Where are the positive cash flowing properties in Las Vegas?

[Jacob Olson]

Hi, I've got no skin in the game and I'm trying to get my foot in the door on some investments in real estate before I decide to leave Las Vegas in 2 years. My goal is to obtain my first positive cash-flowing property with no money down or out of pocket by 2024. I have access to the VA loan which should allow me to do this. My biggest problem is recognizing deals and actually pulling the trigger as I do not want to hurt my chances of home ownership in the future (I've never owned property).

Now, how do I do this?

[Eric Fernwood]

Hello @Jacob Olson,

There are cash-flowing properties in Las Vegas, we close multiple each month. However, the days of being able to cruise websites and drive around and find good investment properties ended at about 5% interest rates. We're able to consistently find cash-flowing properties by utilizing the data mining software we developed to identify candidates and processes for bringing them to market. However, do not be misled by paper cash flow calculations.

Probable vs. Paper Cash Flow

The first investment property I purchased was a fourplex in a distressed area of Houston. On paper, the property seemed like a cash cow. However, factoring in the cost of vacancies, evictions, skips, property damage, and maintenance, I was actually losing money each month. I was able to reduce my losses to about $1,000 per year (after-tax savings) by doing my own maintenance, but this still took up most of my weekends.

I learned an important lesson. Paper cash flow is not the same as probable cash flow.

I sold that property and I next purchased two 4-plexes in a suburb of Atlanta. Good cash flow, no tenant issues, low maintenance costs, long tenant stays.

The difference between the Houston property and the Atlanta properties was the type of tenant that was attracted to each property.

Instead of buying based on paper returns, and hoping everything will work out OK, I changed my method completely. For the next properties I purchased, I first identified a tenant segment with a high concentration of reliable tenants. A reliable tenant is someone who stays many years, always pays the rent on schedule, and takes care of the property.

After identifying this tenant segment, I determined what and where they were renting. I then purchased similar properties. The beauty of this approach is that there is no guessing involved and you do not need to follow any opinions. It is a straightforward and simple process: identify the tenant segment you want to occupy your property and purchase what they want to rent. It's as simple as that.

Using this approach, we have delivered over 480 investment properties with an average tenant stay of over five years. During the 2008 crash, our clients had zero rent decreases and zero vacancies. Over the past 15 years, we have had only six evictions out of a tenant population of over 1000. In short, this process works extremely well.

Takeaways:

• Select a tenant segment with the right characteristics.
• Buy properties this segment is willing and able to rent.
• Work with a skilled property manager who can consistently select reliable tenants (very few property managers can do this.)

Once you identify conforming candidate properties, you have to further evaluate each property on the following:

• Time to rent
• Renovation cost & risk
• Initial ROI and cash flow
• Purchase price
• Maintenance cost
• Acceptable rental restrictions (primarily when the property is within an association).

Financing

Finding a rental property that targets a tenant segment with a high concentration of reliable tenants is only part of the solution. You also need the right financing if you are going to have a positive cash flow.

Due to high interest rates, the finance process has undergone significant changes. Below is an illustration of the traditional loan process: choose a lender, receive pre-approval, and close with that same lender.

Today, you still get pre-approval, which we used to make offers. However, after your offer is accepted, we send your pre-approval and property details to multiple lenders and ask for their buy-down rates. See the illustration below.

Our team sifts through all the buy-down options and selects the top five or ten. We then present these options to our client as a multi-columned spreadsheet, and together we choose the best option for their situation. Once a lender is selected, we move the loan to them. See the illustration below.

Below is an example of a difference the right interest-rate buy-down can make.

The client utilized an increased down payment along with an interest rate buy-down (1% of the loan amount) to achieve an interest rate of 5.99%.

Summary

Summarizing the process we follow:

• Identify a tenant segment with a high concentration of reliable tenants. You can do this by interviewing property managers and conducting research.
• Purchase properties that are similar to the ones the segment is currently renting. Make sure to vet each property against the additional requirements listed.
• Once you have a property under contract, obtain buy-down quotes from multiple lenders and choose the best option and close the deal with that lender.