Buying first home to live in- Should we make sure it cash flows?

Question

Good morning Bigger Pockets. I am new to the site and podcast. I have listened to about 30 or so Bigger Pockets podcasts and read investing books such as The Millionaire Real Estate Investor and Hold over the past two month. My goal is to read a real estate book a month.

So, my wife and I are looking to buy our first home, in the Las Vegas market, specifically 89143, 89131, 89084 or less preferred zip codes of 89033 and 89149. Our housing criteria is below. We are able to find single family homes at what we believe are slightly under market value, but none of our offers have been accepted. The houses have sold for about 3-5% over our offers.

Two Questions:

1. Any advice for someone looking for a single family home to live in? Things I should be considering that I am not.

2. Should we be looking for a property that cash flows? I have run, my understanding of, the numbers and have not found a single family house matching our criteria that would cash flow. If so, I feel like we are buying strictly for appreciation and obviously to not pay rent anymore. As a newbie am I taking the wrong approach?

Criteria

Single family homeGreat/safe Location (zip codes above)Below market value (10-20%)--not sure if this is attainable/realistic. We have not been able to locate such properties. We have lowered our standards to 5-10% under market valuePrice (max 350K including reno costs)Price on the lower half of the neighborhood ("Chevy in a Cadillac neighborhood" is the goal)Max 4 bedroom 3 bath.No more than 3,000 sq ft.Open floor concept or potential for one (potential for a large kitchen/large kitchen)2 car garageBackyard

No major renovations needed (looking for minor renovations such as new flooring, paint, new countertops, poor landscaping, )

We are interested in Centennial Hills, Northwest area.  Maybe NLV--Aliante region.

Thank you in advance.

Michael

Christopher Brainard · Answer

@Michael Mohan

Hi Michael and Welcome to BP.

If I read your posts correctly, you're currently offering ~5% less than market, and the homes are selling for ~5% more than what you're offering, so they're selling at market. Las Vegas has been hot for many years and typically homes do sell for market value. Additionally, there are MANY cash buyers in the valley, so even if you have a full cash offer, it doesn't provide much value to sellers.

If you want to find a home that you can buy below ARV (After Repaired Value), then you need to look for distressed properties or value add opportunities. Now, I realize that you don't want to do any major renovations, but you aren't going to get a major price discount for free. You'll be hard pressed to buy something below market that doesn't have something wrong with it.

With all that said, I think you're looking at this entirely the wrong way. If you're buying a primary residence for you and your wife to live for the next 10+ years, you need to buy something you like. The actual price you pay for the property isn't going to matter that much in the long run, and your focus should be on your quality of life. Pinching the pennies is for us investors :)

Good luck with your search,

-Christopher

P.S. Shoutout to @Jon Lee and @Phillip Dwyer, hope you guys are doing well in Vegas :)

Phillip Dwyer · Answer

@Michael Mohan  Is this property purchase is for a primary residence?  I think you're going to find it difficult to meet your primary residence criteria and your investment criteria with the same property.  With a 1-2 month supply of houses on the market, getting something that far below market value may stall your purchase into the next cycle.

One of your few options would be to find something with a bunch of deferred maintenance.  Even then, you'll likely be paying market price for it's worth at that condition.  However, you can force appreciate by adding value on the rehab while you live in it.

If you are not on a time line to find a place to live, I suppose you could wait it out.  The problem becomes your going to be chasing a fast moving market as Bill mentioned.

Christopher Brainard · Answer

@Michael Mohan

You got it :) My wife and I just put a house under contract for us here in Texas and even though we are full time experienced investors, we paid up a little bit to get what we wanted. You can always invest some capital to make that 5% elsewhere.

-Christopher

Phillip Dwyer · Answer

@Michael Mohan How long do you plan to be in this house?  Are school zones something that is important to you now or in the future?  One way to hedge your risk is to buy something in an area that you can stand to live in for the long run in the event you have to ride out a market correction.

Jon Lee · Answer

Hi @Michael Mohan.....Welcome to BP and the Investing Game.  I'm here in Vegas with you and very familiar with our uber competitive market.

First off...never buy for appreciation alone.  That strategy is what screwed so many "investors" when the crash hit...they thought prices would go up forever and they didn't realize that the market is cyclical.  Cash-flow is always the higher standard and there is nothing wrong for looking for property out of state to find the right investment for you.

If you want to connect in person to discuss strategy further, feel free to text me at my number below and we can schedule time to meet over coffee.  I look forward to meeting you!

Michael Mohan · Answer

Understood. I appreciate the advice Christopher. Yes, homes are selling for pretty much market value, in my opinion. My takeaway from the responses are to buy a house we like as long as we plan to stay in it for substantial amount of time. I think my eagerness to apply the real estate investment principles that I'm learning are not applicable to my situation.

Phillip Dwyer · Answer

@Christopher Brainard  Spot on.

Michael Mohan · Answer

Yes, that is one of the agreements between my wife and I. When we buy our house the plan is to stay in it for at least ten years. If the market is down during those years we would stick it out unless extraordinary circumstances present themselves. So, the area is good enough to raise children in. I appreciate your responses Phillip.

Buying first home to live in- Should we make sure it cash flows?

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