All Forum Posts by: Tim Bee

Quote from @Eric Fernwood:

Hello @Marco Ramirez,

I believe Las Vegas is an excellent long-term investment location. While I could list several reasons for this, I will limit myself to two.

Land shortage - Las Vegas is a small island of privately held land in an ocean of federal land. 87.5% of Clary County is federally owned. 85% of Nevada is federally owned. See the aerial view below of Las Vegas in 2020.

As you can see, room for expansion is limited. In the near future, Las Vegas will only be able to expand through redevelopment. In some areas, this has already happened.

Population growth is steady at 2-3% and is projected to continue to grow (https://247wallst.com/city/las-vegas-nv-will-be-among-the-fastest-growing-cities-by-2060/.) So the demand for housing is increasing.

The combination of limited room for expansion and increasing demand almost ensures that prices and rents will continue to rise for the foreseeable future.

We've evaluated condos many times over the years and always decided against them for the following reasons:

• Short tenant stays - Condos typically attract tenants who stay for about two years. These are mobile people with no children to lock them to a location. In comparison, the average stay in the single-family and townhouse properties we target is over five years.
• High HOA fees - Condos typically have high HOAs, making it difficult to get a reasonable rate of return.
• Condos have a lot of competition - In Las Vegas, condos compete with apartments for tenants, which keeps condo rents low. After all, would you rather rent a 20-year-old condo, or would you prefer a newly built apartment with multiple pools, a theater, a running track, an exercise room, free WiFi, etc?
• Financing limitations - While residential financing is available for most condos, I believe investment financing is only available if certain criteria are met (such as 51% or higher owner-occupants). Investors will most likely have to pay cash for most condos. Single-family homes and townhomes are easily financed.
• Condo cross-unit maintenance issues - Condos are in close proximity to other units. The result is unwanted interactions. For example, if the unit above has a leak, and your unit is downstairs, it damages your unit. You have almost no way to compel the upstairs owner to fix it, let alone pay for your damage. Sometimes it isn't easy to get hold of the owner. It could take days or weeks. Meanwhile, the problem in your unit gets worse. This is especially true if there is mold caused by a leak upstairs or a unit on the other side of the wall.
• The close proximity of neighbors - When neighbors cause problems, your tenants will complain about noise, cigarette smoke seeping through their unit, etc. There's nothing you can do about such neighbor issues. One problematic neighbor in a condo will have your tenants wanting to leave instead of renewing the lease.
• Maintenance costs - Condo associations typically maintain the exterior of the properties, but you still maintain everything else, including the HVAC. Due to the climate (Mojave Desert), the construction materials used in single-family properties make them very low maintenance. In our experience, the annual maintenance costs for condos and single-family properties are about the same. This would not be true in other climates.

I recommend single-family homes and townhouses that target a specific tenant pool segment. The ones we targeted performed well over the +15 years we've worked with investors.

Great insight as always Eric. I read as many of your posts as I can to learn about the Vegas market. I've seen this opinion on condos before and agree with several of them. My question though is what would you recommend for investors targeting condos right now specifically because of the price point. Typically you can get a 2-3 bedroom condo in a B or better neighborhood for well below what a 2-3 bedroom SFH would go for. To me at least this has been part of the attraction of condos in the city (though admittedly haven't closed a deal yet). The capital needed to start investing when that investment is a condo compared to a SFH is far less, when comparing similar areas.

Any recommendations for investors with limited capital to get started in investing in this great city?  

Thank you for your time. 

 Hey Tim, 

I agree with Drew. California wild fires, drought and flooding are only making it harder to get insurance. Fires have taken out full towns and cities. There are a number of areas where violent crime exists, but as investors we research and avoid the noise to find the facts. 

Come for a visit and I'll show you why Detroit is a great place to invest.

@Derek Elliott

Metro Detroit

My rental portfolio is here and performs very well and is very similar criteria to what you’re mentioning

Purchase: $80k-$130k

Rent: $1100-$1500

ROI: 10-14%

Cash flow: $250-$350/door

Appreciation: Double digit (for the past 10 years, can send data)

Location: C+, B- (suburbs and certain markets)

We have over a dozen Fortune 500 companies just in Metro Detroit with huge Healthcare, Auto, and mortgage industry National footprints. Ford, Rocket mortgage, Beaumont hospitals and more. All complimented with Amazon fulfillment centers, google, and more tech manufacturing jobs.

The bad reputation of “Detroit” comes from OOS investors wanting $20k D class properties. We don’t buy those lol.

@Tim Bee "lots of strong storms"?

Man you really are trying to project a lot of negativity on Detroit!

You're in California - so why invest in a state with a drought and potential of earthquakes?

FYI why don't you look up annual weather damages by state? Michigan is nowhere hear the top!

too many to choose from. I have more books somewhere else around the house.

I am an aspiring property investor looking for advice from seasoned investors wishing to pass on their knowledge.

As an investor, property manager, and Realtor focused on selling investment properties I have seen most new investors make the same mistakes.  Many times they come to us for help on the property management side and we are the bearer of bad news.  

1. Failure to asses asset condition - If you are buying a 100K property with a $1500 rent roll you have most likely bought a high risk property, or purchased a property with deferred maintenance.  You may cash flow for a little while, but the bill is coming due.  

2. Failure to  asses variable costs - Similar to the above statement, if you have a high rent roll, and a low cost of acquisition, your variable costs are generally much higher than you anticipate, maintenance, delinquency, vacancy..  

3. Failure to analyze properly - Using percentages for analysis can be very deceiving. If I have a $3,000 rent roll and am saving 20% for CapEx and maintenance I have $7200 per year. If I use the same % on a $1500 rent roll I have $3600 per year. Just because your property cost less, does not mean vendors cost less. You will pay the same for a roof as a B class property. If you are using a general % to calculate anything you will find as your rent roll goes DOWN your operating percentage tends to go up, squeezing your margin.

4. Failure to understand risk - Not all vendors can be trusted, its your money and you need to protect it. However, when you find a reputable vendor/Realtor/Property Manager and they try to talk you into buying a $250K property instead of a 100K property, at least understand why. If you are buying a 100K property (probably a bad area, or bad condition), all of the CapEx items to get it into proper condition are coming out of pocket after the sale. So you can spend $62,500 + closing cost to get into a B class property in good shape or you can spend $25,000 + closing cost to get into a C or lower class property that is high risk and will need lots of out of pocket money to upgrade. You will have lost more money due to vacancy, had to manage vendors, pull permits (possibly) and do all kinds of other things that are a time commitment as well as Capital intensive, and all the while you are still in a tough area. If you want to upgrade a house, you should do a BRRRR... Front load your risk!!!

5. Failure to find current Happiness - This is a new trend, I think I blame bigger pockets.  Sorry BP, I love you guys, don't be mad at me.  New investors are seeking "Financial Freedom."  That's nice, everyone would like to have plenty of money, no stress, a super model wife, power and respect.  Chasing 15% cash on cash returns in Real Estate are not going to get you there, I am sorry to crush your dreams.  The high cash on cash returns will bring you tons of headaches.   If you are seeking happiness, you should probably look somewhere besides Real Estate.  Real Estate investing is an unbelievable tool to build LONG TERM WEALTH.  It takes patience, 20-30 years of holding, forgoing cash flow to take great care of your properties, and working far MORE, not less.   You are not going to retire on cash flow anytime soon.  However, if you buy good properties, work full time so you have good W-2 income and lenders like you, and take care of your properties, you will retire much better off than if you did not invest in Real Estate.  

In short, don't quit your day job, you will need it to invest in Real Estate...