12May

One year after buying property in USA (Las Vegas) – numbers, thoughts, strategy

24 comments so far

I owed you guys who are following the Buying Property in USA blog this post already for a few months. It has been 1 year since I bought my properties in Las Vegas and Phoenix already last October (2010). However I was in the middle of purchasing a new property in Topeka, Kansas and also working on my property analysis tool, and therefore I didn’t write a proper post and haven’t done the calculations. Finally it’s here though, and it should be something important for all investors who followed my journey and my articles or are thinking about investing in the United States.

Why? Because, now I will be able to do an exact comparison of the returns I was expecting more than a year ago (when I went to the US and purchased the 2 properties) and the actual REAL results, after one year of ownership – the real incomes, real expenses and maybe the not so glorious TRUTH.

Las Vegas

So let’s start with my first property, Condominium located on E Sahara Ave in Las Vegas. Below you can see the table for the first year of operation (click to zoom in):

The closing was in the end of October 2009, so I counted November as the first month of operation. There were some “repairs” in November, but basically it was just carpet cleaning, a few fixes and touch up paint for $400. Otherwise the unit was ready to be rented out.

I didn’t count the initial set up fee for the Nicklin property management, because in the end I had to fire them after more than a month of not doing anything (see my post: Nicklin Property Management). After that I changed to RPM Las Vegas, and the set up fees are included in December 2009. After that, everything went quite smoothly and just a couple of repairs ware done throughout the year, including weather stripping and replacing a hot water heater.

The total values for the first year of operation of my Las Vegas condo are in the table below:

The total net operating income was $2,134.64 (it means 68% Operating Expense ratio – see definition: Operating Expense ratio definition ).

I also did a calculation, were I excluded the initial rehabs (in this case only the $400 for initial carpet cleaning and touch-up paint). This is just something I could possibly expect for the next year of operation, if the tenants will stay (which they hopefully will).

Now let’s calculate the true return on investment and compare it with the one I was hoping for in the beginning. For simplicity, we will just compare basic cash-on-cash return, without considering external financing (cash only deal).

I originally expected annual cash flow before taxes around $6000 and the price of the property was $46,000. Cash on cash return is CFBT divided by Initial investment, which in this case was: 13%.

In the end the real cash flow was only $2135 and so the cash on cash return was only 4,6%. That is much less, and makes the investment quite less attractive, right?!

Well, what makes it at least a little bit better, I was able to use a private financing (borrowed money from somebody), which makes the return a little bit better, and also in cash on cash return, we don’t calculate with appreciation, which in the long term holding strategy will change the result in the end quite a bit. For now, I will just have to hold on and hope for the appreciation. Unfortunately, from the statistics in Las Vegas, the prices didn’t rise at all between 2009 and 2010. In fact, they went even little lower.

Result: Obviously the property isn’t such a cash flow cow as I was hoping, before going to the USA a year ago. The main problem is that I didn’t count with so high HOA fees, which create a huge expense for the property. They have in fact even risen during the time and are now $160 per month. That is why I am now looking more for single and multi family houses, rather than condominiums. I am paying the property management anyway, and they actually take care of the same things as the HOA does.

Strategy for the future: I will be holding this property for a few years, hoping to make money on appreciation in the end. Obviously cash flow won’t make me rich in this case. ;o) Possibly do a 1031 exchange for a single/multi family house in the future.

The next post will be about my second property – in Phoenix, Arizona. Get ready for an even worse reality check!

Thursday, May 12th, 2011 at 7:30 am and is filed under #1 - Condo in Las Vegas, buying property in usa. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.

24 Responses to “One year after buying property in USA (Las Vegas) – numbers, thoughts, strategy”

  1. Posted by ymchan 21st May, 2011 at 12:20 pm

    hi,
    thanks for sharing your experience. it’s really enlightening. i have a question though – why didn’t u consider the more popular areas like florida instead of Phoenix and Kansas?

  2. Posted by admin 24th May, 2011 at 7:46 pm

    Hi ymchan,

    I am glad you find the information enlightening. ;o) Well Las Vegas is pretty popular area, but the fact is that in these areas, the return on investment is way smaller than in states like Kansas – at least if you are considering long term holding strategy, and cash flow from renting out the property. Check my older articles, where I write about Kansas or I calculated rental yields for all states.

  3. Posted by Arun 4th August, 2011 at 12:35 am

    Very nice blog mate. How is RPM as the property mgmt compnay? Would you recommend them? Also, would you be able to point me to any good realtors you’ve used in the LV area.

  4. Posted by admin 18th August, 2011 at 5:15 am

    Hi Arun,

    RPM Las Vegas sucked big time in the end! Had lot of troubles, had to fire them and now I am filing a formal complaint at Board of Realtors Nevada. I can definitely recommend you some good realtor. What type of property are you looking for?

  5. Posted by bretto 21st August, 2011 at 1:31 am

    Hi , thanks for the blog it is very interesting as i am looking at purchasing my first property in the usa and was thinking of vegas but am open to any feedback that i can get before i make a purchase.I will have cash(so i dont have to borrow anything) and with the dollar so good i think it is now time to pounce on some type of property. Can you reccomend any agents to get in contact with? And would a house be better than a condo due to the taxes payable.
    thanks

  6. Posted by admin 15th September, 2011 at 4:03 am

    Hi Bretto,
    I sent you an email with the details of my real estate agent in Vegas.

  7. Posted by Yasmin 5th September, 2011 at 12:43 am

    Hi
    First – thank you for your posts – they are very helpfull. I did almost the same thing as you – i bought a year ago 2 condos in Vegas and I’m also working with RPM. And boy they are bad. So many unnecessary expences. They are just trying to rip off the owner. I think that i’ll try to get part of my money back and fire them and then i’ll file a formal complaint on them too.

  8. Posted by admin 15th September, 2011 at 4:08 am

    Hi Yasmin,

    I am sorry to hear that. I have already filled the complaint with: http://red.state.nv.us/ . They already received it and are working on it. It didn’t take much time but it will help hopefully other investors in the future! And will definitely make Tod from RPM thinking about the way how he does his business.

  9. Posted by Guy 9th October, 2011 at 3:09 pm

    Hi,
    Thanks for your very informative and honest blog. I’m interested in a property purchase in Vegas and would appreciate your input and advise. I’m UK resident non-domiciled and considering buying a single home. Before going to vegas, I would like to form an LLC and open a corporate bank account. If I’m buying in Vegas, would it be better to have a Nevada LLC or a Delaware?

  10. Posted by Yasmin 20th October, 2011 at 8:52 am

    Thank you for your response.
    So who is managing your unit now? I would like to stop working with RPM but dont have good alternative for them.

  11. Posted by admin 2nd February, 2012 at 8:43 am

    I fired them in the end I found a small more “old school” property manager and I am very happy with her so far. I will wait a bit longer to make sure she is good and then I can give you her information. Send me an email (you can use the contact form on my Real Estate Analysis site).

  12. Posted by agnes 6th December, 2011 at 8:01 am

    Hi will you consider section 8 housing so that the rental fees coming in are more regular? If not, why not?

    agnes

  13. Posted by admin 2nd February, 2012 at 8:55 am

    Hi,

    section 8 is definitely a good option. Actually my latest tenant in Las Vegas is a section 8 tenant! So far it works great. Will keep you guys updated.

  14. Posted by Stephen Ede 25th January, 2012 at 3:23 am

    Hi

    Just wondering your property in Topeka was working out for you?

  15. Posted by admin 2nd February, 2012 at 9:03 am

    Hi Stephen,

    greetings to New Zealand! It has been very hard year, but I will be posting new articles within next month, so stay tuned!

  16. Posted by Soly 28th January, 2012 at 9:13 am

    Hi,

    i am a Oman Resident (Indian national), want to buy a property in USA. Is it true that i get a residency in USA if i have a property in USA. Thanks.

  17. Posted by admin 2nd February, 2012 at 9:05 am

    Hi Soly,

    I have heard about it as well. But what I heard is that it has to be quite a few properties, so the business has a certain worth. In the past I heard something about for example 5 condos at least, but don’t take this as a real information. You will have to double check somewhere. By the way, if you find out what are the rules exactly, could you post it here? I bet many people would be interested!

  18. Posted by admin 2nd February, 2012 at 8:32 am

    Hi Guy,
    I have an LLC in Nevada as well, and would probably recommend that. If you will follow my first posts, you will see how I set up the LLC and you can follow my journey about buying my first condo in Las Vegas and finding property managers etc.

  19. Posted by Stephen Ede 21st February, 2012 at 4:12 pm

    What are the advantages of having an LLC in the US?

  20. Posted by admin 27th March, 2012 at 3:35 am

    Well, with the American LLC, you are establishing an American entity. Once you will have longer history of tax returns (at least 2 years), you might be able to even get financing through the LLC.

  21. Posted by Andrew Goh 21st April, 2012 at 8:37 am

    Hi,

    I am interested in buying a property in Las Vegas.

    Any good area and agent to recommend?
    Andrew Goh

  22. Posted by admin 27th June, 2012 at 5:35 am

    Hi Andrew,

    I have used ReMax in Henderson when purchasing the property there. They will tell you all about the various areas and advantages and disadvantages as well.

  23. Posted by Warren 1st May, 2012 at 9:42 am

    I am from Australia and considering a property in the US as I will be working in tne US for 2 years very soon. One thing I do the same kind of calculations for my property purchases. But have you considered depreciation and loan repayments too? Also why such a low rental yield of 600US a month, is a condo in the US equal to a studio apartment? Lastly, any ideas on how a foreigner goes about purchasing a property in the US?

    Regards

    Waza

  24. Posted by admin 27th June, 2012 at 5:32 am

    Hi Waza!
    The $600 is quite a normal rent for condominiums with 2 bedrooms and 2 bathrooms. It depends a bit on the location, from about $500 – $700 is the most common around this area. For a bit more exact analysis (including the depreciation or loan repayments), I am using my property analysis software. Check it out, it’s free: http://www.RealEstateAnalysisFREE.com . I am a foreigner too, so check some of my posts in the beginning of the blog to get some info about buying the property in the US as a foreigner.