All Forum Posts by: Eric Fernwood

Hello @Account Closed,

Your experience is far different than ours. I believe the difference has to do with the tenant pool your properties target, the management company, and your service contacts.

Our clients and we own over 200 properties. They all target the same tenant pool. Our results over the last 15 years:

• Average tenant stay: 5 years.
• Average annual maintenance: about $350 plus the occasional water heater or air compressor.
• Average turn cost, less than $500. The low cost reflects our property selection process, the tenant pool we target, how we renovate a property, and the Nevada lease agreement. Regulations in Nevada, specifically the Las Vegas metro area, enable you to put a lot of the cost onto the tenant. For example, if any glass is broken in the house, the tenant is responsible. It doesn't matter how or why the glass was broken. When they move out, they have to return the property in a similar condition, except for reasonable wear and tear. They do have to have the carpets professionally cleaned, touch up paint, and many other tasks. So, the turn cost to the owner is very low.
• Evictions: 5 in 15 years
• 2008 crash - our clients had no (zero) decrease in rent and no vacancies. Property prices fell, as did all properties, but the income stream was unchanged.
• COVID - of the 200+ properties our clients and we own, five tenants had to move out due to job loss and such. To the best of my knowledge, all five paid 1 to 3 months penalty for early termination of their lease. And, the property was rerented in about a week at $100 to $300 more a month more. So, COVID and the eviction moratorium had little to no impact on our target tenant pool.
• YoY rent increase: 18% (July 2021)
• YoY appreciation: 19.3%. (July 2021)
• Time to rent in the current (crazy) time, <1 week. Under normal conditions, 2 to 3 weeks.

On property managers, we feel your pain. There are VERY few good property managers. We select one, work with them for a few years, they go bad, and we have to find another. (If you would like to read our paper on finding the right property manager, let me know.) Finding a good property manager takes interviewing dozens of property managers and a lot of research and time. (Hint: You cannot afford a property manager with a good yelp review.)

Our management costs are low - 8% of collected rent plus a $500 lease-up fee. Since our average tenant stay is 5 years, this is not a major cost. We also get reduced rates because of our volume. Some critical property manager characteristics:

• The property manager must be exceptional at selecting good tenants from your target tenant-pool or find another property manager. Tenant selection is a very difficult skill to master.
• Never work with a property manager with an in-house maintenance staff. Maintenance departments are a cash cow for property managers. I do not want my repairs to be a cash cow for the property manager. Also, I want the original invoice for all work and no markup.
• We specify which tradespeople the property manager will use. This greatly reduces our costs and increases quality.
• We have a detailed specification for the renovation company to follow. So far, the company had done well. They've probably renovated over 90 properties for us. We are about 80% of their total business, so if we need them working on Sunday, the only question we get is, "What time should I be there?".

Another frustration I believe you've experienced is managing your properties remotely. It isn't easy to find, qualify, renovate and manage properties remotely. You need a local investment team. However, there is rarely more than one such team in any metro area, and sometimes there is none. With a good investment team, remote investing is lower cost, easy and safe.

Of the 200+ clients we've worked with, only 10 to 15 live in Las Vegas. All our other clients live in other states or countries. We've never met half of our clients, and 1/3 have never been to Las Vegas. So, remote investing works, as long as you have a good local investment team.

Jack, I doubt any of this helped your situation but I hope it will help others.

Sorry Laurie, I did not address your question on the best neighborhoods.

First, it depends on what you want to optimize; cash flow, appreciation, or a balanced investment. Most of our clients are interested in appreciation because they are building a future income replacement. Initially, optimizing appreciation may seem counterintuitive, but property values will rise faster than you can accumulate income in a rapidly appreciating market.

On specific neighborhoods, hard to give a simple answer. Every property targets a specific tenant pool. We selected a tenant pool many years ago and continue to buy properties that our target tenant pool is willing and able to rent. Below is a map showing where some of our client's properties are located. The green shaded area is where our data mining software finds over 90% of the properties.

On our target tenant pool performance:

• During the 2008 crash, our clients had zero decreases in rent and zero vacancies. The market value of their properties declined, but their rental income was unchanged. The crash was a time for our clients to load up on properties.

• During COVID, out of >230 properties, five to ten tenants had problems paying the rent and voluntarily vacated and paid a penalty to get out of the remainder of their lease. The properties were re-rented in days, usually at a substantially higher rent. The eviction moratorium had zero impact on our tenant pool. And, YoY rent is up 18%, and property prices increased 19.3% YoY.

• Average tenant stay is about five years.

• We've had five evictions in the last 15 years.

• Average turn cost is about $500. This is also a function of the landlord-friendly lease agreements that seem unique to Las Vegas.

I cannot provide a list of "good" subdivisions because it is more complex than just any house in a given subdivision. Some examples:

• Some floorplans in a subdivision that otherwise rents well may not do well at all. An example is split levels.

• Depending on the condition of the property, the renovation cost may be too much. Also, just because the property looks good to you does not mean it will attract your target tenant pool.

• Some streets within subdivisions do not rent well. In most cases, we do not know why; we have the data that proves this. We have identified 2,065 streets as of today that rent poorly.

• The location within the subdivision can be any issue. For example, targeting young families and the house near the subdivision entrance takes longer to rent and rents for less.

• If any dimension of the master bedroom is less than 12', the time to rent increases. For example, a property with a 18x11.5' bedroom will take longer to rent than a 12x12' master bedroom.

I could continue, but I hope you understand that there is not an easy answer to the good subdivision question.

A frequent question is what database we are using. There is no public (paid or free) database with the property and tenant pool level data needed to evaluate properties. We've been accumulating our data over at least ten years. And, we continue to learn more about the market as we continue to collect more information.

If I had to give a simplistic answer, I would generally describe "good" investment properties as:

• Property prices between $300,000 and $425,000
• 3 or 4 bedrooms
• Bathrooms vs bathroom must be: bathrooms >= bedrooms - 1
• No pools or in-ground spas.
• Only tile roofs
• Probably built since 1990
• 2+ car garage
• Reasonable HOAs are very desirable and typically get higher rents.
• Do not buy three-story or split-level properties.

I hope this helped.

Hello @Bill B.,

Another great post. Thank you!

I agree with your assessment on rent increases not matching prices in the short term. According to the research I've read, there is a strong correlation between rent and property prices. Depending on the market, rent lags property prices by 2 to 10 years. So, rents will catch up to price increases, but it will take time. The same is true for declining markets. See the image below.

In declining markets, any market where appreciation and rent increase slower than the inflation rate, the rent today reflects property prices from 2 to 10 years ago. That is why declining markets tend to have a higher initial return than appreciating markets.

However, along with higher initial rent comes a guaranteed long-term decline in inflation-adjusted dollars. I've had questions on this, so I will use an example.

A couple of years ago, a client did a 1031 Exchange from a popular mid-western investment location. He was pleased with the performance of his property but felt the area was getting rough and would not continue to do as well in the future. Below is what he originally paid for the property and what he sold the property for.

He was happy the rent and the price both increased by 10% over the hold period. But what actually happened? Before I continue, a little about money and the effects of inflation.

Money in and of itself is of no value. The value of money comes from the goods and services you can buy with money. Inflation is the decreasing amount of goods and services the same amount of money will buy over time. Below is a chart showing how much money it would require today to buy the same basket of goods you bought in 1990 for $50.

Back to the mid west property. What actually happened is that he lost money on both the rent and the sale price, if you correct for inflation or buying power. If I assume 3% inflation, here is what happened:

• $900/Mo. in 2009 dollars has the same buying power as $1,174 in 2018 dollars. So, the $1,000/Mo rent he was receiving was actually a 17.4% decrease.
• $100,000 in 2009 dollars has the same as $130,477 in 2018. So, a sale price of $110,000, was actually a 15.7% loss.

My point is that you need to think of buying power and not just the number of dollars. If property prices and rents are not rising faster than the inflation rate, your income is declining over time, guaranteed.

How Are Things in Las Vegas?

For the narrow segment of properties we target, YoY rent increased by 18% and prices increased by 19.3%. See the charts below.

So, things are going very well for our clients. And, we are seeing excellent returns from the properties we close each month.

The Eviction Moratorium is...Maybe Not Over?

The "experts" are predicting an eviction apocalypse. One of the advantages "experts" enjoy is that any prediction is probably right somewhere at some time. Just not in Las Vegas at this time. I will explain.

How the (eventual) end of the eviction moratorium impacts the rental market depends on the tenant pool. In Las Vegas, we have three primary tenant pools:

• Transient - This tenant pool is primarily low-skilled hourly workers making little more than minimum wage. Whenever there is economic turbulence, they are the first to be laid off and the last to be rehired. When you hear about tenants not paying rent during the moratorium, this is the tenant pool segment. These are the primary tenants for C and most -B Class properties, of which we do not target.
• Permanent - This is the tenant pool we target. Very few were laid off during the 2008 crash, and the same is true doing COVID. So, this tenant pool was largely unaffected by either event. Also, the driving factor for this tenant pool segment is not an eviction (having to move); it is the credit impact. They know that if they have a late payment, let alone an eviction, they will not be able to rent an A-Class property again. Their only option will likely be moving to a C Class property with unsafe and terrible schools in a bad area. In my opinion, this tenant pool will rob gas stations to pay the rent. So moratorium or not, this tenant pool performs.
• Transitional - This tenant pool has a high enough income that they are typically home buyers. They typically only rent if there is a major negative event in their lives. Once they sort out the problem, they will buy a home. The 2008 crash seriously impacted this tenant pool and some were hurt during COVID. We do not target this tenant pool.

Transient tenants are the primary tenant pool that have not been paying rent. However, even with Transient tenants, I disagree with the “experts” that there will be a tenant apocalypse. The “experts” forgot that all Transient tenants will need a place to live and all landlords will need tenants. So, some shuffling around will occur but not a lot more.

Will the landlords of C and most B class properties ever get paid for the back rent? In my opinion, most will not. When I was working with property managers handling C-Class properties, I heard many times that most of this tenant pool have multiple evictions and skips in their past. So, the threat that they might get evicted again is not an issue. And, why should this tenant pool bother filling out paper to get rental assistance money to give to someone else when another eviction has no impact on them at all? I think many landlords of properties targeting C and B class properties are unlikely to get past rent. This is another example of why C Class properties do not measure up to the paper returns.

So much for today and my prognostications!

Hello @Michael Castillo,

Great that you are doing your due diligence on an investment location. Instead of listing cities that might be good investment locations, below are some considerations that will help you evaluate locations. Remember that you will hold the property for many years so look beyond initial return.

ROI is a Snapshot in Time

Return metrics, like ROI, are only a snapshot in time. ROI estimates how the property is likely to perform on day one of a lifetime hold. ROI tells you nothing about how the property will perform in the future.

For example, suppose you are considering two properties in different markets with the same initial ROI. Property A is in a market where rents are increasing above the rate of inflation. Property B is in a market where rents are increasing below the rate of inflation. Over time, Property A's inflation-adjusted cash flow will increase while Property B's cash flow will decrease.

Another example, suppose Property A has a lower initial rate of return than Property B. If you based your decision only on the initial return, you would choose Property B. As you can see, Property A is a much better long term hold.

My point is that you must look beyond the initial return; you will be holding the property for many years, and you need the inflation-adjusted income to increase over time. After all, your living expenses will be increasing.

Location Considerations

Below are some of the more important considerations I recommend when evaluating locations.

I would only consider metro areas with a population greater than 1 million. You want a stable economic environment, and small towns may be too dependent on a single company or commodity. Here is a list of metro areas ranked by population.

Appreciation is an excellent economic health indicator. When properties appreciate, demand is increasing. Demand will only increase if new jobs are being created, people are moving into the location, the government is not oppressive, and many other things have to be right. However, I would never consider any location where rents and prices are not increasing above the rate of inflation.

While crime is everywhere, crimes occur in some locations much more frequently. Properties in cities with high rates of crime are unlikely to do well over time. Few people would choose to move to such a location and people with sufficient income will move away to a safer location. Median income in the area will fall as well rents and property prices. Also, Employers are unlikely to open new operations in high-crime areas either. Here is one list of high crime cities. I would not invest in any city that appears on this list.

Population change tells you a lot about a location. If the population is increasing, many things have to be going well. Also, with a growing population comes rising demand which will result in increased property prices and rent.

If the population is decreasing, there are serious issues. Moving to a different state or city is an expensive proposition, both in terms of stress and expense. Things have to be pretty bad to motivate a significant number of people to move away from a location. I would not consider any location without a rising population. Here is a list of metro population changes between 2010 and 2019.

A property is no better than the jobs around it. However, it is not just the jobs your tenant pool has today. Except for government and utilities, the average lifespan of a company is about ten years. Even companies listed on the S&P 500 only have an average lifespan of 18 years, and it is declining. So the jobs your tenants have today will vanish in the next 10 to 15 years. The location will only stay economically viable if new companies are moving into the location, creating new jobs requiring similar skills and paying a similar wage.

The best way I know to quickly assess the economic health of a location is median household income. If the median household income, adjusted for inflation, is not increasing, the location is in decline. The St Louis Federal Reserve is my go-to source for such information. As an example, here is a link to median household income for Las Vegas (Clark County).

State taxes (income and property) are a good metric of the cost of doing business. The so-called "Blue" states are examples of where the cost of living and doing business is unreasonable. The high cost of living is why so many people are leaving these states. I would never invest in states with high income (or property) taxes.

Michael, I hope the above will help you to evaluate potential investment locations.

Hello @Da'Mario Hughley,

As @Michael Robbins said, it depends on your investment goals. I will share ours so you can use it as a starting point for what you are seeking.

I believe every investment property must meet the following three criteria.

1. Sustained profitability - The property must generate a positive cash flow today and into the foreseeable future, in good times and bad.
2. Appreciating - Appreciating at or above the inflation rate. The properties we target had a YOY increase in rent of 14.3% and appreciated 18% (May 2021).
3. Low Operating Cost - In a location where operating costs are low and regulations favor investors.

When I first moved to Las Vegas (about 16 years ago), I did a lot of research concerning tenant pools. I started with defining the characteristics of what I call a "good" tenant. Next, I researched which tenant pool segment had the highest concentration of good tenants. I then translated this tenant pool's needs and wants into physical property characteristics. These are the properties we target. Below is a high-level view of what I learned about the three major tenant segments.

Tenant Pool Segments

While segment generalizations may not apply to any specific individual, generalizations are useful when evaluating segments because most members share common behaviors. As an example, I will focus on the frequency of tenant turns by tenant pool segment.

In my research, I've found that tenant stay has a strong correlation with income, as shown below.

Comments on the three tenant pool segments:

• Transient - This tenant pool is primarily low-skilled hourly workers making little more than minimum wage. The typical renovation cost per turn is $1,500. The average tenant stay is one year. The average rent is $850/Mo. The average time to rent is eight weeks. When you hear about tenants not paying the rent due to Covid, this is the tenant pool they are talking about.
• Permanent - This tenant pool could be hourly or salaried, but they earn well above minimum wage. The typical renovation cost per turn is $500. The average tenant stay is five years. Typical rent $1,500/Mo. Typical time to rent, two to four weeks. This is the tenant pool that we target.
• Transitional - This tenant pool has a high enough income that they are typically home buyers. They typically only rent if there is a major negative event in their lives. For example, a divorce, the death of a spouse, etc. Once they sort out the problem, they will buy a home. The typical tenant stay is two years. The typical renovation cost per turn is $2,000. Typical rent $2,500/Mo. The typical time to rent is eight weeks.

How has the "Permanent" tenant pool performed for us?

• Average tenant stay: 5 years
• Number of evictions in the last 16 years: 5
• Average turn cost: <$500
• 2008 crash performance: zero decrease in rent, zero vacancies
• COVID performance: Out of >200 properties, 5 tenants had trouble paying and moved out.

Properties That Attract Our Target Tenant Pool

The majority of our properties are single-family and a select set of townhomes. We've investigated condos in the past, but they have multiple limitations, including an average tenant stay of about two years, financing restrictions, and the high HOA fees limit profitability. Below is a map showing the areas in which we find most of the properties (green) and the location of some of our client's properties. Note that while the green area appears homogeneous, in actuality, it looks more like Swiss cheese.

Many new clients ask about condos because they have concerns about high maintenance costs. Due to the properties we target, construction, and our process for selecting properties, our average maintenance cost is between $300 and $400 per year, plus an occasional water heater or AC compressor replacement. This is similar to maintenance costs for condos. Below is a typical property that we target. As you can see, there is not a lot to maintain.

Some thoughts for your consideration:

• Select your target tenant pool first and then buy properties that this tenant pool is willing and able to rent.
• Find a good investment team. If you would like information on selecting an investment Realtor, let me know, and I will post it.
• I would not pre-judge the type of property to buy. I would buy properties that generate the highest net return today and continue to do so into the foreseeable future.

Hello @Aj,

Since I do not know your investment goals, below are the characteristics that I feel represent the best types of investments.

1. Sustained profitability: The property must generate a positive cash flow today and into the foreseeable future, in good times and bad.
2. Appreciating: The price and rent must increase at a rate above the rate of inflation.
3. Low Operating Cost: In a location where operating costs are low, and regulations favor investors.

Notice that my goals do not specify a type of property because the property type does not matter. What matters is that you consistently make money. To make money, the property must remain occupied by a tenant who pays all the rent on schedule and takes care of the property. So the real challenge is selecting the right tenant pool. Below is the process I followed when I first moved to Las Vegas.

After some consideration, I determined that the most important tenant pool characteristic for making money is that the tenant stays in the property for many years. I did a study and discovered a strong correlation between the monthly rent and the length of tenant stay, as shown below.

• Comments on the three tenant pool segments
  • Transient - This tenant pool is primarily low-skilled hourly workers making little more than minimum wage. The typical renovation cost per turn is $1,500. The average tenant stay is one year. Typical rent is about $850/Mo. and the typical time to rent, eight weeks.
  • Permanent - This tenant pool could be hourly or salaried, but they earn well above minimum wage. The typical renovation cost per turn is $500. The average tenant stay is five years. Typical rent $1,500/Mo. Typical time to rent, two to three weeks.
  • Transitional - This tenant pool has a high enough income that they are typically home buyers. They typically only rent if there is a major negative event in their lives. For example, divorce, death of a spouse, etc. Once they sort out the problem, they buy a home. The typical tenant stay is two years. The typical renovation cost per turn is about $2,000. The average tenant stay is two years. Typical rent $2,500/Mo. Typical time to rent, eight weeks.

Next, I determined the approximate annual cost of vacancy for each of the three segments. The turn cost is the sum of the renovation cost and carrying cost. Carrying cost is dependent on time to rent, financing, taxes, insurance, and other property-specific costs. To keep this example reasonable, I will only look at lost income. To calculate an annual estimated cost, I will evaluate over ten years. To keep things simple, I will ignore inflation, probable rent increases, and similar variables. Below are the turn costs for each segment based on the above assumptions.

If I multiply Total Turn Cost by the 10 year turn frequency, I get the following:

• Transient: 10 turns x 3,200 = 32,000 or 3,200/Yr
• Permanent: 2 turns x 2,000 = 4,000 or 400/Yr
• Transitional: 5 turns x 7000 = 35,000 or 3,500/Yr

Below I normalized annual turn cost to show how much more annual cash flow the Transient and Transitional segment must generate above the Permanent segment to have the same annual net cash flow.

• Transient segment: +$2,800 per year more than Permanent.
• Transitional segment: +$3,100 per year more than Permanent.

Based on the above calculations and research concerning cash flow and tenant turn rate from properties that target the three tenant pool segments, I determined that the highest net cash flow (for the same amount of capital invested) is from the Permanent segment.

Once we identified our target segment (the Permanent segment), the next task was to determine three important segment characteristics: rent range, needs, and location. Once we understood these, we translated them into four property characteristics: type, configuration, location, and rent range. Below is a description of each of the four characteristics.

• Type: Condo, high rise, single-family, etc.
• Configuration: For example, 2,000SF, two bedrooms, three-car garage, large back yard, single-story, two stories, etc.
• Location - Where the target tenant pool wants to live.
• Rent range - The rent must be within the target tenant pool's acceptable rent range and generate a sufficient ROI and cash flow.

I determined that the vast majority of this tenant pool rents single-family homes and a narrow selection of townhomes. The overall process is illustrated below.

How has this pool performed for our clients over the last 15 years?

• Average stay is five years.
• Average turn cost is less than $500 (The landlord friendly regulations in Nevada help.)
• During normal times, the time to rent is 2 to 3 weeks. Today, most rent in less than one week.
• During the 2008 crash, zero decrease in rent and zero vacancies. During Covid, out of about 230 properties, five tenants moved out because they could not pay the rent.
• Five evictions in 15 years.
• The average annual maintenance cost is between $300 and $400, excluding the occasional water heater or air compressor.

Below is a map showing where some of our client's properties are located and the green area is where we find the most conforming properties. Note that while the green area looks homogeneous, it is more like Swiss cheese.

Bear in mind though, that conforming properties represent only about 0.4% of all available properties on the MLS. And they do not stay on the market long especially in today's market. We are only able to find the 5 to 10 properties we need each month for clients due to our data mining software and related processes.

In Conclusion

In order to determine the best investment property type in a particular market, you first need to determine which tenant pool to target in order to achieve your investment goals. From there, you can determine a property profile that attracts your target tenant pool.

Aj, I have some recommendations.

• C class and most B class and multi-family properties in Las Vegas are poor investments because of the tenant turn cost; actual returns are much lower than paper return. Also, B and C class properties tend to be older and require more maintenance and renovation.
• Conforming single-family and select townhomes are the best performers today and have been for the last 15 years. I recently ran our monthly statistics on conforming properties. YoY rent increased by 15.7%. YoY prices rose by 16%. If you would like this data, let me know and I will post it.
• The number of skills and knowledge required to find such properties, renovate them, and monetize them is more than any individual can do. I've been doing this for many years, and I would never consider doing this on my own. My recommendation is to find a good investment team. I would start by finding an investment Realtor. Investment Realtor's have little similarity to residential Realtor's. Investment Realtors sell income streams while residential Realtors sell homes. If you'd like information on selecting an investment Realtor, let me know, and I will post that information on this thread.

Aj, I hope the above will help you find an investment property that will meet your goals. I wish you success.

Hello @Matt Huneycutt and @Bill B.,

Thanks for the tag.

What We Are Seeing

Las Vegas is an island surrounded by federally owned land. 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. Some specifics.

• Prices rose 15.4% YoY in March 2021 (for the segment that we target. See charts below.), with median days on the market at 5. Properties that we target are typically going under contract in 1-2 days.
• Rents rose 8.7% in March 2021 YoY with median days on the market at around 8. The average time on the market for most of our client's rentals is under seven days.
• Both the sales and rental market have extremely low inventory (less than half a month).
• We regularly close properties with a cash-on-cash return between 4% and 6% (6 last month), so good properties are available.
• 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 190+ client properties we track (out of a total of > 220 properties), at some point during the last twelve 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 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 15+ 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.

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

Median rental rates reached $1/SF in March, representing a 8.7% increase YoY. A phenomenal growth for rental rates.

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

This chart shows the average daily number of properties that were for rent in a particular month. As you can see, we are at about 40% of the level a year ago.

Rentals - Months of Supply

2 to 3 months is typical. Today we are at just 0.5 month of supply!

Sales Statistics

Median $/SF by Month

Prices have risen rapidly since February 2021 and March 2021 saw an amazing increase of 15.4% YoY!

Sales - List to Contract Days by Month

Accompanying the rapid price increase is the unprecedented low days on the market. Properties that we target are typically going under contract in 1-2 days.

Sales - Availability by Month

We are at less than 1/3 of the level a year ago just before the COVID hit.

Sales - Months of Supply

Six months supply is considered a balanced market. In March there was approximately 1/3 of one month!

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.

The hospitality industry is still expanding:

• Virgin Hotels just opened a new hotel/casino.
• The First Atari Hotel Looks Like a Gamer's Fantasy — and It’s Opening in Las Vegas
• The Boring Company plans to expand the existing underground transit system in Las Vegas.
• Resorts World, a $7B hotel/casino is opening summer 2021.
• The convention business is starting to rebound. At least one convention, 2021 World of Concrete, is schedule for June 2021.
• 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.
• Zillow is predicting a +10% increase in Las Vegas housing prices in 2021. Interestingly, in the summer of 2020 they predicted a 7% decrease for 2021.
• 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.

Hello @Daniel Cisneros,

Thanks for the tag.

What We Are Seeing

Las Vegas is an island surrounded by federally owned land. 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. Some specifics.

• Prices rose 15.4% YoY in March 2021 (for the segment that we target. See charts below.), with median days on the market at 5. Properties that we target are typically going under contract in 1-2 days.
• Rents rose 8.7% in March 2021 YoY with median days on the market at around 8. The average time on the market for most of our client's rentals is under seven days.
• Both the sales and rental market have extremely low inventory (less than half a month).
• We regularly close properties with a cash-on-cash return between 4% and 6% (6 last month), so good properties are available.
• 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 190+ client properties we track (out of a total of > 220 properties), at some point during the last twelve 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 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 15+ 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.

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

Median rental rates reached $1/SF in March, representing a 8.7% increase YoY. A phenomenal growth for rental rates.

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

This chart shows the average daily number of properties that were for rent in a particular month. As you can see, we are at about 40% of the level a year ago.

Rentals - Months of Supply

2 to 3 months is typical. Today we are at just 0.5 month of supply!

Sales Statistics

Median $/SF by Month

Prices have risen rapidly since February 2021 and March 2021 saw an amazing increase of 15.4% YoY!

Sales - List to Contract Days by Month

Accompanying the rapid price increase is the unprecedented low days on the market. Properties that we target are typically going under contract in 1-2 days.

Sales - Availability by Month

We are at less than 1/3 of the level a year ago just before the COVID hit.

Sales - Months of Supply

Six months supply is considered a balanced market. In March there was approximately 1/3 of one month!

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.

The hospitality industry is still expanding:

• Virgin Hotels just opened a new hotel/casino.
• The First Atari Hotel Looks Like a Gamer's Fantasy — and It’s Opening in Las Vegas
• The Boring Company plans to expand the existing underground transit system in Las Vegas.
• Resorts World, a $7B hotel/casino is opening summer 2021.
• The convention business is starting to rebound. At least one convention, 2021 World of Concrete, is schedule for June 2021.
• 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.
• Zillow is predicting a +10% increase in Las Vegas housing prices in 2021. Interestingly, in the summer of 2020 they predicted a 7% decrease for 2021.
• 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.

Hello @Jason W.

Instead of commenting on specific cities or investment strategies, I will describe the process I would use to select an investment location.

So we have a common understanding, I believe every investment property must meet three criteria:

1. Sustained profitability - The property must generate a positive cash flow today and into the foreseeable future, in good times and bad.
2. Appreciation - The location must be appreciating at or above the inflation rate.
3. Investor friendly - The cost of doing business and local regulations and taxes must favor investors.

I will explore each of the three criteria below but first, a comment on selecting properties based on ROI.

ROI is Only a Snapshot in Time

If you anticipate holding the property for many years, what is happening long-term is more important than what is happening today. ROI, and other such metrics, estimate how the property is likely to perform on day one of a lifetime hold. ROI tells you nothing about how the property is likely to perform in the future. See the chart below.

Today, Property A and Property B have the same estimated ROI. However, in the future Property A is returning 8% while Property B is only returning 1%. Market direction is a critical factor in location selection.

Below is another example. Is property A or Property B a better investment? Even though Property B has a higher initial return, Property A is the clear winner over time.

Location Trend

How can you evaluate a location's trend? Determining market trends directly from statistical data would not be easy. However, there are "indicators" and basic metrics that can provide the location selection information you need. I listed a few below that you could use to narrow your search.

I would only consider metro areas with a population of at least 1 million. You want a stable economic environment, and small towns may be too dependent on a single company or commodity.

Property prices increasing above the rate of inflation, is a strong indicator that people are moving into the location, new jobs are being created, and household income is rising. And, since rents lag property prices by 2 to 10 years, what is happening with property prices today indicates what will happen to rents in the future. I would not consider any location where appreciation is less than the (actual) rate of inflation.

Increasing or decreasing population is a strong indicator of taxes, crime, cost of living, jobs, quality of life, and many other things. If the population is increasing, a lot of things in that location must be right, and prices and rents are likely to rise due to increasing demand. If the population is decreasing, prices and rents are likely to fall due to decreasing demand. Here is a list of metro population changes between 2010 and 2019.

An investment property is no better than the jobs around it. Said another way, if your tenants are not working, they are not paying rent. When you consider jobs, there are two aspects: job quantity and job quality. The quantity of jobs is important but not sufficient; you must also consider the quality (pay rate, benefits, location, etc.). Also, it is not just the jobs the tenant pool has today. Most small businesses' life span is about ten years, and even S&P 500 companies only last on average about 18 years. So, most of the jobs your tenant pool has today will likely be gone within the next ten years. Unless new jobs are being created to replace the existing jobs that pay at similar levels and require similar skills, your tenant pool will either move away or take jobs at lower pay. If your tenant pool moves away or accepts lower-paying jobs, rents will fall accordingly. You need to consider the economic direction of the location. One of the best indicators I know for economic health is median household income growth. The St Louis Federal reserve site is my go-to place for such information.

While crime is everywhere, crimes occur in some locations much more frequently. Properties in cities with high rates of crime are unlikely to do well over time for three reasons. One, few people will move to a location perceived as a high crime area. Two, people who can afford to do so will move away from a high crime area. Three, jobs do not stay in high crime areas, so people move away to where the jobs are. NeighborhoodScout maintains a list of the 100 most dangerous cities in the US. I would be very hesitant to invest in any city on this list. High levels of crime and long-term growth do not go together.

In most cities, areas that were once the best place to live are now distressed. The pattern where people with higher incomes move to newer areas is commonly referred to as urban sprawl. The people who remain typically have lower incomes and cannot afford to move. As the median income of an area falls, property prices fall. Sales taxes and property taxes largely fund city services. If the tax base declines, city services decline and crime increases. As crime increases, the remaining population with sufficient income leave the area. Over time, the only jobs that remain are low-paid service sector jobs, which results in a spiral of declining prices and rents.

The easiest way to detect urban sprawl is to watch a time-lapse aerial view of the area. Below are a few examples.

• Memphis
• Atlanta
• Indianapolis
• Phoenix
• Las Vegas - Las Vegas is fairly unique in that it is surrounded by federal land and there is very little non-government land left for expansion. So, Las Vegas has almost no urban sprawl.

Cities subject to urban sprawl share some common characteristics, including:

• Existing home prices rise slowly or even decline (after adjusting for inflation).
• As the household income in older areas declines, prices and rents fall to match.
• Generally, home prices will be significantly lower than metro areas with expansion limitations.

Investor Friendly

You could buy what appears to be an outstanding property only to have operating costs eat all the cashflow. Below are a few factors to consider.

• High Taxes - People are fleeing high tax states like California, New York, New Jersey, and others. I would not invest in any of these states because their economies are declining.
• Property Insurance Cost - Property insurance rates are based on the probability of a natural disaster occurring in that state. The higher the cost of insurance, the higher the probability of a major disaster. The problem is not the cost of repairs, which can be covered by insurance. The problem is the loss of area jobs and population. People and businesses will leave a disaster area so they can resume a normal life. The likely result will be declining property values and rents. Value Penguin has an excellent comparison of insurance cost by state. I would not consider states with high insurance costs.

• Regulations - I talk to many people considering using a 1031 Exchange to move their investment to Las Vegas. The most common reasons for moving their investment include:
  • Anti-investor regulations including rent control and similar abuses of property ownership rights.
  • Permits & occupancy regulations - In some cases you will need to get occupancy permits just to rent the property.
  • Cost and time to evict non-paying tenants. For example, in some states, you cannot evict tenants during the winter. In other states, it can take up to a year or more to evict a wily tenant. Note I view such nightmare evictions like I view cancer. The odds of your getting cancer are relatively small, but if you do get cancer, it is devastating and "odds" mean nothing.

The Process I Would Follow

I would eliminate locations based on the following criteria, which is sorted into the order of the easiest to hardest to evaluate.

• Population Size
• Property insurance cost
• Crime
• Population Growth
• Job quality and quantity
• State income tax rates
• Urban sprawl
• Investor friendliness

Final Consideration

A number of skills are required to make money with real estate. You can either provide all these skills yourself (you can't) or you can work with a good investment team. Below is a chart showing the needed skills and who is most likely to provide these skills. Unless I could find a good investment team in a location you are considering, I would look for another location.

Jason, I hope the above helps. If you have questions, feel free to reach out to me.

Hello @Jacoby Atako,

My concern is that the property would be specific to that tenant and maybe not be a good match for other tenants. So, when they move out (they will sooner or later) what will you do then?

I do believe in targeting a specific tenant pool. We certainly do and the results have been excellent. The properties are highly desirable to a pool of people so if one moves out it is quickly re-rented.

There is another concern, the tenant pool for properties priced over $400,000 is relatively small. Also, according to our research, the average tenant stay is about 2 years. The turn cost on such large properties is high. A little background on the general Las Vegas tenant pool characteristics might be helpful.

We did a good bit of research on average tenant stay by rent range. What we found is illustrated below.

Below a certain rent, the majority of the tenants stay 1 year or less. Above a certain rent range, the average tenant stay is about 2 years. We actually named the segments based on their average length of stay. See the image below.

• Transient tenants - This segment of tenants are low paid hourly workers. They are the first to be laid off and the last to be rehired in times of financial stress. When you hear about tenants that cannot be evicted even though they are not paying due to the eviction moratorium, this is largely the group they are referring to.
• Permanent tenants - This is the segment we target. With a good property manager selecting the tenant, we've done very well both during the 2008 crash and through COVID.
• Transitional tenants - These people make enough to buy a home but some event has occurred that made renting more desirable. Once they sort out the problem they usually buy a home.

Buying a property that will only attract transitional tenants may not be the safest option. I would buy with a specific tenant pool in mind so I know I could always re-rent the property.