7016 Town Forest Ave - Case Study

25 min read
I am always suspicious of people who give advice but do not follow it themselves. So we follow our own advice. Specifically, now is the time to buy investment property in Las Vegas, do not wait. 2020 and probably the next three+ years will be a great time to invest in Las Vegas because we see significant growth coming. Many people will miss this opportunity either because they fear it is the peak, or only consider initial return. Our 2020 Outlook (21 min read) explains why we believe there is still significant growth coming. On initial returns, ROI is only an estimate of how the property is likely to perform on day one of a long term hold. We require an initial positive cash flow but beyond that we care far more about how the property will perform in the coming years.

We just closed on a property with a 2.2% return. Below are some MLS photos of the property.

The property is located in the south west part of the city, which is the location of significant development. It is the only desirable area with easy access to jobs on the Strip that has undeveloped land. A $400M development and several other developments are started in the general area. However, there are developments across the entire valley. Today $24B in new developments are under construction with more to come.

In addition to the location, which we believe will see significant growth, we selected the property due to its good condition, and more importantly the rent and time to rent estimated by the property manager met our criteria.

Property Summary

Property Details Financial
Beds: 3
Baths: 3
SF: 1,655
Lot SF: 3,049
Stories: 2
Built: 2012
Close Price: $285,000
Fees: $31/Mo.
Taxes: $1,728/Yr
Insurance: $419/Yr
Rehab Estimate: $4,500
Estimated return: Between 2% and 2.5%
Cash Flow: ~$150/Mo.

Below is what we expect to happen over the next 10 years. And, since we have no intention of ever selling the property, 10 years is a starting point. Note that the following is based on actual costs and assumes a 3% annual price increase and a 4% annual rent increase. Both are conservative numbers, lower than any period since 2013.

10 Year Projection

End of Year 1 2 3 4 5 6 7 8 9 10
Market Value 285,000 293,550 302,357 311,427 320,770 330,393 340,305 350,514 361,029 371,860
Gross Rent 19,200 19,968 20,767 21,597 22,461 23,360 24,294 25,266 26,277 27,328
Tax Deductible Expenses
Management Fee (1,536) (1,597) (1,661) (1,728) (1,797) (1,869) (1,944) (2,021) (2,102) (2,186)
Debt Service Interest (9,548) (9,548) (9,548) (9,548) (9,548) (9,548) (9,548) (9,548) (9,548) (9,548)
Landlord Insurance (419) (432) (445) (458) (472) (486) (500) (515) (531) (547)
Property tax (1,728) (1,780) (1,833) (1,888) (1,945) (2,003) (2,063) (2,125) (2,189) (2,255)
Association Fee (372) (376) (379) (383) (387) (391) (395) (399) (403) (407)
Depreciation (8,291) (8,291) (8,291) (8,291) (8,291) (8,291) (8,291) (8,291) (8,291) (8,291)
Maintenance (300) (300) (300) (300) (300) (300) (300) (300) (300) (300)
Total (22,194) (22,324) (22,458) (22,596) (22,740) (22,888) (23,041) (23,200) (23,364) (23,534)
Taxable Income (2,994) (2,356) (1,691) (999) (278) 472 1,253 2,066 2,913 3,794
Actual Expenses
Management Fee (1,536) (1,597) (1,661) (1,728) (1,797) (1,869) (1,944) (2,021) (2,102) (2,186)
Debt Service (12,996) (12,996) (12,996) (12,996) (12,996) (12,996) (12,996) (12,996) (12,996) (12,996)
Landlord Insurance (419) (432) (445) (458) (472) (486) (500) (515) (531) (547)
Property tax (1,728) (1,780) (1,833) (1,888) (1,945) (2,003) (2,063) (2,125) (2,189) (2,255)
Association Fee (372) (376) (379) (383) (387) (391) (395) (399) (403) (407)
Maintenance (300) (300) (300) (300) (300) (300) (300) (300) (300) (300)
Total (17,351) (17,481) (17,615) (17,754) (17,897) (18,045) (18,199) (18,357) (18,521) (18,691)
Cash Flow (Yr) 1,849 2,487 3,152 3,844 4,564 5,315 6,096 6,909 7,755 8,637
Cash Flow (Mo) 154 207 263 320 380 443 508 576 646 720
ROI 2.2% 2.9% 3.7% 4.5% 5.4% 6.3% 7.2% 8.1% 9.1% 10.2%

Assumptions

Assumptions
Purchase Price 285,000
Down Payment Amount (71,250)
Closing Cost 3%
Closing Cost Amount (8,550)
Rehab Cost (5,000)
Interest Rate 4.5%
Term 30
Down Payment % 25%
Debt Service (1,083)
Landlord Insurance (Yr) (419)
Insurance % of Price 0.15%
Management Fee 8%
Property Tax Rate 0.61%
Association Fee (Mo) (31)
Association Fee Increase (Yr) 1%
Maintenance (Yr) (300)
Rent (Mo) 1,600
Price Appreciation (Yr) 3%
Rent Increase (Yr) 4%
Depreciation Term (Yr) 27.5
Depreciation Percent 80%
Acquisition Cost
Down Payment (71,250)
Rehab Cost (5,000)
Closing Cost (8,550)
Total Acquisition Cost (84,800)

Below are links to related information.

Summary

Now is a great time to invest in Las Vegas real estate. We believe in the future of Las Vegas and are investing in it. Based on the data, we think you should too.