Las Vegas????

39 Replies

I've been a Vegas landlord for 10 years (all SFHs). Got killed in 08, but bought and fixed several REOs since. I'm currently selling half my properties there to diversify into a better cash flowing market. I think 09 was the time to buy and we're at the top of the current cycle. If you buy and hold though.... I believe in the town's long term prospects.

@David Bell

When I decided to go into real estate business 9 years ago, I evaluated several places including London, Phoenix, Atlanta, etc and chose Las Vegas. Today I still feel my decision was right. I am frequently asked by new clients Why Las Vegas so I put together the following response.

Why Las Vegas?

The old adage that the three most important factors in real estate being location, location and location is especially true for investment real estate. And, it is not just how things are today but how they will likely be over the next 10 to 20 years. So, what are the unique advantages of Las Vegas for investors?

High Return

Las Vegas is one of the few major metro areas where you can still get positive cash flows. The reason you can get a high return include:

Positive Cash Flow - Our clients are typically seeing 5% to 8% on class A properties and higher on B and C class. And, this will increase because rents are increasing.

Zero State Income Taxes - Nevada has no state income tax.

Low Property Taxes - There are metro areas in the US with property taxes exceeding 2.4% (Houston, Dallas-Fort Worth, etc.) as opposed to Las Vegas where the average is about 0.86%.

Low Cost Landlord Insurance - Land Lord insurance in states with adverse weather like Florida and Texas can exceed $2,000/Yr. Our clients typically pay between $500/Yr. to $600/Yr.

Low Maintenance Costs - Maintenance costs are a direct hit on profit. Typical homes in Las Vegas have tile roofs, desert landscaping (rocks), stucco siding, metal doors and window frames, and concrete block fences all of which require little or no maintenance.

Low Risk

Landlord Friendly Laws - Nevada is a business friendly state. Its pro-business laws apply to rental properties as well. There are no rental control laws in Las Vegas and evictions typically take 30 days or less and usually cost less than $500. In comparison, in California it can take up to one year to evict a knowledgeable tenant. Landlord friendly laws protect your investments.

Rental Market Stability - The Las Vegas rental market is extremely stable. For example, we did a study on the rental rates during the 2008 market crash when property prices in Las Vegas plunged over 50% and found that rental rates did not decrease. Cash flow and return on investment were not impacted during the crash. You can see the actual data in this BP post.

Sustained Population Growth - Market demand is what determines the value of an investment property. If the area has a stable or increasing population, demand will remain stable or increase. If people are moving out of an area (either to other cities or due to urban sprawl) property values and rents will fall. Las Vegas’ population is expected to continue growing at approximately 1-2% per year for the foreseeable future.

Sustained Job Growth - Nevada is very aggressive in terms of recruiting businesses to move to Nevada and has been very successful. Two of our clients who moved their business from California to Las Vegas reduced operating costs by as much as 20%. Plus, the Las Vegas tourism business continue to do well due to its adaptability. For example, today Las Vegas hosts millions of Chinese tourists each year. Before the Chinese it was the Japanese. And, in the future it will be another group. Las Vegas has always been excellent at adapting to the changing world.

No Urban Sprawl - Urban sprawl can be devastating over the long term. Due to the shortage of build-able land in the Las Vegas valley, Las Vegas has almost no urban sprawl because it is surrounded by federal land. The blue areas in the map below is federal land. In fact, only about 11% of the entire state of Nevada is privately owned. Given the population trend and expansion limitations, property values and rents in Las Vegas are expected to continue increasing over time.

In Summary

Low operating costs and low risk give Las Vegas a unique set of advantages over many alternative investment locations.

Please post your questions, comments or concerns. I also have a lot more information on investing in Las Vegas real estate on my profile. Hope it helps.

I was recently asked if the Las Vegas real estate market is good only for a "Buy and Hold" strategy or if it is still possible to flip homes in the current Las Vegas real estate market. Below is my reply:

"Vegas prices have been going up year after year since the end of 2011. 

2012-2013 we saw huge appreciate around 30% annually.

2014 and 2015 we have seen a slow down in appreciation although we are still appreciating just not at the scary rate of 30%.

Rental rates have not changed very much over those years so with the cost of purchasing being so much higher and rental rates not changing much the CAP rates of 12% etc are VERY hard to find now. If you are ok with 6-8% you can still find that.

Flipping is not bad or impossible it is just hard to find deals that have enough meat on the bone to still turn a profit after covering all expenses. In most cases if you are looking to flip you will want to find off market deals. The MLS properties tend to sell for just under appraisal value leaving you very little room to turn a profit after the closing costs, commissions, and rehab costs.

I hope this is helpful."

@Eric Fernwood which areas would you call "Class B" properties in Las Vegas?  Summerlin seems to be the Class A section, but how does Spring Valley, Paradise, Sunrise Manor, Winchester, and Whitney stack up?  I've just been looking on the web, but I would love your advise since you live and work out there.   

Hello @David Bell,

In Las Vegas, and I assume most cities, class A areas tend to be in reasonably well defined areas but class B and C locations are not. Class B and C properties are more defined by the tenant population than the geographical area. So we have a common understanding, below is my definition of Class A, B and C. Note that the following description is only my opinion, only applies to Las Vegas and should not be considered some sort of universal "definition".

Class A properties tend to be newer, prospective tenants tend to have higher incomes and are primarily credit based and typically pay the highest rent. Credit is very important to the tenant population so evictions and skips are rare. In Las Vegas Class A properties tend to be in subdivisions or communities with HOAs and have a well groomed and uniform appearance and in the best school districts. Class A properties tend to be lower risk, tenants stay longer and properties are more likely to appreciate. Summerlin and Green Valley are examples of class A property areas. 

Class B properties - Compared to class A properties, class B properties are generally older, tend to sell for a lower $/SqFt and tenants generally have lower incomes and credit scores. Tenants tend to stay shorter periods of time (1 to 2 years) and evictions are more common than with Class A properties (few total evictions since tenants know that they will be out in less than 30 days if they do not pay). Initial rehab is likely to be higher and tenant damage is likely to be higher than class A properties. Class B properties also tend to have a higher risk than Class A properties but generate a higher return. 

Class C properties - Class C properties are generally older and are located in less desirable locations. These properties generally need significant rehab and significant tenant damage is much more likely. The tenant population is primarily cash based so leases mean little and many have government subsidies. Skips and evictions are common. Rent payments tend to be in cash. Tenants tend to use mass transit so selecting properties near bus routes is very important. Some of these properties generate high returns.

Now that you know how I define class A, B and C I will explain how we find such properties. We use software we developed to filter the thousands of available properties looking for the very few properties that meet specific characteristics (usually less than .1% of the available MLS listed properties qualify as potential investments at any given time). Below are example characteristics for each of the classes. Note that we apply about 50 characteristics to class A properties. The number of characteristics is less for class B and much less for class C.

Class A

• Within a specific price range
• Acceptable ROI using the following formula: ((Rent - Debt Service - Management Fee - Insurance - Real Estate Tax - Periodic Fees) x (1 - State Income Tax))/(Down Payment + Closing Costs + Estimated Rehab Cost). Note that for Nevada there is no state income tax.
• Time to rent <30 days
• Within a fairly well defined geographical area
• Single family
• Two+ garage
• Three+ bedrooms
• Two+ baths
• Within a minimum and maximum lot size
• Correct ratio of building footprint to lot size
• Master bedroom and guest bedroom sizes meet specific criteria
• Built after specific year
• Association fees below a specific amount
• Certain floor plans are excluded
• Certain subdivisions are excluded
• Rehab below a specific amount with no high risk rehab items

Class B

The characteristics of class B are similar to class A but also include town homes and the price range is lower. We look for a higher ROI than for class A properties due to slightly increased risk.

Class C

Class C properties have a very different criteria than class A or B. Price range is typically less than $100,000 and includes all property types (single family, town homes, condos). The key criteria includes:

• Significantly higher ROI requirement
• Time to rent < 30 days
• Adjacent to major bus routes
• ROI (higher than class A or B properties)
• 2+ bedrooms
• 2+ baths
• Certain locations, communities and floor plans are excluded

Once we have properties that meet the specific class criteria I personally visit them and evaluate the area and subdivision/community. If it looks acceptable, I evaluate the property including the floor plan and estimate rehab cost and rehab risk. If all of this is acceptable, I take a video and send it to the property manager and the client. The property manager provides an independent opinion of the property in general plus time to rent and the rental rate. If the return is acceptable and all agree that the property makes sense we make an offer. The offer amount is based on return, not the asking price. 

In summary, we primarily select properties based on property characteristics, potential tenant characteristics, risk and return, not geographical locations. 

One additional class of properties is multi-family. We divide these into two categories: 4 units or less and more than 4 units. More than 4 units requires commercial financing. The criteria for multi-family is quite different since the value is largely based on the cap rate, differed maintenance and tenant risk. Larger properties (~30 units+) are evaluated based on current usage and potential future usage.

David, I hope this clarifies our process of selecting the various classes of properties.

thank you @Eric Fernwood !  I have been looking at the listings available, and obviously see some lower prices ranges in certain areas (Paradise, Whitney, Winchester, Sunrise Manor, Spring Valley). I assume North Vegas would be class C. Would the other areas be class B, or would you say some of those are class C as well?

We suggest a simple approach for what we call bread and butter rentals. The most commonly requested product by incoming tenants Pick a good school district, min. 3 bed, 2 bath, 2 car. preferably a tile roof and grab the ones under $80 PSF. Its not magic, its the price.

Originally posted by @Tiger M. :

We suggest a simple approach for what we call bread and butter rentals. The most commonly requested product by incoming tenants Pick a good school district, min. 3 bed, 2 bath, 2 car. preferably a tile roof and grab the ones under $80 PSF. Its not magic, its the price.

 I like your style!  Keep it simple stuppit.  Do yoiu manage private rentals for condo-tels in Vegas?

@Account Closed are you asking about vacation/weekly rentals? If so no. The vacation rentals in Vegas have been a tough path, its all about the party, right. Usually hard on properties. We like the stable family 1 year rentals.