In every market where I've purchased rental property I've looked for two things: what price range and what type of property rent best and with the greatest chance of appreciation. I will explain price range first.
In every market in which I've invested, I've found a segment of the population which I call permanent renters. These are people who, for lack of income, lack of credit, or just don't want the hassles of owning a property, rent forever. These permanent renters generally rent properties within a certain price range. The price range varies greatly from city to city. In Las Vegas, I believe the upper end is around $1,500/mo. In New York City I think $3,000/mo. The price range for your area will be different.
Do more expensive properties rent? Yes, you will find properties that rent for $10,000 a month in Las Vegas but the pool of people who are likely to rent such expensive properties in Las Vegas is very small. So, when the current renter moves out of this property, it is likely to be vacant a long time. The two things that really eat profitability are vacancies and repairs. By choosing the right properties and the right tenants you can minimize both. Why not buy the least expensive property? My experience is that low end properties have serious management challenges, higher than average vacancy rate, higher than average repair costs and low probability of appreciation.
What do I recommend? Currently, single family homes in very select areas with the following characteristics.
Here are some sample properties. Why didn't I include condos in my recommendation? Two years ago I would have. Today the vacancy rate for condos in Las Vegas is about 16%. There are a few complexes that rent well but the vast majority do not. Plus, condos are harder and more expensive to finance. Additionally, the association fees (typical fee is about $150/mo) eat into the profit and the probability of appreciation is historically low compared to single family homes. Are there cases where condos are great buys? Yes, but in the current market these are special cases and I will not cover these in this article.
To be successful in real estate you need to determine the right price range and then stay within that range. Can this be difficult? Absolutely. But bad deals are much worse than no deal because if you get the wrong property there is little opportunity to turn the property around.
How can you determine the right price range for your area? The rental sites (rentals.com, etc.) are the place to start. What you want to know is by price range, by area, what rents well. This takes a lot of time and effort but is critical if you want to be successful.
For Las Vegas, I developed software that enables to narrow my search for investment properties to relatively small areas. However, even in these areas there will be some subdivisions that do not rent well so my software eliminates these subdivisions and they do not show up in my recommendations.
Contact me if you are considering buying or selling Las Vegas real estate. You will be glad you did.
...Eric
Eric Fernwood
RE/MAX CENTRAL
8400 W. Sahara Ave
Las Vegas NV 89117
Email: EricFernwood@gmail.com
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