Have money, it's been years, ready to invest again, advice?

Question

Hello, 1st time post, been reading and learning.  I have been out of it for a while because of family, and the prices were just going too crazy.  I made offers in S. California back in 2012 to 2015 and was either out bid with cash offers or wouldn't pay over the asking price.  I have a solid credit score, cash for a good down payment, and cash flowing properties.

Can someone suggest how to buy a SFH or multiplex these days, more details in a bit.  I am a buy and hold investor and like to invest in Las Vegas and S California for now because these are the places i know and have a team to help me.  What I did in the past was drop 30 to 40% down on a house to avoid negative cash flow, they were also half the price LOL.  They were turnkey properties so minimal maintenance for the time being.  Initially they broke even monthly but now over the years I am making over $100+ a door, from either refinancing, recasting, and/or raising rents.  The problem like many posts I have read, is that to cash flow, a large amount of money needs to be placed in these areas back then and worse now.  Las Vegas was good early on but has recently been creeping up in price and harder to cash flow now.  Again, this is what I did in the past and still works for me.

Now, I guess what I'm asking is what would people do today to get into an investment property in these areas that would cash flow? Ideally I would like to put little as possible (no cash out of pocket would be awesome), buy more than 1,and turnkey (I guess I can take equity out of the property to buy more but i would have a bad interest rate, and less cash flow.) They would then go to a property manager (less headache) and I would sit home collecting income, which happens now. My method is slow but very conservative and works for me but I wanted to pick someone's brain who invests in these areas that has a better method, looking to accelerate wealth. With current markets and methods, along with my personal income, I can acquire 1-2 SF properties every 3yrs (properties range from 450k to 1.2m ea) or I can essentially pay down a mortgage and start snow balling but I want a few more properties in my portfolio.

Goal is to have quality properties that provide me retirement income, probably have no problem with this but like many, I want more. I am also trying to leverage properties with a ROI over 10% instead of 529B for the kids.

I know I may get a lot of questions  or criticisms, but I want to learn for this loaded question.

Joseph Crunkilton · Answer

Ana,

Look out of state! It's surprisingly easy today with all the technology. I've been able to buy multiple properties out of state for what I could've bought one for in my local market. With the capital you have you can buy multiple properties that will cash flow and appreciate.

@Zach Lemaster runs a company that helps investors put together deals out of state. You should have a look at them and see if it could help you.

Eric Fernwood · Answer

Hello @Ana Bejar,

I split my response to your post into the following sections:

• Why Las Vegas is a good place to invest.
• What is likely to occur in the foreseeable future?
• Investment timing.

Why Las Vegas Is a Good Place to Invest

The objective of real estate investment is to acquire a dependable, recurring income that keeps pace with inflation and lasts a lifetime. What are the Las Vegas fundamentals that will maintain the growth of property values and rental rates?

Limited Land for Expansion

Las Vegas is an island of privately owned land surrounded by an ocean of federal land (87.5% of Clark County is federally owned; 85% of the entire state is federally owned). At the end of 2019, the amount of vacant, buildable land in the Las Vegas Valley was less than 28,000 acres, of which 5,000 to 7,000 acres were not viable for residential development. The historic consumption rate is about 5,000 acres per year. See the aerial view from 2020. The areas shaded brown is federal land. As you can see, there is little remaining land for expansion.

Population Growth

Population continues to increase by 2-3% per year.

Jobs

A rental property is no better than the jobs around it. According to Monster and Open Door, there are between 26,000 and 31,000 open jobs in Las Vegas. Jobs will bring more people to Las Vegas.

Growth

While there are many open jobs today, what about the future? There is between $22B and $26B currently under construction or announced. These developments will create thousands of more jobs.

California

California continues to drive people and businesses out of the state due to high costs, crime, etc. Las Vegas continues to receive a small percentage of these people and companies, which creates more demand for housing.

What Is Likely to Occur in the Foreseeable Future?

I will start with what has happened in the past. While the future may not mirror the past, it is the best indicator we have.

We target a narrow tenant pool segment, and the following only applies to properties our target segment is willing and able to rent.

Between 2013 and 2021, prices increased by over 15% per year, and rent increased by over 8% per year. 2022 was a difficult year for everyone. While stocks dropped by 20%, and crypto crashed, our clients' rents rose by 4.5%, while YoY prices were flat.

The factors that drove growth between 2013 through 2021 still exist. So, when interest rates fall,  many who've sat on the sidelines will jump into the market, and prices will increase rapidly.

Are Las Vegas Prices Over Heated?

A question I am sometimes asked is whether prices in Las Vegas are overheated. My answer is no. See the chart below. The blue line shows the median $/SF without correcting for inflation. The green line is the 2006/2007 peak price in non-adjusted $/SF. The red line is the inflation-adjusted 2006/2007 peak price. As you can see, the current $/SF is still below the inflation-corrected peak prices of 2006 and 2007.

Are Prices Falling

Another question I am occasionally asked is whether Las Vegas prices decreased? Yes, but prices are not crashing. Also, I do not know if the decreases will continue. It depends on what happens with the interest rates. The chart below is from the MLS (02/13/2023) and includes all homes in all price ranges, not just our target segment. Inventory is currently less than three months and falling. A balanced market in Las Vegas is six months of inventory. With a dwindling inventory, I do not expect any significant price decreases in the foreseeable future.

Invest Now or Wait

Another question is whether it is better to invest now or wait. Many people tend to base their purchase decision on interest rates falling in the future. However, this is unlikely to work.

Once interest rates begin to fall, prices will almost instantly increase due to pent-up demand. By the time you purchase a property, prices will rise and you will pay more for the property and have a higher debt service because of the increased price.

A better approach is to buy a high-quality property now with an acceptable return and refinance when interest rates fall. This enables you to take advantage of current lower prices and start capturing appreciation and rent growth.

What is the current cash flow?

At 25% down and 6% interest rate (with seller buy down), first year is break even. At 30% down and 6%, you can have positive cash flow.

Ana, I hope this helps.

Chris Levarek · Answer

@Ana Bejar Invest where it makes sense. Unfortunately we can't force a market to be cashflow friendly. I live in Phoenix, AZ and have seen price increases on real estate which simply do not make them cashflow. So I invest elsewhere.

Sure you can do direct mail and find off market properties, or invest on the outskirts of town for discounts in these pricey areas. It requires more effort however and experience to get what you might be chasing.

I'd say two options, invest out of state on your own in a city that has better cashflows or "return on equity" OR invest with a fund or real estate investment firm that finds these locations/deals for you.

Either will work, with the first being more active and the second being more passive.

What will not work, is trying to fit a peg into a square hole. Some markets are not worth the effort right now without an edge or considerable effort.

Invest where it makes sense.

Have money, it's been years, ready to invest again, advice?

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