Which neighborhood to invest in Las Vegas

[Hengky Lim]

We are looking to buy rental SFR in Las Vegas.

Any property management or real estate agent/broker who can suggest which neighborhood in Southwest or West of Vegas to buy for rental SFR in Las Vegas? Much appreciated!!!

At what price point and rent it will make sense given 40% down? Looking something 500K or lower of course.

Thank you and PM me please.

[Eric Fernwood]

Hello @Hengky Lim,

Before you choose a location in Las Vegas, you need to decide what tenant pool you wish to target. Each tenant pool has different characteristics, which defines the type, location, configuration and rent rate of the properties that will attract your target tenant pool.

Based on our research on Las Vegas renters, you can generally subdivide tenant pools into three general categories based on rent, as shown in the image below.

General characteristics of each segment:

• Transient - Cash based, average tenant stay 1 year, typical turn cost $1,500 to $2,000. Plan on lots of turnover and high maintenance costs. These are typically C class properties. Typical age of these properties is about 40 years. These are typically hourly workers making little more than minimum wage. They are the first to be laid off and the last to be rehired. When you hear about landlords not receiving rent due to the covid eviction moratorium, this is the tenant pool segment most are referring to.
• Permanent - These are typically families with an income between $45,000 and $65,000/Yr. They stay for long periods of time (average is about 5 years), pay all the rent on schedule and take care of the property. Average turn cost is about $500. This tenant pool primarily occupies A Class and some B+ Class properties. The physical act of eviction is not what concerns this tenant pool segment, the credit hit does. They know that if they have a late payment, let alone an eviction, they will not be able to rent another A Class property and the cost of credit will rise significantly.
• Transitional - These are people who make enough money to buy a home and typically only rent due to some event in their lives like a divorce, death of a spouse, etc. Once they sort out their lives, they buy a home. Typical tenant stay, 2 years. Turn cost, high. These properties are typically larger homes with significant amenities and tenant expectations are very high. Restoring a home to meet the next tenant's expectations is expensive.

Because of the above and other considerations, we choose a narrow tenant pool segment well inside the "envelope" of what we call the "Permanent" renter range. This tenant pool has worked out very well for us and our clients, including during turbulent economic times such as the 2008 crash and today.

How do you target a specific tenant pool? You need to understand the specific target tenant pool's selection hierarchy. See the image below.

• Price - If you can afford $1,200/Mo. rent, you will not consider properties renting for $1,500/Mo. or properties renting for $1,000/Mo. A rule of thumb is to select properties that will rent profitably at about 1/3 of the median gross wage of your target tenant pool.
• Needs - If you want to attract families, one bedroom condos will not work.
• Location - Factors such as crime, area amenities, schools, access to transit, etc. define the location.
• Wants - For example, to attract our target tenant pool the property almost always needs to have tile or LVP floorings for high traffic areas. For another tenant pool, it might be bars on the windows. Another might be a swimming pool. This also drives what renovations are required and which are not.

With these 4 factors defined, you can translate them into a property profile, which will include at least 4 characteristics:

• Rent - Rent range. Typically, you can use 1/3 of the gross monthly income for the pool.
• Type - Condo, multi-family, single family, etc.
• Location - You may find a few locations that will work.
• Configuration - 2 bedrooms, 3 bedrooms, single story, etc.

There are more factors to consider but the above are the major property selection criteria.

Below is a diagram showing the general process. Simplistically, talk to multiple property managers about what types, configurations, locations and rent ranges that will attract the tenant pool you want to target . (If you want a list of potential questions, drop me an email.) Pay special attention to factors like typical tenant stay and time to rent. You need a long tenant stay; a vacant property destroys profitability.

The map below shows where most of our client's properties are located. However, if you choose a different tenant pool, your search areas would be different. (Note, while the green area appears homogeneous, it actually looks more like Swiss cheese.)

Hengky, I hope the above helped. Email me or post any questions and I will do my best to answer.