early stage strategy comparisons

[Anthony Klemm]

So I'm in the early stages of developing a beginning strategy for myself in Las Vegas. I've been analyzing the market for only about a month and a half and noticing that prices of multifamily and single family homes are resulting in a PITI payment that is entirely way too close to competitive rent prices to justify investing for cashflow. Granted, my analyses are not based on due diligence like actually getting properties appraised and simply going off available info on various MLS portals. It just seems nearly impossible to filter for properties that allow enough of a DSCR to cover things like CapEx, maintenance, and property management costs. I'm calculating for prop management even though I would likely owner-operate because I need to make something off the deal if I am focused on cashflow, especially if I scale and actually need to hire a manager.

Given that interest rates in the area are about 7% and prices for single family and small multifamily have doubled (and tripled) in 7 years, the barrier feels way higher than it really should be. If I were looking for more appreciation instead of cashflow, this would seem like an amazing market. But for cashflow this is terrible.

Comparatively speaking, I do see properties that need capital improvements. I haven't gone into so much analysis to see what opportunities truly exist for BRRR strategies, but on the surface (and despite the different risk profile) it appears that this strategy may be better for developing a portfolio early on to eventually get into an appreciation friendly market.

My questions basically are:

- What do you think of this perspective on the Las Vegas market? Do you have any insight into the Las Vegas market to clarify what I am seeing? Am I even correct in my basic analysis of the market?

- How does the comparative analysis between the 2 strategies hold up in your view?

- What is it that my perspective/analysis may severely be lacking in?

- Is there anything else about this topic that pops up to you?

[Bill B.]

So you’re saying you’d rather have $100 or $200 in cashflow than 5 or 10% in appreciation? ($20-$40k/yr) then you should definitely target small midwestern towns where you can get cashflow and zero appreciation. That is until a roof or an hvac unit fails. Then you’ll wipe out 4-5 years of cashflow and still have no appreciation. 

I’ve said it before and I’ll say it again. If you NEED cashflow, you probably aren’t ready for real estate investing. Cashflow goes up in smoke All the time. 

Could you rent out your current home and buy a new primary home? (Lower interest rate, easier to qualify and lower costs.) Do you have any friends, relatives, co-workers you like that would rent a room from you? (Easiest and lowest risk.)

My main point was your complaint that investors made $200-400k in appreciation in the last 7 years, But you want to make $2-4k a year in cashflow instead. Imagine you only do 1/3rd as well as they did. And you only make $100k in 7 years. Seems more important that $14-$28k in  cash flow. 

Yes you have to be able to afford to keep the property. But you should be raising rent $100-$200/month every year. Suddenly in 2-3 years you’re cash flowing.  (You mentioned values have doubled or tripled in 7 years, but rents are also up 60-80% or more. Less than the price increase for sure. But a big difference when your costs stay mostly flat.) whether the property is positive or negative $100-$100/mo should make zero difference to you. If it does, but more money down, or forego appreciation and choose a stagnent market that cashflows. (That’s why it cashflows and appreciation markets don’t, at least not right away. )

Good luck either way. You literally can’t pick a property in any “average” market that won’t cashflow 10 years from now. But most of your wealth will come from appreciation.