All Forum Posts by: Eric Fernwood

It’s September and time for another Las Vegas update. For a more in-depth view of the Las Vegas investment market, DM me for a link to our blog site which contains more information on investing in general, analytics, and investing in Las Vegas in particular.

Before I continue, note that the charts only include properties that match the following profile, unless otherwise noted.

• Type: Single-family
• Configuration: 1,000 SF to 3,000 SF, 2+ bedrooms, 2+ baths, 2+ garages, minimum lot size is 3,000 SF.
• 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 Las Vegas real estate market inventory:

The chart below, provided by the MLS, includes all property types and price ranges. As of today, the inventory is at 2.4 months and is decreasing. In Las Vegas, a balanced market is characterized by six months of inventory, where the number of sellers is roughly equal to the number of buyers. We are 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

August saw rents drop slightly, conforming to past seasonal trends. YoY is flat.

Rentals - Availability by Month

The number of homes for rent continued the downward trend.

Rentals - Median Time to Rent

Median time to rent maintained at ~20 days, indicating steady demand.

Rentals - Months of Supply

Only about 0.8 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 0.8 months of supply. This will push up the prices.

Sales - Months of Supply

Inventory for our target market continues to fall.

Sales - Median $/SF by Month

Despite increasing interest rates, $/SF is climbing up.

Las Vegas Rental Market Outlook

I believe that rents (for our target segment) will increase by an average of more than 8% over the next 5 years. Below is my reasoning for this conclusion:

• Real estate prices and rents are determined by supply and demand. Population growth is the driving force behind housing demand. When there is sustained and rapid population growth, demand increases rapidly. As a result, prices and rents rise rapidly. Las Vegas has an average annual population growth rate of 2-3%, which may increase due to recent news that Las Vegas is now the top city for people relocating due to job opportunities.
• Why are so many people moving to Las Vegas? Jobs. But how many jobs are available? The spring job fair in Las Vegas had over 20,000 open jobs with an average annual wage of about $65,000. As more people move to Las Vegas, demand for housing will increase. Our target tenant demographic includes individuals earning in the range of $60,000 to $75,000. Therefore, an increase in demand for housing will particularly drive up demand and rental rates for the segment we are targeting.
• Future job growth: New projects worth approximately $30 billion are either under construction or planned. These projects will create thousands of additional jobs and attract more people to Las Vegas, further increasing the demand for housing. This demand will primarily be in the tenant segment that we target.
• Fixed inventory - There is little undeveloped land left for expansion in the Las Vegas Valley (see aerial view below), and raw land in desirable areas costs over $1 million per acre. Due to the high cost of land, new homes in these areas start at $550,000. The properties that attract our target segment cost between $320,000 and $475,000. Therefore, building more new homes priced at $550,000 or higher will not increase the inventory of homes in the $320,000 to $475,000 price range. Therefore, the number of properties that attract our target tenant segment is almost fixed. The result will be rising prices and rents.

• The chart below illustrates the annual rent increase rate by year. The rate at which rents increased relative to 2021 depends on the year the property was put into service. The conditions that created this rent growth have not changed so I expect the trend to continue.

•  Inventory levels in our targeted sector are unusually low. Currently, there is less than 1 month's worth of inventory. This is significantly below the six months of inventory considered to be a balanced market. I believe that high-interest rates are discouraging potential sellers from entering the market, as they would be trading their current ~3% interest rate for a 7%+ rate on their replacement home. When interest rates decline, buyers who have been waiting to buy a home for years will enter the market and the increasing demand will dramatically increase prices. As prices increase, fewer people can afford to buy a home and will be forced to rent, which will drive up rental rates.

In Conclusion

Las Vegas has a unique combination of a rapidly rising population and a (almost)fixed housing supply, which almost guarantees substantial long-term increases in rent and housing prices.

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

Hello @Jae Bok Lee,

Where you should invest depends on your long-term goals. I will assume your goal is achieving financial freedom for the rest of your life.

Financial freedom is more than just replacing your current income; it's about maintaining your current lifestyle for life. To have lifelong financial freedom, you need a passive income that meets three requirements:

• Rents must keep pace with the cost of living: Inflation consistently erodes the purchasing power of a fixed amount of money. For instance, if the inflation rate is 5%, what you can buy today for $100 will cost $155 in 10 years. If rents fail to pace with the cost of living, your financial independence will be short-lived.
• Long lasting: Your rental income must last a long time, ensuring that you do not outlive your income.
• Reliable: You must be able to depend on your income every month, even during tough economic times.

Now that we have defined the requirements for achieving lifelong financial freedom through passive income, we can determine the necessary criteria that a location must meet.

When Rents Keep Pace With the Cost of Living

In real estate, prices and rents are determined by the imbalance between the number of buyers and sellers.

• When there are more sellers than buyers, prices decline until there is a rough balance between the number of buyers and sellers.
• When the number of buyers roughly equals the number of sellers, prices are static or increase at a slow rate.
• When the number of buyers greatly exceeds the number of sellers, prices increase rapidly.

Rents follow prices.

• Higher prices reduce the number of people who can purchase, increasing demand for rental properties and increasing rents.
• Lower prices enable more people to purchase, decreasing demand for rental properties and decreasing rents.

There is a lag of 1 to 5 years between price changes and corresponding changes in rents. What is the primary reason for the lag? Leases. Leases generally last for one year or longer, meaning that changes in prices take time to affect rents. The direction of prices today is a leading indicator of changes of future rental rates.

The only market condition where prices (and rents) keep pace with the cost of living is when the number of buyers greatly exceeds the number of sellers. Under what conditions does this occur?

✅ Significant and sustained population growth.

Income Persistence

Your long-term financial freedom depends on the future economic growth of the city. The best indicator of a growing economy is job creation. What are the conditions that attract companies to establish a new facility in a particular city?

✅ Low operating costs

✅ Low crime rate

✅ Low risk of a natural disaster

✅ Sufficient population to have economic stability, major highways and a major airport.

Income Reliability

Income reliability is dependent on the tenant who occupies your property and the companies where they work. I will discuss income reliability in another post.

Location Selection Requirements

Below are the location requirements we previously determined, along with the metrics. Any city that fails to meet any of the following requirements should be eliminated from consideration.

✅ Rapid population growth

Sustained, significant, population growth. Never invest in any location with a static or declining population Wikipedia

✅ Low operating costs

It's not about how much you gross; it's about how much you net. When selecting an investment location, it's important to take into consideration all major recurring costs. Below is a comparison of overhead costs for three states that do not have a personal income tax.

Sources for insurance and property taxes: Insurance - ValuePenguin, State Property Tax Rates - Rocket Mortgage.

To show the impact of taxes and insurance, I compared overhead costs on a $400,000 property in the three states. (Remember that these are state averages, and individual cities may impose additional taxes.)

What does the difference in overhead costs mean to you as an investor?

To achieve the same level of cash flow as a property in Nevada, you would need to generate a higher cash flow in Texas and Florida to offset their higher operating costs. How much?

• To compensate for Texas' higher operating costs, a property in Texas must generate $5,700 ($9,194 - $3,494) more in cash flow annually than a property in Nevada.
• To compensate for Florida's higher operating costs, a property in Florida must generate $2,123 ($5,617 - $3,494) more in cash flow annually than a property in Nevada.

✅ Low crime rate.

Never invest in any city on Neighborhood Scout’s 100 most dangerous cities list.

✅ Low risk of a natural disaster

Natural disasters like tornadoes can destroy entire communities. The devastated community may take years to recover, or it may never fully recover. When someone loses their residence in a disaster, they immediately move to a location where they can live and work today. So, even if your insurance company rebuilds your property, there may not be anyone to rent it. However, you will still be responsible for paying the mortgage, taxes, maintenance, and insurance. To avoid this financial disaster, only invest in locations with low-cost homeowners' insurance. Insurance - ValuePenguin

✅ Sufficient population

Only invest in cities with a metro population greater than 1M**.** Small towns may rely too much on a single company or market segment. Wikipedia

Conclusion

If you select an investment city based on the above criteria, you should do well. I would add one more requirement: an experienced local investment team.

Local Investment Team

Everything you learn from podcasts, books, seminars, and websites is general knowledge. But you will buy a specific property, in a specific location, subject to local rules and regulations. The only source for the local knowledge you need is an investment team.

Working with an investment team usually does not cost more than working with any other realtor. For instance, we have delivered more than 480 properties and only charged our clients fees for four or five properties, which was due to exceptional circumstances. In all other cases, the fees were paid by the listing agent of the seller, not by our client.

Also, by working with an investment team, you also receive a master class on real estate investing at no cost to you.

Hello @Duane Gunkler,

Based on your post, you are self managing. I wrote an article a while back on seven ways to fail in real estate investing. One of the seven ways is self management. No matter how much you think you can save by managing your own property, you will lose a lot more.

I self management viable? Under the right conditions, yes. For example, I had a client who wanted to self manage the three properties they purchased from us. I talked them into letting the property manager we work with manage them for the first year.

At the end of the first year, two of the tenants were reliable and the client took over management. The third tenant was unreliable and they left it with the property manager who replaced the unreliable tenat. The second tenant was reliable and they took over management at the end of the year.

We have delivered hundreds of investment properties and dealt with thousands of sellers in the process. One consistent pattern I have noticed is that when people sell properties with tenants, it is usually due to poor tenant performance. Almost every time, the cause of poor performance was self-management.

I you would like to learn how to to select a good property manager, let me know. Spoiler alert: You probably can’t afford a property manager with a good Yelp review.

Hello @Hwan Kim,

Waiting to buy a property only makes sense if interest rates and/or property prices decrease significantly, leading to a significant decrease in your acquisition cost and debt service.

The two major factors are interest rates and prices.

Interest Rates

I have asked many of our clients for their thoughts on the future of interest rates. One opinion that I found more credible than most concerns politicians.

“Politicians only care about getting elected or reelected. Whether their policies hurt or help the people they claim to care about, is not relevant. However, we can count on politicians to act in their own self-interest. And, unless interest rates fall before the presidential elections, voters will vote with their

In my opinion, interest rates are likely to reach 5% within three years. However, like everyone else, I have no basis for this assumption.

What do I expect to happen to interest rates in the short term?

The Fed last increased the interest rate by 0.25%. And, according to what I read, there may be another interest rate increase in the near future.

So, waiting for interest rates to fall does not seem to be a viable option.

Prices

Property prices are driven by supply and demand. What drives demand is the change in population. If you are invested in a city with significant and sustained population growth, prices will rise in the future. If the population is declining or static, prices will rise little or even fall.

As mentioned in the thread, part of the problem is lack of inventory. Part of the cause is people unwilling to give up a 3% mortgage for an 8% mortgage. As interest rates start to fall, more sellers will enter the market and more people will be able to buy, resulting in rapidly rising prices.

So, whether prices will rise significantly in the future, depends on the city’s population growth rate.

What We Are Doing Today

We have changed our purchasing process for our clients. Now, once we get a property under contract, we obtain interest-rate buy-downs from multiple lenders, as illustrated below.

We then select the best option and move the loan to that lender. This method converted negative cash flows to positive cash flow or, at worst, break even cash flow. It is unlikely to have a positive cash flow at a 7% or 8% interest rate.

In Summary

As I mentioned, waiting to buy a property only makes sense if interest rates and/or property prices decrease significantly, resulting in a significant reduction in your acquisition cost and debt service.

I expect interest rates to rise in the short term, so waiting for them to fall is not a viable option.

How much property prices will change in the future depends on population growth where you invest.

• If the populations is static or falling, I do expect property prices will increase significantly.
• If there is sustained and significant population growth, I expect prices to rise significantly, so waiting is not a viable option.

Hwan, I hope this helps.

Hello,

I regularly read that various real estate markets are collapsing. My recommendation is to ignore the “experts” and look at the actual data for a market.

For example, I regularly read where Las Vegas is crashing, inventories rising, and that there are a lot of distressed properties. Below is a chart from the MLS (08/01/2023) which includes all property types and all price ranges. Six months of inventory is considered a balanced market. Currently, inventory is around 2.1 months and falling.

What about single-family home distressed properties:

• Bank owned: 16, which is about 0.0029% of all single-family homes
• Short sale: 7, which is about 0.0013%
• Foreclosure stated: 7, which is about 0.0013%

So, ignore the “experts” with click-bait titles and look at the actual data for the city you are considering.

All the above said, short-term rentals are dependent upon tourism. In most cases, if the economy declines, people will not take as many vacations and you will have more vacancies and lower prices for both hotel rooms and Airbnb's. Also, there are seasonality issues and high operating costs associated with short-term rentals. For these and other reasons, we are implementing a one-stop service for mid-term rentals.

Advantages of Mid-Term Rentals

Short-term rentals are primarily occupied by vacationers. Mid-term rentals are primarily occupied by people for business reasons. For example, traveling nurses have to have a place to live. So mid-term rentals are a rental of necessity. There are also other advantages:

• More consistent income: Mid-term rentals provide a more stable and predictable income stream. By securing rental income for several months at a time, you reduce the risk of vacancies and income fluctuations that are common with short-term rentals.
• Lower operational costs: Short-term rentals often require landlords to cover additional expenses such as cleaning services, frequent maintenance, and utility costs associated with frequent turnovers. In contrast, mid-term rentals have fewer turnovers, resulting in lower operational costs.
• Less legal and regulatory complexity: Some cities have strict regulations regarding short-term rentals, which may necessitate permits, taxes, and compliance with specific rules. Mid-term rentals, on the other hand, encounter fewer legal and regulatory complexities.
• Better quality tenants: With short-term rentals, you get people on holiday and wanting to party. They will only be there for a short time, so they are less concerned about taking care of the property. Most mid-term rental tenants tend to take better care of the property because they will be there for an extended time and have a larger security deposit. Also with mid-term rentals, you can do a full screening and not rent to people with a track record of issues.
• Cost effect management: Several people have described buying a short-term rental property as equivalent to buying a second job with no boundaries on work hours. In contrast, with our team and processes, mid-term rental properties require little time investment. This enables clients to focus on their primary jobs and do what they do best.

Our Methodology

“The only constant in life is change.”

Our approach to mid-term rentals is to select properties that will be excellent long-term rentals and then use them as mid-term rentals. That way, if the mid-term rental market changes, you have the option to convert it to a long-term rental.

If a property will be a mid-term rental, it changes some of our long-term rental processes. For example, renovations. With long-term rentals, we often install commercial-grade nylon carpets in the bedrooms. However, a mid-term rental will have more frequent tenant turnovers, and it's important to keep turnover costs and time to a minimum. Therefore, we would install LVP throughout the property because it is very durable.

Mid-term rentals may also impact location selection. For example, if the plan is to target traveling nurses, we stay within a 5-mile radius (if possible) of trauma level 1 and 2 hospitals. Below is a map of Las Vegas hospitals with 5-mile travel boundaries.

Summary

Today, mid-term rentals are an excellent investment option due to their more reliable cash flow and higher returns compared to long-term rentals. In my view, mid-term rentals offer the advantages of both short-term rentals and long-term rentals.

Hello @Nicholas Foy,

Waiting to buy a property only makes sense if interest rates and/or property prices decrease significantly, leading to a significant decrease in your acquisition cost and debt service.

The Fed last increased the interest rate by 0.25%. And, according to what I read, there may be another interest rate increase in the near future. Out of curiosity, I calculated how much a 0.25% increase in interest rate increases the monthly debt service on a $350,000 property. See the screenshot below.

In this example, each .25% increase in interest rate increases your debt service by about $46/Mo. So, waiting for interest rates to fall does not seem to be a good option.

I know nothing about the Seguin real estate market. So, you will have to determine if and how rapidly property properties are increasing. If prices are rising, waiting will cost you more.

Once we get a property under contract, we obtain interest rate buy-down options from multiple lenders. We then move the loan to the lender with the best buy-down option. This, combined with other strategies, enables our clients to achieve a positive initial cash flow. Also, Nevada's low operating costs makes a huge difference.

Overhead costs can have a large impact on profitability. For example, below is a comparison of state average property taxes and insurance for Texas, Florida, and Nevada.

Sources: Insurance - ValuePenguin, State Property Tax Rates - Rocket Mortgage.To show the impact of taxes and insurance, I compared overhead costs on a $400,000 property in the three states.

Below is how much additional cash flow a property must generate in Texas and Florida to have the same net cash flow as a property in Nevada. 

A Texas property must generate $5,700 ($9,194 - $3,494) higher cash flow annually to compensate for the higher operating costs.

A Florida property must generate $2,123 ($5,617 - $3,494) more cash annually flow to compensate for the higher operating costs.

Overhead costs can have a large impact on cash flow.

Hello @Zlata Ishk,

Before starting your location selection process, you need to define your goal. For most people, the goal is financial freedom. Financial freedom requires a passive income that meets three requirements:

• Your income keeps pace with inflation: Financial freedom is more than just replacing your current income; it's about maintaining your current lifestyle for life. Inflation continually erodes the purchasing power of a fixed amount of money. What you can purchase today for $100 will require $155 in 10 years if the inflation rate is 5%. The only way to sustain your current lifestyle is if rents keep up with inflation. If rents don't keep up with inflation, your financial independence will be short-lived.
• Persistent: You will not outlive your income.
• Reliable: You need to be able to rely on the rent coming in every month, regardless of the economic situation.

Choosing an Investment Location

The location is the most crucial investment decision you will make, not the property itself. I recommend using the process I followed when selecting a city to start my investor service business. The process begins with a list of potential cities and then eliminates any city that does not meet additional requirements. The steps are as follows:

• Cities with a population >1M: Start with cities with a metro population greater than 1M**.** Small towns may rely too much on a single business or market segment. Wikipedia
• Sustained and significant population growth: Prices and rents are a function of supply and demand. Demand is driven by population growth. Where there is sustained and significant population growth, the current housing supply will not meet demand so prices rise until the number of sellers roughly matches the number of buyers. Where population growth is stagnant or falling, the current housing supply is sufficient so there is little increase in prices. Rents are driven by property prices. Where prices are low, more people can buy so there is little demand for rentals so there is limited or no rent growth. Where prices are higher, more people are forced to rent so rents increase. In the best locations, rent growth keeps pace with inflation. Never invest in any locat Wikipedia
• Low crime - A rental property is no better than the jobs around it. And, it is not just the current jobs. The average lifespan of a company is ten years, and an S&P 500 company only has an average lifespan of 18 years. Every job your tenants have today will disappear in the foreseeable future. Without new companies moving into the city and creating replacement jobs, the only jobs left will be low-paying service sector jobs. Companies wanting to set up new operations will not choose high crime cities. Never invest in any city on Neighborhood Scout’s 100 most dangerous cities list.
• Rent control - Some states and metro areas have implemented various kinds of rent control. Rent control may prevent you from increasing the rent fast enough to keep pace with inflation. It may limit your property manager's ability to select the best tenant. It may make evictions of non-performing tenants difficult or impossible. Never invest in any city with rent control. Use Google search.
• Low operating cost - It's not about how much you gross, it's about how much you net. Every dollar lost to operating costs means one less dollar for you to live on. The two most significant operating costs are property taxes and insurance. Operating costs vary significantly by state, so keep this in mind. Sources for insurance and property taxes: Insurance - ValuePenguin, State Property Tax Rates - Rocket Mortgage.

At this point, you will have a small number of potential investment cities for further consideration. If I were you, the next requirement would be an experienced local investment team.

Everything you learned from podcasts, books, seminars, and websites is general knowledge. You will buy a specific property, in a specific location, subject to local rules and regulations. The only source for the local knowledge you need is an investment team.

Working with an investment team usually does not cost more. For example, out of the 480+ properties we have delivered, we have charged our clients a fee on only four or five properties due to exceptional circumstances. In all other cases, the fees were paid by the listing agent of the seller, not by our client.

Working with an investment team can save you time, money, and reduce risk. Additionally, you can receive real-world investment training at no cost to you.

Zlata, I hope this helps.

…Eric

Hello @Alex Lee,

There is a unwritten rule in research that you never presume the answer, you let the data provide the answer. Fortunately, there is excellent location information available. I will provide these resources in this post.

Before starting your selection process, you need to define your goal. For most people, the goal is financial freedom. Financial freedom requires a passive income that meets three requirements:

• Your income keeps pace with inflation: Financial freedom is more than just replacing your current income; it's about maintaining your current lifestyle for life. Inflation continually erodes the purchasing power of a fixed amount of money. What you can purchase today for $100 will require $155 in 10 years if the inflation rate is 5%. The only way to sustain your current lifestyle is if rents keep up with inflation. If rents don't keep up with inflation, your financial independence will be short-lived.
• Persistent: You will not outlive your income.
• Reliable: You need to be able to rely on the rent coming in every month, regardless of the economic situation.

Choosing an Investment Location

The location is the most important investment decision you will make, not the property itself. The question is, "Which city?”

There are too many cities to evaluate al of them so I suggest using the process I followed when I selected a city to start my investor service business. The process begins with a list of potential cities and then eliminates any city that does not meet additional requirements. The steps are as follows:

• Cities with a population >1M: Start with cities with a metro population greater than 1M**.** Small towns may rely too much on a single business or market segment. Wikipedia
• Sustained and significant population growth: Prices and rents are a function of supply and demand. Demand is driven by population growth. Where there is sustained and significant population growth, the current housing supply will not meet demand so prices rise until the number of sellers roughly matches the number of buyers. Where population growth is stagnant or falling, the current housing supply is sufficient so there is little increase in prices. Rents are driven by property prices. Where prices are low, more people can buy so there is little demand for rentals so there is limited or no rent growth. Where prices are higher, more people are forced to rent so rents increase. In the best locations, rent growth keeps pace with inflation. Never invest in any locat Wikipedia
• Low crime - A rental property is no better than the jobs around it. And, it is not just the current jobs. The average lifespan of a company is ten years, and an S&P 500 company only has an average lifespan of 18 years. Every job your tenants have today will disappear in the foreseeable future. Without new companies moving into the city and creating replacement jobs, the only jobs left will be low-paying service sector jobs. Companies wanting to set up new operations will not choose high crime cities. Never invest in any city on Neighborhood Scout’s 100 most dangerous cities list.
• Rent control - Some states and metro areas have implemented various kinds of rent control. Rent control may prevent you from increasing the rent fast enough to keep pace with inflation. It may limit your property manager's ability to select the best tenant. It may make evictions of non-performing tenants difficult or impossible. Never invest in any city with rent control. Use Google search.
• Low operating cost - It's not about how much you gross, it's about how much you net. Every dollar lost to operating costs means one less dollar for you to live on. The two most significant operating costs are property taxes and insurance. Operating costs vary significantly by state, so keep this in mind. Sources for insurance and property taxes: Insurance - ValuePenguin, State Property Tax Rates - Rocket Mortgage.

At this point, you will have a small number of potential investment cities for further consideration. If I were you, the next requirement would be an experienced local investment team.

Everything you learn from books, podcasts, seminars, and websites is general information. You will buy a specific property, in a specific location, subject to specific local regulations. The only source for local information is an experienced investment team.

If you would like information on how to find and qualify an investment team, let me know.

Alex, I hope this helps.

Hello @Bruce Woodruff,

There is no general answer to your question because real estate local and broad statements do not apply. While national level events like interest rates can impact local markets, some markets will perform better than others.

Even within a city, property sectors perform differently. For example, sales of homes priced > $1M may be dead while homes priced between $300,000 and $400,000 might be selling in days.

The only information I can provide pertains to the specific property segment we target in Las Vegas. Hopefully, others can provide similar information on property segments in other cities.

The Overall Las Vegas Market

Overall inventory is falling in Las Vegas. The chart below is from the MLS and includes all property types and price ranges.

The Property Segment We Target

The following information pertains specifically to the property segment that we are targeting:

• Type: Single-family

• Configuration: 1,000 SF to 3,000 SF, 2+ bedrooms, 2+ baths, 2+ car garage, minimum lot size is 3,000 SF.

• Price range: $320,000 to $475,000

• Below is a map showing where many of our client’s properties are located.

I prefer using charts instead of lengthy text to convey information. We generate these charts every month, include them in our monthly market update, and post them on my blog. If you're interested, you can find the link to my blog on my profile page.

The Charts

Rentals - Median $/SF by Month

June rents were unchanged from May. YoY is flat. However, rents follow prices and prices are rising.

Rentals - Availability by Month

The number of homes for rent continued to drop.

Rentals - Median Time to Rent

The median time to rent is 20 days, unchanged from May. 45 days is typical for this time of the year.

Rentals - Months of Supply

There is only about 0.7 months' worth of supply.

Sales - Months of Supply

The inventory is only about 0.6 months of supply, whereas a balanced market is considered to have a 6-month supply. This shortage in supply will drive up prices.

Sales - Median $/SF by Month

Despite increasing interest rates, $/SF is climbing month after month in 2023. June $/SqFt is 7% higher than January.

What Is Driving Prices and Rents

Prices and rents are driven by supply and demand. Below is the supply and demand situation for 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.

There is very little undeveloped private land remaining, and any available land in desirable areas costs more than $1 million per acre. Due to the high cost of land, new homes in our targeted locations start at $550,000. The homes that appeal to our target tenant segment are priced between $320,000 and $475,000. Therefore, no matter how many new homes are built, the housing stock we target remains almost constant. Most metropolitan areas have unlimited expansion room so new homes limit the growth of rent and prices of existing properties. A good example of this is Phoenix.

Demand

The driver for housing demand is population growth. Where there is sustained and significant population growth, demand for housing causes prices to rise.

The average Las Vegas annual population growth is between 2% and 3%. However, according to Yahoo Finance, Las Vegas is now the top city to which people are moving so the growth rate may be increasing.

What attracts people to Las Vegas (and other metropolitan areas) are jobs. In the last job fair, there were over 20,000 open positions. Moreover, the number of jobs will increase in the future. Currently, there are approximately $30B worth of new projects either under construction or planned. As these projects come online, they will create thousands of additional jobs, attracting more people to Las Vegas and further increasing housing demand.

A significant portion of those who move to Las Vegas fit the tenant segment we've targeted since 2005. Therefore, the demand for properties priced between $320,000 and $475,000 will continue to increase over time.

My Conclusion

The fixed supply of homes in our target price range, coupled with increasing demand due to population growth, almost guarantees that prices and rents will continue to rise for the foreseeable future.

Hello @Gordon Cai,

You are not alone in investing outside of California. We’ve worked with over 180 clients and most live in California. So, “Live where you like but invest where you can make money.”

Selecting an Investment Location

The location is the most important investment decision because it determines all the long-term income characteristics including:

• Whether rents will keep pace with inflation
• How long your income stream will last
• How reliable your income stream will be
• How much of your rental income is lost to overhead
• Whether you or the government control your property

I suggest using the process I followed when I selected a city for my investor service business. The process starts with a list of potential cities and then eliminates any that do not meet additional requirements. The steps are as follows:

• Cities with a population >1M: Start with cities with a metro population greater than 1M**.** Small towns may rely too much on a single business or market segment. Wikipedia
• Sustained and significant population growth: Prices and rents are a function of supply and demand. Demand is driven by population growth. Where there is sustained and significant population growth, the current housing supply will not meet demand so prices rise until the number of sellers roughly matches the number of buyers. Where population growth is stagnant or falling, the current housing supply is sufficient so there is little increase in prices. Rents are driven by property prices. Where prices are low, more people can buy so there is little demand for rentals so there is limited or no rent growth. Where prices are higher, more people are forced to rent so rents increase. In the best locations, rent growth keeps pace with inflation. Never invest in any locat Wikipedia
• Low crime - A rental property is no better than the jobs around it. And, it is not just the current jobs. The average lifespan of a company is ten years, and an S&P 500 company only has an average lifespan of 18 years. Every job your tenants have today will disappear in the foreseeable future. Without new companies moving into the city and creating replacement jobs, the only jobs left will be low-paying service sector jobs. Companies wanting to set up new operations will not choose high crime cities. Never invest in any city on Neighborhood Scout’s 100 most dangerous cities list.
• Rent control - Some states and metro areas have implemented various kinds of rent control. Rent control may prevent you from increasing the rent fast enough to keep pace with inflation. It may limit your property manager's ability to select the best tenant. It may make evictions of non-performing tenants difficult or impossible. Never invest in any city with rent control.
• Low operating cost - It's not about how much you gross, it's about how much you net. Every dollar lost to operating costs means one less dollar for you to live on. The two most significant operating costs are property taxes and insurance. Operating costs vary significantly by state, so keep this in mind. Sources for insurance and property taxes: Insurance - ValuePenguin, State Property Tax Rates - Rocket Mortgage.

At this point, you will have a small number of potential investment cities. The next step is to determine whether an experienced investment team is available in the city you are considering.

Work With an Investment Team

Everything you learned from podcasts, books, seminars, and websites is general knowledge. You will buy a specific property, in a specific location, subject to local rules and regulations. The only source for the local knowledge you need is an investment team.

Working with an investment team usually does not cost more. For example, out of the 480+ properties we have delivered, we have charged our clients a fee for only four or five properties due to exceptional circumstances. In all other cases, the fees were paid by the listing agent of the seller, not by our client.

By working with an investment team, you get real world investment training at no cost to you.

Additional Location Considerations

• If possible, choose an investment city where you would like to visit. This will give you the opportunity to inspect (vacation) your properties and have at least a portion of your travel and lodging costs be tax deductible.
• The rental property you purchase today could potentially be your retirement home in the future. This is what several of our clients plan on doing.

Gordon, I hope this helps.