Rental Property in Las Vegas
Member since 2020 · 2 posts · 3 votes
Rental Property in Las Vegas
Most Popular Reply
Eric FernwoodBusiness Member
Realtor · Las Vegas, NV · Member since 2014 · 999 posts · 1k+ votesHello @Walter Antonio,
I see two questions in your post:
- What are the best zip codes for investment properties?
- Can you quickly rent a property at this time?
The Best Zip Codes
Which location is best depends on what tenant pool you are targeting. For example, if you are targeting low paid hourly workers, then C class properties on the East side and areas of North Las Vegas would be the places to look. We do not target low paid hourly workers for multiple reasons. The tenant pool we target can be described as:
- Has stable employment in a market segment that is very likely to be stable or improve over time.
- Pays all the rent on schedule
- Takes care of the property
- Does not cause problems with neighbors
- Does not engage in illegal activities while on the property
- Stays for many years
The property characteristics we require include:
- Sustained profitability - The property must generate a positive cash flow today and into the foreseeable future, in good times and bad.
- Appreciating at or above the rate of inflation and likely to continue for the foreseeable future.
- Maintenance costs are low
Below is a map showing where the majority of our client's properties are located. The map gives a false impression, that all the areas in green are good investment locations. This is not true. The actual map looks closer to Swiss cheese. We are selective down to the subdivision level, not at the zip code level. However, this will give you a good overall idea of where we are finding good properties.
89138 is certainly in one of the areas we consider. However, when we look for properties, we are not selecting properties by location. What we do is select properties that our target tenant pool is willing and able to rent. To make a long story short (See this month's newsletter if you want details), below is a simplified depiction of the tenant pool we target.
How well has this tenant pool performed? During the 2008 crash, our clients had zero decrease in rent, zero vacancies. The market value of their properties plunged like all others but their income stream (the purpose of the properties) did not decrease. Today during the pandemic, out of the 160+ properties we track (there are more but they are scattered out with multiple property managers and a few are self managed), so far there are 10 tenants that have not paid the full rent on schedule at some point during the last 7 months. 5 of these tenants recently caught up on the rent or made arrangements acceptable to the owner. We expect most or all of the remaining 5 to catch up on the rent or make an arrangement acceptable to the owners.
How do you target a specific tenant pool? Through the property. Each property defines the tenant pool so you need to be very aware of the characteristics of the targeted tenant pool. In 2004/5 I spent a lot of time studying how tenants select properties. I came up with a selection model I call the Tenant Property Selection Hierarchy (if anyone can suggest a more "catchy" name, I would appreciate hearing it). See the illustration below.
On the right is the order in which most tenants select rental properties. Expanding on the hierarchy.
- Price - The maximum a tenant is willing and able to pay is about 1/3 of their gross monthly income. And, since people generally want to live in the nicest place they can afford, they tend to rent properties priced at about 1/3 of their gross monthly pay. Knowing the rent range, we were able to translate that into property prices.
- Needs - Number of bedrooms, baths, size, etc.
- Location - People are willing to drive a reasonable distance to live in safe areas with acceptable amenities. What is reasonable depends on the metro area. We made some amazing discoveries on how long people will drive in Las Vegas. Beyond that distance, rents tended to drop and time to rent increases. This helped to define the location where we search for properties.
- Wants - Examples would include elements such as granite counters, nice appliances, property age, flooring, condition, etc.
Once we understood our target tenant pool's Tenant Property Selection Hierarchy, we mapped this to what we call a property profile. At a minimum, a property profile has 4 components:
- Type - Condo, single family, high rise, etc.
- Rent range - This must match the gross monthly income of the target tenant pool.
- Location - We were surprised to find "clusters" of desirable areas as opposed to gross areas like zip codes.
- Configuration - This has to do with the number of bedrooms, baths, garage size, SqFt, etc.
However, just because a property meets all these requirements does not mean that every tenant that it attracts is a good tenant. Tenants that meet all the characteristics I listed earlier are not the norm. This is part of the reason why we work closely with a very skilled property manager during property selection. It takes a skilled property manager to select the good tenants from all the applicants.
In summary, I believe A class single family and select townhomes, in the $250,000 to $350,000 range which meet all the above requirements are the best long term investment.
Are Properties Renting
Below are statistics on the tenant pool we target. Understand that these are not "general" Las Vegas metro numbers like you find in the "news". (I quote the term "news" because I question if any of their people has ever taken even a basic statistics class.) We do not track C or B class properties, condos, multi family, etc. since we do not recommend such properties in Las Vegas. Our clients are seeking long term, highly reliable income streams that increase faster than the rate of inflation. Now the numbers.
Rentals - Median $/SF by MonthNotice the significant rent increase in July, August and September.
Rentals - Median List to Contract Days by Month
The time from list to contract is below 10 days and dropping, an amazingly short period of time. According to the property managers we work with, there are usually multiple qualified applicants for each property. In some cases, renters are offering to pay more than the asking rent or pay one year's rent in advance just to secure a good place to live.
Rentals - Availability by Month
This chart shows the average daily number of properties that were for rent by month. As you can see, rental inventory continues to fall. We are at less than half of the level a year ago, a dramatic decrease.
So, the statics clearly show that there is an extreme shortage of rental properties for our target tenant pool which means now is a great time to buy rental properties.
Walter, if you select a property that targets the right tenant pool, the odds of quickly renting the property are better today than they have been in many years.
I hope this is helpful.
FERNWOOD Team, KW VIP Realty520 Reviews
28 Replies
- Member since 2019 · 10 posts · 8 votes6y
Here is the secret that 99% of investors do not know about 4plexs in Las Vegas. I just did a search of 4plexs (not duplex, not triplex) that are available on MLS without offers, the result was 31. A same search of SFR available on MLS without offers, the result was 4689. The % ratio (31/4689 equals .007). Another way of looking at this, for every (7) 4plexs, there are 4,000 SFR's. Or for every (1) 4plex for every 600 SFR's. Think of Econ 101, supply, and demand, then tell me which is better?
Below map is areas that are good for 4plexs. There's only a handful, about 5-6.
- Las Vegas · Member since 2020 · 5 posts · 8 votes6y
- Member since 2019 · 10 posts · 8 votes6y
- Real Estate Broker · Las Vegas, NV · Member since 2017 · 70 posts · 65 votes6y
- Real Estate Agent · Henderson, NV · Member since 2011 · 1k+ posts · 550 votes6y
- Member since 2020 · 2 posts · 3 votes6y
- Real Estate Agent · Henderson, NV · Member since 2011 · 1k+ posts · 550 votes6y
- Las Vegas, NV · Member since 2016 · 133 posts · 53 votes5y
- Real Estate Agent · Henderson, NV · Member since 2011 · 1k+ posts · 550 votes5y
- Real Estate Agent · Las Vegas, NV · Member since 2020 · 461 posts · 305 votes5y
- Investor · Austin, TX · Member since 2020 · 72 posts · 77 votes5y
@Walter Antonio For rentals I typically like areas that have:
1) Strong income growth
2) High millennial presence
3) Existing base of rental demand.
Below are the Vegas ZIPs that meet those criteria.
You seem to be onto something with 89138.
- Investor · Marin County California · Member since 2018 · 1k+ posts · 2k+ votes5y
- 5yEric FernwoodBusiness MemberRealtor · Las Vegas, NV · Member since 2014 · 999 posts · 1k+ votes
Hello @Walter Antonio,
I see two questions in your post:
- What are the best zip codes for investment properties?
- Can you quickly rent a property at this time?
The Best Zip Codes
Which location is best depends on what tenant pool you are targeting. For example, if you are targeting low paid hourly workers, then C class properties on the East side and areas of North Las Vegas would be the places to look. We do not target low paid hourly workers for multiple reasons. The tenant pool we target can be described as:
- Has stable employment in a market segment that is very likely to be stable or improve over time.
- Pays all the rent on schedule
- Takes care of the property
- Does not cause problems with neighbors
- Does not engage in illegal activities while on the property
- Stays for many years
The property characteristics we require include:
- Sustained profitability - The property must generate a positive cash flow today and into the foreseeable future, in good times and bad.
- Appreciating at or above the rate of inflation and likely to continue for the foreseeable future.
- Maintenance costs are low
Below is a map showing where the majority of our client's properties are located. The map gives a false impression, that all the areas in green are good investment locations. This is not true. The actual map looks closer to Swiss cheese. We are selective down to the subdivision level, not at the zip code level. However, this will give you a good overall idea of where we are finding good properties.
89138 is certainly in one of the areas we consider. However, when we look for properties, we are not selecting properties by location. What we do is select properties that our target tenant pool is willing and able to rent. To make a long story short (See this month's newsletter if you want details), below is a simplified depiction of the tenant pool we target.
How well has this tenant pool performed? During the 2008 crash, our clients had zero decrease in rent, zero vacancies. The market value of their properties plunged like all others but their income stream (the purpose of the properties) did not decrease. Today during the pandemic, out of the 160+ properties we track (there are more but they are scattered out with multiple property managers and a few are self managed), so far there are 10 tenants that have not paid the full rent on schedule at some point during the last 7 months. 5 of these tenants recently caught up on the rent or made arrangements acceptable to the owner. We expect most or all of the remaining 5 to catch up on the rent or make an arrangement acceptable to the owners.
How do you target a specific tenant pool? Through the property. Each property defines the tenant pool so you need to be very aware of the characteristics of the targeted tenant pool. In 2004/5 I spent a lot of time studying how tenants select properties. I came up with a selection model I call the Tenant Property Selection Hierarchy (if anyone can suggest a more "catchy" name, I would appreciate hearing it). See the illustration below.
On the right is the order in which most tenants select rental properties. Expanding on the hierarchy.
- Price - The maximum a tenant is willing and able to pay is about 1/3 of their gross monthly income. And, since people generally want to live in the nicest place they can afford, they tend to rent properties priced at about 1/3 of their gross monthly pay. Knowing the rent range, we were able to translate that into property prices.
- Needs - Number of bedrooms, baths, size, etc.
- Location - People are willing to drive a reasonable distance to live in safe areas with acceptable amenities. What is reasonable depends on the metro area. We made some amazing discoveries on how long people will drive in Las Vegas. Beyond that distance, rents tended to drop and time to rent increases. This helped to define the location where we search for properties.
- Wants - Examples would include elements such as granite counters, nice appliances, property age, flooring, condition, etc.
Once we understood our target tenant pool's Tenant Property Selection Hierarchy, we mapped this to what we call a property profile. At a minimum, a property profile has 4 components:
- Type - Condo, single family, high rise, etc.
- Rent range - This must match the gross monthly income of the target tenant pool.
- Location - We were surprised to find "clusters" of desirable areas as opposed to gross areas like zip codes.
- Configuration - This has to do with the number of bedrooms, baths, garage size, SqFt, etc.
However, just because a property meets all these requirements does not mean that every tenant that it attracts is a good tenant. Tenants that meet all the characteristics I listed earlier are not the norm. This is part of the reason why we work closely with a very skilled property manager during property selection. It takes a skilled property manager to select the good tenants from all the applicants.
In summary, I believe A class single family and select townhomes, in the $250,000 to $350,000 range which meet all the above requirements are the best long term investment.
Are Properties Renting
Below are statistics on the tenant pool we target. Understand that these are not "general" Las Vegas metro numbers like you find in the "news". (I quote the term "news" because I question if any of their people has ever taken even a basic statistics class.) We do not track C or B class properties, condos, multi family, etc. since we do not recommend such properties in Las Vegas. Our clients are seeking long term, highly reliable income streams that increase faster than the rate of inflation. Now the numbers.
Rentals - Median $/SF by MonthNotice the significant rent increase in July, August and September.
Rentals - Median List to Contract Days by MonthThe time from list to contract is below 10 days and dropping, an amazingly short period of time. According to the property managers we work with, there are usually multiple qualified applicants for each property. In some cases, renters are offering to pay more than the asking rent or pay one year's rent in advance just to secure a good place to live.
Rentals - Availability by MonthThis chart shows the average daily number of properties that were for rent by month. As you can see, rental inventory continues to fall. We are at less than half of the level a year ago, a dramatic decrease.
So, the statics clearly show that there is an extreme shortage of rental properties for our target tenant pool which means now is a great time to buy rental properties.
Walter, if you select a property that targets the right tenant pool, the odds of quickly renting the property are better today than they have been in many years.
I hope this is helpful.
FERNWOOD Team, KW VIP Realty520 Reviews - Member since 2019 · 10 posts · 8 votes5y
- 5yEric FernwoodBusiness MemberRealtor · Las Vegas, NV · Member since 2014 · 999 posts · 1k+ votes
Hello @Garrett Smith,
Excellent question. But not one with a short answer. There are many ways to calculate return. We use a conservative method that includes all recurring costs and we cover the approximate cost for maintenance and vacancy by not including any tax benefits (depreciation) in our calculations. Also, remember that return calculations are only an estimate of how a property is likely to perform on day one of a life time hold. The economic momentum in a location is more important than the first day's return.
The formulas we use are below.
- ROI = (Income - DebtService - ManagementFee - Insurance - RETax - PeriodicFees) x (1 - StateIncomeTax) / ( DownPayment + ClosingCosts)
- Cash Flow = (Income - DebtService - ManagementFee - Insurance - RETax - PeriodicFees) x (1 - StateIncomeTax)
Notes:
- There is no state income tax in Nevada but we include this variable (StateIncomeTax) for when we compare properties in states that do have a personal income tax.
- We do not include a constant for vacancy rate or maintenance when we compare properties. (If you want to know why, ask me). Vacancy and maintenance are property and tenant pool specific. The way we compensate for maintenance and vacancy is that we do not include any tax benefits, like depreciation, which generally increases return by between 3% and 6%. For our population of properties and our tenant pool, maintenance plus vacancy averages about 4% so the tax benefit generally exceeds vacancy plus maintenance. We are able to keep maintenance and vacancy low because of the construction used in Las Vegas (see below), careful selection of properties, careful screening of tenants, an average tenant stay of about 5 years, average turn cost of $500 and the property managers we work with.
- Debt Service: Principal and interest.
- Management Fee: Management fee percentage x annual rent. Our clients pay 8% of collected rent.
- Insurance: Estimated annual landlord insurance. We use $450/Yr which is reasonably accurate for our property population.
- RETax: Annual property tax. We use the actual tax (from tax records) for each property.
- Periodic Fees: The sum of all periodic fees like association fees, special assessments, etc. prorated to a monthly fee.
- State Tax: Nevada has no state income tax, so this is always zero for properties in Nevada. However, if you are comparing a property in Nevada to one in another state, use the appropriate income tax rate for that state.
- Down Payment: We assume 25% as almost all of our clients choose this option due to the interest rate difference. For cash purchases, it is the total purchase price.
- Closing Costs: We use 2% x the purchase price for financed properties and $2000 for cash purchases. 2% is usually sufficient to cover the lender fees if any plus closing costs, the appraisal, inspection, lease-up fees (from the property manager), a 1 year home warranty, 2 repairs in the first year with about $500 as a maintenance reserve. This is only a guess but it usually works out for a high percentage of our properties.
On recent properties, we are seeing 5% to 8%, with all recurring and an estimate on non-recurring costs included (closing costs). Below is an example property. If you are interested in all the details including a video, property manager opinion and more, email me and I will provide all the details.
Below is the estimated return for one of the better performing properties we've seen this week. (Note: If I included the estimated rehab cost ($5,400), return decreases to 8.1%.) More commonly, we see properties with returns between 5% and 8% with 25% down.
Assumptions Purchase Price 300000 <<Asking Price Rent (Mo) 1850 <<Property Manager Opinion Fees (Mo) 14 <<Actual Insurance (Yr.) 450 <<Estimate Property Tax (Actual) 1236 <<Actual Management (%) 8% <<Actual Management ($) 148 Closing Cost (%) 2.0% <<Typical with Keller Williams Mortgage Closing Cost ($) 6,000 Loan Rate (%) 3.125% <<Last close rate Estimated Rehab 0 Loan Term (Yrs.) 30 Down (%) 25% <<Last close rate Debt Service (Mo) 964 Vacancy (2%) 37 <<Estimate based on history Maintenance (2%) 37 <<Estimate based on history Acquisition Cost Down Payment -75000 Estimated Rehab 0 Closing Cost -6000 Total -81000 Recurring Expenses (Mo) Debt Service -964 Insurance -37 Property Tax -103 Fees -14 Total -1,118 Income (Mo) Rent 1850 Management -148 Net Rent 1702 Return Cash Flow (Mo) 584 ROI 8.7% Garrett, not certain I answered all your questions. So, feel free to post a follow-on question or reach out directly on email.
FERNWOOD Team, KW VIP Realty520 Reviews - Property Manager · Henderson, NV · Member since 2018 · 501 posts · 317 votes5y
- Property Manager · Henderson, NV · Member since 2018 · 501 posts · 317 votes5y
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