All Forum Posts by: Eric Fernwood

@Ryan B. Good point Ryan. I should have mentioned this in my earlier post.

When we first started about 9 years ago we approached property selection on "wants" basis. Some of the "wants" we considered included schools, proximity to shopping and proximity to concentrations of jobs. While we found some correlations, we learned that selecting properties based on expected tenant behavior did not work well in Las Vegas. What we found to be very accurate was time-to-rent and estimated return. And, while most properties with a low time-to-rent and high return turned out to be near the "wants", there were too many exceptions. The only reason we are able to use time-to-rent and return as a key selection criteria is the software we developed. Our software enables us to filter the very few good properties from the thousands that are available. During our research we had a lot of surprises about things that effect time-to-rent and return which we would never have guessed. Below are some examples:

• If the drive time to the strip exceeds about 20 minutes, the time-to-rent increases.

• If the width or length of the master bedroom is less than 12', the time to rent increases.

• Certain floor plans do not rent well at all even if they are within a subdivision that on average rents very well.

• If the master bedroom is on a different level than the other bedrooms, the time to rent increases.

Over time we've determined about 50 such criteria through which we filter properties before we apply time-to-rent and return calculations. Basing our selections on specific criteria (like master bedroom dimensions), time-to-rent and return has consistently proven to work well. Without such software, I believe a "wants" based selection approach would be the way to go.

@Marco Santarelli,

An interesting viewpoint. Las Vegas may be different than other locations but I have not seen class A properties in class B locations. Part of what makes a property class A is the location and the individual property. My experience is that people who can afford to live in class A areas do not choose to live in class B locations. Builders built the same floor plans all over the city so we have real data to support what I am about to say. The same floor plan in Summerlin or Green Valley (two of the A class areas) will rent for more than it will in some of the B areas. The same is true for sales price. The exact same floor plan will sell for more in a class A area than it will in a class B area. So, while what you are saying may apply to other locations I have not seen it in Las Vegas.

I have been recently asked about where I think the Class A, B, and C properties in Las Vegas are located. So I put the following response together. The short answer is that the type of property class is defined more by the tenant population than the physical location.

In Las Vegas, and I assume most cities, class A areas tend to be in reasonably well defined geographic areas but class B and C locations are not. Class B and C properties are more defined by the tenant population than the geographical area. Below is my definition of Class A, B and C properties. Note that the following description is only my opinion, only applies to Las Vegas and should not be considered some sort of universal "definition".

Class A properties tend to be newer, prospective tenants tend to have higher incomes and are primarily credit based and typically pay the highest rent. Credit is very important to this tenant population so evictions and skips are rare. In Las Vegas Class A properties tend to be in subdivisions or communities with HOAs and have a well groomed and uniform appearance and in the best school districts. Class A properties tend to be lower risk, tenants stay longer and properties are more likely to appreciate. Summerlin and Green Valley are examples of class A property areas. 

Class B properties - Compared to class A properties, class B properties are generally older, tend to sell for a lower $/SqFt and tenants generally have lower incomes and credit scores. Tenants tend to stay shorter periods of time (1 to 2 years) and evictions are more common than with Class A properties (few total evictions since tenants know that they will be out in less than 30 days if they do not pay). Initial rehab is likely to be higher and tenant damage is also likely to be higher than class A properties. Class B properties tend to generate a higher return than class A properties.

Class C properties - Class C properties are generally older and are located in less desirable locations. These properties generally need significant rehab and significant tenant damage is much more likely. The tenant population is primarily cash based so leases mean little and many have government subsidies. Skips and evictions are common. Rent payments tend to be in cash. Tenants tend to use mass transit so selecting properties near bus routes is very important. Some of these properties generate high returns.

Now that you know how I define class A, B and C I will explain how we find such properties. We use software we developed to filter the thousands of available properties looking for the very few properties that meet specific characteristics. Usually less than .1% of the available MLS listed properties qualify as potential investments at any given time. Below are example characteristics for each of the classes. Note that we have about 50 characteristics for class A properties. The number of characteristics is less for class B and much less for class C.

Class A

• Within a specific price range
• Acceptable ROI using the following formula: ((Rent - Debt Service - Management Fee - Insurance - Real Estate Tax - Periodic Fees) x (1 - State Income Tax))/(Down Payment + Closing Costs + Estimated Rehab Cost). Note that for Nevada there is no state income tax.
• Time to rent <30 days
• Within a fairly well defined geographical area
• Single family
• Two+ garage
• Three+ bedrooms
• Two+ baths
• Within a minimum and maximum lot size
• Correct ratio of building footprint to lot size
• Master bedroom and guest bedroom sizes meet specific criteria
• Built after specific year
• Association fees above $20 and below a specific amount
• Certain floor plans are excluded
• Certain subdivisions are excluded
• Rehab below a specific amount with no high risk rehab items

Class B

The characteristics of class B are similar to class A but also includes town homes and the price range is lower. We look for a higher ROI than for class A properties due to increased risk.

Class C

Class C properties have a very different criteria than class A or B. Price range is typically less than $100,000 and includes all property types (single family, town homes, condos). The key criteria includes:

• Significantly higher ROI
• Time to rent < 30 days
• Adjacent to major bus routes
• 2+ bedrooms
• 2+ baths
• Certain locations, communities and floor plans are excluded

Once we have properties that meet the specific class criteria I personally visit them and evaluate the area and subdivision/community. If it looks acceptable, I evaluate the property including the floor plan and estimate rehab cost and rehab risk. If all of this is acceptable, I take a video and send it to the property manager and the client. The property manager provides an independent opinion of the property in general plus time to rent and the rental rate. If the return is acceptable and all agree that the property makes sense we make an offer. The offer amount is based on return, not the asking price. 

In summary, we primarily select properties based on property characteristics, potential tenant characteristics, risk and return, not geographical locations. 

One additional class of properties is multi-family. We divide these into two categories: 4 units or less and more than 4 units. More than 4 units requires commercial financing. The criteria for multi-family is quite different since the value is largely based on the cap rate, deferred maintenance and tenant risk. Larger properties (~30 units+) are evaluated based on current usage and potential future usage.

What are your definitions of Class A, B, and C properties?

@Michael Bell

Location is not really an issue because the Las Vegas metro area is relatively small. What really matters is the type of property/tenant. We use multiple types of property managers.

• Class A & B - Traditional property managers. The key here is tenant screening and proactive cost management.
• Class C - Properties in undesirable areas with cash based tenants. Key here is rent collection, cost control, proactive in dealing with skips and evictions.
• Large multi-unit properties with no federal reporting requirements.
• Large multi-unit properties with federal reporting requirements.

You need to match the property manager to the type of property/tenant.

Hello @Michael Bell,

In Las Vegas, and I assume most cities, class A areas tend to be in reasonably well defined areas but class B and C locations are not. Class B and C properties are more defined by the tenant population than the geographical area. So we have a common understanding, below is my definition of Class A, B and C. Note that the following description is only my opinion, only applies to Las Vegas and should not be considered some sort of universal "definition".

Class A properties tend to be newer, prospective tenants tend to have higher incomes and are primarily credit based and typically pay the highest rent. Credit is very important to the tenant population so evictions and skips are rare. In Las Vegas Class A properties tend to be in subdivisions or communities with HOAs and have a well groomed and uniform appearance and in the best school districts. Class A properties tend to be lower risk, tenants stay longer and properties are more likely to appreciate. Summerlin and Green Valley are examples of class A property areas. 

Class B properties - Compared to class A properties, class B properties are generally older, tend to sell for a lower $/SqFt and tenants generally have lower incomes and credit scores. Tenants tend to stay shorter periods of time (1 to 2 years) and evictions are more common than with Class A properties (few total evictions since tenants know that they will be out in less than 30 days if they do not pay). Initial rehab is likely to be higher and tenant damage is likely to be higher than class A properties. Class B properties also tend to have a higher risk than Class A properties but generate a higher return. 

Class C properties - Class C properties are generally older and are located in less desirable locations. These properties generally need significant rehab and significant tenant damage is much more likely. The tenant population is primarily cash based so leases mean little and many have government subsidies. Skips and evictions are common. Rent payments tend to be in cash. Tenants tend to use mass transit so selecting properties near bus routes is very important. Some of these properties generate high returns.

Now that you know how I define class A, B and C I will explain how we find such properties. We use software we developed to filter the thousands of available properties looking for the very few properties that meet specific characteristics (usually less than .1% of the available MLS listed properties qualify as potential investments at any given time). Below are example characteristics for each of the classes. Note that we apply about 50 characteristics to class A properties. The number of characteristics is less for class B and much less for class C.

Class A

• Within a specific price range
• Acceptable ROI using the following formula: ((Rent - Debt Service - Management Fee - Insurance - Real Estate Tax - Periodic Fees) x (1 - State Income Tax))/(Down Payment + Closing Costs + Estimated Rehab Cost). Note that for Nevada there is no state income tax.
• Time to rent <30 days
• Within a fairly well defined geographical area
• Single family
• Two+ garage
• Three+ bedrooms
• Two+ baths
• Within a minimum and maximum lot size
• Correct ratio of building footprint to lot size
• Master bedroom and guest bedroom sizes meet specific criteria
• Built after specific year
• Association fees below a specific amount
• Certain floor plans are excluded
• Certain subdivisions are excluded
• Rehab below a specific amount with no high risk rehab items

Class B

The characteristics of class B are similar to class A but also include town homes and the price range is lower. We look for a higher ROI than for class A properties due to slightly increased risk.

Class C

Class C properties have a very different criteria than class A or B. Price range is typically less than $100,000 and includes all property types (single family, town homes, condos). The key criteria includes:

• Significantly higher ROI requirement
• Time to rent < 30 days
• Adjacent to major bus routes
• ROI (higher than class A or B properties)
• 2+ bedrooms
• 2+ baths
• Certain locations, communities and floor plans are excluded

Once we have properties that meet the specific class criteria I personally visit them and evaluate the area and subdivision/community. If it looks acceptable, I evaluate the property including the floor plan and estimate rehab cost and rehab risk. If all of this is acceptable, I take a video and send it to the property manager and the client. The property manager provides an independent opinion of the property in general plus time to rent and the rental rate. If the return is acceptable and all agree that the property makes sense we make an offer. The offer amount is based on return, not the asking price. 

In summary, we primarily select properties based on property characteristics, potential tenant characteristics, risk and return, not geographical locations. 

One additional class of properties is multi-family. We divide these into two categories: 4 units or less and more than 4 units. More than 4 units requires commercial financing. The criteria for multi-family is quite different since the value is largely based on the cap rate, differed maintenance and tenant risk. Larger properties (~30 units+) are evaluated based on current usage and potential future usage.

David, I hope this clarifies our process of selecting the various classes of properties.

@Michael Bell

When I decided to go into real estate business 9 years ago, I evaluated several places including London, Phoenix, Atlanta, etc and chose Las Vegas. Today I still feel my decision was right. I am frequently asked by new clients Why Las Vegas so I put together the following response.

Why Las Vegas?

The old adage that the three most important factors in real estate being location, location and location is especially true for investment real estate. And, it is not just how things are today but how they will likely be over the next 10 to 20 years. So, what are the unique advantages of Las Vegas for investors?

High Return

Las Vegas is one of the few major metro areas where you can still get positive cash flows. The reason you can get a high return include:

Positive Cash Flow - Our clients are typically seeing 5% to 8% on class A properties and higher on B and C class. And, this will increase because rents are increasing.

Zero State Income Taxes - Nevada has no state income tax.

Low Property Taxes - There are metro areas in the US with property taxes exceeding 2.4% (Houston, Dallas-Fort Worth, etc.) as opposed to Las Vegas where the average is about 0.86%.

Low Cost Landlord Insurance - Land Lord insurance in states with adverse weather like Florida and Texas can exceed $2,000/Yr. Our clients typically pay between $500/Yr. to $600/Yr.

Low Maintenance Costs - Maintenance costs are a direct hit on profit. Typical homes in Las Vegas have tile roofs, desert landscaping (rocks), stucco siding, metal doors and window frames, and concrete block fences all of which require little or no maintenance.

Low Risk

Landlord Friendly Laws - Nevada is a business friendly state. Its pro-business laws apply to rental properties as well. There are no rental control laws in Las Vegas and evictions typically take 30 days or less and usually cost less than $500. In comparison, in California it can take up to one year to evict a knowledgeable tenant. Landlord friendly laws protect your investments.

Rental Market Stability - The Las Vegas rental market is extremely stable. For example, we did a study on the rental rates during the 2008 market crash when property prices in Las Vegas plunged over 50% and found that rental rates did not decrease. Cash flow and return on investment were not impacted during the crash. You can see the actual data in this BP post.

Sustained Population Growth - Market demand is what determines the value of an investment property. If the area has a stable or increasing population, demand will remain stable or increase. If people are moving out of an area (either to other cities or due to urban sprawl) property values and rents will fall. Las Vegas’ population is expected to continue growing at approximately 1-2% per year for the foreseeable future.

Sustained Job Growth - Nevada is very aggressive in terms of recruiting businesses to move to Nevada and has been very successful. Two of our clients who moved their business from California to Las Vegas reduced operating costs by as much as 20%. Plus, the Las Vegas tourism business continue to do well due to its adaptability. For example, today Las Vegas hosts millions of Chinese tourists each year. Before the Chinese it was the Japanese. And, in the future it will be another group. Las Vegas has always been excellent at adapting to the changing world.

No Urban Sprawl - Urban sprawl can be devastating over the long term. Due to the shortage of build-able land in the Las Vegas valley, Las Vegas has almost no urban sprawl because it is surrounded by federal land. The blue areas in the map below is federal land. In fact, only about 11% of the entire state of Nevada is privately owned. Given the population trend and expansion limitations, property values and rents in Las Vegas are expected to continue increasing over time.

In Summary

Low operating costs and low risk give Las Vegas a unique set of advantages over many alternative investment locations.

Please post your questions, comments or concerns. I also have a lot more information on investing in Las Vegas real estate on my profile. Hope it helps.

Hello @Jennifer S.,

Reading your post you seem predisposed towards multi-family. Many people do believe that multi-family properties are better investments while others believe that single-family properties are better investments. I believe that you should select properties based on sustained return as opposed to letting any pre-conceived type of property limit your choices. However, below are some comments on multi-family properties that I hope will help.

Multi-Unit Considerations

• Lower rental risk. A single-family property is either 100% occupied or 100% vacant. With a multi-family property, if one unit is vacant, you still receive a portion of the total rent.
• Per unit cost is lower with multi-family than single family homes.
• When you wish to sell the property the only buyers will be other investors. This is a relatively small number of buyers compared to single family properties. And, the value of an investment to investors is largely based on the CAP rate. So, unless rents rise, the market value of the property does not rise.
• As long as you stay with 4 units or less, conventional financing is pretty much the same as single family investment properties. With 5 or more, you must obtain commercial financing with is more complex and takes longer.
• Multi-family (2 to 4 units) properties are usually purchased only by investors. And, in my experience, investors with performing properties do not sell them so you need to look carefully. The most frequent reasons I see for investors selling such properties include:

• High cost of completing deferred maintenance.
• Purchased at a high price or with expensive financing and can not generate the desired return.
• High turnover due to location or property issues.
• Frustration of trying to self manage the property.

Tenant Considerations

When you are considering any investment property, you need to think about the potential tenant population. Note: The remainder of this post is specifically about Las Vegas so only use the following material as points to consider if you are not buying in Las Vegas. 

Today, in Las Vegas, most of the 4-plexs I have seen rent in the $450/Mo. to $600/Mo. per unit range (This is very different than what I experienced in Fort Wayne, NYC, Atlanta and Houston). In general, people renting in this price range need to be near the major mass transit routes so you should only be considering properties within a block or two of the major bus routes. Most of the jobs are along Las Vegas Blvd so you only care about the east/west routes. The tenant population is largely cash based; many will not have a checking account or any credit cards, etc. This alters how rents are paid and collected. And, on average, evictions and skips are more frequent. Since this demographic is largely cash based, they have little to fear from a bad credit report or a judgment on unpaid rent so a lease means very little. You also have to expect more damage. For example, one such unit we have was rented earlier this year and after about 4 months the tenant skipped inflicting some significant damage. The cost to rehab this property will be about $3,000. 

Should the above dissuade you from buying a 4-plex? No. You can make good return on 4-plexes but you have to factor all the costs into your profit model. If you do and the property still makes sense, then it is a good buy. If the numbers do not look favorable, look for something else. Where is the best source of information on such properties? The property managers who specialize in these properties. Just drive the area and note the names of the property managers on the signs and talk to the major players. I have a list of property manager interview questions. If you (or anyone else) would like a copy, drop me an email.

I wish you success.

Hello @Michael Williams,

I can't speak for what the situation is in Florida but in Nevada only written documents are enforceable when it comes to real estate. So, if you have written documents containing the stated ARV, maybe you can do something about it. It would be interesting to see if this agent has prior complaints. In Nevada these would be listed with the Nevada Real Estate Division. You might check to see if there is a similar organization in Florida. If there is and the agent has prior complaints, you might want to file a complaint too. In Nevada, you could then go before the Real Estate board. If they determine the act was part of a behavior pattern or you have sufficient documentation that he sold you the property under false pretenses, then they can take action including having the agent pay a penalty. The advantage of this approach is that the standard of proof is lower than it would be in a court and the cost is very low (no lawyers involved).

I am impressed by your statement, "I realize this was my mistake..." Well done! It is too late for this property but I may be able to offer some advice on future flips. 

In order to make money flipping you have to buy the right property, in the right market, in the right location, at the right price with the right team. Yes, ALL of these things must go right to make money. Here I will only talk a little about the location and the market. In this post I went into more detail about the other critical components.

The first step in successful flipping is to determine if flipping is possible. In some locations/markets it is almost impossible to flip a property and not lose money. Below are some of the factors that I would consider:

• The price difference between trashed homes and homes in market ready condition must be significant. If there is a small difference, you need to look somewhere else. What I have been doing is to use software we developed to search for properties that are at least 20% below the sales comps of similar properties. Note that 20% is not a "magic" number. But, if you can't find properties that are priced significantly below comps, you need to look somewhere else.
• Seller's market. If you are in a buyer's market, it is unlikely that you will be able to sell the property quickly at the predicted sales price.
• Sales volume - There should be frequent transactions of similar properties. Not only will this increase the probability of selling in the shortest time, it will enable you to get reasonably good comps. Do the comps yourself, do not depend on others. (If you are not comfortable doing comps, let me know and I will explain how.)
• Skilled trades people are available at a reasonable price. A huge part of being successful is high quality, reasonably priced, readily available skilled workers. The skills you need will vary greatly but if you can't put together the right skills team, you are in serious trouble. Most people will work with a contractor or someone who will provide the overall quote and manage execution. Significant errors in your estimates could turn a profitable flip into a financial disaster.

I used the term "market ready" instead of rehab/remodel because I wanted to emphasize the importance of making the home similar to other homes selling rapidly in the local area. There is no universal "standard" for market ready. It depends on what similar properties are like. For example, if the vast majority of properties for sale have vinyl flooring in the kitchen, vinyl is what you should install. Installing tile might result in the property selling faster but it is unlikely that it will increase the price by the additional amount you spent. However, if similar properties have tile and you installed vinyl, your property will likely take longer to sell and will likely sell for less than market value.

You need to get the property to market ready, not less not more. Spend time looking at properties in the area to learn what is considered important by the local buying population and do not go beyond what is required. 

For more details on my process you can refer to this post. It seems to me that in your case the location characteristics made it very difficult to make money.

Hello @Wendell De Guzman,

No one knows the answer to that question because each time the cause seems to be different. And, I believe that tracking NODs may tell you what has already happened as opposed to what is going to happen. Perhaps this metaphor will help explain my view. If you contract measles, you will likely have a red rash. However, by the time the red rash appears, you already have the virus and your options for preventing the virus are nonexistent. The rash is the same as NODs. By the time NODs ramp up, the economy is already well into the crash. In Las Vegas during the 2008 crash, the time between the month the first payment is missed until the NOD is filed is between 6 months to 3 years. So, instead of predicting the timing of a crash, a much better approach is to prepare for a crash (at least from buy and hold point of view).

Preparing for a Market Crash

In my opinion, the best way to prepare for a crash is careful selection of your investment properties. This includes both the location and the type and rent range. Here is a link to a post on selecting the right location so I will not repeat it here. What I will cover here is the effects of rent range on rental income stability during times of economic stress.

I believe the goal of investment real estate is sustained profitability. Part of the necessary elements for achieving sustained profitability are:

• A population of tenants that are unlikely to lose their jobs during reasonable instability, like 2008 in Las Vegas. See my previous post in this thread on how rental properties performed during the 2008 to 2014 period.
• Good tenants - A good tenant as one who: pays all of the rent on schedule, takes care of the property, does not cause problems with neighbors, does not engage in illegal activities on the property and stays for multiple years. Please note that tenant quality does not necessarily correlate to rent rate. 

Rental Sweet Spot

Each market has what I call a rental sweet spot. This is the range of rents that has the largest population of potential tenants. I will explain this statement but first, I will make some generalizations that I will use later. Remember that generalizations will not work for specific cases but are usually more often right than wrong. The assumptions I will use are:

• A property that rents for $500/Mo. is generally less desirable than a property that rents for $1,000/Mo. to the average tenant.

• People would choose to live in a property that rents for $1,000 than a property that rents for $500, if money were no barrier.
• If a person can afford $1,000/Mo. rent, they are unlikely to want to rent a $500/Mo. property.
• Except in special cases, people are unlikely to spend more than 30% of their monthly income on rent.

If you plotted the number of tenants who wish to live in a property and can afford to live in that property, the number of prospective tenants by price would be something like the curve below. 

There is a relatively small number of renters who choose to live in undesirable areas or undesirable properties if they can afford better. And, there is a small number of tenants that can afford to pay a very high rent. In real life, the curve would be flatter, wider or skewed to the left or right but the concept does not change. The green rectangle below delineates what I call the rental sweet-spot. Properties that rent in this rent range have the largest population of potential tenants (resulting in higher rent and lower time-to-rent) and you are more likely to end up with the highest quality tenants. More about quality tenants later.

You could segment the curve by job/income level (The following is a silly segmentation but bear with me.) as shown below. 

Each of the potential tenants in each segment are subtable to different market challenges. For example, if your rental properties targeted the minimum wage class and as the minimum wage increases, the number of available jobs are reduced, you are going to have decreased rents and increased time to rent. The point is:

• Different price ranges (or segments) can and are affected by different market changes.
• To minimize the vulnerability to such market risk, you want to buy properties that fall into the rental-sweet spot because you will have the largest pool of potential tenants. If you do this, you are more likely to still be able to rent units out even in time of economic challenges.

Tenant Quality vs. Rent

I mentioned earlier what I consider to be the characteristics of a good tenant. Good tenants come from effective screening by the property manager, not from the rent range. So, if I targeted the "doctor/lawyer" segment (a property that is expensive to rent), I might have only one or two applicants to select from when I am trying to rent the property. If this is the case, the odds of selecting a good tenant are reduced. If I target the sweet spot I will have far more tenants to select from and the odds of selecting a good tenant are increased.

Summary

• It is very hard to predict a coming crash far enough in advance to take proactive action. All the "experts" missed the last one and they will likely miss the next one.
• Market crashes have and will occur in the future.
• The best way to protect yourself is to buy properties that will rent in the rental sweet-spot so you have the largest number of potential tenants.
• Only careful screening by the property manager of a significant number of applicants will increase your odds of getting a good tenant.

Wendell, this is a long answer to a short question but I hope this helps.

Hello @Newton Pham,

The current data largely comes from the MLS. The historical data we use has been accumulated over time from various sources then re-factored. We use this data as part of the filtering for investment properties. For example, we have collected historical data on:

• Floor plans and configurations that take much longer to rent.
• Whether the master bedroom is downstairs and the other bedrooms are upstairs.
• A minimum ratio of house footprint vs. lot size.
• Localized crime statistics. For example, there is a Big Box store near a subdivision. The subdivision itself has a fairly low crime rate. However, the Big Box store which the tenants would frequent regularly has assaults and robberies. So we eliminate properties in the areas where the tenants are likely to shop at that store.
• Average time-to-rent at the subdivision level for many key subdivisions.

We currently have about 50 property characteristics by which we vet potential properties. 

Hello @Bryan Christopher,

Thanks for the follow on questions; sorry I was not clear. A bit more details on the numbers I mentioned. 

"If you are looking for 5% to 7% real return (see my post on real return) and probable appreciation and you have $50,000..." Below is where the $50,000 came from:

Class A properties in the $175,000 to $210,000 range typically generate between 5% and 7% (we have a few at over 11%, but that is unusual). Are these properties straight out of the MLS? Yes, but very few pass our criteria. The concept of "wholesaling" is that you can buy a property significantly below market value by going direct to the individual owner. I have some problems with this concept:

• This assumes that people are willing to give away money; selling the property for less than it is worth. I have never personally known anyone directly who purchased a property at way below market value except when the property is in very bad condition. People know what their property is worth and want every penny that they can get out of it. Also, rarely are A class properties "wholesaled".
• Suppose you are able to find a "deal" through auctions, foreclosure, etc. What are the odds of this property being a good investment property? Based on the number of properties we screen in order to find a few, I doubt that they are good investment properties. I will explain what percentage of the MLS properties work out for us a little later.
• Another popular view which I do not understand is that it is vital that you buy properties at xx% below market value. Unless you are flipping what you pay for a property does not matter. (The following is an exaggeration in order to make my point.) Would you rather buy a property at xx% below market but lose money every month you own it or buy a good property at market value and earn a high return every month? All my clients care about is sustained high returns.

Another common belief is that there are no good properties on the MLS. I will guarantee you that there are very few good investment properties at any given time. How few? Very few. Typically, there are 7,000 to 10,000 properties available at any point in time. Out of the 7,000 to 10,000 properties, we can usually find only 20 to 30 good candidates. And, since we make offers based on desired return and not the list price, we probably get less than 1 out of 7 offers. If I do the math this equates to something like 20/7,000 x 1/7 = .04% of the available MLS properties. The only way we can find good properties is that we developed software over the last few years which enables us to rapidly get to the 20 or 30 properties. The properties we get have high returns and tenants tend to stay for multiple years.

On the "older condos", here is an example of actual numbers on such a property:

You have to pay cash for this type of property, they can not be financed. The cash/cash return is about 10% after property management, HOA, taxes, insurance, maintenance, etc.

Let me know if you have more questions. Post them or give me a call.

@Bryan Christopher,

A very good question. I will start by saying that when I owned properties in Houston and Atlanta, they were four-plexes. Some single family in Houston too. All things being equal, I personally prefer multi-family dwellings if the market is right. What is best depends on the individual market at the time you are buying, your goals, your cash and financing.

Single family homes could be the best property today but specialty small commercial might be the best in 2 years. There is no single simple answer. And, what is best today will likely not be the best 5 years from now. 

Everything I am about to say only applies to Las Vegas, today; in 12 months the market could be different. And, what is the best investment also depends on your cash, credit and willingness to take reasonable risk. Below are some examples: 

If you are looking for 5% to 7% real return (see my post on real return) and probable appreciation and you have $50,000 and you qualify for 20% down conventional financing, I would recommend:

1) Select single family class A properties in the $175,000 to $220,000 price range.
2) Select town homes in the $150,000 to $200,000 range.

I do not recommend condos in this price range because very few condos in Las Vegas are finance-able. There are much better ways to use cash than tying it all up in one property. After all, by definition the return on equity is always zero.

If you have $100,000 and are looking for 9% to 12% and you care little about appreciation (other than tracking with inflation), I would suggest a few of the older condos and town homes. Many of these generate $400 or more per month and cost less than $80,000.

If you are mainly looking for appreciation and returns in the 2% to 4% range are OK, class A single family homes in specific areas in the $220,000 to $350,000 range would be a good buy. This sort of investment is perfect for higher income earners who are building up a retirement income stream.

If you have $400,000 to $600,000, specialized commercial properties are good. We are working on a $2.4M 50 unit apartment complex that, with some renovations, will be very profitable (6% to 7.5%). However, the real value of the property is 5 to 10 years from now. Based on city of Las Vegas plans and talking to the major stake-holders around the property, we expect the property to double or triple in value when it is re-purposed to offices in the future. 

I could go on about goals and what is most likely to match these goals but I think I made my point in that there is no "one size fits all". And, the best answer for one person might be a disaster for the next. Plus, one or two years from now the market could change due to the market itself, changes in financing rules or tax regulations or ????? 

On HOA's, Las Vegas is unique in that most of the class A properties are built with HOAs. We like HOAs in the $20/Mo to $50/Mo. range. Tenants love the appearance and tend to pay a little higher rent that non-HOA subdivisions. In subdivisions with no HOA, you frequently see things like someone operating an auto repair shop out of their garage. We see reasonable HOAs fees as asset value protection. However, HOA's could be an absolute waste of money in another city. It all depends.

Wherever you plan to invest, it is critical that you have a trusted team who knows investments and has a deep understanding of the investment market. This is very different than a traditional agent selling homes.

Bryan, I jumped around quite a bit in this post. I hope I answered your questions. If not, post again or give me a call.