How bad is it to be negative?

[20/20]

LasVegasNewlist-
Could you elaborate how you come up with negative $300/month w/10% down on 300k purchase?  I'm looking at a property in the SW area but after running the numbers I get negative $600 and I'm not sure if it will rent all the time.  Curious what your assumptions are in  your calculation.  I was going on that same thinking (the original premise of this thread--BTW thanks again to everyone for chiming in--great input!) that is considering taking a negative hit each month, writing it off (yes, am in 35% bracket), taking depreciation, and coming out ahead, albeit on paper, through appreciation.  Clearly this is not for everyone--just wanted to sample the varied and sometimes strong reaction this strategy evokes.  We can debate all day and night about the VEgas market, but in the  end it comes down to a gut check.  I think there's a lot of juice left, just need to be comfortable running a loss vs. waiting it out/looking elsewhere.
Thanks

[evergreen]

Well, if you put 10% down on a 300k (average) home. You are left with a 270k mortgage. Your PITI on a IO type loan will be around $1700 monthly or as high as $2100 depending on your loan specs.

Let's look at the $1700.

If you buy your home in a good area, it will probably rent out for about $1400. There is your $300 loss. For 300k, you will probably get a 3/2 1500 sq ft home in a good and growing area (IE SW). The lot size will be small. Because land is at a premium here now and dwindling, developers are trying to cram as many homes as they can into the space they have.

As to appreciation, the area I live in has been going up on average of about 10% for 7 years now. For years homes in Vegas were dirt cheap for no reason. Now they are taking on the value they deserve. How much more? You make the call.

I really would love to hear about Utah from a rental prop side. I was looking at Houston and would like to know if it is better.

[luaprenraw]

so are you including any rental property expenses in your $300 per month negative?? little things like vacancy and collection loss(some tenants don't end up paying rent), repairs, refurbishing costs for when new tenants move in, reserves (for roof, flooring, appliances, furnace, etc), water, trash, sewer (if you are going to rent out a SFR it's always a good idea for the owner to pay for water because tenants are notoriously cheap on watering lawns if they have to pay for it. also a good idea for owner to pay for a gardener if they want the landscaping to stay nice).  

a negative isn't always bad in a rapidly increasing market(as long as it continues to increase). however, a negative can be very difficult psychologically in a flat or decreasing market.  

[dbassett74]

If you are in LA and looking to invest elsewhere, I would not do it in Las Vegas.  I would pick a more stable market such as somewhere in Arizona or even Utah and wait for the California and Las Vegas markets to correct themselves over the next few years, and THEN buy and rent.  

My wife and I are planning to move to Southern California (my wife is resuming her position with the Disney Company) this spring.  I got some very sage advice from a VERY experienced SoCal investor.  Buy and sell properties for the next few years while the market corrects itself.  Use all that cash you made to buy and hold properties after the market has corrected itself.  This is of course referring to southern California.

Honestly, if you are looking for "keeper" properties, I would look somewhere other than Las Vegas and LA.  They are both turning into "bubble" situations and breaking even is rare.

Just my 2 cents. Take it for what it is.

Good luck!

I'm confused.  You first say "Buy and Sell" while the market is correcting..  You then mention taking all the money from the "Buying and Holding".. So is it buy and sell or buy and hold??

[JeffInCT]

To the seasoned pros here;
Are there ever any situations where it's OK to be a bit negative each month on a rental, say in a market where appreciation is almost a certainty?  If so, by how much?  I'm trying to look at it as an investment and comparing it to say, mutual funds.  
If we have say $50K in a mutual fund and add $500/month, would one expect to do better taking that $50K and  buying a house that rents out but which is short $500/month.  In other words, wouldn't the "gain", though unrealized, be greater on the house in terms of appreciation than on the $50K fund account?  Is this dangerous thinking?  The fund could be any recent fund, but let's assume that stocks return 10% annually (that's what all the books say) and the real estate market is a strong one like Vegas (near the top in appreciation but cooling a bit).  Like many first time investors I have plenty of mutual funds and have known for years that real estate is a solid and possibly one of the only ways a small time guy can attain wealth (Rich Dad, Poor Dad...)--it's like eating vegetables--I know it's good for me but haven't done it.  Thinking of Vegas as a first play but wanted to see if my thinking is naive.  Targeting decent homes that would rent to decent families in areas with good schools.   KNow that will pay more but I believe in long haul this should favor better tenants and higher rents.  Not in it for flipping.  Just wondering how bad it is to be negative, as this is most likely scenario at least for now, or should I walk away and wait for a depressed market (tough to with interest rates so low...)
Any thoughts welcome--thanks ahead of time.

Here's a philosophy.  
There will ALWAYS be another property.  People are always dieing, getting divorced, going broke, re-loacating... whatever.  Wouldn't you just HATE to find out you put all your resources into a negative cash flow property only to find out the winner was right around the corner????

And you  can't buy it cuz your dough is tied up in a loser.

This was the mistake I didn't make.

I cash flowed 30 properties with little luck and was getting very discouraged. Property #31 was a guy who wanted to retire and move to Vegas.  that was my first property and a great experience.

Just say no to negative cash flow.

Jeff

[alaskainvestor]

I'm confused.  You first say "Buy and Sell" while the market is correcting..  You then mention taking all the money from the "Buying and Holding".. So is it buy and sell or buy and hold??

Yes, but WAY below market while it is correcting, and then sell for below market.  That is the best way that I see things.  Then after the prices are down, and you have made some cash from buying low and selling, take that money and (or no money even) and buy properties that will cashflow and keep them in your portfolio.  Then you can appreciate cashflow AND perhaps some appreciation.

Again, take that for what its worth.

Happy Investing,

Ryan

[2003altima]

Vegas is still going up!!!! I bought my condo 8 months ago at 157k. Now in the same complex others are going for a little over 200k. mmmmm.....I'm wondering should I fold or hold. Cali condos are going easily over 350k. ERRRRRR!!!!! >

[niravmd]

What city in Utah is more stable than Las Vegas and why?

I'd like to hear the answer to that question.

I've researched Utah & many counties have actually depreciated aprx. 4% in the last 12 months.

Vegas continues to defy logic.

-Infowell

i think i'm qualified to answer that. i'm closing on my 6th & 7th houses there next month. so far every single house i booked 4-6 months before closing has atleast 10% equity in it. i've invested in various
neighborhoods on SLC - west jordan, south jordan, saratoga springs and herrimen. all on the bad
"east side" which is quite cool actually. low vacancies, good population and job growth.

the ones in Saint George have 25% and are still being built.

you guys are just jealous!!!