Placing a Bet on Las Vegas Real Estate

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At the end of the post, I’ll ask you for a favor – if you are a professional property manager.  Please check it out.

My financial planner friend was talking about the difference between two Fortune 500 companies, both dealing with the tough economy.

“Company A (he mentioned the name, but I won’t) was in trouble when times were good.  When lots of people were buying the types of products they sold, they were less and less likely to buy Company A’s products.  Now nobody buys from Company A.  They don’t have a chance.  Their stock is down and it’s not coming back up.

“Company B made great products and they’ve got lots more on the way.  They’re a victim of their own success, only in that they planned for a certain amount of growth and they didn’t get it – so now they’ve got to take some losses and cut some of their workforce.  Their stock has been dragged down by general trends.  It’s not their fault, and they’ll help lead the way out of this.”

I was reminded of this conversation when I saw a report describing Las Vegas and Detroit as two of America’s “most vacant cities.”

Right now one out of every six Vegas rentals stands empty.  One in 25 nominally owner-occupied homes is vacant.  But that’s not because people are moving out of the city.  In fact, the population has risen substantially every decade, including this one.  The problem is that the city’s housing stock rose faster than its population.  Like Company B, Las Vegas planned for more growth than it got.  Flippers got caught holding the bag when the recession began.

A “Frozen” and “Scared” Market

One Vegas developer describes the market as “a mess” and adds, “Right now, things are just frozen. Everybody’s scared.”  Scared is an interesting word here.  Detroiters aren’t “scared” – not of declining real estate values, anyway.  They’re used to it.  The city declined in boom years, so the current decline doesn’t feel hugely different.  Of course, they are worried about the big automakers cutting employment, but this is nothing new – GM, Ford and Chrysler have already shed 250,000 jobs since 2000 – mostly in Michigan.

I’d rather be in a scared market than a resigned one.  A scared market hopes for a turnaround.  A resigned market has given up hope.  And there are two big reasons to be hopeful for the future of Las Vegas.

Reasons for Optimism

First, Las Vegas is still a great place to work and live.  Remember the reasons people went to Nevada in the first place?  It’s sunny and comfortable there – at least until the temperatures hit the hundreds, but many people prefer that to snow.  The casinos, shops and shows are a lot of fun.

Not only that, Nevada remains a great place to start a new business or relocate.  Last week I mentioned the Economic Freedom Index.

Nevada ranks sixth on the index, which is excellent (and improving from previous years).  It has no personal or corporate income tax.  Finally, its proximity to economically-oppressed California makes it a natural home for businesses fleeing the once-Golden State.

The second reason is that people are continuing to move into Las Vegas, even now, while new construction has completely dried up.  That means the city will begin to chip away at all that empty inventory.  As the number of vacancies declines – and it will – the prices will start to go up.

I’d be reluctant to make my move right now, because we’re still seeing a terrific amount of government intervention in the economy.  Right now we just don’t know if the moves we’ve seen so far and the ones that are still coming will help or hurt.  And of course, buying into Vegas or any other collapsed market is not for the faint of heart.  At the very least, you’ll have a hard time attracting tenants for a while, and prices may decline further.

At the start of this post, I said I would ask you for a favor.  Here it is.  I’m looking for five professional property managers to help design some new features of my property management software.  If you’re interested, please send me a private message through Bigger Pockets.  I’ll ask you to review some design ideas by phone and/or email – probably no more than a couple of hours of your time.  What do you get?  Two things: a free lifetime subscription to the software and a tool that is more closely tailored to your needs.

Remember, this is only for you if you manage rentals for other owners for pay.  My software serves investors as well, but the new features are really only for PMs.

Photo Credit: Omar Omar

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.