A big mistake or not?

[abrei]

I recently closed on a new property in Las Vegas. I was told by friends and a realtor friend that the place is booming and will continue to appreciate for some time.  After doing the numbers and reading some of the posts here, I now know that this is a big mistake. I already closed last week and have committed $30k for downpayment. From the way it look, I would incur a negative cash flow of $340 per month.  The realtor still insist that this is agood investment. I was able to acquire a interest only loan since I'm not planning to keep the house very long.  Does anybody have any experience similar to this?  What options do I have?  I am very new at RE investing and would appreciate any advise.

[abrei]

My monthly mortgage is $1400 and the rentals around the area for a similar house is around $1200 to $1300 tops.  Theres also $140 for property management.  Thanks !

[ARamirez]

I am hoping that some of the more experienced investors might have some ideas on what you can do, but from my newbie point of view I think this doesn't look good. Perhaps it will turn out good if the property values do go up within a year and there are enough buyers willing to pay the increasing values of the houses.

But as far as text book examples for new REIs I think this is what you should not do.

1. Never buy property relying on future appreciation unless you are prepared to buy and hold for 5 years or more (long term).

2. ALWAYS buy properties with POSITIVE cash flow from day one.

3. Do not rely on realtors to give you investment advice (I would have asked that realtor how many of those 'DEALS' he currently owns ).

4. Learn to use other people's money (OPM) so that you are not putting such a large sum of cash into one property. The best thing about real estate is how you can use a small amount of cash if not ZERO cash at all to control a high dollar asset. See definition of LEVERAGE.

I surely hope some of the more creative investors here might come up with some good ideas for ya, but best of luck to you. I have read several recent news reports of similar type 'deals' in Las Vegas and those people got taken for 3-5 houses, now they are wondering how to bail them selves out of a much biger mess.

[Garfield27]

Yesterday, a  friend of mine called to ask for some advice about properties in Vegas.  He said that some broker/agent is pressing him into buying an investment property there.  After talking to him for 10 minutes, he was so glad that he called me for advice.  

Brokers/agents can provide some good advices on technicalities and current trends.  When it comes to knowing what a good invetment is, most of the agent/brokers, who are not investors themselves, do not have much of a clue.

Your investment might still make you quiet a bit of money relatively soon.  

Good luck.

This board is great for learning REI.  I am very new to this forum and I already learned quiet a bit here.

 

[Mr.fancypants]

I hate to say it, but this might just be a lesson learned in the importance of doing your due diligence before purchasing a property. Realtors send me listings everyday, but most of them aren't money making ventures. Sometimes they forget I am an investor and instead treat me like a typical home buyer. Realtors make money, even if you don't. So before buying houses, make sure you verify any claims they make.

But on the positive side, I can't imagine anyone really losing money on real estate in Las Vegas. That area probably appreciates higher than most. You might have few months or even a year of negative cash flow, or breaking even, but if your tenant moves out in a year you can then up the rent to current market prices. If you can afford taking some hits during the holding period, it will probably be okay later. Hope this helped.

[abrei]

Thank you all so much for your advise.  I really think I've learned my lesson here.  Due diligence is indeed the key.  Its great knowing that there are other investors like yourselves who are willing to take the time to help others.  More than anything else, this experience motivates me to learn more about this business.  Speculating is very different from investing.  I am just hoping that I can ride this wave without losing a lot of money.  I know my next investments will be based on tried and true investing practices.  Thanks again guys!

[reoconsultants]

I would look into doing a lease with option to buy! Collect your down payment and put it out for two years! re-coop some of your down and move on!

[abrei]

reoconsultant,

Thanks for the reply.  I'm planning to hold the property for at least a couple of years and sell it when the market is favorable.  Leasing with option  to buy does sound like a good idea.  My question is this:  Within the next year or so, if I want to buy another investment property ie. 4-plex or a small apartment, how can I get a loan without putting sizable downpayment?  I currently have 2 mortgages including my primary residence.   I have pretty good credit rating and a little bit of money invested in mutual/stocks.   Thanks!

[Dave T]

Las Vegas is the fastest growing housing market in the country right now.  Housing prices have appreciated as much as 50% over last year.  Over the past year, real estate settlements averaged 500 per month.  The numbers look good, the trends look good, optimism will fuel this market for the next 12 to 18 months.

While we can be generally optimistic about the market as a whole, noone can say whether a specific property in that market will participate in the boom.  What you have here is an error in the application of forecasting -- trying to predict (with certainty) the outcome for a single property based upon the aggregate results of a much broader population.

It may still work out for you, but this investment, with its negative cash flow, is just speculative.   If you can not afford to lose your investment, then you can't afford to speculate.  A lease/option may be one way to mitigate your downside risk, yet still preserve some potential profit.

[elster]

I tend to agree with the last post, in that Las Vegas also is a top destination for retirees, along with Arizona and Florida.  Considering 1/2 of the country will be eligible for retirement in a few years (55 & over), I don't think you made a mistake, if you are planning on holding for awhile.

[Jeff Adam]

Abrei:
I dont know how you could not be making a positive cash flow if you took out an interest only loan on the property?  You must have paid full-retail value.

If you are  going to invest, you need to know what market you are in?

-Buyers Market Stage-1
-Buyers Market Stage-2
-Sellers Market Stage-1
-Sellers Market Stage-2


Once you understand the different types of markets, you will know when and what markets to buy in.  
You definitely should not listen to real-estate agents for investing advice for the most part.

I don't think you will ever go wrong in Las Wages I mean Las Vegas as the city is booming!  However, I dont agree with taking a negative cash-flow.  You could always re-sell and try to buy in a situation where you are making $200-$300 a month positive cash-flow.  Or,  you can ride the wave...

Best Riches,
Jeff Adam

[abrei]

Jeff,

This is a new property on an established and gated community.  I paid $3k less than the appraised value.  I was told the area appreciates at least 1% a month.  Based on my estimates, the rental rates on similar houses around the area is about $1200-$1300.  On an interest-only w/ 6.4% ARM  loan my mortgage would average $1300- $1400 w/ property mgmt.  I think I would be able to hang on for a while as long as the appreciation rate is stable.  

Thank you all for your responses!