Help with first Rental Purchase in Las Vegas

8 Replies

Noob here. I am looking at my first rental property purchase in the Las Vegas area. I am looking at a class A, SFH. Can someone help me analyze this deal and if it makes sense, or am I being silly? I feel like its a bit tight, but the market in Vegas has been crazy.

Purchase price: $785k

Down Payment: $237k

Monthly PITI: $2961

CapEx: $75

I am looking to get 5k in rent monthly.

Thoughts?

Hi Aren,

If I were you, I would take Brandon Turner's advice and analyze at least 50 deals before you even considering making an offer on one. If you are not able to run your own numbers, you are gambling not investing. Taking action is great and all but you absolutely can not rely on others when it comes to this part specifically.

I know it is not the answer you were looking for but I hope it helps you in the long run.

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@Aren Kern your targeted rent rate seems high. Recently rents have been averaging 1/2% of the purchase price. For example, in Vegas a home worth $800k should rent for $4k. With that being said rents continue to rise. Last month I purchased 2508 Ashley Rose Terrace in Henderson for $525k and tested a $2,995 rent rate and secured a quality tenant at this higher rent rate. Previous rent comps were closer to $2,500 (supply/demand still askew in our market). 

Thanks all for the feedback. I do get the notion that the rent I am targeting is a bit high. I think it will ultimately be cash flow positive but the question is by how much and if that is a good place to put my capital. One of the challenges I have is that there doesn't seem to be a good way to get comps for rent. There is Zillow, and rentometer (which seems to be awfully low), but without access to MLS I'm not left with a good option.

I also read up about the 1% "rule". That the rent fetched should be about 1% of the home cost.  As per @Heidi Rice , Vegas seems to be at 0.5%.  Are there really places that one could get 1% on?  Where an $800k house would fetch you $8k/month???

Don’t worry about 1% rule. It was never worth the screen it was written on…

It doesn’t consider….

Property tax gross amount or rate

State Income tax rate if any

Insurance rates (need flood or hurricane insurance?)

Property age (2020 build or 1920?)

Roof/hvac age

Weather conditions/damage/snow removal/landscaping/salt water

Siding/roof materials (cedar vs stucco, asphalt or rolled versus tile.)

Landlord/tenant friendly state  

And, as you pointed out, property price. 

you want to lose money? Buy a $10,000 that pays $100/mo rent (exactly 1%)

Low end properties by default rent at a higher percent.

In your example I think you would make more money with less risk if you bought 2 or 3 properties at 1/2 to 1.3rd the price. You’d have a bigger buyer pool with less vacancy (as a percent) and probably collect a higher total rent from more payers, in case one didn’t work out.

@Aren Kern I asked that same question to a general real estate BP group a few months ago and no one replied. I think the 1% rule is a fun stat to follow but there just doesn't seem to be any major markets across the US that offer it anymore. Back in 2011 and 2012 I know Vegas and the suburbs of Dallas were part of the 1% rule. For example, I purchased 53 Desert Rain Henderson 89074 back in 2012 for around $150k and it rented for $1,495. It's now worth $400k+ and renting for $2000-$2,200. I wish I could get $4k/mo! Same with Little Elm, TX...purchased a single story SFR for $150k and rented for $1,500. I eventually sold my Texas places as I got so tired of all the roof damage from hail and the high property taxes.

I agree with @Bill Brandt to start on the smaller scale. A 1,500 sq.ft. house will cost you much less in turnover costs than a 3,000 sq.ft. home. More expensive rental homes in Vegas can attract a high rent rate but also a more transient renter (stay for a 12-18 months or less) who can afford to eventually buy their own home. The sweet spot in Vegas has historically been the $1,500 - $2,000 rental. With rent rates increasing the new sweet spot is $1700 - $2200. Once you get above $2,200 - $2,500 the interest wains from locals.

I've been noticing Zillow rent zestimates are starting to get skewed by furnished and short-term rentals comps.

Fun fact...if you google the word askew your screen with tilt. Have a great Sunday. :)

Hi @Aren Kern I would for sure take Thomas' advice and do a little more analysis before jumping into this investment. How many loan products have you looked at for this? I would recommend speaking to a few lenders as well for the best rate. I have looked at my share of rental properties in the Vegas market and the 1% rule rarely applies. You would have to get a property in north Vegas to get close. Do you plan on managing this yourself? if not make sure to include those monthly costs. 

@Aren Kern It is difficult to assess the expected market rent without knowing the the specific home.  Even if I was told the subdivision an estimate would be inaccurate since some floor plans are more popular than others.  When studying the market rate I would focus on floor plans (match the square ft of recent rentals if possible).  Also, the upgrades make all the difference.  For example, this summer I purchased a rental property in Green Valley that had a market rate of $1,850-2,000.  I renovated the home to look really cool (blue cabinets etc...) and fetched a rate of $2,500.