I’m a bit tardy on posting these, but for those readers who follow the Reno/Sparks Association of REALTORS® Monthly Market reports below are links for July’s reports.
- Click here for July 2010’s Reno Monthly Market Report
- Click here for July 2010’s Fernley Monthly Market Report
Reprinted with permission by the Reno/Sparks Association of REALTORS®.
Kalifornian
sounds like things are stabilizing for now?
I’m surprised that prices went down in Reno so much. I’m probably just very naive in RE: but what not to like about Reno? Schools seem to have very high rating, there is University in town, I hear hospitals and doctors are good. World-class resort nearby. Climate is ok (much better than in Vegas, if you ask me), plenty of outdoors opportunities.
I find it strange, that CA Bay Area businesses did not move to Reno en mass. Probably they know something I don’t. What is that big dirty secret about Reno?
Steve Watts
Schools here have a very high rating? Where did you hear that?
Bay area businesses, at least the ones that pay high wages, primarily want an educated workforce, which is severly lacking here. Taxes are 3rd or 4th down the list for these employers. And I feel there will be less of a tax advantage here in the future as Nevada’s budget deficit per capita is higher than California’s and future taxes will address that. There’s less chance of a rebound than California’s, since we have a lopsided dependence on tourism (again, low-paying).
What Nevada does attract are employers who primarily want to save on those taxes. Those are low-overhead, low-paying employers attracted to cheap labor.
And there is still a wide gulf between home prices here and the average NV wage IMO.
Kalifornian
my naive simplistic math regarding rental income was something like this:
$1200 rent
-200 prop tax
-200 maintenance/repair (averaged)
-100 insurance
-100 sewer/garbage
which in the best year (no vacant time) would be $7200 income which on $180K purchase price will be like 4% yield – nothing to brag about, but then it’s tax free thanks to depreciation tax laws.
To generate that type of income in securities one would need to invest in junk bonds or similar high-risk investments.
am I totally off in my math?
Kalifornian
info about schools I got from greatschools.org – a site that I know many parents look at when planning to move. Schools in 89523 have the highest 10 ranking while supposedly quite good schools in the town (Bay Area) where I live are ranked 8.
what are the problems with Reno schools (in good zipcodes)?
Sully
Kali; sewer is about 325/annual garbage 200/annual. Insurance est seems high, as a landlord doesn’t insure tenant contents.
Kalifornian
Bay area’s high-wage businesses also tend to move to lower wages area: hi-tech to China, software to India. I’d rather see them moving to Reno or similar economically depressed area – but they forgot to ask my opinion 😉
Seriously, Intuit, Cisco at al are laying off whole floors in Silicon Valley and fill instead their new shiny offices in Bangalore.
Kalifornian
Bay Area’s IT giants for last many years kept bringing foreigners on H1b and L1 visas claiming lack of qualified local workforce – but in fact it was all about lower wages they could pay to the imported folks. The so-called “prevailing wage” is a joke.
Now it’s all about outsourcing anyway.
Kalifornian
It seems to me that educated workforce could be easily attracted to Reno – should NV officials put some effort into that. Young IT crowd would love skiing and outdoors opportunities, while mature folks would appreciate good schools and hospitals.
Hire a few star-level professors to University – and you will get better student quality and higher ratings.
I know of one very successful software startup that was established in Bend, OR – in spite of lower wages somehow they managed to lure very good workforce from Portland, Seattle and Bay Area.
I remain puzzled as to why Reno did not become a sophisticated place, like, say, Boulder CO.
Sully
I remain puzzled as to why Reno did not become a sophisticated place, like, say, Boulder CO.
Yeah, a lot of builders are scratching their heads wondering the same thing, meanwhile all their handiwork is taking up a lot of MLS space.
sleezy
“which in the best year (no vacant time) would be $7200 income which on $180K purchase price will be like 4% yield – nothing to brag about, but then it’s tax free thanks to depreciation tax laws.”
You shouldn’t assume NO vacancy when doing the math. You should always calculate a 10-20% vacancy rate when trying to determine your CAP rate.
sleezy
“To generate that type of income in securities one would need to invest in junk bonds or similar high-risk investments.”
Spending $180k on a property to HOPEFULLY (best case scenerio) make 4% could be considered an extremely high risk investment by many.
Kalifornian
ok, let’s account for vacancy and reduce tax-free income to 3%. Will junk-bonds (6-7% before tax) be safer investment?
sleezy
It’s hard to say Kalifornian. Perhaps you should talk to a well qualified Financial Advisor?
As far as rental properties are concerned, have you thought about looking for places CHEAPER than $180k? I would strongly recc. doing this.. Further, I don’t think it’s wise to just drop $360k on 2 properties. You should start out small, since this will be your first income property.
CommercialLender
Kali writes:
$1200 rent
-200 prop tax
-200 maintenance/repair (averaged)
-100 insurance
-100 sewer/garbage
I own at least a home in 89523 that’s 3/2 and less than 10 yrs old. Bread and butter home in good shape. Here’s what I see:
-$1200 rent is tops, for now. 18 mos ago was $1300 or so.
-$200 taxes, fine
-$200 M&R, depends on what breaks. less than 10 yrs old, sure, but think of having a self-funded reserve just in case
-$100 insurance, high. I think $650 ish a year
-$100 sewer, high. I pay $83 every 3 mos.
-Vacancy – I recent was vacant. Despite undercutting another comparable home down the street and having very good professional mgmt (10%), it still took 60 days. That’s 17% of the year, though hopefully you’ll have tenants stay longer than a year.
-$0 HOA
-$??? Turnover costs? My several year tenants moved out and I ended up with around $4K in turnover costs for paint, carpet, some window and blind replacements, other odds and ends. But I collected $1000 back from security deposit. Most people forget turnover costs, as they conveniently forget vacancy.
In a bad turnover/vacancy year, assuming 17% vac and $3K in turnover, you’d be around 1.7% unlevered before any tax considerations. In a good year assuming no turnover, 4.8%.
For anyone looking to invest, you need a fairly long term horizon. I breakeven some years, make money others, so I average out OK – not great, OK. With appreciation in the short run on hold, this is no glorious investment and does have more risk than most believe.
Now, that said, if you have $360K to invest in real estate, don’t buy SFRs. Take $360K and use it for a downpayment on apts or commercial property. Say apartments, and say that $360K equates to 35% down in today’s lending market. That equates to $1,050,000 asset with $360 down and a bank loan for $700,000 at around 6% fixed for 5+ years. In markets like Reno, you should be able to find what would equate to buying around 20+/- units at around a 5-6% cap (I am estimating, as I don’t well know the apartment market in Reno). You’ll need to hunt for it, though. You’d be left with economies of scale, moderate leveraged returns, some diversification in cash flow i.e. multiple units, and probably a better performing asset over the long run.
Kalifornian
Thanks Lender
Very good info. Appreciate you sharing your experience with novice.
hookie
CL,
What do you reckon is the market value of your place?
sleezy
recommending Someone buy an apartment complex for $1,000,000+ who has NO experience in dealing with rental properties is completely irresponsible..
DownButNotOut
As always CL good points. I like the fact cash flow is spread about 20 +/- units, as presumably there will always be 2-3 units for rent, yet no real down months (like if you owned 1 or 2 units)Also, it could be easier getting a live in landlord in lieu of rent and not necessarily have to go through a professional service (retired people love this IME) thereby saving money. Lastly, since it’s strictly investment property, as opposed to SFD that might be more market whimsical, when it comes time to sell it will be a straight track record of income relationship to sales price and pencil out better to another investor.
hookie
Yeah,
It’s a great idea. Especially in Reno.
Just watch out for the replacement job on the 30 year old pipes, the roof replacement, the plumbing job on the top floor which rotted out the whole lower floor, the holes in the walls from the low rent tenants, and the blown out oil heater that caused a minor environmental disaster.
I’m with Sleezy on this one. Irresponsible.
OTHT, who gets on a blog and seriously tries to figure out where to park $350k? There’s a hard working shark out there who’ll be sure to help a fool part with his $$$…
Out…
Kalifornian
I’ve intermittently followed – lurking – Diane’s blog since the good days (was it 2005?) cause I personally like Reno and Tahoe area very much.
I’m sure there are sharks out there to cheat me out of my money, and this why I’m in need of a good advise where to park it. I know it looks silly to ask about it on forums and blogs but professional advisers are not much better, IME. Even those fee-based tend to sell you their preferred securities.
I’m a person who believes in good people out there, and I was hoping that readers of Diane’s blog won’t let me down.
DownButNotOut
Kali- for every one that gives you advice that puts them out on a limb there will be 10 more commenting on how bad that advice is. It’s much easier to hang around other doomsdayers so your self worth isn’t shown to be any less. That’s why there are so few really successful people out there.
Winners know how to select advice that could help them, then research and line it up, and most importantly, know when to pull the trigger.
As for getting some ideas from this blog, well it’s helped a lot of people in the past, by the responses that have been posted.
bob_c
kalifornian—
if you are hands on type…..with repair/handyman
skills and the time to monitor your tennants
a multi unit could be a great investment
Kalifornian
I actually appreciate a pessimistic flavor of this blog – I’m sure I could get tons of positive outlook from any RE agent in Reno. OTOH, I’m myself being pessimistic about the Bay Area as I see all the high paying hi-tech jobs disappearing to India.
It’s probably easier to be optimistic about far-away places 😉
My main concern is not even so much growth but preservation of capital adjusted for inflation. There were so much money printed in the past 2 decades, especially lately.
Sorry for all you gold-lovers – I’m not buying it now at prices as high as they are. Plus I know for the fact that price of gold is controlled by major gold-mining players: South Africa, Russia, et al – similar to how OPEC controls oil prices.
Benny
Kali,
Oh, you’re a conspiracy guy, eh?
Gotcha. Stay away from gold, then. We all saw how effective the “cartel” was at propping up the price throughout the 80’s and 90’s, and how easily they’ve suppressed it since 2001….not….
So, keep believing in that paper, baby! It’s worth exactly what people will give you for it. My charmin will one day be worth more.
Kalifornian
Hi Benny,
You see I don’t believe in paper either. I was believing in RE but latest housing depression makes me more skeptical.
CommercialLender
Hookie,
My place is worth not much, maybe $100 psf. Was up, now down, oh well, I have a long term horizon and thank God at least some staying power. Do it again? Well…
Sleeze,
I disagree. Nowhere, at least that I read, did Kali say he “had NO experience” nor other comments you attributed to him such as how much of his overall nestegg he’d put into such an investment. Maybe you have a personal connection to Kali and you know more than we? One of your other pen names perhaps? Dunno and don’t care.
You personally identify yourself as buying SFRs for rental purposes – that’s great and I do hope you do well. But for the vast majority, SFRs as rentals are not great investments for various reasons posted on this blog over the years. Some work out well, some very well, but many are money pits full of hidden costs and hassles with not much cash flow. I gave my own example of the latter. Multi units have risk, and they are not for everyone admittedly, but for a guy with at least some portion of his investment holdings, here $350K, I made a simple assumption that if he’s a big boy willing to invest a portion of his net worth in real estate, SFRs for him might leave him short. Thus, MF units would be better bang for the buck in his situation. Irresponsible? Heck no, in fact, the converse for the reasons I stated. Could he be irresponible with his investment horizon, nestegg, allocation, managment of real estate holdings, etc? Certainly, yes. That was not for me to judge, as I did not wish to step on your toes in that arena.
Sleezy
Judging from kali’s expense breakdown it doesn’t take a rocket scientist to figure out he doesn’t have experience with rental properties…
Sleezy
Cl
If he wants to be a big boy? You are joking right?
Lmao
diane cohn
Kali,
About the schools in Reno versus Bay Area… my kids went to Westergard Elementary in 89523, which I believe scored a 7 on greatschools.org at the time and seemed to be a good cross between the ridiculously competitive high-scoring Cupertino CA schools we originally started with and the life-is-good-live-with-passion Truckee CA schools we transferred from. Billinghurst Middle School stands out as exceptional, ranked 10 and deservedly so, especially Ms. Engstrom and her music program (seriously, please donate money to her cause as the public school choirs we’ve encountered here on the oh-so-hoity-toity Peninsula aren’t nearly as good, while the kids at Billinghurst could have performed on a professional CD)… We were very sorry that our youngest did not get to finish there, as her new school on the SF Peninsula, also a 7 with greatschools.org, was supremely mediocre in comparison to our 89523 schools. McQueen, an 8 on the scorecard, was a really good high school that my older daughter hated to leave, but fortunately her new school is turning out to be comparable, though not through the scoring system but via the innovative programs and leadership of a Gen X principal making the unbelievable best of a crappy CA school system, which I’m sure will be reflected in the rankings to come.
About the outsourcing of tech jobs… moving from Reno back to Silicon Valley after our initial exodus in 2001 reveals some interesting new observations. Yes, in 2001 and the years following, outsourcing to Asia was in full swing. My hubby, a software development engineer, felt this first-hand after the dot-com crash as maintenance/incremental improvement jobs were moved offshore, and innovation took a backseat to economic realities. He tried to make a go of it in the Reno-Tahoe area, but critical mass never arrived as all his gigs originated in the Bay Area. Moving back in 2009 after seeing the writing on the wall with regards to the real estate market, we found that the mobile app and social networking revolution had altered the landscape, once again making Silicon Valley an epicenter for tech innovators, which were now a tad scarce after moving the payroll overseas all these years, which meant my hubby’s opportunities opened up tremendously… So yes, while mundane cheap maintenance rote-work moved overseas, I’m delighted to see innovation incubating here in the valley once again.
As for gold, I implore you to reconsider your mainstream, force-fed, sheeple opinion on the matter for your own financial well being. Forgive me, but there are much larger forces at work here. Fiat currency is in question worldwide, which eventually trickles down to how much this house in Reno-Sparks will be worth today, tomorrow or in 10 years.
This blog opened my eyes to the value of dissenting opinion. As a result, thanks to the many anonymous contributors on this site over the years, I understand the larger picture, and I’m prepared for whatever financial mayhem occurs. The least I can do is try to help someone else, but you have to open your mind wholeheartedly:
http://matterhornassetmanagement.com/2010/08/16/there-will-be-no-double-dip/
tallguy
Diane,
If you really believe that, and aren’t just throwing that link up to start a good vicious internet discussion/flamewar, the only responsible thing for you and your family to do with any assets you have right now is to buy farmland with secure and adequate water supply, seeds, guns, and ammo. And a thick walled, two story house with few windows on a hill with good sight lines and far from the nearest road. Also, make friends with many capable survivalist/gun nut types, you will need a surrounding community full of them and their unique skill sets to make it through the chaotic upheavals that would be an inevitable consequence of whatever “financial correction” of that magnitude you think is coming. The only logical consequences of such a dire prediction coming true are blood, and lots of it.
I guess I take a more optimistic view of things than Matterhorn Asset managament does, and I do not subscribe to the notion that the last 200 years of economic and technological progress were for naught.
skeptical
Diane,
As a relative latecomer to the blog you created, I just wanted to express my appreciation for all you’ve done for those who’ve followed it.
You are full of common sense and good info, and I do hope you continue to drop by from time to time. Sounds like things are going well for your family — glad to hear it.
Kalifornian
Hi Diane,
I was following your blog for a long time but mostly lurking. It was very innovative of you at that time to open up RE dialog that way.
Glad to see you back but have to respectfully disagree with you on a couple of points.
Happy to hear your hubby’s doing fine but after 20+ years of living and working in the Bay Area I’m personally less than thrilled with the HiTech situation here at the moment. Social networking (this blog being an example of ;-)) is an overvalued marketing bubble, and mobile apps – although for real – is a narrow market (which is being actively outsourced as we speak).
Anyway, as long as Cisco, Oracle, Intuit et al are laying off floor after floor (they do it by floors these days), and as long as I see blocks and blocks of “For Lease” signs on the Silicon Valley buildings, I’d have to hold off on my HiTech hopes.
I know of a company that recently had to terminate its lease with penalty of $5M, after 2 years of trying to sublet unsuccessfully.
This is not to say Reno has anything better to offer. Just to cool off some Peninsula enthusiasm here 😉
Kalifornian
ratings at greatschools.org:
Westergard (elementary)
Billinghurst (middle)
McQueen (high)
all score 9-10
HighlyTrainedRealEstateAnalyst
Good post Diane. The link you provided accurately summarizes the core of the problem we face in this country. And, although it is impossible to predict how fast things will deteriorate, it is interesting that nobody in the mainstream media, either right or left, will address the real issue.
the Republicans talk about tax cuts, the liberals talk about stimulus, and the Federal Reserve – which is not federal and has NO reserves – continues to steal from the American people.
Tallguy, I don’t think that providing a link to an article necessitates that one take the actions you describe.
diane cohn
Kali, thanks for the school score updates… glad to see they’ve gone up. Also, very interesting about the big companies laying off whole floors at a time in the South Bay. We see more startups around here, and geez, it’s still hard to get table at lunch in Palo Alto, but yeah, even on the Peninsula there’s plenty of office space which certainly wasn’t the case a decade ago. I suppose you’re right about the mobile/social networking thing being just another tech bubble, but we’ll ride it while we can and keep an eye out for the next one, if there is one. The best surfing seems to be here… 😉
HTREA, thanks, I thought it was a pretty good assessment too. There are many others out there like it, but unfortunately these days it’s all bread and circuses in the mainstream media… the best places to find truth are on blogs like this one.
Tallguy, if you don’t think 200 years of economic progress can possibly blow up in our faces, then I urge you to read this book: This Time is Different, Eight Centuries of Financial Folly. Based purely on economic data, the book shows that even the United States itself has defaulted on debt in the past, as has almost every other nation on the planet at one time or another. So there’s no reason to think it can’t happen again (and probably will given the way things are going). http://search.barnesandnoble.com/This-Time-is-Different/Carmen-M-Reinhart/e/9781400831968/?itm=2&USRI=this+time+is+different
Skeptical, thanks for the shout out. Hehehe… Look at me, I’m a troll on my own blog!
MikeZ
This Time is Different, Eight Centuries of Financial Folly. Based purely on economic data, the book shows that even the United States itself has defaulted on debt in the past, as has almost every other nation on the planet at one time or another. So there’s no reason to think it can’t happen again (and probably will given the way things are going).
I’m confused.
If defaults have happened in the past (and will probably continue to happen in the future) then how is this time different?
smarten
Great to hear from you Diane! Also glad to hear about your enthusiasm for the Bay Area. Frankly, I thank the stars every night that we’re out of there. I grew up in Los Angeles and absolutely hate the place now. Am feeling very similar about the Bay Area.
Insofar as your link to “doom and gloom” and massive hyper-inflation [are you reading Mr. BB?], remember I’ve said that if the country’s going down the toilet, what difference does it make if any of us buy/choose not to buy [Washoe County, or for that matter any] real estate? Stocks, bonds, gold and currency will all become worthless. So we might as well enjoy our lives while we can!
Now don’t be a stranger Diane. And BTW, are you going to someday share the final details of your short sale [or are they still unfolding]?
Sully
If we’re going to talk about books, then I like ‘End the Fed’ by Ron Paul. The title says it all. 🙂
tallguy
Diane,
I do not disagree that it is possible that 200 years of economic “progress” (whatever that means)can and might unwind. I just believe that if that were to happen, what we think of as “valuable assets” now, will all be basically worthless (smarten’s point exactly). What will you use your gold assets for in such a situation?? You will be buying food and security, the only real things of value in such a disrupted and dangerous world. Better to get them now, while they are still cheap, if that’s what you believe will happen. Being “rich” in such a world is pretty meaningless, compared to being safe and not hungry. I’m with smarten on this one.
CommercialLender
Diane,
Thank you for this blog and your heart put into it. You have touched many, many lives with your blog and experiences in Reno. Congrats on the relocation.
BTW, I live in Cupertino school district and see some of what you are saying, but we still have something like 50 million sqft of office/R&D on the market on both direct and sublease basis. In 2002, we had just over 50M sqft, so now 8 years later we have the same situation. For that matter, a decade later we have the same Dow level. I am not sure where this will take us over the next 8-10 years. I can’t tell you how many of my comercial clients are in hot water on assets they own – some very ‘name brand’ developers, too – which I did not see frequently in the last downturn despite its depth. The sole difference I see this time truly is interest rates: if commercial rates were as high as 8-10 years ago the situation would be drastically more dire.
CommercialLender
Sleezy,
A bit tongue-in-cheek certainly, but my point is if Kali has amassed an investment portfolio such that a reasonable amount of it to be allocated to rental real estate equates to $350K, then my assumption is he might aim higher and buy multi-unit assets for economies of scale. Of course, I should not assume the same way Kali should not rely on advice from anonymous bloggers. My further point was that many investors who buy SFRs as investment rentals end up not making the returns they thought they would due to hidden costs, turnover, vacancy and such.
Finally, it is interesting to note a 4% or so return is somehow deemed in today’s market to be an acceptable return for buying illiquid SFRs 4 hours from one’s home (Kali said SF Peninsula?) in a depressed market with high potential of lower returns if anything goes wrong. Historically, that would be half or so of what an investment in rental property would otherwise need to bear to compensate for the risk. Interesting times indeed.
HighlyTrainedRealEstateAnalyst
Good book recommendation Sully.
Along the same line, how about “The Creature from Jekyll Island” by Griffin. An excellent book that provides a detailed history of the Federal Reserve, and central banks in general.
sleezy
CL
The 4% return you talk about is because of the location kali is looking in..
Lower returns = safer investment ( usually a better area)
higher returns = Riskier investment ( less desirable area)
If Kali REALLY wanted to make a return higher than 4% then all he needs to do is look at a less desirable part of town…however, when it comes time to sell it’s possible the property value has increased very little (higher risk).
I think what kali wants to do is make a small return short-term with the hopes of price appreciation in the future.. that would explain why he is looking in a more established (expensive) part of town..
Kalifornian
yes, come to think of it, I’d rather go for preservation of capital with a good chance of appreciation in lieu of higher returns. Honestly, 4% after-tax does not sound too bad to me.
Sleezy
Assuming the house does increase in value and you decide its best to sell, do not market the property as an income vehicle. Reason being that if you were to sell the house as an “income” property with a cap rate of 4% not many people would be interested..
As a rule of thumb your cap rate should exceed current mortgage rates, since most people that buy income property do so by getting a mortgage with the goal being the tenants cover the monthly mortgage payments with cash left over ( cash flow positive) . That would not be possible if current mortgage rates were 5% and your property only operated at a 4 % cap rate. ( cash flow negative ).
Im not sure if there are tax implications for selling it as a SFR when it has been used entirely as a rental property under your ownership?
Sleezy
Correction .. impossible NOT possible
🙂
Kalifornian
FWIK, I won’t get benefit of $250K tax-free appreciation, but then again amortization schedule would take care of most tax issues upon sale.
That is, of course, unless tax law would change drastically.
skeptical
Just feels to me as if things are about to get worse in the Reno RE world. Lots of price reductions out there as we end the traditional buying season.
Would not want to be a seller in any price strata right now. Will be interesting to see how the investor groups that Mike tracks will have done by the end of this year.
Sully
skeptical; you might be interested in this:
http://housingstory.net/
MikeZ
[skeptical]
you might be interested in this: http://housingstory.net/
Imagine my surprise when I visited your link!
On Sep 2, 2010, HousingStory.net claimed that the NAR Pending Sales Index fell, for a third month, with the headline: “Pending sales reiterate crash reading!”
But, on September 2, 2010, the NAR reported the index actually rose 5.2%: http://tinyurl.com/23wlhoj
I suggest you find better data sources or, at the very least, start double-checking their claims. Just because some blogger wrote it, that doesn’t make it true.