Condo in San Diego or Single family in Las Vegas?

Question

Hello! First off, thank you BP community, I have lurked in the forums for a while and have found many answers here before from this great community. Here is my situation. I am looking for an investment property under 320k and that can bring in about 2k in rent, would be for buy and hold. I’m in between condos in C class neighborhoods in San Diego (Escondido, Oceanside) or a single family home in Henderson, NV which I believe is more of a B class neighborhood, but not sure because I’m not super familiar with Las Vegas. Any insight to these two options and what you would rather get into would be greatly appreciated! Thanks!

Eric Fernwood · Answer

Hello @Kent Fang-Ching,

Condos have different characteristics than single-family homes. You cannot compare the financial performance between the two based on the purchase price alone. We’ve looked at condos as investment properties several times over the years and decided to stay with single family and townhomes for Las Vegas. Below are some of the reasons we do not recommend condos as investments.

• Short tenant stays - Condos typically attract tenants who stay for about two years or less. These are mobile people with no children to lock them to a location. In comparison, the average stay in the single-family and townhouse properties we target is over five years.
• High HOA fees - Condos typically have high HOAs, plus frequent special assessment if the building is older, making it difficult to get a reasonable rate of return.
• Condos have a lot of competition - In Las Vegas, condos compete with apartments for tenants, which keeps condo rents low. After all, would you rather rent a 20-30-year-old condo, or a newly built apartment with multiple pools, a theater, a running track, exercise room, free WiFi, etc?
• Financing limitations - While residential financing is available for most condos, I believe investment financing is only available if certain criteria are met (such as 51% or higher owner-occupants). Investors will most likely have to pay cash for most condos. Single-family homes and townhomes are easily financed.
• Condo cross-unit maintenance issues - Condos are in close proximity to other units. The result is unwanted interactions. For example, if the unit above has a leak and your unit is downstairs, it damages your unit. You have almost no way to compel the upstairs owner to fix it, let alone pay for your damage. Sometimes it isn't easy to get hold of the owner. It could take days or weeks. Meanwhile, the problem in your unit gets worse. This is especially true if there is mold caused by a leak upstairs or a unit on the other side of the wall.
• The close proximity of neighbors - When neighbors cause problems, your tenants will complain about noise, cigarette smoke seeping through their unit, etc. There's nothing you can do about such neighbor issues. One problematic neighbor in a condo will have your tenants wanting to leave instead of renewing the lease.
• Maintenance cost - Condo associations typically maintain the exterior of the properties, but you still maintain everything else, including the HVAC. Due to the climate (Mojave Desert), the construction materials used in single family homes make them very low maintenance. In our experience, the annual maintenance costs for condos and single-family properties are about the same. This would not be true in other climates.

Because HOAs are much higher for condos, you can buy a more expensive single-family home and have the same monthly expenses if you finance. Below is a model with 4 columns. Columns 2 and 3 compare a $330,000 single-family home with a $330,000 condo. For the HOA fee, I used $300/Mo for the condo and $24/Mo for the single family. The ROI for the SFR is 2.65%, and the ROI for the condo is -.75%. The difference in the simplistic example is the cost of the HOA.

In column four, I answered the question, how much more could I pay for a single family home with a $24/Mo. HOA vs. a condo with a $300/Mo HOA? To keep the same monthly expenses, you could buy a $390,000 single family home. When you factor in the vacancy cost (5-year average tenant stay vs. 2-year average stay), you can afford even more SFH than a condo to have the same cash flow.

In conclusion, you need to take into account the higher HOA fees and the shorter tenant stay of the condos.

Samuel Toma · Answer

Hi Kent,

Like they said earlier, it’s all in the numbers; either could work. I’m in CA investing in Las Vegas because I believe in the future growth of the area in both population and price. From what I’ve seen, if you had to choose between a condo or SF house, all else equal, you would choose the house. People will always love SD for obvious reasons but I think Vegas is a place that you can confidently buy and know you will be able to increase rents at healthy rates and will also experience appreciation. Good luck!

Michael Robbins · Answer

@Kent Fang-Ching I am a property manager, rental property owner, and real estate agent in Henderson/Las Vegas NV.  At the moment, homes single-family homes (detached) that can command $2,000 m rent range in price $375,000 to mid $400s. The HOA dues will range between $15-200m and I would consider the value B+.  There are exceptions of course and several areas to consider.  I would also note (as I am sure many people are already aware) that our market in Vegas has become "reasonable" and much more balanced in terms of what sellers are listing homes at.  We are also seeing homes sell below list price.

Jack Mawer · Answer

I would say San Diego! I feel that you could get a greater return on rent there (maybe even look into a short-term rental to maximize profit) and it would be investing in your same state which is always a plus.

Kent Fang-Ching · Answer

Thank you for the insight guys, very much appreciated! After looking over our numbers and options, I’ve decided I need to bring my budget down to 250k-260k so it pretty much puts me out of the San Diego market. In looking at the Las Vegas options, I see condos in the 89052 zip code seem to bring a little higher rents and by doing a quick Google of the zip code it also seems like a pretty good part of Henderson. For those of you with Las Vegas insight, what other zip codes should I be looking at in the 250k range that would bring in the most in rents? I see more single family homes in North Las Vegas but have also heard the area is not as nice. I’m actually going to Las Vegas at the end of December so will be able to take a look around but would like to research certain areas first. This would be all cash so no financing needed. Thank you in advance!!!

Ruby Villa · Answer

@Kent Fang-Ching Yes, 89052 is sought out. In fact, my office is located right in the heart of 89052. However, at this point I would not rule out any areas to invest as you could miss out on a better deal. Now if later down the road, you may personally use this property then I would focus on zip codes as we'd be living, working, kids going to school in this community. Only thing is neighborhoods do change for better or worse after some time. If this property is only going to be used as an investment there are many areas throughout the valley that are worthy. There are certain areas up north that could work as well.

Our property manager performs multiple inspections throughout the year, maintaining good if not better condition of our investments and we have been so pleased with their communication and  transparency in comparison to other PM's we have worked with in other parts of the country. Also, rather than taking all of our cash and only purchasing one property we spread our cash in large down payments towards multiple properties and financed the rest. The rent income for each more than covers the mortgage payments and you ultimately end up with good debt, a larger investment portfolio, more equity over time that will lead to financial well-being. You have got to be so excited with all the options!

Roi Ford · Answer

Well said Samuel...

Roi Ford · Answer

Hi Kent, like Mr. Wappler, I live in Las Vegas, and I have a very intimate knowledge of the area.  89052 is definitely one of the best zip codes to invest, but you also have pockets throughout the city where prices are reasonable and rents are high.  We should chat, I am an Agent, Property Manager and Investor and can definitely give you some insight.

Nicholas Coulter · Answer

@Kent Fang-Ching I would think this would depend on your goals! Would love to chat more about it to see if I can offer any advice!

Condo in San Diego or Single family in Las Vegas?

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