Calculating rental income for Las Vegas investment properties is necessary to find the units with the highest cash flow, here is the formula and a real-life example
To pick the best Las Vegas investment properties we find the best-priced listings in the investor’s price range and then using rental comps figure a rental rate for them. The next step is calculating rental income for Las Vegas investment properties.
Two similar units but in different subdivisions that have been purchased for the same amount and rent for the same. But they can have significantly different cash flows, so to pick the units with the highest rental income we have to calculate it before making an offer.
This is the second video in investing in Las Vegas real estate series. In the first video, how to maximize profit while investing in Las Vegas real estate we shared the formula to do so. In this video we discuss it in detail and show how it works with a real-life example of a condo that was sold in the fall of 2019 and rented four days later.
In the third video escalating cash flow from Las Vegas investment real estate we will show how much increasing rental rates of the recent years is increasing cash flow and it is significant.
Video Transcript for calculating rental income for Las Vegas investment properties,
We are one of the very few Realtors in the United States who claim to find the best residential Las Vegas investment properties. We additionally include a good estimate of rental income with our listings to our clients.
While commercial real estate buyers have a very good estimate of rent, expenses, and cash flow, it is not the same for residential real estate. As the residential buyer usually doesn’t have a good idea about the net rental income before making an offer, but not our clients.
Finding the best homes, condos or townhomes listings
We have gone over the steps to find the best investment properties in detail in how to maximize profit while investing in Las Vegas real estate but will repeat them here
1: Finding the best deals are done through comparative shopping in a large area.
2: Then calculating rental rate using rental comps for the best-priced listings.
3: Deducting expenses from the monthly rent
4: Computing estimated cash flow
5: Picking the best price listings with the highest cash flow
In this video, we will discuss the last three steps and use the following formula for calculating the rental income for investment properties
The formula for calculating rental income
Estimated net rental income = (Monthly rent) – (HOA fee + property tax + Sid/Lids if applicable + landlord insurance) – (repairs + vacancy + 8% property management fee)
Home Owner Association or HOA fee, property tax, SIDS and LIDS, and landlord insurance are mandatory expenses that all units have in common. These numbers can found in the listings or a quick online search.
That leaves two of the biggest cash flow killers, repairs and vacancy, plus property management fees if necessary.
To minimize repairs, we highly prefer tile or laminate wood flooring in living areas since changing carpet is a recurring big repair item, the other is paint. However, in our example the flooring in the living areas is carpet. We will show you the best way to account for one time repairs while calculating the cash flow.
The key to finding the best Las Vegas investment properties is minimizing vacancy. Given that each month of vacancy cost the investor 8.3% of yearly rental income, we look for the listings which can be rented quickly to minimize vacancy.
This is done by counting how many of all units in a community or subdivision rent in less than a month. Paying special attention to direct comps which are units with the same square footage and floor plans. We prefer units that can be rented in less than two weeks like our upcoming example.
Two factors control vacancy, upgrades and the subdivision the unit is located in. Two subdivisions with similar units within a small area can have a significantly different vacancy and cash flows. Highly upgraded units rent much faster and for more rent, both increasing the rental income.
Calculating rental income for Las Vegas investment properties with a real-life example
4720 Apulia Drive, unit 201 is a 1454 square foot, 3 bedroom condo which is about 12 miles from the Strip but close to Nellis Airforce Base, Veterans Hospital and big shopping areas in the Northwest.
This condo isn’t highly upgraded and has carpet in living areas that are not desirable at all. If the flooring was tile or laminate wood and countertops were granite it would rent for $100-$150 more per month. Additionally, it would rent much more quickly, thus cutting down on vacancy.
However, the buyer has gotten a discount of at least a $5,000 due to flooring which he/she has to change. It costs about $4 per square foot to install nice laminate wood, so it costs about $5,800 in a one-time repair cost. A good way to include this cost is to add it to the sales price and then compute the cash flow which we shall do below.
Asking list price was $214,800 and it sold with a cash offer for $204,000. So we add $5,800 to the sales price add to round it out to $210,000. Here are the specific numbers
It rented for $1400 after 4 days on the market so,
The Property management fee = 8% x 1400 = $112
The Home Owner Association fee or HOA fee is $224 per month.
The property tax was $740 per year or $62 per month.
SIDS and LIDS are bonds that the builder issues for putting in the infrastructure and passes it down to the buyers. For this unit, $740 is left to pay it out and the charge is $220 per year or $19 per month.
The condo landlord insurance for this zip code is about $375 per year or about $32 per month.
As for how we try to cut down on vacancy, we calculate the percentage of all units rented in less than a month in the same community. While paying close attention to units that are similar to the subject property.
This table shows how quickly units at the Terrasini at Alliante unit-1, which this condo is located in, have rented for. Other than the subject condo which rented in 4 days, the next five units that are the next smaller floor plan have rented in less than 16 days. 4 rented in less than 10 days. So it is realistic to deduct 15 days for the vacancy or $700 per year or $59 per month towards vacancy.
As for repairs, this is a condo, so the owner is only responsible for repairs inside the unit. The big repair item here is flooring which we have already accounted for. As for painting the unit, usually, the renter's deposit pays for most of it.
If it wasn’t for carpet in living areas repairs would be minimal, so putting aside $500 per year or $41 per month should suffice. We round out the fractions to the next dollars.
So let’s work out the estimated net rental income.
The estimated monthly net rental income = $1400 – ($224 + $62 + 19) – (32 + 58 + 41 + 112) = 852
Cash on cash return on the investment = (852 x 12)/$210,000 = 4.9%
The 4.9% cash on cash return on the investment is for this location. There are other units close by that can return up to 5.5% or a bit higher. However, there are not a lot of them and one has to know where to look for them and we do. Given that this was a cash sale, the cash on cash return is a great estimate of the cash flow.
If an investor is financing his/her unit, then mortgage payments have to be deducted from monthly rent as well, in which case the final number is a very good estimate of cash flow as well.
If you are planning to invest in homes, condos, townhomes or high-rise condos please call us at 702-478-7800. We have researched all aspects of investing in Las Vegas real estate and will find you the best listings.
This is Karen Saberzadeh of Las Vegas homes, condos, and luxury condos wishing you a great day.