Why Northern Nevada’s Ripe with Cashflow Profits


(Author’s note:  This is not a puff piece for the benefit of my city or my business.   I am wearing my investor’s hat here reporting about what I’ve been seeing and what I believe in my gut is an opportune time for cash flow opportunities.)

Patrick Killelea, the indefatigable Captain of ultra-conservative but sound real estate investing, uses a simple algorithm to judge if a home’s a good buy or not — Comparing it to the cost of renting:

“Buying Safety Rule:

The only true sign of a bottom is a price low enough so that you could rent out the house and make a profit. Then you’ll know it’s pretty safe to buy for yourself because then rent could cover the mortgage and ownership expenses if necessary, eliminating most of your risk. The basic buying safety rule is to divide annual rent by the purchase price for the house:

annual rent / purchase price = 3% means do not buy, prices are too high
annual rent / purchase price = 6% means borderline
annual rent / purchase price = 9% means ok to buy, prices are reasonable


It doesn’t require much effort to find one in Reno at 14%.  Using the above formula:  A $80,000 home can be rented out for $950 per month (it’s usually more than that).  $950 multiply by a year is $11,400.  $11,400 divided by twelve is 14%.

If you’re targeting commercial investments in Northern Nevada, I would warn you that it’s a tough sell right now — supply is outpacing demand by a high margin.  Consumer confidence is low.  Too risky:

“After hopeful signs of recovery, the Northern Nevada retail market is again showing signs of softness…the overall vacancy level in Reno/Sparks is 17.78%.

But rental market is actually improving the last six quarters and is at about what you could consider, average health:

“A quarterly apartment survey compiled by real estate appraisal firm Johnson Perkins and Associates shows that the overall vacancy rate in Reno and Sparks stood at5.64 percent in the first quarter of 2011. In the fourth quarter of 2010, the overall vacancy rate in the region stood at 7.16 percent. Johnson Perkins tracks 74 apartment complexes with 80 or more units.”

Northern Nevada’s real estate market is still on negative territory, albeit, ‘less negative’ now than two years ago.  Is there going to be a double dip? I think it’s probable.  But who cares, if your investments are catered to the majority of locals who can actually afford it (working in casinos, warehouses), in a market that is slowly improving — I think it’s a viable answer to the fundamental question of investing:  How’s risk?

Start with foreclosure auctions, my good friend Dan went a few times to observe and informed me that there are about 3-5 serious investors in any given day of auction (backed with institutional money) but for the most part, it still is largely untapped.

About Author

Fascinated with business models more than super models. Joe is a real estate blogger from Northern NV (based in Reno) stalking the Reno- Lake Tahoe Real Estate market since 2007. He is most at ease (and peaceful) when at home spending time with his beautiful wife Anna and their two kids. (And watching the 2011 2013 NBA Playoffs.)


  1. Joe – Most investors that I know would look at the criteria that you describe above and say that they are far too lax. I subscribe to the 1.5% to 2% rule, saying that if monthly rents aren’t 1.5% to 2% of purchase price, then the property is one to pass on. You can certainly make money on a property with lower rental thresholds, but in a market like this, particularly for new investors, I advise hunting for properties with higher rents.

    • Hey Josh–
      I think the 1.5%-2% rule works well in most situations. That being said, if you’re buying a brand new property in an “A+” area, I would expand the lower end of the rule to “1%”. If the property isn’t top notch in a premier area, stick with the 1.5-2% rule. Just my two cents.

      • Kyle – At 1%, that would be 12% per year . . . the guidelines mentioned in the article call 6% borderline. At 6%/annum, you’re probably in the whole big time over the course of time. Once that CapEx comes in, and it will, you’re in trouble.

        • Josh- I agree. the 6% “borderline” mentioned in the article is what I’d consider risky. I think 8.5% would be a better “borderline” rule-of-thumb.

    • Josh,

      I used $950/mo as low estimate and if you wanted renters fast; 1.5% in this example ($80,000 purchase), would come down to $1,200 rent — this is the average for a 3 beds/ 2 baths home here. 2% ($1,600) is pushing it, unless it’s remarkable home in a nice neighborhood.

      Also, I cut out from the article some ‘intangibles’ of the city (way of life, Lake Tahoe, proximity to SFO, LA, SAC, VEGAS, outdorsy-laidback lifestyle, tax advantages, cost of living, etc.) because I didn’t want to seem I was too close to the subject.

      In either case, my motive for the article is not to sell the idea, but to simple give curious folks a concrete idea on the current opportunities this side of Nevada. I am sure there are many untapped cities that are also ‘ripe for the picking’ –I’m thinking South and North California areas that are being overlooked.

    • Three other things I’d like to add:

      –Kilellea’s formula was catered to smart homeowners and not investors. So I agree with Kyle & Josh, it has to be 8.5% or better for “borderline”.

      –Speaking of rent, Killelea has a Rental Comps tool (you need to pay for in-depth info.) Seems like a good tool for investors looking outside their comfort zone/city.

      –The example I used in the article: $80,000 home at 14% ‘good buy’, is watered down. I didn’t want to spill some of the deals that are really happening because the supply is not abundant.

      Rather, it was written as an invitation for the curious investors out there to check in on this area. Something is happening. Again, this is not some “Sales Come-On-BS”, you can call another broker, I really won’t mind. That’s not the point.

      But as I’ve learned a lot from this site (since 2008) I feel I should give back to the community that has given me so much.


  2. Hey Joe!

    I like how you start out with ‘this is not a puff piece’, it actually made me feel a lot more comfortable reading on that you were going to leave valuable information.

    Anywho, I think you definitely are onto something and not just in Northern Nevada, I hear Las Vegas is doing pretty good, as well. If you can make those numbers work, then forget the nay-sayers! You must be doing something right if you’re willing to write about it and tell the whole world. 🙂


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