $24k married exemptions. So the mortgage interest is non-deductible once I move in, so instead ill only pay interest on it while it's a rental.
Too many people on BP count the entire mortgage payment as an expense when in fact there's probably more "profit" hidden inside the mortgage payment than there is cash flow profit they're worried about.
Why Vegas? Last crash Vegas was number 1 worst city follow by Merced number 2. Vegas is too dependent on economy if economy is not good housing will drop crazy I think
Vacancy, management, repairs, advertising, maintenance, utilities while vacant, property tax and insurance and their yearly increases, is there an Hoa? Make sure the rent is realistic. If those costs are all accounted for it looks decent. Though I thought you said you weren’t going to count on appreciation and yet almost all your profit comes from appreciation.
Definitely the right price range I think, $250k give or take $30k puts you in the fast selling range.
@Mo Takhim is accurate in regard tot he headaches you should be prepared for! LV is attractive due to the low home values but it comes with a lot of risk! LV is highly susceptible to market swings. You can expect LV to get hit significantly harder than other areas in the event of a downturn. Likewise, as you're looking for rental property in LV so are a lot of other investors; as a result, the supply of rental housing is endless in LV. Renters can very transient and cause a lot of problems.
In general, the reward should always outweigh the risk. You'll need to ask yourself if an 8% gross return justifies the risk... Don't get me wrong, there is a lot of money to be made but make sure you know what you're getting yourself into.
Some food for thought:
In 2017 at one of my condos in a gated community off Lake Mead Blvd there was a murder at the community pool. The murder was committed by the security guard the HOA had hired to patrol the community. When I went to sell the condo in 2018 I got a squatter that broke in and lived in the home for 1 week while it was in escrow. It cost $1500 to repair all the damages and clean. I have many more crazy stories with my LV investments.