Invest in Las Vegas or Los Angeles

14 Replies

Hello everyone, I am a newbie to investing and to Bigger Pockets. I have a question and would like to hear your opinion about whether it is better to invest in buy and hold in Las Vegas or Los Angeles. Las Vegas real estate is growing but not at such a fast rate as Los Angeles. One single family house will cost half a million and I can get two in Las Vegas. Los Angeles is too expensive at the moment. But with the dollar being so strong, many foreigners are coming to invest in the US. That being said, do you feel it's better to invest in Las Vegas or Los Angeles for the long term (10 years).  Thank you so much for your input. 

@Tina Chen   

Welcome to BiggerPockets!

What is it that you're trying to achieve?

Based on your comment above, it sounds like you're looking for appreciation.  I wouldn't call that investing as you are chasing equity gains which as you know can go up or down over the course of a real estate cycle.  

The rate of "growth" in Los Angeles has been high  and will likely continue with that momentum over the next few years but that can also be considered speculating on the market. 

Comparing Las Vegas to Los Angeles is almost like comparing an apple to an orange.  Los Angeles is more of a cyclical market with high rates of appreciation and depreciation.  Las Vegas has a lot of opportunity and still experiences cycles but offers better opportunity for cash flow and rates of return.

 A lot of our business comes from California investors because they realize that their investment capital will go much further out of state in markets that make more sense and generate better rates of return.  They may not have the "appreciation potential" in other markets that have been experienced in coastal California, but they will still see appreciation gains above the rate of inflation for the next few years or more.

P.S.  Part of the reason you're seeing property values increase above average rates is because of the high rate of capital flowing into the country… How long do you think that will last?  All it takes is change in immigration policy and that will come to an end. This happened earlier this year in Canada.

Continued success!

@Tina Chen  

Welcome to Bigger Pockets. BP is full of resources. You will find resources here from blogs to pod casts and forums. You can also send messages to members. This is one of my favorite features of Bigger Pockets especially for asking specific questions.

Eric Fernwood wrote a great post about why to buy and hold in LV. You can find it here:

@Tina Chen LA is the obvious choice.  The only thing Vegas has is the lower entry price but you give up profitability.

I bought in Vegas in 1994 on the assumption that lack of water would control supply.  Based on over 20 years of Vegas experience you will not see the rent growth or appreciation that you will get in LA.  

Plus on the expense side Prop 13 is like having a fixed rate mortgage.

thank you everyone for the insights. They are very helpful! 

Originally posted by @Tina Chen :

This really depends on what matters to you personally. 

The "average" house price in the LA area is about $539,000. In the Vegas metro, the average is about $183,000. So how much money are you trying to spend? 

If you have a budget of $1,000,000, you may get 2 SFR properties in LA. Same amount may get you 6, 8 or more properties in Vegas. The price range in Vegas also enables you to diversify the per unit risk of the investment.

If you are looking long term, based on the housing price index for both LA and Vegas, between 1979 and 2014, the average yearly house price increase has been about 5.8% per year in the LA metro and 3.2% in Vegas. That might help you get some sense of what the terminal value of the investment might be.

Thank you @Jean G. for the kind reference. I wrote a updated post below for @Tina Chen .

Hello Tina,

I am a Las Vegas Realtor and our practice is almost entirely investors. A large percentage of our clients live in California but invest in Las Vegas. The reasons they choose to invest in Las Vegas is all about the balanced current return and long term profitability and probable appreciation:

• Return / Cash flow
• Long Term Profitability and Appreciation

I will explain each of the factors below:

Return / Cash Flow

Our clients tell us that it is exceptionally hard to find properties with a positive cash flow in Los Angeles. This is quite different than what they experience in Las Vegas. Median price for our class A investment properties in Las Vegas is about $200,000 and rehab costs are typically less than $5000. Our clients are typically seeing +5% return on class A properties. This rate of return includes all typical recurring costs including:

• Debt Service - 20% down, 30 year fixed.
• Management Fee - 8% of collected rent
• Landlord Insurance - Typically $500/Yr
• Property Tax - Between 0.72% and 0.86%
• Periodic Fees - Most of our class A properties have association fees ranging between $20/Mo. and $45/Mo. We tend to get a higher return in such subdivisions due to their desirability.
• Maintenance - Maintenance costs average about $600/Yr. This is due to the nature of Las Vegas home construction which I will describe later.
• State income taxes - Nevada has no state income tax.

Long Term Profitability and Appreciation

ROI and similar calculations are only predictions of how the property is likely to perform today. Such calculations provide no sight into how the property is likely to perform over the next 10+ years. Long term profitability and appreciation are a function of the following items:

• Business risk - Nevada is a business friendly state. Its pro-business laws apply to rental properties as well. There are no rent control laws in Las Vegas and evictions typically take less than 30 days and usually cost less than $500. In comparison, in California it can take up to one year to evict a knowledgeable tenant and cost thousands not even considering lost rent.
• Rental Market Stability - The Las Vegas rental market is extremely stable. We did a study on the rental income during the 2008 to 2014 period and discovered that return on investment was not impacted during the crash. You can see the actual data in this BP post.
• Population Growth - Market demand is what determines the value of an investment property. Population is one component of market demand. 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 other locations within the metro 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 Quantity and Quality - The second component to market demand is job quality and quality. Nevada is aggressively recruiting businesses to move to Nevada many of whom were based in California. One of our clients moved their business from California to Las Vegas and reduced operating costs by more than 20%. Plus, Las Vegas tourism continues 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 to investment properties over the long term. People tend to want newer floor pans and newer areas so, if they have the money, they will move to newer areas even if they have to commute significant distances. The result is that areas that were once desirable for investments become less desirable over time. As people with money leave an area, property prices, rental rates as well as property tax revenues fall. Falling tax revenues force city governments to reduce services and school funding. This results in more people vacating the area. Las Vegas, even more than San Francisco, is land locked. People can commute from Daily City, Oakland or Berkley to jobs in San Francisco but Las Vegas is a virtual island. The map below shows the Las Vegas metro area. The gray area is federal land. In fact, only about 11% of the entire state of Nevada is privately owned.

Below is a map showing the closest alternative cities. As you can see, there is little development within commuting range outside of the Las Vegas metro area. Also, most properties in Las Vegas are still selling at below replacement cost so prices in the few surrounding cities are not significantly less so commuting does not make economic sense. 

• Maintenance costs - Las Vegas property maintenance costs on class A properties tend to average about $600/Yr. or less. The reason maintenance costs are so low is the climate. Typical construction materials which you find in milder climates do not survive the high temperatures in Las Vegas. Below is a graphic shows typical Las Vegas construction:

Tile roofs, stucco, metal doors, windows, concrete block fences and rock landscaping require little maintenance.

Tina, I hope the above helps you evaluate whether Los Angles or Las Vegas makes the most financial sense for you. For more information on investing in Las Vegas and investing in general, please see my profile or contact me.

Originally posted by @Tina Chen :

Hello everyone, I am a newbie to investing and to Bigger Pockets. I have a question and would like to hear your opinion about whether it is better to invest in buy and hold in Las Vegas or Los Angeles. Las Vegas real estate is growing but not at such a fast rate as Los Angeles. One single family house will cost half a million and I can get two in Las Vegas. Los Angeles is too expensive at the moment. But with the dollar being so strong, many foreigners are coming to invest in the US. That being said, do you feel it's better to invest in Las Vegas or Los Angeles for the long term (10 years).  Thank you so much for your input. 

Hi Tina and welcome to BP.

I actually moved from LA (More specifically, Anaheim Hills) to Las Vegas this year. 

There were two main factors in our decision to move here, with the first being cash flow. While the cash flow on properties in Las Vegas isn't like Ohio or Michigan, it is going to be a lot better than what you find in California. As someone stated in a previous post, the trade off for that is the lower projected appreciation, however, I think the LA area has fully recovered from the downturn and the risk of betting on future appreciation was just too large for my personal taste. If widespread real estate appreciation continues, Las Vegas will likely see a rise in home prices, just at a slower pace.

The second reason we moved was simply the cost of living and cost of running our business. Everything we personally buy (gas; food; etc) is significantly cheaper here in Las Vegas. Additionally, all our business expenses (State Tax - 0%, Property Tax, Permits) are all much lower here in Las Vegas. I should also point out that the government here is far more efficient than California, so when you visit the records office, register your car, pay your property taxes, or get something recorded, it is so much easier here. I actually enjoy interacting with the government.


@Eric Fernwood

Thank you so much for the in depth, AWESOME post on Las Vegas. I was born and raised here and am very happy to call Las Vegas my home.  You're post gives me more motivation to get my real estate investing adventure started.

wow! Thank you so much for all the insights and expert advice! I had no idea of all the good points so many of you pointed out. I'm speechless. I was thinking of changing career from being a chinese medicine practitioner to doing something in the real estate Now I've changed my mind. I'll stay in my industry where I know how to heal patients and just invest. Thank you all again!! I appreciate it very much. 

I like Vegas over LA.

Better CAP rates, lower property taxes, and lower purchase prices per sqft. Demand is still strong in Vegas and the market has balanced out so we are a lot less volatile now.

Hey Tina! Oooh, I'd love to hear more about your chinese medicine practice (since you're staying here now). What is your focus? I stay mostly on the holistic side and one of my best friends in Atlanta was a chinese medicine doctor and I'm constantly calling her up asking who knows what! Would love to have more contacts out here.

(sorry, kind of off-topic)

@Marco Santarelli I'm beginning to look at 3-4 unit MF in LA and would love to connect and hear your thoughts on REI MF properties in LV. My firm is opening an office in a few months. This might be a good opportunity to begin planting seeds in LV for investment purposes.

@Chris Viglietta -- Good to hear from you.

I would love to connect anytime. Just PM me or contact me through our office.

My basic philosophy towards investing in real estate centers around having a good healthy market, a good neighborhood, a good property, and excellent property management.

I have a colleague who renovates 20-30 properties per month in the Las Vegas market.  I've been toying with the idea of opening it up again. Of course it comes down to the numbers, etc.

Although I've covered the topic of property type in one of my podcast episodes, I often prefer single-family homes over multi-family.  But both make excellent investments.

Continued success!

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