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Updated almost 2 years ago on . Most recent reply
*HELP First time homebuyer wanting a rental property, should I pull out of this deal?
Hi, just stumbled upon biggerpockets on spotify today as I'm getting pretty desperate considering it's the last day I can pull out of an agreement at no forfeiture of my EMD. Five days ago I signed with a new construction out in North Las Vegas near North Decatur due to some competitive incentives they offered. I jumped into the deal thinking this was too good to pass up but now I feel I may have made the wrong decision after running some personal finance numbers and how it will be a negative cashflowing property, looking for anyone knowledgeable in this and familiar with the las vegas market to give some advice please. Listed below breaks down the whole thing.
My gross yearly income: $52,752
-------------------------------------------------------------
Total Estimated Monthly Payment
Principal & Interest $ 1,891.50
Monthly Hazard Insurance*** $ 31.42
Monthly Property Taxes*** $ 304.54
HOA Dues $ 204.00
Community Dev District Fee *** $ 41.33
Total Monthly Payment $ 2,472.79
Here's my original naive plan,
I bought into a $365,000 VA loan at 4.5%, no down payment, and with the incentives this new build is offering, I am paying a total of $2000 in closing costs which means I don't have to come out of pocket too much and they're paying for the rate buy down from 4.99% to 4.5% (4.99% was the original incentive they offered). The mortgage payment is around $2500/mo and it could rent for around $2,100/mo It's a 3 bed 2 bath condo (looks and feels like a townhome). I already have two roommates that will be paying me in total $1500/mo for rent until I move out in 1.5–2 years. After I move the home will be managed by a property management company that charges an 8% fee. Now depending on what my property is valued at in two years I'll decide to either sell it or keep renting it out at the cash flow negative of around $610/mo until the property is worth more than the cost of selling and how much money I've lost renting it out for the 3+ years but if my property appreciates in value 3% a year, in 5 years that's $423,135.04 and if I sell then I would pay ~8% in selling costs which is $33,840 + the cashflow negative rent for 3 years ~$25,620 + the closing cost money I spent when buying $2000 + misc. expenses $10,000 = $71,460 spent. Price of sale: $423k minus expenses: $71,460 = $351,540. Now according to the amortization schedule on the loan in 5 years, I will have a remaining balance of $340,379 take the sale returns of $351,540 and pay off the remaining balance of $340,379 which leaves room for a $10,161 profit over the course of 5 years which is better than renting in those 5 years... right?
Most Popular Reply
#3 1031 Exchanges Contributor
- Investor
- Las Vegas, NV
Zero profit is better than renting for 5 years. I can’t see where you added the extra income from increasing rent 5%+ per year but that’s also additional savings you aren’t paying 5% additional rent per year by the 5th year you are either paying 25% more rent or collecting 25% more rent.
I’m not saying anything specific about this deal as I’m not a big condo/townhome fan. I’m just saying you have much more control as the landlord than the tenant about when you have to move. Plus you’re living in a new build instead of an exiting unit. Plus you get to take a bunch of passive losses for tax savings.
Personally I’ve never considered a new property but I am seriously considering doing a 1031 exchange in to the DR Horton new builds north east of the Aliante casino. Heartland falls/summit/Manor.
#3 1031 Exchanges Contributor
- Investor
- Las Vegas, NV
Zero profit is better than renting for 5 years. I can’t see where you added the extra income from increasing rent 5%+ per year but that’s also additional savings you aren’t paying 5% additional rent per year by the 5th year you are either paying 25% more rent or collecting 25% more rent.
I’m not saying anything specific about this deal as I’m not a big condo/townhome fan. I’m just saying you have much more control as the landlord than the tenant about when you have to move. Plus you’re living in a new build instead of an exiting unit. Plus you get to take a bunch of passive losses for tax savings.
Personally I’ve never considered a new property but I am seriously considering doing a 1031 exchange in to the DR Horton new builds north east of the Aliante casino. Heartland falls/summit/Manor.
Not too familiar with LV market, just a disclaimer... have you considered STR or MTR? Maybe talk to your future PM (if you have one lined up already) and see what they'd think about it, assuming they manage STR and MTRs and know the area well.
Sir I have no idea what STR or MTR means or what a future PM is I'm new to all of this and would love to learn!
PM is a property manager, which you said you would be using. I proposed MTR and STR because certain markets have very strong demand for those, and you can increase your rental income as long as you don't have too many vacancies. Hope this helps!
If you’re still active duty, you’ll eat that cost each month…
It’s better to find a cash flowing deal, run your numbers, then execute.
I'm still active duty Air Force and have used my VA loan three times.
The right deal will come along. Just keep searching.
I wish you all the best.
I ended up backing out of the deal, thanks for the advice!
@Jacob Olson Hope all is well and welcome to BP. It crushes me to hear you backed out of that property and here is why:
- The rates offered and incentives you CANNOT find anywhere else. I don't work for new builds but in North Las Vegas, DR Horton especially, you CAN'T beat this. You won't find rates like this for a long while plus the Closing cost assistance.
- This is a brand new home with all the warranties - you won't be throwing money at fixing it, rennovating, etc. PLUS it has all the warranties.
- Vegas is an APPRECIATION game, not a BRRR game as much as other locations. You've been listening to podcasts of course and some could be outdated and not reflect the current market place. You need to get your foot in the DOOR. Get your first property. Home values are only going to go up big time in Vegas over the years. THEN when rates drop, cash out REFI, get big money to use on another property, have a lower payment.
- Rents will increase as well. Your payment will be lower from REFI and you can demand more from rent.
- PLUS you get to live in a nice new home while stationed here.
I can go on and on. I'd love to give you more insight - shoot me a DM. I am active duty stationed at Creech.
@Jacob Olson What about a single family detached house with lower HOA fees? What if you could find a resale house with an assumable VA loan at a low rate like 4%? There is produce out there.
@Jacob Olson Assumptions are another option as Phillip mentioned. You will most likely need some down payment to cover the balance. Happy to talk on this option as well!