Las Vegas, NV

[Jeff Workman]

Hello BP,

First of all, thanks for reading yet another introduction :-). Young adult here (soon to be an old adult in one year when I hit 30), who finally decided it was time to do something with his savings. I've been dabbling with the stock market a bit which went well, if you're willing to excuse the recent implosion of the market due to China's recent economic woes. 

I decided to take a look at Real Estate firstly because I feel like it's something that I have a bit more control over, so long as I'm able to take the time to research. Between my partner and I, we have enough capital go hit the ground running with a solid start, but I'd prefer not to face-plant at the first step, so here I am. 

At this point, I'm primarily looking to network with people in the area. This probably isn't the correct forum for these particulars, but I come here with questions first of all wondering if Las Vegas is a place worth investing in Rentals, and whether it would make sense to try and invest elsewhere. I'm also interested in finding an accountant and real estate attorney and anything else I may need to start building a good foundation. 

Thanks everyone, see you around!

Jeff Workman 

[Eric Fernwood]

Hello @Jeff Workman,

Welcome to Biggerpockets.

As I understand your questions:

• Do you need an real estate attorney?

• Do you need an accountant if you own investment real estate?

• Why real estate as opposed to other investments like stocks.

• Is Las Vegas the right location?

All good questions which I will answer below:

Do You Need An Real Estate Attorney?

We have many investor clients and to the best of my knowledge none has engaged a real estate attorney. The contracts and process for buying residential (non-commercial) real estate are highly standardized. Everyone uses the same purchase contract and the actual purchase is executed by a third party called a title company. Commercial is a totally different situation.

Do You Need an Accountant?

None of our clients specifically engaged an accountant for the real estate portion of their portfolio. The property manager handles all the day-to-day activities and at the end of the year provides the needed tax forms. Again, this is on the residential side. Commercial real estate is different.

Why Real Estate?

Traditional investment concept (stocks, bonds, CDs, 401Ks, etc.) is to accumulate enough capital so you can later draw-down (withdraw) funds over a period of time. Simplistically, to determine how much you need to accumulate you need to know: the amount you will withdraw per month, how long you will live and what inflation will be during these years. For example, suppose you plan to withdraw $5,000 a month for 30 years and there is zero inflation, zero transaction fees, zero taxes and zero capital appreciation. If that is the case, then the math is easy:

30 Years x 12 Months/Year x $5,000 = $1,800,000

However, if inflation exceeds capital appreciation you will need to accumulate more before you start to with draw money. For example, if you expect 3% net inflation during the draw-down period you would need approximately $3,000,000 to draw down $5,000 (present value) over 30 years. Also, what if you or your spouse live longer than planned?

With real estate, the concept is to accumulate sufficient income streams over time such that the aggregated income streams meet your income needs today and into the future. For example, suppose each property you buy generates a net cash flow of $250/Mo. If this is true, then you need to accumulate $5,000/$250 or 20 properties.

How much would it cost to purchase each property? As in the previous example, we will ignore inflation and appreciation. Assuming each property costs $180,000 and you obtained 30-year financing with 20% down at 5% interest, you will need about $36,000 plus another $12,000 to cover closing costs, rehab, etc. or $50,000/property. Simplistically, 20 x $50,000 = $1,000,000 is what you need to establish a $5,000/Mo income stream. When the mortgages are paid off the cash flow will significantly increase but we will ignore this for the present example. And, since rents historically track inflation while your recurring costs remain relatively constant, your return will increase as inflation increases.

Is Las Vegas the Right Location?

Most of my clients live in other states or countries. One of their first questions is, "Why should I invest in Las Vegas?" My response is,"What are your goals?" It is important for me to know what they are seeking because Las Vegas will not meet everyone's goals. I will briefly discuss where I think Las Vegas is strong and where I think it is not as strong (Here is a BP post with more details). Note that I will focus on single family properties, the multi-family and commercial market is quite different.

Las Vegas' advantages:

Short term:

• You get to keep more of the rent the property generates. This is due to the low property tax rate, zero state income tax, low insurance, and low maintenance costs.

• Low business risks due to landlord friendly laws. In Las Vegas an eviction takes 28 days or less and costs about $500 (compared to ~1 year in California as an example).

Long term:

Metrics like ROI are only a snapshot in time; how the property is likely to perform today. ROI tells you nothing about how the property is likely to perform in the foreseeable future. Simplistically stated, if there is continued demand for a item the price will rise or stay the same. The key demand factors for real estate are:

• Population - If people are moving out of a area, housing prices and rental rates in that area are likely to fall. If people are moving into an area, housing prices and rental rates in that area are likely to rise. Depending on which study you choose to believe, Las Vegas' population is projected to increase by 1% to 2% per year for the foreseeable future.

• Urban sprawl - Urban sprawl can be an absolute value killer. People with money will tend to move to newer areas and the people with lower incomes are left behind. The result is falling property prices and falling rental rates. Las Vegas is a virtual island, it is surrounded by federal land. There is almost no expansion room in desirable areas so urban sprawl is almost non-existent in Las Vegas.

• Job quantity and quality - The value of a property is no better than the jobs around it. In many parts of the US, manufacturing and similar jobs are going away and what remains are service sector jobs. Service sector jobs tend to pay less than manufacturing jobs so the families of these workers have less disposable income. Less disposable income means that they cannot afford to pay the level of rent they did in the past. Inflation adjusted income in Las Vegas have been slowly increasing (except during the 2008 to 2011 crash) and projections are that the increases will continue according to a Federal Reserve Bank study.

Where is Las Vegas relatively weak? The entry price point for class A town homes is about $125,000. There are locations in the US where you can buy similar properties for less than $50,000. However, I question the long term implications of buying in declining markets like the mid-west where service sector jobs are replacing high paying manufacturing jobs.

Jeff, I hope I answered some of your questions. For more Las Vegas specific real estate investment information please see my profile.

If you or other BP members would like to learn more about real estate investing you are welcome to join me as I check out investment properties for clients. Almost all of our clients live in other states or countries and I usually check out properties alone and I welcome the company.

Best wishes,