All Forum Posts by: Eric Fernwood

It’s March, and it's time for another Las Vegas update. For a comprehensive view of the Las Vegas investment market, message me for my blog link. It contains more detailed information on investing insights, analytics, and, particularly, investing in Las Vegas.

Before proceeding, note that the charts only include properties that fit the following criteria unless stated otherwise.

• Type: Single-family
• Configuration: 1,000 SF to 3,000 SF, 2+ bedrooms, 2+ baths, 2+ garages, minimum lot size is 3,000 SF, one or two stories.
• Price range: $320,000 to $475,000
• Location: All zip codes marked in green below have one or more of our client’s investment properties (click to enlarge).

Overall Las Vegas Real Estate Market Inventory

The chart below, provided by the MLS, includes all property types and price ranges.

The inventory level continued its downward trajectory, significantly lower YoY.

Rental Market Trends

The charts below are only relevant to the property profile that we target.

Rentals - Median $/SF by Month

$/SF showed a slight drop MoM, which is surprising considering the decreasing rental inventory and time to rent. YoY is up 4.5%.

Rentals - Availability by Month

The number of homes for rent continued the downward trend. YoY is down 16.7%!

Rentals - Median Time to Rent

Median time to rent showed 24 days, continuing to fall after the holiday season, showing a heating up rental market. YoY is down 4%.

Rentals - Months of Supply

Only one month of supply for our target rental property profile. YoY is down 33%! Demand is greater than supply. This will pressure up the rents.

We saw a similar tight supply in sales as well. Now below one month of supply. This will continue to push up the prices.

Sales - Months of Supply

Sales - Median $/SF by Month

Despite persistently high interest rates, the $/SF continued to climb. It is up 7.1% YoY.

Why invest in Las Vegas?

In short, to achieve and maintain financial freedom. However, financial freedom isn't just about replacing your current income. Financial freedom requires maintaining your lifestyle for life. This requires an income that rises faster than inflation, or you will not have the additional dollars you will need to pay future inflated prices.

What causes rents (and prices) to increase?

Supply & Demand

Unlike financial markets, real estate prices and rents are driven by supply and demand. What is the supply and demand situation in Las Vegas?

Supply

Las Vegas is unique because it is a tiny island of privately owned land in an ocean of federal land. See the 2020 aerial view below.

Very little undeveloped private land is left in the Las Vegas Valley, and desirable areas cost more than $1 million per acre. Consequently, new homes in these locations start at $550,000. Homes that appeal to our target tenant segment range from $320,000 to $475,000, so the supply of housing we target remains almost the same regardless of how many new homes are built.

Demand

Population growth drives housing demand. Las Vegas's average annual population growth is between 2% and 3%. What draws people to Las Vegas? Jobs. Some recent examples of job growth in Las Vegas:

• The last job fair had over 20,000 open positions.
• $1.8B Sony movie studio backed by Mark Wahlberg approved for Summerlin - Projected to create thousands of new jobs.
• How North Las Vegas is becoming an industrial powerhouse
• Depending on which study you read, there is between $26B and $30B in new construction or under development. This will create thousands of future jobs. Each new job will increase the demand for housing.

In Conclusion

While nothing is guaranteed, the combination of population growth and limited land for expansion virtually assures that prices and rents will continue to increase.

Thanks for reading my post. Reach out if you have questions or would like to discuss investing in Las Vegas.

In any large metro area, there are usually thousands of realtors. Each one attempts to distinguish themselves by making claims such as:

• “We are the best.”
• “I’ve been in business for X years.”
• “I sold xxx homes in the last year”
• “I have multiple designations.”
• etc.

Do any of the above claims distinguish them from other realtors? No. Moreover, these claims do not qualify them as investment realtors because they fail to provide what investors need. Investors purchase income streams, not real estate.

What makes an investor agent? In short, someone who can provide investors with what they need to succeed.

What Does an Investor Need?

Buying an income property requires far more skills and services than buying a home. Investors are looking for a solution including property identification and validation, inspections, renovation and management. If you and your team can provide these services, you become invaluable to investors.

Alternatively, if an investor works with a residential realtor, they will have to supply all the services and resources that the realtor does not provide.

Even the information an investor needs is not available from the only resource a realtor can provide, which is an MLS data sheet. See the table below which compares what is on an MLS data sheet and what an investor needs to evaluate a property.

Below is a high-level summary of the tasks an investor needs to accomplish. Each requires a unique set of skills.

• Identify potential investment properties
• Accurately estimate probable rent and time to rent
• Estimate ROI and cash flow
• If the candidate property does not meet the return goal, look for another one. Repeat until you find a good property
• Onsite evaluation and estimation of the renovation cost
• Making offers and closing escrow
• Oversee the renovation
• Market the property
• Screen potential tenants
• Manage the property long-term

Investors are usually high income individuals who have money, but no time. So, faced with the realities of working with a residential realtor and having to do all the above themselves, they usually choose not to invest in real estate. When they find an investor realtor who can provide the full range of services they need, they are quick to share with their friends and colleagues.

What An Investor Agent Should Provide

Below is a diagram showing the major solution components an investor requires and who, in the investor’s team, is responsible for delivery. Note that just because you (the investor agent) are responsible for a service, does not mean you will do the work. You are the team leader and manage the client relationship and deliverables.

If you can provide investors a solution, they will seek you out because no other realtor can. Once you establish yourself as an investment realtor, repeat business will become a significant part of your business. We’ve delivered over 510 investment properties, and our average client buys 2.8 properties. We do no marketing other than blogging. And, referrals from existing clients are our primary source of new clients. Also, over 90% of our clients live in other states or countries; we’ve never met 60% of our clients.

Summary

Investors do not buy houses. They buy income streams.

If you want to be an investor agent and not just another “me too” realtor, give your clients the information and services needed to acquire and operate a profitable rental property business.

It’s February, and it's time for another Las Vegas update. For a comprehensive view of the Las Vegas investment market, message me for my blog link. It contains more detailed information on investing insights, analytics, and, particularly, investing in Las Vegas.

Before proceeding, note that the charts only include properties that fit the following criteria unless stated otherwise.

• Type: Single-family
• Configuration: 1,000 SF to 3,000 SF, 2+ bedrooms, 2+ baths, 2+ garages, minimum lot size is 3,000 SF, one or two stories.
• Price range: $320,000 to $475,000
• Location: All zip codes marked in green below have one or more of our client’s investment properties.

Overall Las Vegas Real Estate Market Inventory

The chart below, provided by the MLS, includes all property types and price ranges.

The inventory level continued its downward trajectory, significantly lower YoY.

Rental Market Trends

The charts below are only relevant to the property profile that we target.

Rentals - Median $/SF by Month

Rents started to rise after the holiday season. YoY is up 5.4%.

Rentals - Availability by Month

The number of homes for rent continued the downward trend. YoY is down 12%.

Rentals - Median Time to Rent

Median time to rent was down significantly MoM, showing a heating up rental market. YoY is down more than 20%.

Rentals - Months of Supply

Only about 1.1 months of supply for our target rental property profile. Demand is greater than supply. This will pressure up the rents.

We saw a similar tight supply in sales as well. Now, just about one month of supply. This will continue to push up the prices.

Sales - Months of Supply

Sales - Median $/SF by Month

Despite increasing interest rates, $/SF climbed throughout 2023. The $/SF is almost unchanged MoM, but YoY is up 8.1%.

Why invest in Las Vegas?

In short, to achieve financial freedom. However, financial freedom is not simply replacing your current income; it requires maintaining your current lifestyle for life. To attain lifelong financial freedom, you need to invest in a city where rents and appreciation outpace inflation.

What causes rents (and prices) to increase?

Supply & Demand

Unlike financial markets, real estate prices and rents are driven by supply and demand. In this post, I will briefly discuss the unique supply and demand situation in Las Vegas.

Supply

Las Vegas is unique in that it is a tiny island of privately owned land in an ocean of federal land. See the 2020 aerial view below.

Very little undeveloped private land is left in the Las Vegas Valley, and desirable areas cost more than $1 million per acre. Consequently, new homes in these locations start at $550,000. Homes that appeal to our target tenant segment range from $320,000 to $475,000, so the supply of housing we target remains almost the same regardless of how many new homes are built.

Demand

The driver for housing demand is population growth.

The average Las Vegas annual population growth is between 2% and 3%. What is bringing people to Las Vegas are jobs. At the 2023 spring job fair, there were over 20,000 open positions. The annual average wage was $65,000, which is our target tenant segment.

Las Vegas has $30 billion in new developments either under construction or planned. This will create thousands of additional jobs, bringing more people to the city and increasing housing demand.

In Conclusion

With a fixed supply of properties in the range of $320,000 to $475,000, a rapidly growing population, and a growing number of jobs, it is almost certain that rents and prices will increase in the foreseeable future.

Thanks for reading my post. Reach out if you have questions or would like to discuss investing in Las Vegas.

Hello @Jack B.

You are facing a problem many other investors in Portland, Seattle, and California have faced. It is really hard to make money in a location with high overhead and where you cannot control your own property.

As to where you should invest, it should be determined by your financial goal. If you are like most, your goal is financial freedom. Financial freedom is more than just replacing your existing income. It's about maintaining your current lifestyle for as long as you live. To achieve this, you need passive income that meets three requirements:

• Rents outpace inflation: If rents do not outpace inflation, no matter how many properties you own, you cannot achieve financial freedom because inflation is continuously eroding purchasing power.
• Income persistence: Financial freedom requires that your income lasts throughout your life.
• Income reliability: The rental income must continue, even in bad economic times. Income dependability depends on the tenants who occupy your property.

Rent and price growth are driven by housing demand, which is dependent on population growth. Rents and prices only outpace inflation if the city has significant and sustained population growth.

Income persistence depends on current and future jobs. All private sector jobs are temporary. Unless new companies move into the area and create replacement jobs that pay similar wages and require similar skills, sooner or later, all that will be left are low-paying service sector jobs. As higher-paying jobs vanish, area incomes fall, and city services are cut back. This results in higher crime and lower-quality schools, which causes more people to leave.

What conditions attract new companies to relocate to a city?

• Economic stability. This requires a metro population >1M. Smaller cities tend to be dependent on a single company or market sector. Wikipedia
• Low operating costs: The three most apparent costs for investors are state income taxes, property taxes, and insurance. Tax Foundation, Insurance - ValuePenguin, State Property Tax Rates - Rocket Mortgage
• Low crime rate: Companies depend on attracting talented workers. Talented workers will not move to a high-crime city. Do not invest in any city on Neighborhood Scouts’ list of the 100 most dangerous US cities.
• Low risk of a natural disaster: I frequently read of entire cities devastated by a natural disaster. When a natural disaster hits a city, it destroys jobs, businesses, and homes. This forces people to move to a different city to find work and start over. So, even if your insurance rebuilds your property, there might not be anyone to rent it. Meanwhile, you still have to pay your mortgage, taxes, insurance, and maintenance costs. To avoid this, choose a location with low-cost homeowners insurance, which indicates a lower risk of natural disasters. Insurance - ValuePenguin
• Pro-business environment: Google search
• No rent control of any kind. Rent control is a strong indicator of an intrusive government: Google search.

Income reliability is dependent on the behavioral characteristics and occupations of the tenant segment who occupy your property. To maximize income reliability, your property must be continuously occupied by what I refer to as a reliable tenant. A reliable tenant stays many years, always pays the rent, and takes good care of the property. However, reliable tenants are the exception, not the norm.

At least one tenant segment will have a high concentration of reliable people. You can determine this segment through property manager interviews. If you would like interview questions, let me know.

Once you've identified the segment you want to target for your property, determine where and what they are currently renting. Then, buy similar properties.

We have delivered over 500 investment properties, all selected based on what our target tenant segment is willing and able to rent. This approach maximizes your odds of always having a reliable tenant in your property.

Summary

The image below illustrates the three steps to choose properties that can generate the income needed for financial freedom.

Follow the numbers to achieve financial freedom, not the opinions of others.

Every January, we publish our Las Vegas investment forecast for the upcoming year. Predicting what will happen in the future is hard; so many factors can impact the market - inflation, interest rates, economic performance, geopolitical events, unexpected events, etc. However, forecasts are still useful as they provide guidelines for investment planning.

I will start by reviewing what happened in 2023.

Looking Back at 2023

At the beginning of 2023, most economists and financial analysts expected a recession in 2023. There were fears that Las Vegas housing prices would crash and foreclosure waves would return.

In my 2023 Outlook, I stated:

In the near term, interest rates will be the key factor.

• If interest rates rise significantly, buyers will be choked off, and prices will fall slightly.
• If interest rates remain relatively stable, I believe prices will remain relatively static.
• If interest rates fall even slightly, the demand for homes will surge, and prices and rents will rise.

As it turns out, mortgage rates rose sharply from about 6.15% in Jan 2023 to 7.79% in Oct before coming down to 6.65% at the end of the year (source: Freddie Mac). In the chart below, the green line represents the 15-year fixed interest rates, while blue signifies the 30-year fixed interest rates.

Here’s what happened to the prices (note: this is only for the segment we target, not metro Las Vegas or other property types).

Sales - Median $/SF by Month

Despite significant interest rate hikes, $/SF increased in 2023. YoY is up 7.5%; YTD is up 9.5%.

It turns out that I was conservative about the Las Vegas housing market strength. I attribute the price increases to the persistently low inventory.

Sales - Availability by Month

Sales - Closings by Month

Sales - Months of Supply

Inventory remained at or just above one month for much of 2023. In Las Vegas, six months of supply indicates a balanced market where you can expect prices to be stable. Low inventory pushed up the prices despite rising interest rates.

Let’s look at how the rental market did in 2023.

Rentals - Median $/SF by Month

Despite a year-end typical holiday season dip, rents rose 3.5% YoY.

Rentals - List to Contract Days by Month

The median time to rent ranged between 20-30 days, back to pre-COVID trend.

Rentals - Availability by Month

This chart shows the average daily number of properties that were for rent in a particular month. Notice the sharp decrease in both MoM and YoY (down ~19%).

Rentals - Closings by Month

Rentals - Months of Supply

Inventory stayed under 1.4 months for much of 2023. Demand is still greater than supply.

In summary, 2023 was a (lot) better year than I thought.

Looking Forward to 2024 and Beyond

Much of the fear of an imminent recession has dissipated. The Fed even indicated possible rate cuts in 2024. What do I think will happen to the Las Vegas investment real estate in 2024 and beyond?

While past performance doesn't guarantee future results, it’s typically the best indicator. In my opinion, the period from 2015 to 2020 is the most comparable to conditions today. It took place after the effects of the 2008 financial crash had subsided and before COVID-19 and the subsequent unprecedented rate hikes by the Federal Reserve. This period closely mirrors our starting point in 2024, though it's not identical.

Appreciation

Below is a chart showing the $/SF for our property segment from 2012 through November 2023. Please note that these numbers are only for the segment we target, not the general Las Vegas market. The compound annual growth rate from 2015 to 2020 was 10.81%.

Rent Growth

See the chart below. The compound annual growth rate from 2015 to 2020 was 7.45%.

However, I anticipate stronger appreciation and rent growth from 2024 to 2029 compared to 2015 to 2020 due to the following reasons.

Stronger Economy

The chart below is from the Bureau of Labor Statistics. Employment has now surpassed the previous peak in January 2020, much higher than in 2015.

The unemployment rate was 7.7% in January 2015 and 5.1% in November 2023.

Growing employment and declining unemployment mean more people could buy a home, increasing demand for purchases.

Tighter Housing Market

Below is a chart from the Las Vegas Realtor Association MLS showing the historic supply levels for single-family homes. These levels roughly resemble our target property segment but include the entire metro area.

Inventories have been on a long-term downward trend. They were 4.8 months in January 2015 and 2.2 months in December 2023. The housing market has much more upward pressure on prices now than in 2015.

Las Vegas Growth Drivers

Job Growth

There is a direct relationship between jobs and price and rent growth. See the image below.

Jobs are what attract people to Las Vegas, and 2023 was a particularly good year. Las Vegas employment increased by 4,800 jobs (0.4%) since October, an increase of 42,600 jobs (3.8%) since November 2022.

Future Job Growth

Depending on the study you refer to, there is currently between $26B and $30B either under construction or slated to begin. These large projects will create thousands more jobs in the future. Some highlights:

• The impending relocation of the Oakland A’s and the construction of its future home stadium on the Strip.
• 11,000 workers will soon be hired to build high-speed Brightline rail from Las Vegas to California - While the hiring of employees to build the line is noteworthy, the impact of people from LA coming to Las Vegas will be even more significant. I believe Brightline will have a similar effect as the professional sports teams have had on Las Vegas’ desirability. While Las Vegas was once known as "Sin City,” it is now perceived as a great place to live and work.
• Amazon buys 300 acres near Boulder City for $48 million. - Amazon continues to expand in Las Vegas.
• The first F1 race in Las Vegas was in 2023 and plans to occur annually. Like the sports teams, this will expose more people to Las Vegas, which will bring more people and businesses to Las Vegas.
• NOVVA Data Center - Data centers continue to move into Las Vegas. In addition to no state income taxes and pro-business government, the cost of electricity is relatively low. For example, California's commercial energy rate in November 2023 was $.2314/KwH, while in Las Vegas, it was $.1128/KwH.
• California - The exodus of people and businesses from California is another factor to consider. See the infographic below showing where California companies are moving to (Source: Applied Analysis).

Population Growth

What's the current status of population growth?

The population continues to increase at an average rate of about 2.3% per year and is projected to continue growing for the foreseeable future.

• RedFin report: Las Vegas Tops List of Popular Homebuyer Destinations For First Time

How has new home construction kept pace with population growth?

The current Clark County (Las Vegas metro) population is about 2.3M. The average population growth over the last 20+ years is 2.3%/Yr. If each residence accommodates 2.5 people, and 80% opts to buy or rent a single-family residence, the additional new homes needed in 2023 can be calculated as follows: 2.3M x 2.3% x 80% / 2.5, which is approximately 16,928. According to LVRdata.com, the number of new homes built in 2023 was 11,374. So, in 2023, metro Las Vegas fell further behind by 5,554 homes. The imbalance between the number of available residences and population growth is driving up prices and rents, a trend likely to continue for the foreseeable future.

Constraints to Expansion

The scarcity of available raw land for expansion is a contributing factor to the continued increase in prices and rents. As you can see in the aerial view below, Las Vegas is a small island of private land surrounded by a vast expanse of federal land; 90% of Clark County and 85% of the entire state of Nevada is federally owned.

Most of the remaining undeveloped land is situated on the metro area's outskirts and is less desirable. In more appealing areas, undeveloped land is above $1M per acre, resulting in the starting price of new homes over $550,000. Our target property segment lies between $320,000 and $475,000. As such, regardless of how many new homes are built, the inventory of homes within this price range remains largely unchanged.

Perfect Storm

Las Vegas presents an ideal situation for residential investors. The availability of jobs continues to attract people to the city, resulting in a rising population. Most jobs in Las Vegas are in infrastructure, paying between $60,000 to $85,000 per year. Many of these workers find the housing market too expensive and opt to rent instead. As such, the demand for rental properties continues to increase while the supply remains limited. I foresee continuous increases in prices and rents for the foreseeable future.

My Predictions

I believe the critical drivers for price and rent growth in 2024 will be interest rates and population growth.

I’ve discussed the population growth, which I anticipate will remain strong for the foreseeable future. Population growth will drive up prices and rents, and how fast prices and rents rise depends on interest rates.

Assuming interest rates remain stable, based on historical data plus my assessment of the current market and economic conditions, I expect the next 5-year average appreciation rate to be over 11% and the rent growth rate to be ~8%. Note that this is a five-year average. The appreciation and the rent growth rate could be higher or lower each year.

If interest rates drop meaningfully, I expect price and rent growth to accelerate.

If interest rates increase (as in 2023), based on how our segment performed in 2023, I expect modest to moderate appreciation and rent growth.

What About the Interest Rates?

In my blog post last week, I discussed my expectations for interest rates in 2024. I recommend reading the article for a detailed understanding, but here is a summary:

Risk Mitigation

Our clients invest in real estate to achieve financial freedom. Financial freedom is more than just replacing your existing income. It's about maintaining your current lifestyle for as long as you live. To achieve this, you need a passive income source that meets three requirements to mitigate long-term risk:

• Rents must outpace inflation. You will only have the necessary funds to maintain your standard of living throughout your life if rents outpace inflation.

  Rents for our segment have increased on average by >8%/Yr since 2013.
  

• Income persistence: Financial freedom requires that your income lasts throughout your life. Income persistence is dependent on not just current jobs but also future jobs.

  How long your income will persist depends on the current and future jobs. As shown earlier in this paper, the number of jobs in Las Vegas continues to increase and will continue to do so for the foreseeable future.
  

• Income dependability: The rental income must continue, even in bad economic times. Income dependability depends on the tenants who occupy your property.

The tenant segment we've targeted for 16+ years has proven to be very dependable.

• 2008 crash - Zero decline in rent and zero vacancies.
• COVID - Almost no impact
• Eviction moratorium - Almost no impact
• The average tenant stays over five years.
• Only six evictions in 16+ years out of a tenant population >1,000.

Summary

The perfect storm of rapid population growth and land shortage almost guarantees that Las Vegas prices and rents will continue to increase for the foreseeable future.

Many people remain concerned about interest rates. If you're planning on purchasing investment properties in 2024 with financing, my advice is not to wait for potential future interest rate reductions. Instead, set a target interest rate, such as 6.25% or 6.5%, and aim to buy down the rate to meet your goal. In this scenario, changes in mortgage rates will only impact your rate buy-down cost. If you come across a property that offers good returns at your target interest rate, don't hesitate to secure it. Later, if the interest rates decrease, you can refinance to improve cash flow. Waiting could result in higher costs for the same property.

It’s January, and it's time for another Las Vegas update. For a comprehensive view of the Las Vegas investment market, message me for my blog link. It contains more detailed information on investing insights, analytics, and, particularly, investing in Las Vegas.

Before proceeding, note that the charts only include properties that fit the following criteria unless stated otherwise.

• Type: Single-family
• Configuration: 1,000 SF to 3,000 SF, 2+ bedrooms, 2+ baths, 2+ garages, minimum lot size is 3,000 SF, one or two stories.
• Price range: $320,000 to $475,000
• Location: All zip codes marked in green below have one or more of our client’s investment properties.

Regarding the overall inventory of the Las Vegas real estate market, the chart below, provided by the MLS, encompasses ALL property types and price ranges. As of today, the inventory is below 2.5 months. In Las Vegas, a balanced market is defined by six months of inventory, indicating an approximately equal number of sellers and buyers. We remain in a seller’s market.

Rental Market Trends

The charts below are only relevant to the property profile that we target.

Rentals - Median $/SF by Month

Rents declined slightly MoM, conforming to seasonal trends. YoY is up 3.5%.

Rentals - Availability by Month

There is a sharp decrease in the number of homes for rent both MoM and YoY (down ~19%).

Rentals - Median Time to Rent

The median time to rent increased MoM as expected for this time of the year, but is flat YoY.

Rentals - Months of Supply

Only about 1.2 months of supply for December. Demand is still greater than supply.

We saw a similar tight supply in sales as well. Now, only about 1.2 months of supply. This will continue to pressure up the prices.

Sales - Months of Supply

Sales - Median $/SF by Month

Despite high interest rates, $/SF is increasing. YoY is up 7.5%; YTD is up 9.5%.

Why invest in Las Vegas?

In short, to achieve financial freedom. However, financial freedom is not simply replacing your current income; it requires maintaining your current lifestyle for life. To attain lifelong financial freedom, you need to invest in a city where rents and appreciation outpace inflation.

What causes rents (and prices) to increase?

Supply & Demand

Unlike financial markets, real estate prices and rents are driven by supply and demand. In this post, I will briefly discuss the unique supply and demand situation in Las Vegas.

Supply

Las Vegas is unique in that it is a tiny island of privately owned land in an ocean of federal land. See the 2020 aerial view below.

Very little undeveloped private land is left in the Las Vegas Valley, and desirable areas cost more than $1 million per acre. Consequently, new homes in these locations start at $550,000. Homes that appeal to our target tenant segment range from $320,000 to $475,000, so the supply of housing we target remains almost the same regardless of how many new homes are built.

Demand

The driver for housing demand is population growth.

The average Las Vegas annual population growth is between 2% and 3%. What is bringing people to Las Vegas are jobs. At the spring job fair, there were over 20,000 open positions. The annual average wage was $65,000, which is our target tenant segment.

Las Vegas has $30 billion in new developments either under construction or planned. This will create thousands of additional jobs, bringing more people to the city and increasing housing demand.

In Conclusion

With a fixed supply of properties in the range of $320,000 to $475,000, a rapidly growing population, and a growing number of jobs, it is almost certain that rents and prices will increase in the foreseeable future.

Thanks for reading my post. Reach out if you have questions or would like to discuss investing in Las Vegas.

Hello @Sonu Sundar,

Before you decide what and where to buy, you need to first determine who you want to rent your property to.

This is how the commercial world works. Do you think Whole Foods, Walmart, or Target decides on a location because someone in management thinks this is a good location? No, they have a deep understanding of their customers and place stores where the customers want to shop to maximize sales and profits. You need to make decisions using the same principles as retailers.

One goal of a rental property is to have a reliable income. The only way you will have a reliable income is if a reliable tenant continuously occupies your property (your “customer”). A reliable tenant is someone who stays many years, always pays the rent on schedule, and takes good care of the property. And, because you will hold the property for many years, you will need multiple reliable tenants.

Reliable tenants are the exception, not the norm. The best way to have a reliable tenant in your property is to:

• Buy a property that attracts a tenant segment with a high concentration of reliable people.
• Work with a property manager who can consistently select reliable tenants. There are very few property managers with this skill. Over the last 16+ years of working with investors and property managers, I have encountered only two with this skill.

You can identify a tenant segment with a high concentration of reliable people through property manager interviews. If anyone would like sample property manager interview questions, let me know.

Once you identify the segment, determine what and where they rent today. From this, you can create what I call a property profile. A property profile is a physical description of a property. A property profile has at least four elements.

• Location - The locations where significant percentages of the target segment are renting today.
• Property type - The type of properties they rent today. Condo, high rise, multi-family, single family, the type does not matter. Only a reliable tenant matters.
• Rent range - What the segment is willing and able to pay.
• Configuration - Two bedrooms, three-car garage, large back yard, single-story, two stories?

Once you have a property profile, you can give this to any realtor, and they can find conforming properties.

However, just because a property conforms to the profile does not mean it is a good investment. Every property of interest must be evaluated based on current and future performance.

Current Considerations

• Time to rent
• Renovation Cost & Risk
• Initial ROI and cash flow
• Purchase Price
• Maintenance cost
• Acceptable area rental restrictions
• In an area that is doing well and likely to do better in the future.
• In the migration path of urban sprawl.

Future Considerations

• The location has a track record of appreciation and rent increases.
• It physically matches the expected demographic changes for the foreseeable future.

Buy what your “customer” wants to rent, not what you think is a good property.

Hello @Mary Ainsworth,

As a realtor, my answer is no! How can you make an informed decision without seeing the property, whether directly or indirectly?

Below are the services and information a realtor must provide in order for you to make an informed decision.

Services

• The realtor works with you to create what we call a property profile, which is a physical description of properties that will match your financial situation and goals. A property profile has at least four components.
  • Location - The locations where significant percentages of the tenant segment you decided to target are renting today.
  • Property type - The type of properties they rent today. Condo, high rise, multi-family, single family, the type does not matter. Only a reliable income matters.
  • Rent range - What the segment is willing and able to pay.
  • Configuration - Two bedrooms, three-car garage, large back yard, single-story, two stories?

The realtor finds conforming properties and then analyzes the properties, only sending you properties that both match your property profile and meet financial goals such as cash flow and ROI. It is NOT your job to select properties. This is the job of the realtor.

Information for Every Property

The realtor should provide the following for each property:

• Video walk-through - We upload ours to YouTube so clients can review the property multiple times. This is easy with any modern cell phone. The videos are critical for the following reasons:
  • Too often, the photos on the MLS do not reflect the actual condition of the property.
  • Videos do not tell you everything - for example, a strong pet or smoke odor. The realtor making the video must provide their observations while they take the video.
  • Perspective - Without a video, you can’t get the flow of the property. Flow is very important.
• The opinion of the property manager they work with. Based on the video the realtor sent the property manager, they should provide:
  • Rent range after renovation
  • List of recommended renovation items - These are tenant segment-specific.
  • Pros and cons
  • Time to rent
• Sales comps and a recommended offer price range
• Basic cash flow and ROI analytics
• Estimated cost for the renovation - Note that until after the property is inspected during due diligence, you will not have an accurate renovation cost, but you need a good estimate to know if the property is viable.

Mary, you are not being unreasonable. You just may need a different realtor. One who has your interest in mind.

It’s December, and it's time for another Las Vegas update. For a comprehensive view of the Las Vegas investment market, message me for my blog link. It contains more detailed information on investing insights, analytics, and, particularly, investing in Las Vegas.

Before proceeding, note that the charts only include properties that fit the following criteria unless stated otherwise.

• Type: Single-family
• Configuration: 1,000 SF to 3,000 SF, 2+ bedrooms, 2+ baths, 2+ garages, minimum lot size is 3,000 SF, one or two stories.
• Price range: $320,000 to $475,000
• Location: All zip codes marked in green below have one or more of our client’s investment properties.

Overall Las Vegas Real Estate Market Inventory

The chart below, provided by the MLS, includes all property types and price ranges.

Rental Market Trends

The charts below are only relevant to the property profile that we target.

Rentals - Median $/SF by Month

Rents declined slightly month-over-month, in line with the seasonal trend, but remained strong for November. YoY is up 5.4%.

Rentals - Availability by Month

The number of homes for rent continued the downward trend. YoY is down more than 11.5%.

Rentals - Median Time to Rent

Median time to rent was unchanged from October, showing a holiday season pattern. YoY is down 10%.

Rentals - Months of Supply

Only about 1.2 months of supply for our target rental property profile. Demand is greater than supply.

We saw a similar tight supply in sales as well. Now, only about 1.2 months of supply. This will continue to pressure up the prices.

Sales - Months of Supply

Sales - Median $/SF by Month

Despite increasing interest rates, $/SF climbed up in 2023. YoY is up 2.2%. YTD is up 5.9%. Prices dipped slightly in October and November, reflecting a back to pre-Covid seasonal trend.

Why invest in Las Vegas?

In short, to achieve financial freedom. However, financial freedom is not simply replacing your current income; it requires maintaining your current lifestyle for life. To attain lifelong financial freedom, you need to invest in a city where rents and appreciation outpace inflation.

What causes rents (and prices) to increase?

Supply & Demand

Unlike financial markets, real estate prices and rents are driven by supply and demand. In this post, I will briefly discuss the unique supply and demand situation in Las Vegas.

Supply

Las Vegas is unique in that it is a tiny island of privately owned land in an ocean of federal land. See the 2020 aerial view below.

Very little undeveloped private land is left in the Las Vegas Valley, and desirable areas cost more than $1 million per acre. Consequently, new homes in these locations start at $550,000. Homes that appeal to our target tenant segment range from $320,000 to $475,000, so the supply of housing we target remains almost the same regardless of how many new homes are built.

Demand

The driver for housing demand is population growth.

The average Las Vegas annual population growth is between 2% and 3%. What is bringing people to Las Vegas are jobs. At the spring job fair, there were over 20,000 open positions. The annual average wage was $65,000, which is our target tenant segment.

Las Vegas has $30 billion in new developments either under construction or planned. This will create thousands of additional jobs, bringing more people to the city and increasing housing demand.

In Conclusion

With a fixed supply of properties in the range of $320,000 to $475,000, a rapidly growing population, and a growing number of jobs, it is almost certain that rents and prices will increase in the foreseeable future.

Thanks for reading my post. Reach out if you have questions or would like to discuss investing in Las Vegas.

Hello @Bryan H.,

You've raised a valid point. I hadn't considered the impact of losing the depreciation deduction after 27.5 years. Accurately predicting future tax regulations and market conditions is indeed challenging. Additionally, I hadn't accounted for the fact that most mortgages are paid off by year 30. It's fair to say that predicting anything beyond yesterday is speculative. Nonetheless, you've made an excellent point.

In response to your question, "How do you find the data to know if your rents are outpacing inflation over time," you would likely need to consult an investment realtor who can provide the necessary historical rental data. Even if you've acquired the data, deriving property segment rental performance against inflation over time isn't straightforward. I'll outline the issue and our approach to solving it.

The Problem

You can usually obtain historical metro rental data. The problem with such metro averages is that they combine dissimilar properties together. For example, $1M properties have different rental characteristics than $300,000 properties. Condos, townhomes, and single-family homes each have distinct rental characteristics.

Because metro data averages encompass varied property types, the resulting data has little relevance to any specific property segment within the average. Below is an excerpt from an article I wrote about the issues with using average metro prices to evaluate a sub-segment of the averaged properties.

Imagine you followed the prices of ten properties for one year. The table below shows how their market values changed.

Based on metro averages, prices fell by 5.8% over the reporting period. While mathematically correct, the result is invalid. A more accurate statement would be:

• Properties priced at $300,000 rose by 6%
• Properties priced over $1M fell by 14%
• Proeprties priced at $100,000 fell by 10%

My point is that the metro average of a 5.8% decrease does not apply to any of the properties.

How We Solved the Problem

I developed software that calculates the average monthly rent growth for our targeted property segment. The data is sourced from downloaded MLS historical rental data. The software filters properties that align with our targeted segment and calculates the average monthly $/SF. This allows me to compare the inflation rate for a particular month with the rent growth.

I didn't suggest a method to determine if your rents are outpacing inflation over time. The only solution I can offer is to consult with an investment realtor. They can provide the historical rental data that you need.