Investments with Sherwin Escanuela

Todd Miller: Well, hello. Welcome to Todd Miller TV.  Today. I’m joined here with one of the professional real estate agents here at the company, Sherwin Escanuela. How are you doing?

Sherwin Escanuela: I’m good. Thank you very much.

Todd Miller: So Sherwin, you work with a lot of buyers, especially a lot of investors. And I get the question all the time, especially when I hear how bad the real estate market is, why would an investor come to Las Vegas? And apparently, you’ve got answers for us.

Sherwin Escanuela: Well, it’s not why would they; it’s why are they coming to Vegas. They are coming. They are here. I mean it’s a huge amount. A couple of years ago, a statistic came out that scared a lot of investors away, which is we were one of the most deserted towns in the country, which kind of hit you kind of hard, but those were all general numbers. They based it on vacancy rates and those people where condotels coming in, those were all vacant because they’re being rented out on a daily basis.

But here is a number that came out for 2010, just a quick overview. It’s a population update here in Las Vegas. According to this number, the most we’ve ever had was probably 2007, 2008 was when that number came in. If you can see from the graph, we’ve actually had an increase in population since then.

Todd Miller: So there are more people now than there were here three or four years ago?

Sherwin Escanuela: Yes.

Todd Miller: They got to live somewhere.

Sherwin Escanuela: Yes, exactly. According to this rough estimate, 2,036,358, which is approximately 30,011 more people than last year. So that means they’re moving here and therefore, they got to live somewhere. People like walls and roofs.

Todd Miller: And they’re not building new houses.

Sherwin Escanuela: No, no, they’re not. They’re not. I mean there are some new homes being built, but for the most part, it’s all in the resale. It’s all in the numbers.

Todd Miller: So more people are coming in. So how does that work for an investor? How does that work?

Sherwin Escanuela: Well, there is a couple of figures you’re looking at, obviously, of people coming in. They have to live somewhere. So your job is to basically find where the best cap rates are, certain parts of town that are higher in price will get you a lower cap rate. It will give you a better back-end return, expected back-end return.

Todd Miller: So what’s a cap rate? If they’re not an investor currently, they don’t understand that number.

Sherwin Escanuela: Cap rate is basically the percentage you’re making on your money. There is a couple of ways to calculate cap rate. There is cash-on-cash return. There is obviously the IRR, which is your Investment Rate of Return based on the 25 or 30 percent down payment in the return. Now, here is a nice little number that came up between — it says cap rates on sold homes with tenants October-December 2010. You see the colors there. They make it as nice and simple as it is. The outer parts, which is what you consider would be like these are the Summerlins, the Anthems, and the MacDonald Highlands and things like that. They have a tendency to have a lower return on your money, between four to seven. A reason for that is obviously higher taxes, higher HOAs will cut right into your profits.

Todd Miller: Okay.

Sherwin Escanuela: Whereas where you’re looking into more of the Central Vegas part, this is where you’re going to find those $50,000-$80,000 homes where you’re going to get a rental return between probably $850-$1,000. Again, it all varies on what numbers you’re looking at and your returns are going to go between 11-16 percent in those parts of town.

Todd Miller: Okay. So 15 percent. So if I had 80 grand, I could potentially get a 15 percent return on that money, like, right away?

Sherwin Escanuela: Yes, you can. Now, obviously, we got to diversify for the most part. I mean you can go either picking up a couple of condos and get a rental $35,000-$40,000 condo, with a return of $650 to $700, making sure that you’re now paying that $250 a month of HOA. You got to be very particular. If you want a high return, you’ve got to be careful. We got to calculate your taxes, HOAs, what part of town it’s in. But at 15-16 percent return, I do tell my investors that you’re probably not going to get much on the back-end. In other words, that $80,000 house is not going to sell for $200,000 later down the line. Your return upfront is where you’re going to get most of your money from.

Todd Miller: Okay. So is there sort of like a target, like a sweet spot, like for where you should be, what the best property investment is?

Sherwin Escanuela: Actually, yes, I have a number for that. Of course, most investors like it because everything can be backed up. Here is what they call a sweet spot for cap rates. We got it from the MLS. It’s a quarter 2010. Sold rental homes, basically, what it does there is it shows you as you spend more in a house, obviously, your cap rate goes down because you cannot get the rental return that you’re expecting. But a sweet spot is going to be right about here, on 10 percent. You’re looking at $100-$110 and you could see there is a huge number right there where most of the 10 percent returns are coming in at, and that’s why investors are coming in. With a 10 percent return coming back on your money, what’s the bank giving you? So these numbers aren’t like, you know, we’re not looking for diamond in the rough here. We’re not looking for a needle in a haystack. We’re talking numbers that are dominant. They’re there. There they are. They’re not hard to find. You just got to find them and calculate your numbers accordingly.

Todd Miller: This is a lot of information. And if somebody wants to get, like, specifics on this or specific help, how do they get in touch with you?

Sherwin Escanuela: The best way is to talk to me. As much as I like e-mails and everything, investors have different goals, long term, short term. Call me and I’ll send you the right information. My phone number is (702) 219-5582.

Todd Miller: Awesome.

Sherwin Escanuela: Thanks, bro. I appreciate your time.

Todd Miller: Thanks for coming on. That was the update for today and hope to see you on the next update.

Sherwin Escanuela: Thank you.