What kind of numbers are you using for buy and hold in Vegas?

Question

Hello everyone!

My name is Brad and I am a local Realtor here in Las Vegas with 5 years of full time experience. I'm looking to work with more investors here in our local market. I've read The Millionaire Real Estate Agent, The Ultimate Guide to Working with Investors, and plan to read The Millionaire Real Estate Investor in the next week or so. I've run more than 100 properties (from condos, to SFR, to multifamily) through the BP calculators for buy and hold investments and a friend of mine who works with a couple of investors advised me what numbers to use for my calculations.

My questions are:

What % of rent are you budgeting for vacancy?

What % of rent are you budgeting for maintenance?

What % of rent are you budgeting for CapX?

What CAP rates are you willing to purchase at? (I know at one time it was 10, then 8, then 7 but I see a lot of investment properties being purchased for under 7)

I know these numbers will be different in different markets so I'm trying to nail these down for the Vegas market. Any advice is greatly appreciated.

Thank you,

Phillip Dwyer · Answer

@Brad Bellstedt I'll bet most of what you're seeing is actually more like a 3% cap.  Vacancy you can estimate using MLS searches of rental data.  If the average days on market is 15 days, and it takes a week to prep for re-rent, then you have 3/4 to 1 full month of vacancy.  In that scenario you'd have around 8% vacancy.  This assumes 1 turn a year, which may be on the money, overkill, or underestimating depending upon the neighborhood.  With as tight as the rental market is here, properties typically aren't turning every year.  However, I base the numbers on that to be conservative.

With maintenance and capx, I think it depends on the property (condition, type, location, ect).  If you buy a fixer that's tenant occupied, your monthly expenses are considerably higher than if you buy something new or recently rehabbed.  Also the percentage will be higher, since the rent will likely be under market given the condition.

Dan Mumm · Answer

Vacancy: 1-3% (very robust rental market for average product here)

Maintenance: 3-5% (most inventory is new with lower maintenance cost than other markets)

Capex: Most variable, I add the cost of all the components, divide by the age to budget an annual amount. For example, water heater costs $1200, lasts 8 years, = $150/yr or $10/mo. Add this for all of the components. In Vegas, pay close attention to AC and water heater as they do not last as long. Roofs last longer here than most markets since mostly tile.

Residential trades at well under a 7 cap, sometimes 3-4 cap.

Bill B. · Answer

Use Dan’s numbers,

My average tenant stays over 4 years, with 13 properties I USUALLY buy 1 water heater per year (zero fro 3 years, 3 this year) and one $2500 ac unit every few years (divided by 13 properties/26 units ).

Other than that, maintenance has been under $300/mo divided by 13 per property for the last 10 years and that’s fixing every complaint I get from tenants.

Our properties are low maintenance, weather resistant, newer properties.

Brad Bellstedt · Answer

Thank you guys! I really appreciate the advice. @Dan Mumm I really like your approach to CapX. It's logical and systematic and I love it. If there's anything I can do for you guys as a thank you, please let me know.

What kind of numbers are you using for buy and hold in Vegas?

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