Found a property in LV but worried about peak
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Eric FernwoodBusiness Member
Realtor · Las Vegas, NV · Member since 2014 · 1k+ posts · 1k+ votesHello @Jack B.
We just conducted our Q1 Las Vegas Investor Update and below are our findings.
Market Update
Note that the following data comes from the Las Vegas MLS and is only for properties that conform to our target tenant pool.
Median $/SqFt for Single Family Homes - The $/SqFt continues to rise. We expect the rate to increase towards the end of the year, likely driven by Californians looking for a more cost effective place to live. Already 30% of all sales today are to Californians. Also, we are still 20% below the peak prices of 2006. If you take inflation into account we are about 35% below peak 2006 prices.
Months of Supply - The months supply of properties has risen since late 2018, but still below 3 months where 6 months is considered a balanced market. The effect of the increased supply is that we are seeing increasing ROI and facing less competition from buyers.
Median Days on Market - The median days on market has risen from 12 to about 14 days. Not a significant change. There is still high demand for the type, configuration and price range we target.
Available Conforming Rental Units by Month - There has been steady decline in available rental units over time. This is what is driving up rents (6.6% average increase in 2018) in the property profile we target.
In summary, the real estate market is very strong. Demand for rental properties is outpacing supply resulting in rising rents. We expect demand to increase during the rest of 2019.
Other Information Worth Noting
Resident Population Growth - 2017 to 2018
Nevada ranks #1 in the US for population growth.
Source: U.S. Census Bureau
Driver's License Surrenders to Nevada by State for 2018
This shows which states people are moving from.
Source: UNLV CBER
Fastest Job Growth in the Nation
Source: U.S. Bureau of Labor Statistics (December 2018 vs. December 2017)
Fastest Personal Income Growth
This shows that the jobs being created are not low end jobs. They pay well and the wages are increasing with the current jobs.
Source: U.S. Bureau of Economic Analysis (Q2 2018 vs. Q3 2018)
Fastest House Price Appreciation
Source: Federal Housing Finance Agency (Q3 2017 vs. Q3 2018)
New Home Median Price - Median new home price is $410,000 which is well above the sweet spot for renters. The price of new homes is largely driven by the high cost of land, which is in short supply. Resales will still be the pool for investment properties and will not be diluted by new homes.
Major Projects
Major projects are big drivers of the future economy for Las Vegas. In the 2000 to 2010 era, there was a push to add hotel rooms. The problem was that it was effectively a zero sum game since there were no new attractions added to draw more visitors. This has completely changed in the last few years in that new attractions are being added instead of simply hotel rooms. The nature of Las Vegas has changed too. Until only a few years ago Las Vegas was just "Sin City", a great vacation destination. Today it has changed into a great place to live with endless entertainment, affordable housing and low cost of living. Below are some of the major projects currently under construction (not just planning):
- Sphere Las Vegas - $75M
- Resorts World Las Vegas - $7B
- Drew Las Vegas - $3B
- Raider's Stadium - $2B
- Las Vegas convention center expansion - $750M
- Google - $600M data center
- Union Village - $1.2B
- Project Neon - $900M
- Palms Casino Resort Renovation - $690M
- Caesars Forum Conference Center - $375M
There are many other projects underway but the above are the largest we know of. Any one of the above projects would be huge for a 2.2M population city. These projects will create a large number of additional well paying jobs which will attract even more people to Las Vegas.
Land Shortage
Not many people realize that Las Vegas is an island surrounded by federal land. Approximately 84% of all land in Nevada and 87% of Clark County (in which Las Vegas is located) is owned by the federal government. See the map below for what has happened between 1984 and 2016. Note that 2017 and 2018 were huge growth years for Las Vegas so even less land is available now.
Since there is limited room for expansion, Las Vegas will not have urban sprawl, the only growth path is redevelopment. This is a huge advantage for investors. In most cities, urban sprawl leaves formerly desirable areas "behind" and they tend to decline with increased crime and falling rents and prices. Not the case for Las Vegas:
- Class A properties will stay class A in the future.
- Due to the lack of expansion room, increased demand created by people and companies migrating to Las Vegas will almost guarantee price and rent increases.
Summary
The current market is strong and we expect it to get stronger as 2019 progresses. A significant number of Californians are already moving to Las Vegas and the 2018 Tax Act will drive more people to look for a more affordable place to live. The lack of room for expansion almost guarantees prices will continue to rise as more and more people bid for the limited number of available properties. Las Vegas remains an outstanding investment location for the foreseeable future.
FERNWOOD Team, KW VIP Realty520 Reviews
103 Replies
- 5yEric FernwoodBusiness MemberRealtor · Las Vegas, NV · Member since 2014 · 1k+ posts · 1k+ votes
It's been a while since I posted an update on what we are seeing in Las Vegas. Note that the following only applies to the property profile we target.
Rentals - Median $/SF by Month
YoY rents are up 18%!
Sales - Median $/SF by Month
YoY prices are up 27%!
Sales - Months of Supply
6 months of inventory is considered a balanced market. Today we are at about 0.6 months. And, until inventory rises significantly, I do not expect prices to level off, let alone decline.
So, things are going very well for Las Vegas investors. Below is how our target tenant pool performed over the long run:
- Average Annual Appreciation - An average of 9% since 2013. More now since 2021 saw a large price increase.
- 2008 crash - Our clients had zero (no) decline in rent and no vacancies. In terms of rental income, 2008 was a non-event. However, property prices fell by 50% or more.
- COVID - Out of +200 properties, we have approximately five tenants who had to move out because they lost their jobs. I believe all paid an early release penalty of 1 to 3 months of rent. All the properties were re-rented in about one week for $100 to $300 more than before.
- 5 evictions in 15 years
- $500 average turn renovation cost
- Average tenant stay is 5 years
The Foreseeable Future
Demand is what drives prices. So, what is driving demand in the Las Vegas metro area?
- Jobs - Las Vegas fully recovered in the first month everything reopened. "Help Wanted" and job fairs are just about everywhere. Thousands of new jobs are being created as well. Today, there is about $20B in new construction, and another $5B to $7B has been announced. This new construction will create tens of thousands of additional jobs, which will result in more people moving to Las Vegas. More people will increase demand, which will increase prices and rents.
- California Exodus - Almost every day, I read another article about companies and people fleeing California. A percentage of the people fleeing California come to Las Vegas. This is especially true with the digital nomads. As more Californians flee, demand will continue to increase, which will increase prices and rents.
- Pro Business Environment - Nevada has no state income taxes, low property tax, low-cost property insurance, reasonable traffic, reasonable property prices, and lower cost of just about everything. Las Vegas is investor-friendly. Evictions take less than 30 days and cost about $500.
- Low commercial energy cost - California commercial energy rate: $.2275/kWh. Nevada: $.1114/kWh. California is over twice as expensive. Also, Las Vegas is one of the few cities in the US with dual sources of electric power, critical for electricity-dependent industries like data centers and manufacturers.
- Prices Remain Below Peak Prices - If you ignore inflation, prices are back to peak 2006 prices. If you believe inflation exists, we are still about $64/SF below peak prices.
- Land shortage - Las Vegas is an island surrounded by federal land. 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 2020 and 2021. The shortage of land combined with the increasing population almost guarantees property prices and rent will continue to increase.
- Overall Las Vegas Single Family Inventory - Below is a chart showing months of inventory for all single family homes, not just the segment we target. As you can see, inventory is still declining so prices will continue to increase.
Summary
Based on what I see, the foreseeable future looks great for Las Vegas buy and hold investors.
FERNWOOD Team, KW VIP Realty520 Reviews
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