Las Vegas annual rental yield > 9% - I must be missing something?
Member since 2019 · 8 posts · 0 votes
A friend of mine recently bought in Las Vegas. He sent over some zillow pages where condos with $800-$900 current rent are asking around $100K. This is yielding about 9%! Even with $170-$200 HOA this seems too good to be true. If I were a renter, why would I pay $800 to rent a condo which, if I buy and fully finance, the monthly mortgage payment is only $600?
Can pros educate me on what I am missing?
Links available if not against any policy; but examples are easily found.
Just look at the numbers on Zillow.
The HOA in Pirate Cove complex is $142.
Las Vegas has very low property tax rate. The $100k condo has estimate yearly property tax of only $400 per year. $20 to $25 monthly insurance.
Most investor prefer 30 years instead of 15 years mortgages to have more leverage. You guys do your own math using $142 monthly HOA and $34 monthly property tax.
Ok, I'll bite.
1000 gross rents
-142 monthly HOA
-34 property tax
-25 insurance
-100 maintenance/capex
-50 vacancy
-0 property management, which you will be doing yourself
___________________________________________
$650/mo, or 7.8k a year, or 5.5% rreturn on your 140k invested... but you will also be doing all of your own showings and dealing with all of your tenants as a part-time property manager, and you're opening yourself up to the prospect of a special assessment wiping out YEARS of profits, all for a return that is strictly less than what an S&P500 index fund would return to you on average.
NB that these numbers are based on an extremely conservative vacancy rate and low low low maintenance figures and an HOA that never increases...
Still a bad deal, IMHO, and I would encourage you to consider other options.
Add the $200 Hoa to the $600 payment and you’re at the same $800 except now you can’t move and you have to pay for all the repairs. There are many places you can rent for the same or less than the purchase price, at least with a decent downpayment. There’s probably a market for it but I’m not a condo landlord.
I can’t see paying almost as much in rent as a 3 bed 2 bath house with a garage and laundry.
You are absolutely right, the renter has been paying the mortgage plus HOA for the landlords for many years. The renter should have bought the condo/house themselves instead of paying mortgage for the landlords.
I have lived and invested in Las Vegas for 10 years. This is the question I always have. The only answer I can come up with is, either they don’t have the down payment or they don’t have a thoughtful mind.
They have been paying my mortgages for many years, and have been helping me to make a lot of profit. Why should I complaint to them not buying their own condo/house?
The renter are my clients, they help me make a lot of profit. From landlords point of view, of course I want them to stay as renter forever, so they can help me to make money.
However, to be honest, paying rent is absolutely flushing money into the toilet. Renting is absolutely a very bad idea unless you live in expensive city like San Francisco or New York.
If you can afford to buy something, anything even it is a small one bedroom condo, everyone in the world should buy at least one condo/house for themselves to live in. The same reason again, renting is a very stupid action that flushing money into the toilet.
A better area for a one bed condo is selling average of $130k to $150k.
I bet the $100k condo is in a rough D area, bad neighborhood with bad tenants.
One of the $100K samples I got sits in the "South Shore" neighborhood, intersection of North Buffalo and West Lake Mead. Is that a D neighborhood?
I am just thinking, even if renters have their reasons for not wanting to buy, if all numbers are correct, wouldn't investors from around the country jump on these properties, thus pushing the prices up and yield down?
@Account Closed
I have a couple clients/friends with similar condos nearby the location you mentioned.. Current purchase prices are in the mid $90k range, with rents from $800-850 or so.. And NO, that area is not a D neighborhood, not even close.. Id say that area is a solid B-.. There's a couple condo communities that are closer to C/D inside their respective community walls, but the general area is quite nice and safe..
There's absolutely no reason to buy a $130-150k condo in a marginally better area, as the rents likely wont increase proportionally and there's essentially no difference in quality of tenants..
Im a bit confused by the wording of your post.. Are you suggesting there's 3/2 bath homes with laundry and a garage available for slightly more than $800/month?
If so, you'll need to get into your hot tub time machine to see those rents.. Theres nothing currently in the entire city with those criteria under $1175.. Those $1175-1250 with that criteria are in what would be D areas
@Account Closed
I have a couple clients/friends with similar condos nearby the location you mentioned.. Current purchase prices are in the mid $90k range, with rents from $800-850 or so.. And NO, that area is not a D neighborhood, not even close.. Id say that area is a solid B-.. There's a couple condo communities that are closer to C/D inside their respective community walls, but the general area is quite nice and safe..
There's absolutely no reason to buy a $130-150k condo in a marginally better area, as the rents likely wont increase proportionally and there's essentially no difference in quality of tenants..
From interior pictures the property is in good shape; and from Google street view the neighborhood also looks quite good to me... At least I don't mind living there myself.
So why wouldn't a condo owner in SF sell the condo there, buy 10 of these Vegas condos, and triple the rental income?
I focus on class A/B area rentals.
I’m not familiar with those neighborhoods, unable to have comments on it.
It would be a good idea to check with Las Vegas Realtors who know this area well, and ask them for their truth opinion on these $100k properties before buying it or not.
7200 Pirate Coves Rd
2451 Rainbow Blvd
A friend of mine recently bought in Las Vegas. He sent over some zillow pages where condos with $800-$900 current rent are asking around $100K. This is yielding about 9%! Even with $170-$200 HOA this seems too good to be true. If I were a renter, why would I pay $800 to rent a condo which, if I buy and fully finance, the monthly mortgage payment is only $600?
Can pros educate me on what I am missing?
Links available if not against any policy; but examples are easily found.
Much of the talk around BP is about getting at least 1%/m gross rent (if not 2%). So, if 2% is gettable, why would one settle for 1% (and so on)? ie. Many investors would not be excited by your example.
The answer relates to risk tolerance; supply vs demand; and other factors (location, location)...
But sure, one reason why investing in Real Estate works is because renters keep on renting! Cheers...
I would absolutely agree with you that, selling the SF condo, to purchase multiple rentals in Las Vegas to triple the rental income is the right move.
However, I would be carefully to choose the right neighborhood and right location, instead of jumping to an unknown neighborhood randomly too soon (in case it is a rough neighborhood).
If you really want to try it out, use the money to buy only one $100k condo for testing. See if it works for you.
It it works, buy more.
If it does not work for you, sell it back to the market for a $10k/$20k loss is ok, instead of buying all ten $100k condo, then find out all ten $100k condo are bad, and it would be too much loss to sell all ten condo back to the market.
The way homes have been sitting on the market lately, I bet you could get them for less than $100k.
Zillow does not have rental comps - only the asking prices and NOT the actual rented price. Asking price is not a comp. That’s just what people hope to get for rent.
The way homes have been sitting on the market lately, I bet you could get them for less than $100k.
Zillow does not have rental comps - only the asking prices and NOT the actual rented price. Asking price is not a comp. That’s just what people hope to get for rent.
Yes you are correct; some are asking $95K. I rounded up just for ease of calculating, and even at that slightly inflated base the return is over 9% pre-property tax, which is much higher than the 2-3% pre-property tax yield around SF.
Which begs the question: Why aren't more investors jumping on these? Why do these properties sit on the market? Renters may not be calculating or don't want to commit to a place, but investors around the country should be very acute about profit opportunities...
the neighborhood you are interested in look like a C neighborhood to me (an investor). Like I said before, I’m interested in class A/B areas only. I’m not interested in class C/D areas. That is the main reason I skip the neighborhood you are interested in.
Example of a neighborhood I’m interested in, one bed condo is asking for $140k, I can rent it at $1000. 8.6% is not too bad. I’m happy with the 8.6% because the tenants are great.
Example of a neighborhood I’m interested in, one bed condo is asking for $140k, I can rent it at $1000. 8.6% is not too bad. I’m happy with the 8.6% because the tenants are great.
8.6% is superb return. Even 5% is very good for me.
@Account Closed
Curious what 140k condo you're looking at that rents for $1000? I'm seeing some closer to 150k that rent for 950ish..
@Account Closed
Oh and 2451 Rainbow is 'C-' area at best.. However, I have friends that own at 7100-7300 Pirates Cove.. This would be a B- maybe C+ at absolute worst
@Account Closed
Curious what 140k condo you're looking at that rents for $1000? I'm seeing some closer to 150k that rent for 950ish..
@Account Closed
Oh and 2451 Rainbow is 'C-' area at best.. However, I have friends that own at 7100-7300 Pirates Cove.. This would be a B- maybe C+ at absolute worst
@Account Closed
Thanks.. My friend just got his offer accepted on his 2nd condo in Pirates Cove.. This one is in 7100 Pirates Cove, which is the only gated neighborhood of the 3 Pirates Cove neighborhoods..
And my brother lives in Pirates Cove, so yes, I know a bit about it.. :-)
I've helped investors buy properties of all kinds here in Vegas and Henderson over the last 9 years..
Side track a bit -
I hear this reference to "C area", "D area", "B- area" etc., I can guess the concept, but I have never heard of this ranking system. Is this particular to Las Vegas? And what is the definition for each grade?
Example of a neighborhood I’m interested in, one bed condo is asking for $140k, I can rent it at $1000. 8.6% is not too bad. I’m happy with the 8.6% because the tenants are great.
W/ all due respect, this deal - on its face - seems terrible. You have accounted for exactly ZERO expenses in your math above...?
Let's say you buy the place in cash AND you act as your own property manager.
You gross 1k on rents. What are your expenses? Shooting from the hip here, but condo fee (-$100), routine maintenance and capex (-$100 monthly), vacancy (-$50), taxes (-$100), insurance (-$40)... all of a sudden, your $1k rent is returning you like 600 a month, or +/-7k a year, or +/-5% returns.
Oh, AND you can't afford to have a property manager, so you have to do all your own tenant placement and management! And you have to worry about a special assessment absolutely wrecking you.
Ran, just throwing some cold water at you here - on first blush, this looks like it is a very, very bad investment deal.
ETA: this is not directed @Ran specifically, but it appears nobody on this threat has considered any expenses beyond mortgage.
I am just a small time guy but here is my math. 100K property. Let us just say 25% down. 75K mortgage for 15 years. thats $750 mortgage payment (at least where I live with high taxes - Ohio). throw in some HOA fees ($200) and you are looking at $950. I wouldnt buy that place to rent out. Even at all cash we are looking at a $200 in HOA, $150 in taxes a month for $350. Rent for $850 = $500 a month positive cash prior to expenses/hassle. Thats 5% on your 100K cash PRIOR to repair/turnover expenses. I can get over 2% in an Etrade savings account with ZERO hassle and ZERO risk. But hey, thats just me.
Just look at the numbers on Zillow.
The HOA in Pirate Cove complex is $142.
Las Vegas has very low property tax rate. The $100k condo has estimate yearly property tax of only $400 per year. $20 to $25 monthly insurance.
Most investor prefer 30 years instead of 15 years mortgages to have more leverage. You guys do your own math using $142 monthly HOA and $34 monthly property tax.
Here is the actual numbers on my own one bed condo at $140k market price.
$1050 rent.
$140 monthly HOA.
$37 monthly property tax.
($442 yearly property tax).
$20 monthly insurance.
(Or $237 yearly insurance).
Very low 4% vacancy rate.
Yes, I manage it myself, no PM.
You guys do the rest of the math.