Las Vegas for real estate investment (as opposed to Los Angeles)

9 Replies | Las Vegas, Nevada

Hello!

I am new to this forum and real estate in general. I'll try to keep this posting as brief as I can but I feel I have to provide some background information. I am single, 40 years old, and have worked as a computer programmer for 17 years (currently working from home), and I have never owned a home before (always rented). I am currently living in Los Angeles (California) but may be moving to Las Vegas (NV) in the very near future.


I am not a wealthy, but I have saved a nice lump of cash and am making a good living. I can afford living in Los Angeles, even though it is very expensive. However, after looking for a home to buy for quite a while, I realized that the price of a nice condo in a good area in Los Angeles, can buy me 2-3 nice houses in Las Vegas. Living in Nevada will also save me state income tax. Just by moving to Las Vegas and renting an apartment, I will be saving 20K - 30K a year.

My plan is:

  1. Move to Las Vegas and live there for 6 to 12 months (experience the seasons and weather).
  2. During this time, I will familiarize myself with the area and properties (go to open houses), and continue to educate myself about real estate (mortgage process, tenant screening, networking, contractors, etc.)
  3. After 6 to 12 months, if I still like living in Las Vegas, I plan to purchase a home to live in (putting 20% down). If I don't, I can always move back to Los Angeles. Part of me wanting to invest in Las Vegas is being 4-5 hours driving distance from friends in Los Angeles (weekend getaways).
  4. Buy my first investment property - a single family house. Class A or A- house in a class A or A- neighborhood. I believe I can find such a property for 200K - 300K. The point here is not to maximize cash flow or ROI, but to attract good tenants to a relatively problem free property. As this will be my first investment property, it is imperative to have a positive experience and not to get discouraged by negative one. My strategy is buy and hold - no flipping of any sorts, rehab, or otherwise.
  5. Use a real estate agent to find the tenant (I do work full time), but actively manage the property myself. This will be an invaluable lesson to build experience, deal with problems, and develop landlord to tenant relationship.
  6. A few months after gaining experience with my first investment property, if I find that real estate investment is to my liking, buy a second investment property.
  7. Repeat step 7 gradually over time while maintaining ample cash reserves and not get over leveraged. As I accumulate properties, ask myself how much is enough to reach my goal of:
    1. owning my home free and clear
    2. have enough cash reserves
    3. actively manage my properties (no property management)
    4. live of passive income while having peace of mind (to the maximum extent possible - hence class A properties). At this point I can retire, find a different job which pays less, work part time, do volunteer work, travel, etc. Peace of mind is much more important than maximizing ROI.

I believe that I can reach my goal in 5 to 10 years. As time passes, if I find that I enjoy real estate investing, I may shift to it as a full time "job", change my strategy of buy and hold, or other things that I currently cannot think of. For the near foreseeable future my daytime full time job is number one priority, though. I realize plans change if I end up having a family or a job situation.

Questions for confirmation:

  1. Even though Los Angeles expensive, it doesn't mean one cannot invest there. However, the entry price is much higher than Las Vegas. Right?
  2. Las Vegas is growing, but it does have transient population, more so than Los Angeles. There is a lot of construction going around and some people/families stay for a few years until the project is completed and then move on.
  3. Is Las Vegas a viable investment area, able to generate 4% - 6% ROI? I believe it is.
  4. If/when a recession occurs, it tends to hit Las Vegas much harder than other cities with more diverse employment/industry. This can and will hit real estate as well.


Thoughts and feedback are welcomed, especially from people who live in the area (Henderson included).

Updated over 3 years ago

(for some reason the formatting of bullets/numbers do not appear)

Been here in Vegas for 15 years. The Summer isn't as bad as people make it out to be. Everywhere you go has AC.

Far as your home purchase goals, you are in a good price point. Homes under $300k are doing well. They continue to appreciate because of the financing options and most families here can afford them.

For your home purchase, try to do your best to buy a place in a good master plan community like Summerlin. When time comes to sell, It usually sells a lot easier than the other neighborhoods. Yes, it sucks having the extra fees associated with a Master Plan community, but it pays off later.

@Jonathan T.

While there is nothing wrong with the general details of your plan (I'm from Orange and moved to Las Vegas to retire almost four years ago), the timing is going to be a problem. Your assumption that Las Vegas is cheaper is spot on, of course. You probably have three to four times the buying power here vs Los Angeles. You are also correct that, if a recession occurs, you can expect that Las Vegas will be hit harder than your average city. Las Vegas is heavily tied to tourism and when recessions hit, people don't travel as much and less cash flows into the city. Will Las Vegas be better or worse than LA? Who knows, LA has a lot further to potentially fall. 

The problem I see with your plan is your expected ROI. If you're limiting yourself to Class A properties with no rehab, you're basically limiting yourself to the high end of the market and you're probably going to be around 0.5% of the purchase price in rent per month. Prices are much higher than they were, even one or two years ago, and rents just haven't kept pace. It sounds like you intend to do a conventional mortgage, which would make it unlikely that you can cash flow at all. If you do want something that cash flows, you're going to need a fixer or you're going to need to take a step down community wise or perhaps both.

-Christopher

Thanks for the responses. Christopher, very helpful to know about the 0.5% ROI. Since I am completely new to real estate and Las Vegas, it could be that:

* I cannot properly assess property/neighborhood class. I know that in Las Vegas, Summerlin neighborhood is class A or A+. But from driving around, I've seen plenty of properties which seem nice enough to me (and new). Perhaps B or B+ will be fine.

* As you said, I may have to dial down expectation. Most important of course is for the property to pay for itself. If rents haven't caught up, I understand I may have to put a higher down payment, even if that will lower my ROI.

* While ROI is important, for my goals, getting a property to pay for itself is the most important thing. For early retirement, seems to me the bare minimum is owning my home free and clear plus additional 2-3 properties which are paid off or have high cashflow.

I am in town right now and did lots of driving around while looking for a place to rent for when I move here. Mostly north and south of Summerlin and Spring Valley. I was wondering if anyone can list a few neighborhoods which are class A and a few which are class B, just so I can have a better feel for areas. 

Hi Jonathan, Welcome to BP

Summerlin is A and no one really uses Spring Valley to describe the areas so not sure where you're talking about but I get the general idea. There's more good areas then bad. I think moving here and getting a feel for the area will help with your assessment of which areas you want to concentrate. You've already addressed the major objections with your formula which most investors seek. Having pretty houses definitely makes the land lording easy but reduces your returns. Now, we all want things to go perfect but I will tell you that not wanting to be discouraged by a negative experience really caught my attention. If you're in this arena for any amount of time you are going to find that you will go through some negative and frustrating experiences. It comes with this business. If you're not ready to embrace that I don't think your quite ready to get involved. Now this is just my opinion and it's worth what you paid for it. I just don't want you to think it's all rainbows and unicorns over here. When you come back to town and want to grab a coffee let me know. Good Luck

@Omar Merced   I closed on my place in Summerlin and will be there starting in Dec.. lets get together and see if we can't do some flips in 2018..... My daughter has bought lower end rentals in Vegas with mixed results.. basically pretty good.

One tenant burned the house about down but with insurance they are coming out smelling like a rose.. Friend of mine had 4 plex's there he said those are very challenging but his B class and above very good.

Money can be made in both markets ... if you haven't already, though, look at the historical prices of what happened to Las Vegas vs LA after the crash ... this is what you need to be aware of and prepare yourself for regardless of which market you choose to invest in. I can assure you that buy and hold investors who were not prepared for it were affected as well. IMO, if you plan to move to Vegas because it is more in keeping with your budget and investment strategy, there is absolutely nothing wrong with that and I like your strategy to rent for a year to make sure you like it, network, learn about the market, and I would add make sure you find a great deal. Which brings us to our next point ... I also see no issue with focusing on higher quality areas, but I do question your unwillingness to do any rehab work ... buying below turnkey retail market value and then forcing appreciation back up to retail market is what allows you to cash flow well in such quality neighborhoods and cushions you to some extent from the short term market fluctuations, even (and especially) if your plan is to hold and not flip ... I would seriously reconsider your position when it comes to that. I think that any time you find a great deal that you can afford is a good time to buy, but realistically for a newbie it is possible that that may not happen until the next correction, and that may be better anyhow since historically in a super-cyclical market like Vegas, then after a correction is the best time to buy anyhow. That doesn't mean you don't actively look for deals in the meantime, since this educates you on the market even if you don't buy. Make no mistakes about it, though, investing in RE with individual properties at least in the beginning is work, it is NOT passive. If you want passive REI, then you should look into buying a REIT instead, since that will better serve this purpose, but going into investing in individual property thinking that it will or should be very passive is frankly setting yourself up for disappointment IMO.

@Omar Merced , thanks for the comment. I very much realize that there will always be problems. What I meant in my original post is to minimize the probability - I know there is no way to eliminate negative experience probability. First property is the most important in my opinion, because I think that many people may give up on real estate investing if their first experience turns out to be a very bad one. And thanks for the coffee invitation, I may very well take you up on that.

@David Faulkner , in my opinion, there is a housing bubble right now, and I don't mind waiting 1-2 years until a correction. At least in Los Angeles, most people living in the city cannot afford to buy a property. Artificial low interest rates imposed by central planners and increasing public/corporate/government debt may cause a deflationary environment in the near future - it has been a while since there was an "official" recession.

In general, I never thought that landlording is passive problems free investment. You can have a good tenant in a "bad" property and a lousy one in an upscale property and neighborhood. It is up to one's own due diligence to minimize risk by properly screening tenants and taking care of small maintenance issues before they become big issues.

I'm a Vegas native and real estate investor and broker in both San Diego and Las Vegas. I would suggest living nearby Downtown Summerlin, it's arguably the best part of Las Vegas. Anything around 215 and Sahara or 215 and Charleston is great. The last property I bought was a 250k single family 3/2 house around 1250 feet off Far Hills and the 215 3 exits north of Downtown Summerlin that rents for 1395. Let me know if you need any advice, I've owned and operated rentals in Summerlin since 1999 and I've also invested in commercial real estate (shopping centers, apartments) in LV! Rob