With interest rates at historical lows and home prices depressed, while rental rates have held relatively steady, there is an unprecedented opportunity to generate outsized cash-on-cash returns on real estate investments in the Las Vegas area.
Let me illustrate this with a simple example. At the time of this writing, there is a single family home in a gated community in Henderson, Nevada, listed on the MLS for $114,500. (In a December article in Forbes magazine, Henderson was identified as the second safest city in the United States.) Putting 20% down and paying $3,200 in closing costs to buy this property would result in a total cash investment of $26,000. With an interest rate of 4%, the monthly payment on the $91,200 mortgage would be $320. The association dues for the property are $130 a month and last years property taxes were a little over $1,200. If we assume homeowners insurance at about $45 a month and 10% of the rent for property management, the total monthly expenses with respect to the property would be $710. The property is currently leased for $1,150 per month so under this relatively conservative set of assumptions a $26,000 investment would generate monthly cash flow of $440 yielding an annual cash-on-cash return of over 20%. That is before taking into account the tax benefits of the deduction of closing costs, depreciation, interest, and other expenses with respect to the investment. How does that compare to a fully taxable return of 1.3% on a CD?
Although no one can know for sure, the housing market in the Las Vegas Metro Area appears to be stabilizing. Prices have yet to show significant increases, however, the inventory of properties on the market has been steadily declining suggesting that price increases are on the horizon. There is a decent chance that the already sizable possible returns on the purchase of an investment property here could be sweetened in future years by capital gains.
Because I am not an accountant or certified financial advisor, the foregoing should not be considered to be financial advice and, as with any other significant investment, before making an investment in real estate you should discuss that investment with your financial advisor. Once you come to the conclusion that investment in residential real estate in the Las Vegas holds the promise of substantial reward, give me a call and I will get to work on finding you the right investment property for your needs.