Rental Property in Las Vegas

[Walter Antonio]

First time home buyer with $70k saved up & want to invest in a Las Vegas rental property with the intention of moving there in a few years (currently in SF Bay Area). What are the best areas/zip codes specifically for rentals? I love Summerlin 89138 but I'm unsure of how easy it is to find tenants there. Any advice is appreciated.

[Eric Fernwood]

Hello @Walter Antonio,

I see two questions in your post:

1. What are the best zip codes for investment properties?
2. 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 Month

Notice 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.