Posted almost 3 years ago

Las Vegas Real Estate Update - An Unprecedented Opportunity

Photo by Anna Tarazevich from Pexels

There are fears all over the news:

Violent crime reaches new levelsOil rose to $105 per barrel, hitting 3-digits first time since 2014
Russia invaded Ukraine.
Inflation hit 7.5%, the highest in 40 years
Interest rates are expected to continue rising throughout 2022 and beyond
Tech stocks valuations have collapsed.

During inflation and uncertainty, money flows to safe-havens. One such haven is real estate. However, not just any real estate will do. The real estate has to perform well even during troubling times. Why are so many investors and corporations pouring money into Las Vegas real estate?

Appreciation Rate

Below is a chart showing appreciation of properties that conform to our property profile. As you can see, since 2013, the average appreciation was 15.25%. In 2021, conforming properties appreciated an unbelievable 35%.

Looking at 2021 appreciation, it is an astounding 35% or 2.74%/Mo!

Sales Median Ppsf By Month Statistics Line Chart 01

Rent Growth

The chart below shows the average rent growth based on the year put into production.

Inventory

Over the preceding 12 months, inventory in the segment we target fell.

Sales Availability By Month Statistics Line Chart 02

Institutional Investor Interest

Multiple institutional investors have stepped up efforts dramatically to enter the Las Vegas market. For example, Progress Residential, a large private REIT, aggressively makes offers to acquire single-family homes to add to their rental property pool. In Las Vegas, a Progress property typically charges 10%-20% higher than non Progress properties for rent. Due to their need to deliver as much profit as possible for their investors. This will push up the rents for these newly acquired properties, driving up the overall market rent. The fact that these large institutional ventures are paying top dollars to acquire Las Vegas homes shows that they believe there is still significant growth ahead for Las Vegas home prices and rents.

Because of this significant increase in institutional investor participation, we expect the prices and rents to rise even faster than expected at the beginning of the year.

If you ever wondered whether Las Vegas is a good investment location, you have your answer.

Where You Make Money

There are two ways real estate generates money. The first is cash flow, and the second is appreciation. I put together the simplistic example below showing two properties. Property A appreciates at 10% but has zero cash flow. Property B has zero appreciation but 10% cash flow. At the end of 3 years, with Property A, you have $99,300 to reinvest. With Property B, you have $21,000 to reinvest.

Below is the investable cash after 3 years at 15% and 20% appreciation.

What is Driving Appreciation and rent Growth?

Jobs - There is a shortage of workers, and help wanted signs are everywhere. And, with over $20B in new construction underway, and another $5B to $7B announced, the demand for workers will increase, bringing more people to Las Vegas. The increasing demand will drive up prices and rents.

Blue State Exodus - Almost every day, I read another article about companies and people fleeing blue states due to high taxes or high costs. As more people flee, more people will come to Las Vegas for jobs and the low cost of living. Demand for housing will continue to increase, driving appreciation and rent for the foreseeable future.
Pro Business Environment - Nevada has no state income taxes, low property tax, low-cost property insurance, reasonable traffic, reasonable property prices, lower cost of just about everything. Las Vegas is investor-friendly. Evictions take less than 30 days and cost about $500. Another advantage Nevada offers businesses is low electricity cost. Las Vegas' commercial energy rate is less than 1/2 the cost of California.
Land Shortage - As you can see in the gif below, Las Vegas has reached its boundaries in many locations. And, little of what remains is suitable for residential housing. The high cost of land and the limited available land for expansion result in new homes' entry price in desirable areas being over $550,000. Properties that target our tenant pool today cost between $380,000 and $470,000. New homes will not dilute the supply of investment properties.

A question you may have is whether Las Vegas' economy will continue to do well. One of the reasons real estate is a safe heaven is that markets are like giant cargo ships; they change directions slowly. So, the conditions that make Las Vegas residential real estate a safe haven today are likely to remain so for the foreseeable future.

Taking Advantage of This Opportunity

Competition is fierce, with investors and corporations pouring funds into Las Vegas real estate. We've identified three niches where we can acquire good properties. However, first-year cash flow is likely only break-even before tax advantages in most cases. What are these niches? I will not be able to disclose them here because our market reports have a wide distribution, I do not want to reveal these niches to people who might decide to target these niches and increase competition for you. If you want to take advantage of this unprecedented opportunity, please contact us.