All Forum Posts by: Eric Fernwood

Hello @Noam Ofan,

The simple answer is that we target families of mission critical employees in companies that have performed well and are likely to perform well in the future. Not really much of an answer, so I decided to explain an approach you could use to determine such a tenant pool. However, keep in mind that the tenant pool is only 1/3 of what is required for a performing target tenant pool. See the image below.

A tenant pool that performs in good times and bad is a combination of three factors. In order of importance:

• Location - Unless appreciation is greater than the rate of inflation, your actual income (buying power) is declining.
• Jobs - If your tenant pool is not employed at the same or higher income, they cannot pay the rent. So, unless new companies are creating jobs that match the income and skills of your tenants, rents will decline or, at best, not increase. Companies only last a few years and when they die, the jobs die too. The typical life-span of a company is 10 years. The typical life-span of an S&P 500 company is only 18 years. So, every non-government job in every location will probably end within 10 to 18 years, in the best situation. Unless new companies are opening up operations in the location, all that remains over time are lower paying service sector jobs. When pay declines, rents follow.
• Tenant Pool - Selecting a tenant pool that performs mission critical jobs (the actual workers who deliver income) is critical. In times of economic stress, everyone else is expendable. Low skilled hourly workers are the first to be laid off and the last to be rehired (typical C Class properties). High end jobs that are not directly producing income are vulnerable too.

So, assuming you selected a location where appreciation is greater than inflation, job creation is ongoing and population is increasing, how would you find the “mission critical” jobs of the major employers? Conceptually, it is easy. Determine the people doing the “mission” of the company. For example:

• In a pharmacy, the pharmacist.
• In an auto repair shop, the mechanic.
• In a medical clinic, the doctors.

In practice, it is more difficult. We did a lot of analysis to pinpoint our target tenant pool. One example, we ran heat maps of the Las Vegas valley that showed how many years tenants stayed. The result looked something like the image below; green for the longest and red for the shortest. This is not the actual heat map, the real heat map is far more detailed and complex. In 2006 time frame when I started the research, the rent range for tenants that stayed multiple years was $900 - ​$1400, now is more like $1200 - $2000.

How could you approximate what we did? By interviewing multiple local property managers. A starting point on the questions you would ask all property managers:

I hope this helps. If not, ping back and I will do my best to answer.

​

Market Update

Below are charts from our latest trailing 13 month market statistics, including June data. Remember that this data is only for the property profile that we target, not for the entire metro area.

Rental Statistics

Rental rates saw a slight decrease in June compared to May, but the inventory and time to rent continue to decrease. Both property managers that we work with are reporting extremely low inventory and multiple applications for most properties.

Rentals - Median $/SF by Month
Rentals - List to Contract Days by Month

The time from list to contract is about 13 days. An amazingly short period of time. There is a lot of demand and little inventory.

Rentals - Availability by Month

The number of rental properties available has continued to fall since January. This is likely to continue, which will drive up rental rates.

Sales Statistics

Interestingly, prices decreased slightly in June even though the median sales price for the entire Las Vegas market hit an all-time high, if you do not consider inflation. Inflation adjusted, prices are at about 77% of peak 2006/2007 prices.

Sales - Median $/SF by Month
Sales - Median List to Contract Days by Month

This is an amazing chart. 5-10 days is an extremely short time between listing and contract.

Sales - Availability by Month

Inventory declined in June.

Sales - Closings by Month

Closings by month rebounded strongly in June.

Sales - Months of Supply

With less properties on the market and more sales, months of supply dropped sharply.

Looming Price Decline?

Several clients asked if an all-time high price for Las Vegas combined with the uncertainty brought by the corona virus, unemployment, forbearance, $600 Fed unemployment benefit to end, etc., means that the housing prices will fall significantly?

In our opinion, not likely.

• Contrary to sound bites from the press, we are nowhere close to 2006 prices. $315,000 in 2006 dollars is $407,000 in todays dollars (using the governments Bureau of Labor Statistics CPI calculator). Adjusted for inflation, we are only at about 77% of peak prices.
• Inventories are low, which differs greatly from the situation in 2008. In 2008, housing inventory was piling up before the prices started crashing. With COVID-19, inventory levels were at 2 months just before the crisis hit, and 6 months inventory is considered a balanced market. Today it is 3 months. Like in early March before COVID-19, good properties priced correctly are again selling in 1-3 days with multiple offers.
• Prices are up 6.9% from the same time last year.
• Las Vegas has $24B under construction and more is planned. This will create thousands of new jobs, many of which will match our target tenant pool.
• Large numbers of people are fleeing high-price / high tax / over-regulated states like California. Some will choose Las Vegas, which will increase demand for both rentals and purchases. Nevada has the second highest rate of population growth in the US and 80% of the population lives in Las Vegas. So, with limited inventory and increasing demand, prices will continue to rise.
• COVID-19 sped up changes that may have otherwise taken years. For example, remote workers. I looked through a few of the job sites and a high percentage specify remote as the location. This means that people can live where they want and many will flee high-tax states. Some will choose Las Vegas, which will also increase demand for rentals and homes.
• The amount of land available for development in the Las Vegas valley continues to decrease. Today, total undeveloped land in private hands (87% of Clark County land is federally owned) is about 26,000 acres. Las Vegas consumes between 5,000 and 7,000 acres per year. It will not be many years before the only option Las Vegas will have for expansion will be redevelopment. The shortage of land and rising demand will continue to drive up prices and rents.

How We See the Economy

• The US economy remains the worlds strongest.
• The EU central bank rate is -0.75% (yes, a negative interest rate). So, anyone wanting to make money is investing in the US stock or bond market, which is part of the reason it is doing so well.
• Because of the 2018 tax act, companies brought back over $1T (trillion) dollars into the US economy. A trillion dollars in government hands could be easily squandered. Businesses will use this vast sum of money to expand, which will create more jobs and some will be in Las Vegas. For example, Google is building a $600M data center in Las Vegas.
• The personal savings rate is at an all-time high in the US. This is a lot of disposable capital that people will want to spend.
• The EU is/will block American tourists due to COVID-19. This will force people to vacation domestically. Las Vegas should do well under these conditions.

Foreclosures?

We've heard some concerns about foreclosures. According to Zillow, there are 992 properties in pre-foreclosure. In a report published by Clark County in June 2019, there were 886,250 housing units, which included 188,555 apartments. If I subtract apartments from the total housing units, I get 697,395. If all 992 properties were foreclosed (doubtful since very few properties are under water, the owners would just sell the properties and take their profit.), the percentage of foreclosed properties would be about 0.1% (992/(886250 188855)), an insignificant percentage of the total properties.

Income Security in Uncertain Times

What if the prices fall significantly?

Below are two charts that show the impact of the 2008 crash on our clients. The left chart shows the median $/SF for properties sold that conformed to our property profile. As you can see, prices fell about 45%. On the right is a chart showing median $/SF for rentals that conformed to our property profile. As you can see, rents were virtually unchanged for properties that match our property profile.

The point is that if you target the right tenant pool, a "crash" is likely to have little impact on your income stream. However, C Class properties and most B Class properties fared badly in the 2008 crash and appear to not be doing well today. Low paid hourly workers, the target tenant pool of C and many B Class properties, are the first to be laid off and the last to be rehired.

How We See It

Based on everything we see today, a significant price decrease is unlikely. Las Vegas should continue to do well long term and continues to be one of the best locations for long-term buy and hold investments. The combination of all time low interest rates and low rental inventory make this a good time to buy Class A properties.

Hello @Terry Lao,

Interesting observations. A few comments:

We Are Not at Peak 2006 Prices

Contrary to sound bites from the press, we are nowhere close to 2006 prices. $315,000 in 2006 dollars is $407,000 in today’s dollars using the government’s Bureau of Labor Statistics CPI calculator. Inflation/present value must be factored into such comparisons. We are actually at about 75% of peak 2006 prices.

Foreclosures

Foreclosures - there will always be some foreclosures, but this is not the same situation as it was in 2008. First, there are very few in pre-foreclosure. According to Zillow, there are 992 properties in pre-foreclosure status. Maybe 10% of this number will go into foreclosure, most will just be sold since few properties are under water. However, if all 922 were foreclosed, what would be the impact?

According to a report published by Clark County, there were 886,250 “housing units” as of July 30, 2019, which included 188,555 apartments. If I subtract the number of apartments from the housing units, I get 697,395. If all 992 properties in pre-foreclosure are actually foreclosed and no additional properties were built in Las Vegas since the date of the report (July 30, 2019), the percentage of foreclosed properties would be about 0.1% (992/(886250 − 188855)). An insignificant percentage of the total properties.

If the owners of these pre-foreclosure properties sell, they would find a ready market. The inventory level is low and prices are rising as shown in the excellent stats that others posted.

The low inventory level is another factor that differentiates today from the 2008 crash. In 2008, the housing inventory was piling up before the prices started crashing. With COVID-19, inventory levels were at 2 months just before the crisis hit, and 6 months inventory is considered a balanced market. Today it is 3 months.

Income Security

What would happen if there was a major crash? Investors owning properties that target the right tenant pool would likely do OK. Below are two charts that show the impact of the 2008 crash on our clients. The right chart shows the median $/SF for properties sold that conformed to our property profile. As you can see, prices fell about 45%. On the left is a chart showing rental median $/SF for properties that conformed to our property profile. As you can see, rents were virtually unchanged.

The point of the above is that if you target the right tenant pool, a “crash” is likely to have little impact on your income stream. However, C Class properties and most B Class properties fared badly in the 2008 crash and appear to not be doing well today. Low paid hourly workers, the target tenant pool of C Class properties, are the first to be laid off and the last to be rehired. The image below depicts the vulnerability of workers by income:

Economic Outlook

• The US economy remains the world’s strongest.
• The EU central bank rate is -0.75% (yes, a negative interest rate). So, anyone wanting to make money is investing in the US stock market, which is part of the reason it is doing so well.
• Because of the 2018 tax act, companies brought back over $1T (trillion) dollars into the US economy. A trillion dollars in government hands could be easily squandered. Businesses will use this vast sum of money to expand, which will create more jobs.
• The personal savings rate is at an all-time high in the US. This is a lot of disposable capital that people will want to spend.
• The EU is/will block American tourists due to COVID-19. This will force people to vacation domestically. Las Vegas should do well under these conditions.
• Las Vegas has $24B under construction and more is planned. This will create thousands of new jobs, many of which will match our target tenant pool.
• Large numbers of people are fleeing high tax/regulated states like California. Some will choose Las Vegas, which will increase demand for both rentals and purchases.
• COVID-19 accelerated changes that may have otherwise taken years. For example, remote workers. I looked through a few of the job sites and an amazing number specify “remote” as the location. This means that people can live where they want and many will flee high-tax states. Some will choose Las Vegas, which will also increase demand for rentals and homes.
• The amount of land available for development in the Las Vegas valley continues to decrease. Today the total undeveloped land in private hands (87% of Clark County land is federally owned) is about 26,000 acres. Las Vegas “consumes” between 5,000 and 7,000 acres per year. It will not be many years before the only option Las Vegas will have for expansion will be redevelopment. The shortage of land and rising demand will continue to drive up prices and rents.
• The property managers that we work with are reporting extremely low inventory and multiple applications for most properties.

My Thoughts

Based on everything I see today, a significant price decrease is unlikely. Las Vegas will continue to do well long term and continues to be one of the best locations for long-term buy and hold investments.

Because of low interest rates and low rental inventory, now is the time to buy properties that target what I call “mission critical” employees. I would not buy properties that target low wage earners, like C Class properties. I believe that rents will continue to rise due to increasing demand and lack of significant developable land. Also, I do not know how long interest rates will remain as low as they are. And, as long as you target the right tenant pool, your income will likely be secure. Plus, rents and prices will continue to rise as the Las Vegas economy continues to develop.

Hello @Adam Zach,

Interesting observation. Almost all of our clients are engineers, software developers or in similar fields. Whether engineer (types) are actually a significant percentage of investors nationwide, I can’t say.

I like dealing with engineers since we (the two founders of our group) are also engineers. Some of the aspects of our engineer clients I like include:

• Engineers like numbers. This is important to us. We find properties using data mining software we developed and what we send out is analytical information, not MLS data sheets.
• Engineers tend to be less emotionally involved in properties. They (and financial types) tend to be focused on the bottom line. This is how you make money.
• We can explain the good and bad parts of a property (all properties have good and bad) and they are not put off, if the numbers work.
• We can explain how our software and processes work and they very quickly grasp the overall approach. This makes it easier for us and they quickly become an active part of the process.
• Engineers are a group that are not location centric. They are accustomed to dealing with people in many locations. Almost all of our clients live in other states or countries and that works for them.
• We get excellent feedback. Our processes and software have improved greatly over the years due to the feedback we’ve received. This is important to us because we always strive to improve our services.

Anyway, that is my $0.02 on the subject.

Hello @Issac Chang,

I believe that if the property does not generate a positive cash flow from day one, do not buy it. If you do, you just paid a lot of money to lose money in the hope that in the future you might make money.

“Live where you like but invest where you can make money.” …David Lindahl

The next question is where to invest. I believe every location/property must meet the following criteria.

• Sustained profitability - The property must generate a positive cash flow today and into the foreseeable future.
• Likely to appreciate - Unless the price and rent increase at or above the rate of inflation, your present value return and income are actually declining.
• Located in an area where you can make money and business risks are low.

Below is a diagram showing the process I would follow:

There are a lot of topics covered in the above diagram that it’s impossible to discuss them all here. So I will narrow my comments to the location, the Investment Team, and buying turnkey.

Location

With an almost infinite number of places you could invest, I recommend narrowing your location search based on the following criteria.

• Population > 1M - Smaller cities may be too dependent on a single industry or employer. Here is a list from Wikipedia.
• Crime - High levels of crime and long term profitability do not go together. NeighborhoodScout publishes a list of the 100 most dangerous cities in the US. I recommend excluding any city on this list because they are unlikely to get new jobs or grow in population.
• Appreciation - Unless properties consistently appreciate at or above the rate of inflation, your actual income is declining over time. Google for the areas you are considering. NeighborhoodScout generally has good information.
• Rising per capita income - If per capita incomes are rising, job quality and quantity are increasing. The St Louis Federal Reserve is a good source of such information. For example, here is the per capita income for Las Vegas.
• Increasing population - If the population is increasing, it is very likely that the location is doing well overall. The Census Bureau has good data.
• Finally, choose a place that you would like to visit. You may need to go there at some point and it would be nice if it is a desirable location.

Investment Team

With the right investment team in place it does not matter where you invest. However, it is important that you have the right expectations as to what the team members can provide. Below is a table showing what expertise you want team members to have.

The most important team member is the property manager.

Turnkey Investing

Buying from a turnkey provider is only a purchase method. It in no way diminishes the steps before making a purchase method decision. See the image below.

Potential issues buying turnkey:

• Possibly higher risk - Buying turnkey may preclude you from obtaining vital information on the property. For example, an independent inspection.
• Tenant pool risk - The property defines the tenant pool. The tenant pool the property defines may not match your investment goals.
• Locked in - Turnkey providers have a lot of expenses and all must be covered. One source of income is managing the property. You may have no option but to use their property manager and their maintenance staff for all repairs. What if they do not perform or are too expensive?
• If you decide to sell the property, you may be required to sell through the turnkey’s Realtor at whatever commission rate is in the contract you signed. This alone could cost you 2% to 4% of the sale price of the property.
• Lower returns - The return generated by a turnkey property will always be less than buying direct. The turnkey provider bundles all their costs and necessary profit into the purchase price. The higher the purchase price, the lower the return. (Return = Net Income / Acquisition Cost). See the diagram below.

Advantages of buying turnkey:

• Cost consolidation - “Batteries included” - You pay one price for everything including the property, rehab and tenant acquisition. Note, this assumes that the property appraises for the turnkey price. If it does not, you will have to contribute the balance in cash and this advantage goes away.
• Easy - This is the major advantage of buying turnkey. No decisions, no worries. Just secure the loan and close, and start receiving an income stream. In the short run, this is probably true. In the long run, probably not unless it is in a location that is appreciating at or above the rate of inflation.

​

Below is our latest update on the impact of COVID-19 on the Las Vegas investment market. Keep in mind that all the information in this update only concerns the property profile we target and no other property type or price range.
In summary, there is no sign of a crash or even a decrease in rent or property prices.

Rentals:

• Median $/SF rose in May
• The number of rental properties leased in May increased.
• Rental inventory continued to decline from January’s peak.

Sales:

• Median $/SF sales price continued to increase. Year to year prices have increased by more than 5%.
• Median days on market decreased to 17 days.
• The number of closings decreased in May, which resulted in increased inventory and months of supply. There is a little over 4 months of supply. In Las Vegas, we consider 6 months of supply a balanced market so we see no general downward pressure on prices at this time.

Tenant Payment Update for May

As of today, out of the current +160 properties our clients own, five tenants have not paid May’s rent in full, all others are current.

The Data

Below are some of the charts from our latest trailing 13-month market statistics. Remember that this data is only for the property profile that we target, not for the entire metro area. To see all the charts please click here.

Rental Statistics

Rental rates increased in May compared to April. The number of rentals closed increased significantly and the rental inventory continues to decline. This shows more people are choosing to rent at this time thus driving up the rental rates.

Rentals - Median $/SF by Month

Rentals - Closings by Month

Rentals - Availability by Month

Sales Statistics

Sales - Median $/SF by Month
To our surprise, sales price increased in May. Note these purchase contracts were negotiated in April when economic activities were slowest.

Sales - Median List to Contract Days by Month
Amazingly, while median $/SF increased, days on market declined. 17 days is a very short time between listing and contract.

Sales - Availability by Month
Inventory climbed in May.

Sales - Closings by Month
Closings by month decreased, which was expected.

Sales - Months of Supply
Due to decreased closings, months of supply increased, though still in the seller’s market zone.

Our Opinion

With all the conflicting information there is uncertainty about where to invest. For example, depending on which “expert” you listen to, the stock market is: about to crash, will rise dramatically, will change little, etc. The uncertainty of the stock-market combined with historically low interest rates, which are suppressing bond yields, leaves people questioning, “Where to invest to generate a reliable income stream?” Based on everything we are seeing, real estate continues to be the best option for most people. Plus, not only is your income relatively secure, real estate is also inflation friendly and tax advantaged.

Las Vegas Is Still One of the Best Investment Locations

Factors that continue to make Las Vegas an excellent location for residential real estate investment include:

• Inventory remains low and we are still not seeing any signs or indications of a price decrease.
• The rental market remains strong. Also, according to the property managers we work with, the quality of tenants they placed during the pandemic crisis has been very strong. We believe some of these people are qualified home buyers that decided to rent due to the uncertain times.
• Population growth will not be disrupted. We do not believe the unemployed will leave Las Vegas in any significant numbers as job prospects are no better anywhere else. Plus, Las Vegas is reopening and it would be hard to find jobs that pay as well in other cities.
• The pandemic will probably increase migration from higher-cost states as working remotely becomes a norm. A portion of these people will continue to choose Las Vegas.
• Surrounded by federal land, there is little room for expansion. Increasing population combined with a land shortage almost guarantee prices and rents will rise.
• No state income taxes, low property taxes and insurance costs, low maintenance costs and landlord friendly laws give Las Vegas an advantage over alternative investment options.

Nationally, the economic outlook improved as all 50 states started reopening. The US economy added 2.5 million jobs in May. Mortgage applications are approaching pre-pandemic February levels after declining by 35% in March and April. Personal savings rate was at record high 33% in April indicating a large pent up consumer demand. Goldman Sachs predicted the US GDP growth will be 29% in Q3 2020 and 11% in Q4 2020 following a 39% decline in Q2. As consumer spending rebounds, so does the economic activities in Las Vegas as it is one of the prime vacation destinations in the nation. This will further stabilize the housing market if not fuel growth. While interest rates are low and prices stable with climbing rental rates, now is the time to invest in Las Vegas real estate.

Hello Bryan,

Greetings from Las Vegas. So far, prices have been very stable in the single family $250,000 to $375,000 range. We do not track other property types or price ranges so I cannot comment on how those segments are performing.

Below is some general market information that includes all price ranges of single family home sales. This data is from the MLS.

• Year-to-year April sales declined from 2,758 units sold to 1,971, a 29% decrease.
• Year-to-year April median sales price rose from $300,000 to $319,000, a 5% increase.
• Year-to-year homes that sold within the first 30 days increased from 59% to 69.5%, which probably reflects the reduced inventory.

If I narrow the segment to properties priced between $250,000 to $350,000:

• March median sales price was $286,000 and rose to $287,000 in April. A slight increase. Median $/SF rise from $161/SF to $162/SF.
• Months of supply fell from 2.70 months in March to 2.60 months in April.

Based on the above and what we are seeing, the market is very stable and I do not expect a downturn in prices, let alone a crash. And, with the casinos starting to reopen, we may have seen the worst of it. Time will tell.

Properties that attract our tenant pool are single-family homes priced between $250,000 and $375,000 in select areas and configurations. We do not have final numbers for May yet so below are our April rental statistics for that segment. I will post updated statistics when we have final numbers for May.

Rentals - Median $/SF by Month

Rentals - List to Contract Days by Month

Rentals - Availability by Month

In summary, I see no signs of a decline in the rental market for the segment we target. The stability is due to the tenant pool we target. Selecting the right tenant pool is critical if you want a reliable income stream even in turbulent times. The image below splits the total rental population into three segments.

Hourly workers are the tenant pool for C Class properties and this segment has been hit hard. Hourly workers are the first to be let go and the last to be rehired. High end salaried workers with titles like VP of Strategic … were also let go; they are not direct income producers. Who remains employed in bad times are what I call mission critical employees. These are employees who are direct income producers. If companies let these employees go, they are permanently closing. Since we only target mission critical employees, we are only seeing limited impact but not a lot. One property manager we work with has about 1,100 A and +B Class properties and has had only 23 delinquencies in May or 2%. 2% is a normal rate of delinquencies. So the mission critical employees are not seriously affected, at this point in the COVID-19 turbulence.

Las Vegas is crash resistant (except to the 2008 financial collapse) due to a few advantages over most other locations including:

• Land shortage. Las Vegas is surrounded by federal land and has little room left for expansion. With a growing population and limited room for expansion, this almost guarantees prices and rents will rise.
• A significant number of people fleeing California are choosing Las Vegas. We expect the rate of people moving to Las Vegas to increase once the impact of COVID-19 is over, especially now that working remotely has become a norm.
• No state income taxes, low property taxes, low energy costs and a pro-business government make Las Vegas a desirable location for businesses.

While we can not predict the future, so far Las Vegas seems to be doing well.

Hello @Robin Morales,

I can not answer the question of whether Phoenix or Las Vegas is a better investment location, but I can tell you how I would make the determination. Before you start, you need to know your goal, your success criteria. If you are basing your decision on which location has the least expensive properties, you would need a very different set of questions from which location produces better return rates. I will choose the following three criteria upon which to base my comments.

1. Sustained profitability - The property must generate a positive cash flow today and into the foreseeable future.
2. Appreciation - Currently and likely to continue appreciating for the foreseeable future at or above the rate of inflation. Rents track property prices so if prices are rising, rents will follow since both reflect demand.
3. Non-Coercive Government - Only invest in a location where you can make money and you control your property as opposed to the local government dictating what you can do.

The above criteria does not incorporate one additional critical factor, your investment team. Your success is totally dependent on having the right team of people working for you. Unless you can put together a strong team in the location you are considering, look somewhere else. I included the table below to give you an idea of what you should typically expect from team members. Of the lot, the property manager is the most critical.

Some of the requirements to achieve each of the above criteria:

Sustained profitability

• The property must be continuously rented by tenants who stay a long time, pay the full rent on schedule and take care of the property.
• Maintenance costs are low (newer and resilient construction)
• Real estate and personal income taxes must be low.
• Insurance cost - This is an excellent indicator of the likelihood that your property will have expensive damage.

Appreciation

• Demand must be increasing. Your target tenant pool population must be increasing. New jobs are being created at or above the rate of population increase, and the jobs pay a similar income to the current jobs your tenant pool has today.
• Urban sprawl - Not talked about much but you have only to look at any major city and you will see locations that where once the best in town and are now distressed. This is usually the result of urban sprawl. You need to be very aware of which way the city is expanding and buy in the direction where the population is moving. Urban sprawl also depresses property prices and rents over time because people can always move further out and buy or rent less expensive (and newer) properties.

Non-Coercive Government

• Evictions - You must have the ability to cost effectively and quickly remove non-performing tenants. If tenants know that they can be readily evicted they are more likely to pay the rent than in locations where it can take months or years to evict.
• Regulations - Does the local government impose expensive regulations (like occupancy certificates before renting the property) or rent control?

Gathering the Decision Information You Need

Below I did a basic comparison between Phoenix and Las Vegas.

Some observations:

• Both cities appear to be healthy and growing.
• Phoenix property prices are likely be lower and appreciate more slowly than Las Vegas due to unlimited urban sprawl. By comparison, Las Vegas is surrounded by federal land and has no room for expansion so appreciation is likely to be greater in Las Vegas. Today. Las Vegas has very limited developable land left so urban sprawl almost does not exist. Here is a time lapse video for Phoenix. And a time lapse video for Las Vegas.
• Since Arizona has a personal income tax, you will need to have a higher return in Phoenix than Las Vegas to compensate.
• Property taxes in Las Vegas and Phoenix are approximately the same.
• Home ownership rates are lower in Las Vegas, which indicates a larger population of renters. This is a big advantage for investors.

While objective (numeric) information is available online, subjective data is not. The best source for subjective information are local property managers. Property managers deal with properties and tenants every day. They know what things cost, what rents and what to avoid. I recommend getting in contact with a few property managers in both locations. Come up with a set of relevant questions and ask the same questions of all property managers. Write the answers down so you can compare later. Also, keep in mind that you are interviewing for your property manager. If you would like some ideas on interviewing a property manager, email me for our white paper titled, “A Process for Selecting the Right Property Manager”. Some of the questions I would ask multiple property managers include:

• What property type, configuration, location and rent range would you recommend if I am looking for a reasonable return and low tenant turnover?
• Typical annual maintenance?
• Cost and time to evict?
• Average tenant stay?
• Average time to rent?

Robin, I did not offer an easy answer but I hope I provided a framework for comparing the two locations. Keep in mind that you are totally dependent on having the right team of people working for you in order to succeed in investing. Unless you can put together a strong team in the location you are considering, look somewhere else.

Our latest market statistics are out, including April data. Remember that this data is only for the property profile that we target, not for the entire metro area.

Rental Statistics

Rental rates decreased slightly in April compared to March. Inventory and time to rent continue to decrease.

Rentals - Median $/SF by Month Rentals - List to Contract Days by Month Rentals - Availability by Month Rentals - Closings by Month Rentals - Months of Supply

Sales Statistics

Prices actually increased in April.

Median $/SF by Month
Sales - List to Contract Days by Month

The days from list to contract increased from under 10 days to 18 days. 18 days is a very short time between listing and contract. This is still a seller’s market.

Sales - Availability by Month

Inventory declined slightly in April.

Sales - Closings by Month

Closings by month decreased, which was expected.

Sales - Months of Supply

As of today, out of the current 160 or so properties our clients own, eleven tenants reported problems paying the full April rent. One lost their job and requested early termination of lease. All others agreed to pay partial rent for April and defer the balance until no later than June 1st.

Our Opinion

Will we see a significant price decrease? Not likely due to the low inventory and there is still a steady amount of closings happening.

Will we lose population if the casinos take much longer than expected to reopen? Where can these workers move to where they can walk into jobs today​?​ Or, which cities will recover faster than Las Vegas?

Right now, we are not seeing any signs of a crash. That said, we are in an unprecedented situation so things could change, especially if the inventory level starts to rise drastically.

Some more clips I hope you will find interesting:

• Mortgage applications jump 12%, showing signs of consumer confidence returning
• Demand Jumps in Single-Family Rental Market | GlobeSt
• Coronavirus job losses hit these 7 states hardest | Yahoo Finance. Nevada is among the states that have seen least percentage spike in jobless claim so far (4/30/2020).

Lots of interesting comments. I will respond to a few.

On "buying property unseen", not the way our process works. We are engineers and believe in processes. Documented repeatable processes enable us to reduce errors and inefficiencies. Below is a visual representation of our process from raw MLS data through the end of the due-diligence period.

On "believing what is on the MLS". We "trust but verify" the information on the MLS and other sources. We verify everything we can.

On “hedge fund and big players have stopped buying” and “mom and pop investors”. I really do not know (or care) what the hedge funds are doing. They do not have the software, hyper local data, or local knowledge to find the few good properties. This is where “mom and pop investors” win big time over hedge funds. Hedge funds are looking to buy hundreds. We are cherry-picking 5 or 10 a month.

On “real estate agents acting dishonestly”, a few thoughts:

There certainly are people of questionable ethics in any profession, like your own I suppose?

On “a good time to sell.” The owner chooses when to sell, not the agent. Also, people sell their property for a reason. Usually, the reason is somewhat time specific. Not many sellers can wait years for the “right” time. Also, in an appreciating market like Las Vegas or the Bay Area the sales price of a property will almost always be increasing over time. So, later is almost always better. If this is the case, when is the “right” time to sell?

On buying an investment property, in almost all cases, do not depend on the agent. Very few agents know how to select or evaluate a property. I regularly receive “investor’s dream” flyers from agents. When I bother to evaluate them, almost all will lose money. Evaluating a property is the investor’s responsibility. What we do is to provide all the data we can obtain to our clients. Our clients then determine if the property meets their goals and decide whether they wish to make an offer.

On whether landlords will get paid, it depends. In Nevada, while tenants cannot be evicted during the Coronavirus, they still owe all of the rent. Whether they pay the rent depends on what the tenant thinks will be best for them. For C (or D) Class properties, tenants are mostly cash based so there is no future penalty for an eviction, judgement or any other sort of legal action. Owners of such properties are very likely going to get seriously hurt, as they do in every downturn. The tenant pool we target is credit based and typically occupy mission critical positions in their respective companies. Of the ~160 properties our clients purchased through us, to date 6 reported they will have problem paying the full April rent. Except for one early termination of the lease, all worked out a deferral agreement because they are concerned that not paying the rent will hurt their credit. So, for our target tenant pool, there is a big motivation to pay the rent.

As to the rent dropping, not seeing it in Las Vegas. The rents actually increased in March and the time to rent decreased. As to sales, prices set a new record in March and time to sell decreased. As of now the MLS is showing a healthy number of properties going under contract each day so people are still buying. If there is a crash, I am not seeing it. Could it occur in the future, of course. But, there is no evidence of it today.

As to “Las Vegas is the Titanic”, this is not 2008 where everything fell apart. So far, we see a good market but we will have to wait and see. I am not in the crystal ball business, I just report the facts. On the 2012 article someone referenced, I see no similarities between then and now. If you do, I would like to hear.

@Cliff T

Good comment. I have a saying, “projecting anything beyond yesterday is guessing”. Since I do not have a crystal ball, all I can provide is the actual statistics.

On Las Vegas being impacted, of course it is. Just like every other city in the US and most cities on the planet. My comments only concern the tenant pool/property profile we target. Typically, these properties sell for between $250,000 and $350,000 and rent for between $1300 - $1900. If you go too much below this price range (or in different areas), you will have a high probability of tenants not paying, skips or evictions. If you go above this price range, you are likely targeting tenants who are not in “mission critical” positions (like @Guy Bouchard described). Higher income employees are very prone to being laid off in bad economic times.

Even during the 2008 crash, our clients had zero decrease in rent and no vacancies. Will the same be true today? I do not know and no one else does either.

On how long or how bad the economy will last, no one knows. Anyone who claims to know is not honest.

@Brad D.

“Thus the market is in a death spiral downward.” I heard similar statements during the 2008 crash. We recovered and if there is another crash we will again. As to banks raising qualifications, the lenders we talk to are overwhelmed with refinancing. They tell me part of the reason to increase rates and tighten credit requirements is to reduce the flood and only deal with people who are very likely to be approved.

You seem to keep equating what is happening now to the financial crash of 2008. I see no similarities. 2008 was a financial crash, largely brought on by the Fed not providing liquidity when the markets needed it. Not so this time. Also, the US is extremely strong, which is attracting world wide investments. Over $1T formerly held in foreign banks has been repatriated back to the US. I can give many other examples of why this is not 2008. The corona virus is hurting and will continue to hurt for some time, but the world will recover.

@Jay Hinrichs brought up an excellent point. In the 2008 crash, it took a very long time before the government acted. This time the government acted in a matter of weeks.

I just do not see any similarities to 2008.

@Johnny B Bad

No one knows when this will end and what will happen. Lots of speculation, zero facts. On your comment that many on furlough will lose their job, I agree. This will most likely be at the lower end and the upper end of the salary range. The mission critical people, like experienced dealers in casinos, will be retained.

On marginal operators going into bankruptcy? Absolutely. The service or function these companies provided will be replaced by another provider. This has always been the way.

@Brad D

On your questions, I can tell you what happened in 2008 - 2012 but no one can predict what will happen in the future. So, I will respond in terms of 2008.

1. If the price has dropped to $120k in 2 years, what would you expect it to rent for then?

Below are two charts. Both charts ONLY apply to our property profile. The top chart is what happened to median $/SF. As you can see, the price dropped about 50% relative to the prices in 2006 or 2007.

Below is median $/SF for conforming rental properties (the same property profile as above). As you can see, rents were largely unchanged. This also shows why after location, selecting the right tenant pool is so important.

@Guy Bouchard

I ignore the “experts”, they keep getting it wrong. For example, Paul Krugman, New York Times chief economist and Nobel Economics Prize winner, predicted that if Trump won the 2016 election: “… we are very probably looking at a global recession, with no end in sight. I suppose we could get lucky somehow. But on economics, as on everything else, a terrible thing has just happened.”

In my opinion, the rate of correct predictions by the so called “experts” is little better than random and the articles I read mostly just expressed the political views of the author.

All I have time for today. Have a lot of clients who want investment properties, especially the ones who lost much in the stock market or have investments in California and want to start making money and controlling their properties.