How much does the increasing rents escalate cash flow from Las Vegas investment real estate?
One of the biggest differences between buying securities and investing in Las Vegas investment real estate is escalating cash flow due to significantly increasing rents in the past few years.
The median price of rentals in Las Vegas is about $1300. The percentage gain for more expensive rental units is less than those in lower price ranges. In this video we will show how much increasing rent in the past few years has escalated cash flow for a home that rents for $2500 and a condo that rented for $1400.
Escalating cash flow from Las Vegas investment real estate
A big difference between Las Vegas investment real estate and securities is escalating cash flow. When you buy a government bond or deposit your money in a savings account, the interest on the money is very low and fixed. Your money only increases by the fixed interest rate.
In this video, we will show you how increasing rents in the past few years are effecting cash flow, and by how much, using two real-life examples. The median rent for all rental properties is about $1300, so we will show one example for a large home that rented for $2500 and the other, a condo that rented for $1400.
While Las Vegas investment real estate has appreciated greatly in the past few years, so has the cash flow over the years. This is due to increasing rental rates, which have been going up in the past few years, resulting in increased cash flow. On this page, we are only discussing residential real estate including homes, condos, and townhomes.
There are two kinds of statistics about rental rate increases, one covers all residential real estate, which is far lower than those in lower price ranges percentage-wise.
Higher price homes and condos are where deep discounts are found
Rental rate gains for all Las Vegas investment real estate
This table shows rental rate price gains for all of the Las Vegas homes, condos and townhomes and its effect on the cash flow.
|All residential investment properties||2017||2018||2019|
In 2017 witnessed 3.6% rent appreciation, the same for 2918 was 7.25% and 4.8% for 2019.
Just like home and condo sales price gains, the percentage of rental rate increases for lower-priced homes and condos is far higher than those in higher price ranges. However, even these lower rent appreciations have a significant effect on the cash flow.
For example, 5571 Kildare Court is a 5,089 square foot, 4 bedroom, 3 bath house located in Southwest Las Vegas. It had already been rented for $2500 in May 2016 when it sold for $420,000 in July 2016 to an investor. The seller contribution was $7,000, so the net sales price was $413,000. But how much was the cash flow when this home was sold?
This home doesn’t have a Home Owners Association, so the HOA fee is zero. Property tax is $3158 per year or $263 per month. Landlord insurance for a house this big is about $1500 per year or $200 per month. We are going to allocate $1000 per year for repairs and one month of vacancy for a house this large.
We shall deduct the following expenses from the monthly rent
|HOA fee||Property tax||Property Management||Landlord insurance||Repairs||Vacancy|
|5571 Kildare Court||0||$263 per month||$200 Per month||$163 per month||$83 per month||$208 per month|
In how to maximize profit while investing in Las Vegas real estate, video? we shared the our accurate formula and in calculating rental income for Las Vegas investment properties gave a detailed explanation of it and showed by a real-life example of how it works, but we will repeat that here.
Estimated net rental income = (Monthly rent) – (HOA fee + property tax + Sid/Lids if applicable + landlord insurance) – (repairs + vacancy + 8% property management fee)
|5571 Kildare Court||2016||2017||2018||2019|
|Estimated cash flow||4.8%||5%||5.5%||5.9%|
Using this formula this unit provided for an estimated 4.8% cash flow in 2016. Add 3.6% to rent in 2017 and rent is increased to $2560 per month which raises the cash flow to 5%. Add another 7.25% to $2560 and it becomes $2,745 raising the cash flow to 5.5% and lastly, another 4.8% rent gain in 2019 would raise the cash flow to 5.9% after only three years. This is what we call Escalating Cash Flow from Las Vegas investment real estate.
Why landlords don’t raise the rent for good renters as much as above?
We need to note a couple of points.
1: Landlords usually don’t raise the rent for existing renters as much as the above rates, especially good renters in large houses. However, the vacancy is eliminated for every year the renters stay in the house, which more than makes up for rent appreciations.
The highest rent increase was 7.25% in 2018, which would add $185 per month to the rent. That would increase the rental income by $2220 per year. If the landlord didn’t raise the rent at all, he would lose on $2220, but no vacancy would save $2500 resulting in higher cash flow. But that doesn’t mean that landlords don’t raise rents at all, they raise it at lower rates, like half of the above amounts.
2: Cheaper unit’s rental rate escalation by percentage is far higher than all homes and condos in all price ranges, while the vacancy for these is much shorter than the huge house in our example.
The significantly higher percentage of rental income for Las Vegas investment real estate in lower price ranges in percentage
The rent increase for 2017 was 5.2%, for 2018 it was 7.1% and for 2019 it reached 7.5%. Our example condo, 4720 Apulia Drive, unit 201 which is a 1454 square foot, 3 bedroom condo, which we discussed in calculating rental income for Las Vegas investment properties, was purchased for $204,000. It rented for $1400 and provided for a 4.9% cash flow which is similar to our big home. If this unit was purchased in 2016, given the above rental rate increases, the effect on the cash flow is more pronounced.
|4720 Apulia Drive, unit 201||2016||2017||2018||2019|
|Estimated cash flow||4.9%||5.4%||6.0%||6.7%|
As you can see, the percentage of cash flow gains are much higher for lower-priced units than higher-priced homes and condos.
These findings are backed by MLS data. Here are some real-life examples of units rented from late 2016 to 2018 and again in 2020
|Address||Date rented||Rent||Date rented||Rent||Appreciation rate|
|3330 Flying Colt||2/24/2017||$1100||01/08/2020||$1300||18.2%|
|3736 Sorrowing Sparrow||12/06/2016||$1075||01/24/2020||$1300||20.9%|
|9648 Gunbelt Drive||11/07/2016||$1100||01/21/2020||$1300||18.2%|
|3825 Summer Breeze||10/21/2016||$1050||01/23/2020||$1300||23.8%|
|426 Roman Court||03/14/2018||$1150||01/29/2020||$1300||13%|
So, should investors avoid investing in more expensive homes and condos? That depends on whether he/she is looking for high cash flow or future appreciation. It is very difficult to get deep discounts on lower-priced homes and condos. The competition has been too fierce to get a good discount from homes priced less than the FHA loan limit. But competition for homes that could be purchased by conventional loans or jumbo loans is far less than those that can be bought with an FHA mortgage. So it is possible to find deeply discounted homes in higher price ranges. $20,000 or higher discounts contribute to future appreciation which more than covers lower cash flows.
Lastly, we did say that rent appreciations greatly lag sales price gains and that we expect rent gains to go on for the next few years. But nothing is ever guaranteed, all we can do is make a highly educated guess. Real estate investors have been getting high single-digit or double-digit combined cash flow and future appreciation return on their investment for the past few years, which should go on at least for the next couple of years.
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If you are looking to invest in homes or condos call us at 702-478-7800, we have been researching this subject for a long time and are ready to make you money.
This is Karen Saberzadeh of Las Vegas homes, condos, and luxury high rise condos wishing you a great day.