Hello @David Bell, In Las Vegas, and I assume most cities, class A areas tend to be in reasonably well defined areas but class B and C locations are not. Class B and C properties are more defined by the tenant population than the geographical area. So we have a common understanding, below is my definition of Class A, B and C. Note that the following description is only my opinion, only applies to Las Vegas and should not be considered some sort of universal "definition". Class A properties tend to be newer, prospective tenants tend to have higher incomes and are primarily credit based and typically pay the highest rent. Credit is very important to the tenant population so evictions and skips are rare. In Las Vegas Class A properties tend to be in subdivisions or communities with HOAs and have a well groomed and uniform appearance and in the best school districts. Class A properties tend to be lower risk, tenants stay longer and properties are more likely to appreciate. Summerlin and Green Valley are examples of class A property areas. Class B properties - Compared to class A properties, class B properties are generally older, tend to sell for a lower $/SqFt and tenants generally have lower incomes and credit scores. Tenants tend to stay shorter periods of time (1 to 2 years) and evictions are more common than with Class A properties (few total evictions since tenants know that they will be out in less than 30 days if they do not pay). Initial rehab is likely to be higher and tenant damage is likely to be higher than class A properties. Class B properties also tend to have a higher risk than Class A properties but generate a higher return. Class C properties - Class C properties are generally older and are located in less desirable locations. These properties generally need significant rehab and significant tenant damage is much more likely. The tenant population is primarily cash based so leases mean little and many have government subsidies. Skips and evictions are common. Rent payments tend to be in cash. Tenants tend to use mass transit so selecting properties near bus routes is very important. Some of these properties generate high returns. Now that you know how I define class A, B and C I will explain how we find such properties. We use software we developed to filter the thousands of available properties looking for the very few properties that meet specific characteristics (usually less than .1% of the available MLS listed properties qualify as potential investments at any given time). Below are example characteristics for each of the classes. Note that we apply about 50 characteristics to class A properties. The number of characteristics is less for class B and much less for class C. Class A • Within a specific price range• Acceptable ROI using the following formula: ((Rent - Debt Service - Management Fee - Insurance - Real Estate Tax - Periodic Fees) x (1 - State Income Tax))/(Down Payment + Closing Costs + Estimated Rehab Cost). Note that for Nevada there is no state income tax.• Time to rent <30 days• Within a fairly well defined geographical area • Single family• Two+ garage• Three+ bedrooms• Two+ baths• Within a minimum and maximum lot size• Correct ratio of building footprint to lot size• Master bedroom and guest bedroom sizes meet specific criteria• Built after specific year• Association fees below a specific amount• Certain floor plans are excluded• Certain subdivisions are excluded• Rehab below a specific amount with no high risk rehab items Class B The characteristics of class B are similar to class A but also include town homes and the price range is lower. We look for a higher ROI than for class A properties due to slightly increased risk. Class C Class C properties have a very different criteria than class A or B. Price range is typically less than $100,000 and includes all property types (single family, town homes, condos). The key criteria includes: • Significantly higher ROI requirement• Time to rent < 30 days• Adjacent to major bus routes • ROI (higher than class A or B properties)• 2+ bedrooms• 2+ baths• Certain locations, communities and floor plans are excluded Once we have properties that meet the specific class criteria I personally visit them and evaluate the area and subdivision/community. If it looks acceptable, I evaluate the property including the floor plan and estimate rehab cost and rehab risk. If all of this is acceptable, I take a video and send it to the property manager and the client. The property manager provides an independent opinion of the property in general plus time to rent and the rental rate. If the return is acceptable and all agree that the property makes sense we make an offer. The offer amount is based on return, not the asking price. In summary, we primarily select properties based on property characteristics, potential tenant characteristics, risk and return, not geographical locations. One additional class of properties is multi-family. We divide these into two categories: 4 units or less and more than 4 units. More than 4 units requires commercial financing. The criteria for multi-family is quite different since the value is largely based on the cap rate, differed maintenance and tenant risk. Larger properties (~30 units+) are evaluated based on current usage and potential future usage. David, I hope this clarifies our process of selecting the various classes of properties.

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. • Amazon 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. Las Vegas is and will continue to be a great place to invest for buy and hold investors.

We suggest a simple approach for what we call bread and butter rentals. The most commonly requested product by incoming tenants Pick a good school district, min. 3 bed, 2 bath, 2 car. preferably a tile roof and grab the ones under $80 PSF. Its not magic, its the price.

Hello @Michael Wallimann, Thank you for the kind words, When I first started investing many years ago, people were very kind to me. My way of repaying their kindness is to help others on their journey. Hello @Barri Griffiths, Rents follow prices, whether they are increasing or decreasing. However, there is always a lag of 2 to 5 years between price changes and corresponding changes in rent. Rents have increased rapidly since 2008 until the interest rates exploded. On finding good investment properties, they are out there. We find 10 to 15 good properties each month. However, the only way we can find them is using our data mining software and acting quickly. Good properties only stay on the market for 2 or 3 days before they go under contract. Also, if you get a 7% to 8% pre-approval and close with that rate, there is almost no way to have a positive initial cash flow. What we do is once we get a property under contract, we solicit interest rate buy-down options from multiple lenders. We then move the loan to the lender with best rates. Also, most of our clients put 30% down. The combination of buying down the rates and a 30% down payment consistently works for us and out clients. Barri, your planned process of buying a property, living in it for a while, and then converting it into a rental has been successful for several of our clients. Most of them stay for 2 to 3 years and then purchase another property. Therefore, the property's performance on day one is not the main issue. What matters is how it will perform in two or three years when you rent the property. The bigger concern is that you select a property that attracts what I call a reliable , your main concern should be buying a property that attracts reliable tenants. A reliable tenant is someone who stays for many years, always pays the rent on time, and takes good care of the property.. For many years, we have focused on a tenant segment with a high concentration of reliable tenants, and our results have been excellent. Out of approximately 500 investment properties we have delivered: • Our average tenant stay is >5 years. • Their rental income has been reliable. During the 2008 financial crash, our clients experienced no decrease in rents and had no vacancies. • Six evictions in the last 15 years with a tenant population of over 1,000. • Inflation compensating - From 2013 through the first quarter of 2022, the average annual appreciation has been over 15%, and the average annual rent growth has been over 8%. Our client's rental income growth has exceeded inflation, allowing them to maintain or improve their standard of living. Although rent increases and appreciation have slowed since the second quarter of 2022, the conditions that drove rapid appreciation and rent growth remain unchanged. • We receive multiple contacts from wholesalers every month. However, they have only offered us properties that are either extremely damaged or located in high-crime, distressed areas. The tenant segment we've targeted will not rent in distressed, high-crime areas. The only tenants such properties attract will be low skilled hourly workers that will likely only stay one year. Before considering an off-market property, visit the area on a Friday or Saturday night and walk around with your family. Ask yourself if you would feel safe living there. Check out the schools, too. Barri, there are good properties available, although they are not cheap nor are there any steals. However, there are good deals to be found.

I was recently asked if the Las Vegas real estate market is good only for a "Buy and Hold" strategy or if it is still possible to flip homes in the current Las Vegas real estate market. Below is my reply: "Vegas prices have been going up year after year since the end of 2011. 2012-2013 we saw huge appreciate around 30% annually. 2014 and 2015 we have seen a slow down in appreciation although we are still appreciating just not at the scary rate of 30%. Rental rates have not changed very much over those years so with the cost of purchasing being so much higher and rental rates not changing much the CAP rates of 12% etc are VERY hard to find now. If you are ok with 6-8% you can still find that. Flipping is not bad or impossible it is just hard to find deals that have enough meat on the bone to still turn a profit after covering all expenses. In most cases if you are looking to flip you will want to find off market deals. The MLS properties tend to sell for just under appraisal value leaving you very little room to turn a profit after the closing costs, commissions, and rehab costs. I hope this is helpful."

@Eric Fernwood which areas would you call "Class B" properties in Las Vegas? Summerlin seems to be the Class A section, but how does Spring Valley, Paradise, Sunrise Manor, Winchester, and Whitney stack up? I've just been looking on the web, but I would love your advise since you live and work out there.

Perfect timing!!! I am researching all those areas and am ready to invest in Vegas for the same reasons.

@Eric Fernwood thank you for such detailed information and incredible insight on the Vegas market! I am currently looking for a small multi family in the area and this thread has been a tremendous help. You are truly what makes Bigger Pockets such an amazing community!!!

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Updated over 1 year ago on 09/01/2023. Most recent reply

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Michael BellPoster

Investor
Santa Clarita, CA

Buying & Selling Real Estate

Las Vegas????

Michael BellPoster

Investor
Santa Clarita, CA

Posted July 23, 2015 02:16

Is Las Vegas a good location to purchase buy and hold properties?

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Eric Fernwood

Agent

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Real Estate Agent
Las Vegas, NV

Eric Fernwood

Agent

Pro Member

Real Estate Agent
Las Vegas, NV

Replied July 23, 2015 13:53

@Michael Bell

When I decided to go into real estate business 9 years ago, I evaluated several places including London, Phoenix, Atlanta, etc and chose Las Vegas. Today I still feel my decision was right. I am frequently asked by new clients Why Las Vegas so I put together the following response.

Why Las Vegas?

The old adage that the three most important factors in real estate being location, location and location is especially true for investment real estate. And, it is not just how things are today but how they will likely be over the next 10 to 20 years. So, what are the unique advantages of Las Vegas for investors?

High Return

Las Vegas is one of the few major metro areas where you can still get positive cash flows. The reason you can get a high return include:

Positive Cash Flow - Our clients are typically seeing 5% to 8% on class A properties and higher on B and C class. And, this will increase because rents are increasing.

Zero State Income Taxes - Nevada has no state income tax.

Low Property Taxes - There are metro areas in the US with property taxes exceeding 2.4% (Houston, Dallas-Fort Worth, etc.) as opposed to Las Vegas where the average is about 0.86%.

Low Cost Landlord Insurance - Land Lord insurance in states with adverse weather like Florida and Texas can exceed $2,000/Yr. Our clients typically pay between $500/Yr. to $600/Yr.

Low Maintenance Costs - Maintenance costs are a direct hit on profit. Typical homes in Las Vegas have tile roofs, desert landscaping (rocks), stucco siding, metal doors and window frames, and concrete block fences all of which require little or no maintenance.

Low Risk

Landlord Friendly Laws - Nevada is a business friendly state. Its pro-business laws apply to rental properties as well. There are no rental control laws in Las Vegas and evictions typically take 30 days or less and usually cost less than $500. In comparison, in California it can take up to one year to evict a knowledgeable tenant. Landlord friendly laws protect your investments.

Rental Market Stability - The Las Vegas rental market is extremely stable. For example, we did a study on the rental rates during the 2008 market crash when property prices in Las Vegas plunged over 50% and found that rental rates did not decrease. Cash flow and return on investment were not impacted during the crash. You can see the actual data in this BP post.

Sustained Population Growth - Market demand is what determines the value of an investment property. If the area has a stable or increasing population, demand will remain stable or increase. If people are moving out of an area (either to other cities or due to urban sprawl) property values and rents will fall. Las Vegas’ population is expected to continue growing at approximately 1-2% per year for the foreseeable future.

Sustained Job Growth - Nevada is very aggressive in terms of recruiting businesses to move to Nevada and has been very successful. Two of our clients who moved their business from California to Las Vegas reduced operating costs by as much as 20%. Plus, the Las Vegas tourism business continue to do well due to its adaptability. For example, today Las Vegas hosts millions of Chinese tourists each year. Before the Chinese it was the Japanese. And, in the future it will be another group. Las Vegas has always been excellent at adapting to the changing world.

No Urban Sprawl - Urban sprawl can be devastating over the long term. Due to the shortage of build-able land in the Las Vegas valley, Las Vegas has almost no urban sprawl because it is surrounded by federal land. The blue areas in the map below is federal land. In fact, only about 11% of the entire state of Nevada is privately owned. Given the population trend and expansion limitations, property values and rents in Las Vegas are expected to continue increasing over time.

In Summary

Low operating costs and low risk give Las Vegas a unique set of advantages over many alternative investment locations.

Please post your questions, comments or concerns. I also have a lot more information on investing in Las Vegas real estate on my profile. Hope it helps.

Eric Fernwood

Fernwood Investment Group, KW VIP Realty

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