Average cap rate in Vegas right now?

Question

Hey gang,

Im looking to buy a 4-6 unit in Vegas right now for a buy-and-hold strategy. Not looking to do anything crazy, just buy a normal deal with no significant value add and in a decent area. What sort of cap rates are small multifamily properties trading at these days in Vegas? Id love to get some anecdotes from investors in the area so I can make a more informed decision. Thank you so much!

Account Closed · Answer

Thank you for the thoughtful post! i will consider Reno as well. I just don't want to do CA and know a friend that lives in vegas, so I have some idea of how it is there and its a quick flight from where I live. This is just a cashflow and hold forever play. Id like to build a bigger portfolio but this would be my first non LP deal where I'm doing all the work myself so I thought id start between beginner mode and intermediate.

Account Closed · Answer

Thank you for the feedback Bradley! I need to buy something here in the next few months so if your looking for new clients lets connect!

Bill B. · Answer

1) I’ve always loved the idea of small multi. But there’s no reason to buy 5-7 or maybe even 5-9 unit properties. You are getting the the bad financing of larger properties, say 12-20 units and the hard to find good management of 2-4 units.) so I’d concentrate on 2-4 units if you can’t/don’t want to look at 8 or 12+ buildings.

2) That being said, even though 12 out of my 13 properties are in Vegas, they are all SFR. I’m just not a fan of Vegas SMF. When I buy properties I’m looking for newer properties, in nicer neighborhoods, with almost zero exterior maintenance. (Sloped and Tiled roofs and stucco siding.). Vegas SMF is almost always the exact opposite of that. 30+ year old buildings, in less desirable neighborhoods, with flat/flatter roofs and often with shoddy exterior siding.

3) The ideal SMF would be one of those brick mansions they build in the Midwest that look like new for 50+ years, in an area with better weather.  You’r based in SD, so you know a thing or two about good weather. If SD was my base I’d look at AZ and Reno and see if they have anything better than Vegas. IMHO they are the worst properties Vegas has to offer although they have tripled or quadrupled in value in the last 10-15 years, that was the play, not the cash flow.

Good luck whatever you decide to do. I was going to close with “Anything is better than a property in CA.” But MAYBE, just MAYBE a SMF would be ok in SD. But with horrible returns and the threat of statewide anti-landlord laws even that seems bad. I assume you don’t want to live in a unit to try to avoid some of the restrictions.

Bradley Buxton · Answer

Account Closed

Vegas has been getting a lot of investment from CA and not just sports teams. Talk with @Eric Fernwood. He is an expert in the Vegas area and has a lot of data and analytics. Cap rate is only one metric to compare properties. It's like using a persons weight to compare fitness level. It's a place to start. Here in the Reno, NV area we are seeing the small multifamily cap rates from 4-8% percent. Is the 8% a better investment? We look at the area, capex, rents, and local improvements to the area. It will also depend on your goals and if you're looking for turnkey or a value add.

Gino Barbaro · Answer

Account Closed

I wouldn't use cap rates for the type of deal you're describing, a small multifamily. I would default more to a sales comp/per unit valuation. And you have to be specific with the market within Vegas. It is such a large market that values can fluctuate wildly, depending on location.

I would become familiar with the city, select some areas to concentrate, and learn the values of what has traded past 90-180 days, since there may not be a lot if activity. Make sure to look at median incomes for the area to get an idea of what rents should be.

Gino

Account Closed · Answer

Appreciate the post! My buddy actually lives in Henderson, so perhaps picking a place close to that would be the move and get it at a 6.5-7 cap. Don't really care about price and short term appreciation, just cashflow and hassle to manage

Account Closed · Answer

Thanks Gino! I will definitely take a look

German E. · Answer

I sometimes use Loopnet.com for quick examples of multifamily properties in different cities and the cap rate they produce, including the calculation itself.  Cap rates are not very well defined as sometimes they don’t include repairs or vacancies.  Some people even write in estimated cap ex in the calculation.

Justin Moy · Answer

For properties that size I'm not sure cap rates will give the best story, but for the sake of answering the question, cap rates are a level of desirability in that sub market.

In Kansas City you can find properties with cap rates ranging from 5 - 7+

Big difference in projected cash flows, and the most desirable neighborhoods are trading closer to that 5 cap rate.

There's likely submarkets in Vegas that trade lower, my understanding is the Henderson submarket is really desirable, so I imagine those cap rates are starting to shrink as I've heard Vegas getting lots of outside investment

Bradley Buxton · Answer

Always looking to help others build wealth through investing. Sent you a PM.