Las Vegas area house lenders

Oh I'm speaking in generalities, notably that the higher end market seems to be moving more swiftly than the lower end market at the moment in the areas I operate in. That being said, this is just in the areas I do most of my business in. That's why I hesitate to really give any specifics elsewhere. I tell someone from a part of the country that I'm dealing with bidding wars and they will go off on a tirade about how down it is where they live and you can't give a house away. The thing is, neither of us are wrong and it's just a lot more nuanced.

But buying rentals hasn't really changed IMHO. For the reasons I mentioned previously. Long term, I think it's still a win because I don't see supply issues really working there way out in most areas. I was reading an article today that some builders are loading skilled trades workers up on planes from all over the country, because there is no local labor available. That's just going to slow things down and have them focus on fewer units at higher price points. Further eroding any chance that normal houses could get any cheaper. It's even been said by some in the industry that your "average" homebuyer likely has only a few years before the idea of homeownership is completely out the window in major metro areas. In a lot of them, it already is. So if something pencils out now, I suspect you are going to be fine in the long-run.

 

Thank you for the very informative explanation.

 

@auminer

Sorry for the slow reply. I haven’t been online much. I left my job at the end of the year last year and I have been trying out some new ideas.

My wife and I bought properties primarily based on the return we could get from rent. We accidentally made good money on appreciation, but I think that is unpredictable and hard to count on. In my opinion, one of the most important concepts is figuring your total ROI and, more importantly, your COCR (cash on cash return). Your COCR is what percentage you are making on the money you put in. Then that becomes a balancing act when considering risk (leverage) versus return. It’s actually why we sold everything. We didn’t want to expand to more units, so we paid them off, properties appreciated and then the COCR got too low.

I’m probably not doing the best job of explaining that. If you post up some numbers for your proposed rental, I can quickly run the returns for you.

We have now started doing some private money lending. That has been really fun and lets us stay involved without having to do much day-to-day work.

 

2020 Purchased a way too big house on 5 acres in a Dallas/FtWorth ex-urb. Got it for a very sweet price and financed for 2.25%. Needless to say, I'm not paying extra on the principle. I'd be happy to have my estate pay off the loan when I croak. BUT... This property, it turns out, is now just off the path of an 8 lane outer loop highway set to begin construction in a couple of years. When we bought the place, the path for it was supposed to be almost a half mile away. It is now ~150' off the southwest corner of my property, with the northbound service road crossing the 5 acre parcel to my west. There is no on-ramp for a long way south of my property, with a couple of major roads along with massive development to the south, so THOUSANDS of cars will be going up the service road on the way to the metroplex every morning. Comparable parcels zoned commercial with similar traffic look to be appraised at 400-500K/acre. I'm definitely not counting any chickens, but this could be a very nice retirement kicker.

Last year's purchase: 120K raw land purchase (cash), which we realize now was a mistake we're trying to cash out of break even or perhaps at a small loss. 220K rental property purchase price in cash. We were cash flush from the sale of 2 over-appreciated DFW properties in 2020. Rental real estate in a calmer market such as Lubbock seemed the best place to put it over the stock market, bonds, CDs, or under the mattress. We already have too much stock market exposure for our age. We're less than 10 years from retirement. The math I ran on it (what you're referring to as COCR) was based on it renting for 1500/month. 1500 minus 10% management fee, minus 4K annual property tax, minus insurance meant that 220K would bring in 5% annual net of those expenses. Any appreciation would be gravy. Turns out I underestimated insurance cost a bit, I don't have that number in front of me, but the house rented for 1650 so I'm still well ahead of that 5% target.

5% net of basic expenses is acceptable to me at this stage. We're looking at 250K or less 3/2 properties with similar rental incomes to the existing one. We'd be financing 40ish percent of the purchase price and paying it off EXTREMELY aggressively; hopefully 4 years, maybe 5 at the outside. After that, who knows. Maybe another one, maybe sit tight and build up some cash for awhile and see how things go vis-à-vis this highway and possibly selling this house as a knockdown to a commercial developer. Or, maybe to someone who wants a 5 acre equestrian estate where he can go from his garage to 70MPH down the interstate in under a minute.

It sounds like our approach is different in that I am very opposed to heavily financing these rentals. But, with a paid-for house, is 5% after the above expenses about par? I kind of got into the landlord game by default given the economic factors at play (and me & the missus' ages) making other investments less palatable. I really don't know WTF I'm doing. But I'm a pretty quick study.

THANKS!!

 

CDs are now paying 5%. Jus sayin'.

 

That's not keeping pace with inflation. A home is (theoretically) participating in inflation while earning 5%.

 

There’s a lot to unpack in your post, but I’ll focus on the $250k rental. You are correct that your COCR would be 5%. Keep in mind that the S&P500 has an average ROI over its lifetime of nearly 10%. The problem is, in your case, you can’t finance to raise your COCR because you would then be losing money. I also don’t see any reserves for vacancy, maintenance, etc. Average vacancy for good properties is generally considered to be 7%. I’ve lost track of how many furnaces, roofs, water heaters, etc we have bought over the years. It doesn’t necessarily make the property you’re looking at a bad investment, but I wouldn’t do it.

My background is in sales. I have bought and sold stuff my whole life and I enjoy it. I always felt that the buy was the most important part of investing. It’s the number you can never change. You can always try to get more rent, lower expenses or whatever. You can never change the price you paid. My wife and I would evaluate dozens (sometimes hundreds) of properties for every one we bought. It’s common with people I’ve helped that they fall in love with a property quickly and then kinda make a case for it. For us, we had criteria and if we couldn’t get there, we didn’t buy it. I never paid full retail. I always found an angle. I was always worried that if we got in trouble, I wanted to be able to get rid of a property. I figure it costs about 10% to sell, so I need to buy it for at least that much under market value in order to feel safe.

There’s lots of ways to invest. This advice is worth what you paid for it. YMMV.

 

I realized that I forgot a major point I wanted to address.

We learned that you have to account for risk (other than market risk) in real estate investing. We had a lot of properties and therefore a higher exposure, but real estate has some known risks. We had a tenant burn down a house. We were sued two different times for slip and fall accidents. We had a tenant leave a dog unattended in a property for almost a week even though our lease forbid pets. We had a tenant die without an estate to handle their responsibilities. I could go on and on with things that were not preventable. These things are going to happen and they have to at least be considered in your plan. I would contend that they are more likely to happen with a management company. We ran a pretty tight ship.

Don’t get me wrong, I love real estate investing and it made us rich. I just think casual real estate investing can be risky and you need a good plan.