Investor · Indianapolis, IN · Member since 2018 · 1k+ posts · 756 votes
Hey everyone,
I thought this was an interesting picture that supposedly shows the top cities that will have the most rent growth this year. Not surprised to see Indianapolis in the top 5. Indy has seen very steady rent growth year over year for a long time. Cap rates are compressing each year and I think we will gain a lot more attention in the coming years with how stable our market has been.
Do you agree with all of the cities on this list? Are there any cities on this list that your company is targeting?
Pretty interesting to see Sacramento on the list...
How so?
Since Covid, Sacramento has seen an increase of Bay Area folks looking for a more affordable market close to home. Demand is high and supply for rentals at a low
The rental and housing market here is extremely competitive
@Justin G. Thank you for sharing. I’m sure there are more cities and specific sub markets and or specific properties that could see more rent increase versus the list but it’s a great place to start
I am surprised Dallas Texas is not in there although there’s been a rise in people moving down here in the past few years as a result of job growth and several other factors...
I thought this was an interesting picture that supposedly shows the top cities that will have the most rent growth this year. Not surprised to see Indianapolis in the top 5. Indy has seen very steady rent growth year over year for a long time. Cap rates are compressing each year and I think we will gain a lot more attention in the coming years with how stable our market has been.
Do you agree with all of the cities on this list? Are there any cities on this list that your company is targeting?
Winston-Salem is a market I am very familiar with (NC) and I agree 100%! It has been growing steadily over the past few years which is why so many investors are keen on investing there.
Great post!
What is driving this in the Winston-Salem market? I would understand Greensboro but found WS interesting to be on this list
It's hard to comment one way or the other on this without seeing justification. I could just as easily create a graphic with 10 different cities and 10 percentage increases and say its the 10 places rents will increase the most. Just need more context.
I noticed you’re from TX. What do you think about San Antonio, TX? Do you think that can be the next “Sacramento” with spill over from Austin, TX?
Perhaps, in the very distant future but San Antonio is still in TX, a state with very landlord-friendly laws, which indirectly affects rent growth, so I'm not quite sure it is an apples-to-apples comparison unless I'm not following your point.
I thought this was an interesting picture that supposedly shows the top cities that will have the most rent growth this year. Not surprised to see Indianapolis in the top 5. Indy has seen very steady rent growth year over year for a long time. Cap rates are compressing each year and I think we will gain a lot more attention in the coming years with how stable our market has been.
Do you agree with all of the cities on this list? Are there any cities on this list that your company is targeting?
Winston-Salem is a market I am very familiar with (NC) and I agree 100%! It has been growing steadily over the past few years which is why so many investors are keen on investing there.
Great post!
What is driving this in the Winston-Salem market? I would understand Greensboro but found WS interesting to be on this list
Yes Greensboro is also a rising city- The Triad area has been noted as one of the top increasing rental markets, Winston seeing increases in it's job market and population consistently over the last few years, and it is a very affordable place to live.
These are all reasons why- although it is somewhat surprising I agree. I think that NC in general is growing at a fast rate due to places up north becoming less desirable to consumers.
Let’s wait and see. I’m in Las Vegas and yes there’s a lot of people moving in. But there’s not a lot work and unemployment is very high. Coupled with the moratorium on evictions. I’m sure all numbers are going to change as the year progresses.
@Joe Daigle Yah I think the eviction moratoriums and even the foreclosure moratoriums have a lot to do with the lack of supply. However, I think that's probably mostly concentrated at the entry level price points.
Surprised by SLC and Austin... I like both those markets but way too much supply in both right now.
Not surprised by Sacramento, it’s been a phenomenal market. If you’re not in San Francisco or LA, California is a much different story than what you read in the headlines.
Couldn’t agree more. Although, the problem is that I’m like everyone else who would love to see a pullback because I think it’s a great market long term.
@Joe Daigle@Phillip Dwyer@Bobby Larsen agree on all points. I think once some restrictions are lifted there will be a lot more on the market. Vegas seems like a good long term place to invest right now.
To those that think there will be more inventory available once the foreclosure/eviction moratoriums expires. Are you assuming that all those people leave the area? After all, if they just move to a different place in the same area there’s no additional inventory. And if so, where are they all going to move to?
I expect that just like after the "Great Recession" there's going to be a massive increase in the number of SFR renters in Vegas and demand will sky rocket. IF anyone gets evicted ( I still think this number will be TINY.) they certainly won't want to rent an apartment. They'll want to move to a house. If they bought more than 2 years ago they'll simply sell and have a small to big pile of cash. People forget/don't know that we were raising rents on SFR throughout the GR. I hear all these stories about 50% vacancies and 50% rent reductions. But that didn't happen at any of my properties, maybe it was class d mfr?
@Bill B. I think a lot of people don’t have to move or look for a job now. At some point that will change, and they will either have to move in with friends and family or find places that don’t care about credit or rental history. Will this cause inventory to sky rocket? Not likely. Then you have people that aren’t selling because they don’t want to be exposed to covid. At some point those fears go away, but that set of potential sellers isn’t likely large enough to move the supply needle too much. Still even little rises in inventory would be welcome at this point from my perspective.
Pretty interesting to see Sacramento on the list...
How so?
Since Covid, Sacramento has seen an increase of Bay Area folks looking for a more affordable market close to home. Demand is high and supply for rentals at a low
The rental and housing market here is extremely competitive
Fascinating! I guess the overall CA minus 5.0% rent growth is what we all are used to seeing out of CA as a state.
I hope the Bay Area migration doesn't exacerbate the affordability in Sacramento over the next few years.
the outflow of people from the 7 Bay Area counties to Sacramento Placer and El dorado and to a certain extent Nevada counties has been going on for decades.. I worked on a big project at Lake Wildwood in Nevada county in the late 80s and did half a dozen small developments in Eldo and Sac. and we were a Bay Area Syndicator.. its a natural progression in that part of the world LOTS of retirees move to the foothills.
I am surprised Dallas Texas is not in there although there’s been a rise in people moving down here in the past few years as a result of job growth and several other factors...
Dallas is poised for strength long term, but short term there is over-supply, which will keep rents at bay
There were several comments on investing in Las Vegas, and I wanted to share what we are seeing with everyone.
What We Are Seeing
We regularly close properties with a cash-on-cash return between 4% and 6% (10 last month), so they are available.
Rents rose about 9% in 2020. We expect the same or more in 2021.
The average time on the market for most of our client's rentals is under seven days.
The average tenant stay (for ours and our clients' properties) is about five years, with an average turnover cost of about $500.
COVID - To date, out of the 170+ client properties we track (out of a total of > 200 properties), at some point during the last nine months, ten tenants have had trouble paying the full rent on schedule. A relatively small percentage of the total. I expect most of these tenants will catch up on their rent. For example, one of the tenants just paid close to $9,000 to bring their rent current. Paying $9,000 to catch up on the rent is a lot more expensive than moving. However, moving is not the issue; bad credit report is their fear. A negative hit on their credit will dog them for years. Plus, even if they wanted to move, no property manager would rent an A Class property to anyone with any black mark on their credit. So, eviction moratorium or not, credit risk is the primary control factor for our tenant pool. We've only had five evictions in the last 14+ years.
For Class C and Class B properties, it is a very different story. The landlords I talked to have a lot of tenants who have not paid the rent in months. The tenant pool for C and most B Class properties are lower-paid, lower-skilled workers. These are the first to be laid off during economic stress and the last to be rehired. This is one reason we do not recommend Class C and rarely B Class.
Las Vegas is in a unique position. There is little land for expansion, a growing job market, and an influx of people. Unless there is another "COVID Event", prices and rents will continue to increase at a rapid rate through 2021 and beyond. Unless California suddenly turns business and people-friendly, Las Vegas will have a long run of prosperity.
Supporting Information
First, the statistics.
The information below only concerns the narrow property profile/tenant pool we target. No data for any other property type is included. The typical property we target has the following characteristics:
Single family
Sale price < $400,000
Bedrooms: 3 to 4
Garage: 2 to 3
Stories: 1 or 2
Note that while the green area appears homogeneous, in actuality it is more like Swiss cheese.
Below you will find the statistics we generate each month.
Rental Statistics
Rentals - Median $/SF by Month
Rents rose by approximately 9% YoY, which is a tremendous growth.
Rentals - List to Contract Days by Month
There is very little rental inventory and what is available goes under contract in days.
Rentals - Availability by Month
Inventory was low in January 2020, today it is even lower.
Rentals - Months of Supply
2 to 3 months is typical. Today we are just over 0.5 months of supply.
Sales Statistics
Median $/SF by Month
YoY $/SF increased by about 8%
Sales - List to Contract Days by Month
Due to the limited supply and the high levels of demand, properties went under contract in days, not weeks or months.
Sales - Availability by Month
There is very little inventory, which continues to drive up prices.
Sales - Months of Supply
6 months of supply is considered a "balanced" market. Today there is about 0.5 months of supply.
Other Items of Interest
Google Data Center - Google is in the process of building a $600M data center in Henderson. They also announced that they will add a second $600M data center on the same site. Las Vegas will be one of 11 data centers worldwide. Even though they will not employ many people (100 to 150 employees at an average salary of $65,000), the presence of Google is huge. I believe that where Google goes, others will follow. And, it will be infrastructure, which is what I want for Las Vegas. I've seen companies lay off thousands of engineers and programmers at a time, but no one walks away from infrastructure.
announced three more centers in Las Vegas. Of special interest are two facilities: Merch by Amazon and Print on Demand. "Merch by Amazon allows brands and independent artists to create custom-printed apparel and electronics products. Print on Demand helps authors and publishers with on-demand publishing, helping to reduce upfront costs of printing for inventory." Amazon selecting Las Vegas for this type of infrastructure will bring others to Las Vegas as well.
Las Vegas was the second fastest-growing city in the US for 2020 - according to updater. "Most people migrated [to Las Vegas] from cities like San Fransisco, Los Angeles, and Sacramento, Updater said."
California fuels Las Vegas growth - As California continues to make the state less desirable for both individuals and businesses, many are leaving the state. Leaving California has actually become a significant business. A portion of these companies and people will choose Las Vegas. Hopefully, the number of people moving to Las Vegas will not become the torrent that Boise is attempting to deal with.
Housing prices for Las Vegas are still well below 2006 peak prices. See the chart below. If you ignore inflation, prices have almost reached the 2006/2007 peak. However, inflation is real and must be considered. $143/SF in 2008 dollars is the same as $174/SF in 2020 dollars so there is still a long way to go.
Land shortage - The available land for development continues to dwindle. At the end of 2019, the amount of vacant buildable land in the Las Vegas Valley was less than 28,000 acres, of which 5,000 to 7,000 acres is not viable for residential development. (87.5% of Clark County is federally owned. 85% of the entire state is federally owned. ) Consumption rate is about 5,000 acres/year. See the animated GIF below. The areas in brown are federal land. The time-lapse only goes through 2018 and there was a large amount of development in 2019 and 2020. The southwest part of the city is now the least developed and construction in the area is relentless. For example, the $400M Uncommons has broken ground - a $400M complex in southwest Las Vegas.
Las Vegas is and will continue to be a great place to invest for buy and hold investors.
