Is buying+holding a sf home at $175,000 a good deal?

Question

The property is in Kyle Canyon. The garage is attached to another house, so its not truly a single house. It's 3 bedroom 2.5 bathroom built in 2004. HOA is $68 per month. Zillow has property tax at $1005 per month.

Zillow lists expected rent at 1250. Houses like these are going for ~$200G, so not sure how I landed such a deal.

What should I look out for? I want to keep and rent. This may be my first property. Will be managing out of state.

Ali Boone · Answer

Oh boy. Okay, lots of risk factors if you don't do more research than that. A few points:

- Never trust Zillow or anywhere else for property tax amounts except the county's tax assessor website.

- That sounds like absurdly high property tax!

- Find all the other expenses while you're at it. Insurance (get an actual quote), will you be using a property manager if it's out-of-state?, and factor in estimates for vacancy and repairs.

- Do you have any idea what condition this property is in? If comparable properties are going for $200k, and this one is listed at $175k, that's an automatic sign it could be in bad condition (if you consider sellers try to get the most they can for a property so oftentimes they up-price it to start). The condition of a property is critical.

- Not sure if you found this property on Zillow or not, but if you did, here's some Zillow advice-

https://www.biggerpockets.com/renewsblog/2016/01/1...

- Risk factors? First, your numbers. If you really don't know how to run rental property numbers (per your post asking about the negative cash flow), you have to learn that before anything else. Here's help-

https://www.biggerpockets.com/renewsblog/2013/01/1...

More risk factors?

https://www.biggerpockets.com/renewsblog/2014/03/0...

Sorry to bombard, but just going off how you described it, you may be jumping quickly into dangerous territory.

Rajat T. · Answer

@Robert Rayford Hi Robert - can you please let me know which market are you investing in?

Robert Rayford · Answer

@Ashwin Sundar, After flipping homes in Vegas for over 2 years to moved to another market last summer because of the declining ROI ratios. I am in a great market now with returns like Vegas had back in 3 years ago. I average 35-60% ROI on flips. The buy and hold market here is on fire. I referred a few other investors from Vegas and Cal to this area a year ago and they are doing great. Forbes just listed the area as the " #1 Real Estate investment market to invest in 2017".

Jon Lee · Answer

Two things on top of all the items listed by everyone else on this tread.:

1) The property tax is not that high in Clark County.  Check property taxes on the Clark County Treasurer website:  http://trweb.co.clark.nv.us/

2) The Kyle Canyon area is really out in the boonies compared to the metropolitan Vegas area.  Your rental pool could possibly be very small which could affect both your vacancy rate and the rent amount you  can ask for.  I would connect with a property manager that is based in the NW part of Vegas to see if how feasible of a rental it really could be.  If you need a # of a property manager in the area, PM me and I'll pass one along to you.

My personal opinion is that the location alone makes this potentially not the best property for a first time landlord but do your due diligence and let the numbers speak for themselves.

Alexander Felice · Answer

Income - 1250

Expense -

Maintenance 10%      - 125

Management 10%      - 125

Vacancy 8%                 -  100

Taxes (3.2% x 200k)    -  533

Insurance (900/yr)      -  75

CapEx (5%)                   - 62

HOA                              - 68

Total Expense             - 1088

1250 - 1088 = $162

notice there is no mortgage yet? I assume you're paying all cash......

1944 / 175,000 = 1.11% CoC ROI

You can literally put your money in an Ally savings account and earn 1.15% with zero risk and keep full liquidity. It's rare that I see an investment worse than a savings account. If you get ANY mortgage, you'll be pretty deep in negative cash flow, largely negating any potential appreciation. Although with margins this tight you'll probably be negative after any single unexpected expense.

I really wrote all that to say this: SFH as rentals do not work in Las Vegas in the current market.

Robert Rayford · Answer

@Ashwin Sundar, The property tax seems a bit high, you may want to check on that again. In the current Vegas market any returns should be based on future appreciation . What most investors seems to forget is the simple math. When you buy and hold a property in a steady market it will appreciate over time. Let your renter build the equity in your investment and you take the depreciation every year during tax time. I always equate this type of investments to a savings account. Let it ride, don't touch the equity but refi in 2-5yrs to lower the monthly mortgage payment. Of course this will only apply if you are planning to obtain financing on this property. A cash purchase with your stated numbers will tie up a lot of capital. I also invest in the California Bay Area and every deal is mostly based on appreciated future values. This seems to be the norm in the western states.

Ashwin Sundar · Answer

Account Closed: Hey, thanks for the response! Would you mind elaborating a bit on why it's a negative cash flow?  It would really help me put things into  perspective. Thanks again!

Ashwin Sundar · Answer

Yeah, thanks guys. I passed on this. I'm switching markets because Vegas doesn't seem to look to good for what I'm looking for.

Thanks again!

Is buying+holding a sf home at $175,000 a good deal?

Most Popular Reply