Making Money in Las Vegas

What does the future hold for Las Vegas for the foreseeable future?

"Trying to predict the future is like trying to drive down a country road at night with no lights while looking out the back window." ...Peter Drucker

"Predicting anything beyond yesterday is guessing." ...Eric Fernwood

This case study may highlight a few points:

1166 Antoinette St

• 08/28/2013: purchased for $163,000. Rented for $1,175/Mo.
• Today: market value $262,000. Rented for $1,400/mo.

While the returns were just acceptable at purchase, over the next 5 years of ownership, return increased by 20% and market value by 60%. The increase in rent reflects the quality of the property and the overall rent appreciation of the zip code 89123 as shown below.

The real value of a Las Vegas property is how rent and price increase over time. Las Vegas real estate can be viewed as long term income streams, an inflation friendly stream of income that you (or your children) will not out-live. If Las Vegas were a stock it would be classified as a growth stock. In comparison, investing in declining markets are like buying junk bonds, high-yield, high-risk, short term holds with little or no appreciation. (See, "Investing in Declining Markets" for more information.)

The following two charts depict what has happened to property prices over the last 12 months. Similar increases have been occurring since 2013.

Rent increases vary significantly by property and location. Below is a chart showing rental trends for 5 zip codes. While rent increased in four of the zip codes shown, the zip code represented by the black line peaked in 2017 and has since started declining. Therefore, you need to understand the rental trend in an area before you buy.

Six major projects are partially driving the current Las Vegas growth. Keep in mind that these projects are occurring in a small city of 2.2M people.

• Sphere Las Vegas - $75M, will create 4,400 permanent jobs.
• Resorts World Las Vegas - $7B
• Drew Las Vegas - $3B
• Raider's Stadium - $2B
• Wynn Resorts Oaradis Park - $1.9B
• Las Vegas convention center expansion - $750M

These major projects are creating or will create thousands of short term and long term jobs. There are also other developments underway that were designed to diversify the economy.

Las Vegas Perception

While Las Vegas’s reputation as Sin and Fun City is longstanding, over time, it’s image has been transformed by multiple events to a great place to live.

• LinkedIn Workforce Report - Migration - Las Vegas is #5. Employment - 20% increase in employment in the last two years.
• Las Vegas Now the Nation's Hottest Housing Market - Las Vegas passed Seattle as the #1 housing market.
• Las Vegas may be the best city to retire in the US - "Today, 30% of the homebuyers on the Las Vegas real estate market are in fact Californians, a majority of them being members of the Baby Boomers generation."
• New large data center - possibly for Google. - This is just one example of California companies relocating infrastructure to Las Vegas.
• Nevada sees population boost as people leave California in droves.

The change in the perception of Las Vegas is coming at a critical time as Blue State residents are looking for a new home with a lower cost of living.

The 2018 Tax Act

The 2018 Tax Act will instantaneously and significantly increase the cost of living in California (and all Blue States), potentially by about $20,000 or more in 2019.

Nevada therefore becomes an excellent location to capture a portion of any potential migration from the Blue States. Already today about 30% of all property sales in Las Vegas are to Californians. A 1000 SqFt house built in 1957 in the Bay Area would cost $1149000, while a 3962 SqFt house built in 1999 in Las Vegas would cost $1075000.

Many companies are also fleeing California and a percentage will select Las Vegas due to the lower cost of doing business and reduced regulations. Below are just five examples of the cost difference.

Furthermore, if 0.25% of today's 6 million retired Californians decided to relocate to Las Vegas, and one residence is needed for every two people then we are looking at 0.25% x 6,000,000 / 2 = 7,500 residences. To put this in perspective, there were about 35,000 residences sold in 2017. If you add the demand for another 7,500, then rents and property prices will necessarily rise.

Finally, the very limited land for expansion is a critical factor that almost guarantees price increases. Las Vegas is an island in an ocean of federal land. See the gif below. Approximately 84% of all land in Nevada and 87% of Clark County is owned by the federal government.

Due to the lack of expansion room, the increased demand created by people and companies migrating to Las Vegas will almost guarantee price and rent increases.

How Do You Make Money in Las Vegas?

Making money in Las Vegas real estate can be relatively easy. Buy class A real estate in the right areas targeting the right tenant pool and hold onto it long term. Nothing can prevent property prices from dropping during the next crash (and no one knows when it will occur) but with the right property/tenant pool your rental income stream is relatively secure. See our case study on how our clients' properties performed during the 2008 crash. Targeting the right tenant pool is the critical factor for a reliable long term income stream.