All Forum Posts by: Eric Fernwood

Hello @Jack B.

We just conducted our Q1 Las Vegas Investor Update and below are our findings.

Market Update

Note that the following data comes from the Las Vegas MLS and is only for properties that conform to our target tenant pool.

Median $/SqFt for Single Family Homes - The $/SqFt continues to rise. We expect the rate to increase towards the end of the year, likely driven by Californians looking for a more cost effective place to live. Already 30% of all sales today are to Californians. Also, we are still 20% below the peak prices of 2006. If you take inflation into account we are about 35% below peak 2006 prices.

Months of Supply - The months supply of properties has risen since late 2018, but still below 3 months where 6 months is considered a balanced market. The effect of the increased supply is that we are seeing increasing ROI and facing less competition from buyers.

Median Days on Market - The median days on market has risen from 12 to about 14 days. Not a significant change. There is still high demand for the type, configuration and price range we target.

Available Conforming Rental Units by Month - There has been steady decline in available rental units over time. This is what is driving up rents (6.6% average increase in 2018) in the property profile we target.

In summary, the real estate market is very strong. Demand for rental properties is outpacing supply resulting in rising rents. We expect demand to increase during the rest of 2019.

Other Information Worth Noting

Resident Population Growth - 2017 to 2018

Nevada ranks #1 in the US for population growth.

Source: U.S. Census Bureau

Driver's License Surrenders to Nevada by State for 2018

This shows which states people are moving from.

Source: UNLV CBER

Fastest Job Growth in the Nation

Source: U.S. Bureau of Labor Statistics (December 2018 vs. December 2017)

Fastest Personal Income Growth

This shows that the jobs being created are not low end jobs. They pay well and the wages are increasing with the current jobs.

Source: U.S. Bureau of Economic Analysis (Q2 2018 vs. Q3 2018)

Fastest House Price Appreciation

Source: Federal Housing Finance Agency (Q3 2017 vs. Q3 2018)

New Home Median Price - Median new home price is $410,000 which is well above the sweet spot for renters. The price of new homes is largely driven by the high cost of land, which is in short supply. Resales will still be the pool for investment properties and will not be diluted by new homes.

Major Projects

Major projects are big drivers of the future economy for Las Vegas. In the 2000 to 2010 era, there was a push to add hotel rooms. The problem was that it was effectively a zero sum game since there were no new attractions added to draw more visitors. This has completely changed in the last few years in that new attractions are being added instead of simply hotel rooms. The nature of Las Vegas has changed too. Until only a few years ago Las Vegas was just "Sin City", a great vacation destination. Today it has changed into a great place to live with endless entertainment, affordable housing and low cost of living. Below are some of the major projects currently under construction (not just planning):

• Sphere Las Vegas - $75M
• Resorts World Las Vegas - $7B
• Drew Las Vegas - $3B
• Raider's Stadium - $2B
• Las Vegas convention center expansion - $750M
• Google - $600M data center
• Union Village - $1.2B
• Project Neon - $900M
• Palms Casino Resort Renovation - $690M
• Caesars Forum Conference Center - $375M

There are many other projects underway but the above are the largest we know of. Any one of the above projects would be huge for a 2.2M population city. These projects will create a large number of additional well paying jobs which will attract even more people to Las Vegas.

Land Shortage

Not many people realize that Las Vegas is an island surrounded by federal land. Approximately 84% of all land in Nevada and 87% of Clark County (in which Las Vegas is located) is owned by the federal government. See the map below for what has happened between 1984 and 2016. Note that 2017 and 2018 were huge growth years for Las Vegas so even less land is available now.

Since there is limited room for expansion, Las Vegas will not have urban sprawl, the only growth path is redevelopment. This is a huge advantage for investors. In most cities, urban sprawl leaves formerly desirable areas "behind" and they tend to decline with increased crime and falling rents and prices. Not the case for Las Vegas:

• Class A properties will stay class A in the future.
• Due to the lack of expansion room, increased demand created by people and companies migrating to Las Vegas will almost guarantee price and rent increases.

Summary

The current market is strong and we expect it to get stronger as 2019 progresses. A significant number of Californians are already moving to Las Vegas and the 2018 Tax Act will drive more people to look for a more affordable place to live. The lack of room for expansion almost guarantees prices will continue to rise as more and more people bid for the limited number of available properties. Las Vegas remains an outstanding investment location for the foreseeable future.

Hello @John Finch,

Thank you for your kind words. People were very kind to me when I first started investing in real estate. My way to repay their kindness is to help others. In this post I will respond to your question concerning obtaining critical local knowledge. Note that the assumption is that you will be evaluating a potential remote investment location.

It is critical to keep a property consistently occupied by a good tenant. So we have a common understanding of "good tenant", below is my definition.

• Has stable employment in a market segment that is very likely to be stable or improve over time.
• Pays all of the rent on schedule
• Takes care of the property
• Does not cause problems with neighbors
• Does not engage in illegal activities while on the property
• Stays for multiple years

Good tenants are not common. Good tenants are the result of targeting the right tenant pool and careful selection by the property manager. In order to have enough applicants so the property manager can select a good tenant, you need to target the right tenant pool.

In my experience you can subdivide tenants by the amount of rent they are willing and able to pay into three groups. While not always true, you can make certain assumptions that are valid a high percentage of the time. See the chart below.

1. Transient - The people in segment ① are primarily hourly workers. They are different than segments 2 and 3 because they live cash based lives. They may not have a bank account, credit card or loans and they tend to have little or no financial history. Without a financial history, there is no effective way to screen out bad actors. Also, since they do not depend upon credit, their actions today have little or no impact on their future. Therefore skips, evictions and damage judgements are more common. In times of economic stress, they are the first to be laid off and the last to be rehired. In my experience, there are relatively few "good" tenants in this segment.

2. Permanent - The people in segment ② are primarily credit based. You can obtain a detailed financial history which includes how often they move and how good they are at paying bills. This is the type of information the property manager needs in order to select good tenants. They tend to follow the "rules" and pay the rent on schedule. This segment knows that a skip, eviction or property damage judgement will hurt them financially for years to come. Most are "permanent" renters, they stay a long time. This is the pool with the highest concentration of "good tenants" and is the tenant pool we target for our clients.

3. Transitional - The people in segment ③ are also credit based but they make sufficient income that they would normally buy a home. Typically they will only stay one to two years before they buy a home and move out. I call this group "transitional" because they do not stay long. With the short stays it is hard to make money with this pool.

How do you determine critical information like the right rent range to target, property type, and configuration from the other side of the country? Talk to local property managers. Local property managers deal with tenants every day. They have a wealth of information.

Start by Googling for property managers in the location you are considering. You will likely find many. However, not just any property manager will do. Select property managers with the following characteristics:

• They are mid sized for that area. If they are too large, you will not appear on their radar. If they are too small, they will not have the processes, procedures or software to be effective .
• Property managers tend to specialize in specific types of properties in specific areas. You want a property manager that specializes in the geography and type of property you are considering.

Once you have identified 5 to 10 interesting property managers, create a written list of questions. You will ask the same questions of each property manager and write the answers down for later comparison. You will learn a lot about the area from the property managers during this exercise. Below are some example questions.

• How many properties are you currently managing?
• I am looking for properties to attract long term tenants that will take care of the property. If you were looking for such a property what type and where would you buy?
• What is the rent range for such properties?
• What is the average length of time your tenants stay in such properties?
• What is your typical time-to-rent for such properties?
• Is there anything you can think of that I should have asked about. (This is a hugely valuable question. You would not believe how much insight I got from this question.)
• What advice would you give a new investor buying their first property in this area?
• What geographical area do you service?
• What is your mix of properties (single family, condos, commercial, etc.)?

After talking to several property managers, you will have a pretty good idea about the area, tenant pool, major employers, regulations, etc. Plus, you should have a pretty good idea of what types of properties do the best and where they are located. Armed with this information, time to do some homework on Zillow, Redfin or whatever real estate site you prefer. Look for properties that match what you learned from the property manager interviews. You now have what you need to do some guesstimating on whether the location is worth further investigation. The data you will need includes the following:

• Property price(s)
• Taxes
• Landlord insurance cost - call a local agent
• Management fee - You learned this from the property manager phone calls
• Periodic fees - the property details
• State income tax rate

You can now plug this information into the proper formulas. Below are the formulas we use:

• ROI = (Income - DebtService - ManagementFee - Insurance - RETax - PeriodicFees) x (1 - StateIncomeTax) / ( DownPayment + ClosingCosts)
• Cash Flow = (Income - DebtService - ManagementFee - Insurance - RETax - PeriodicFees) x (1 - StateIncomeTax)

The results will enable you to make an informed decision on whether this location makes sense or if you need to look for another location.

Another long post but I hope it helps.

Hello @Justin Franklin,

Sustained profitability is what I believe you are seeking. While it sounds simple, you have to get the location, investment team, rehab and the right property to achieve long term profitability. So we have a common goal, I believe any long term buy and hold property must meet three criteria:

• Sustained profitability - The property must generate a positive cash flow today and into the foreseeable future.
• Likely to appreciate over time - Properties appreciate in locations that have increasing demand, which is the key driver for sustained profitability.
• Located in an area where you can make money and business risks are low. Only in such an environment can you achieve both current and long term profitability.

Below are comments on what the above actually encompass before I cover the criteria I followed when selecting my long term buy and hold location.

Static Prices And Rents Are Not Static

Official inflation is running at about 3%, which does not include food or energy. I will use 5% as a more realistic inflation rate (if you drive a car or eat). If you are renting out a property today for $1,000/Mo. and rents are static, what is really happening with buying power?

This is why rent and price appreciation must equal or exceed inflation.

ROI and Cash Flow are Only Snapshots in Time

Too many people choose an area due to the current ROI and cash flow. However, ROI and cash flow are only a snapshot in time. They only predict how the property is likely to perform today; they tell you nothing about how the property is likely to perform in the future. See the diagram below where two properties in two different markets currently have the same ROI.

The red line represents a declining market (rents are constant or declining) and the green line represents an appreciating market (rents and prices are increasing). If you only looked at ROI, the markets would appear to be the same. You need to carefully consider how the location is likely to perform in the foreseeable future and not just assume it will remain as it is today.

Rents Lag Prices

Rents lag prices by 2 to 10 years. See the illustration below.

In a declining market, the current rent actually reflects property prices or 2 to 10 year ago when prices were higher. In an appreciating market rents reflect property price 2 to 10 years ago, when prices were lower. This is why declining or static markets have the highest return, today. Over time, they will continue to decline. In an appreciating market rents (and ROI) and prices will continue to rise over time while your major cost (debt service ) is constant.

Population Growth

If people are moving into a location, it is probably a good location for jobs and a desirable place to live. If people are moving away, demand will drop and prices will be static or declining. Do not buy in places with static or declining populations.

Urban sprawl

Not talked about much but you have only to look at any major city and you will see locations that were 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 areas where the population is moving. See this site for time lapses. Try:

• Memphis
• Atlanta
• Austin
• Las Vegas - Almost no urban sprawl
• Cleveland

Crime

High levels of crime and long term profitability do not go together. I would not consider any city on the top 100 most dangerous cities list. You might know one of these cities well and know that there is a great area in the city. The problem is that companies looking to open new locations will not choose high crime cities. So, even though there may be good areas in these cities, companies will not choose cities that are perceived as a high crime location.

An Area Where You Can Make Money

There are many locations that have enacted regulations that limit property owners rights to control their properties. A good example is rent control. I would never consider any location where rent control is implemented. Beyond rent control, the next best barometer is the time and cost to evict. As a comparison, in Las Vegas, a full eviction is $500 and less than 30 days. In some cold weather states you cannot evict people during the winter. Or, if someone is sick or over 65. In other locations it can take 1 to 2 years to evict. Tenants are very aware of such laws and know how to work the system. Some people might say that nightmare evictions are rare. I agree. However, I view nightmare evictions like cancer. As long as someone else has the cancer, it is a statistic. If you have cancer, it is a nightmare.

Operating costs vary greatly between cities. Significant cost factors include: property taxes, insurance costs, state income taxes, property age and construction and climate. As an example, we have a home in both Las Vegas and Austin. Below is a comparison of three cost differences:

Remember that it is not how much money you make, it's how much money you keep. Construction and climate are also cost drivers. When I owned properties in Houston and Atlanta it seemed that I was always replacing: roofs, siding, wooden windows and dealing with landscaping issues. Below is a typical Las Vegas property. Not a lot of maintenance cost with Las Vegas properties due to the climate and construction.

The Steps I Followed

Before I continue, the steps below were the result of false starts and failures. Do not think I figured all this out at once. Also, there is no perfect city, you want to choose the best city for you. My criteria:

1. Metro size > 1,000,000. Small cities are too dependent on narrow market segments and single employers. High risk over the long run.
2. Increasing population - I discussed this earlier.
3. No location on the top 100 most dangerous cities list due to declining (or static) property prices and rent.
4. Increasing job quality and quantity - You need new employers setting up operations.
5. Investor friendly - Check for rent control (os similar restrictions) and the actual cost and time to evict.
6. Property cost - There is a tendency for new investors to choose locations with very inexpensive properties. Remember that price is a function of demand. No demand, low price. High demand, high price. Of course, you need to hit a balance. If your budget allows a maximum of $250,000, do not consider coastal California.
7. Climate - Properties in areas with hard freezes and excessive moisture will tend to require more maintenance than in milder and dryer climates.
8. Property age - The older the property, the more maintenance it will require, unless all the major systems and components have been updated recently.
9. Taxes - Both income tax and property taxes are a direct hit on profitability. Look carefully.
10. Insurance cost - Insurance cost is a good barometer of the likelihood of damage, usually due to climatic or seismic events. Be certain to take the cost of landlord insurance into account when comparing locations.

This post is already long so I will end here with three additional considerations:

Investor team

You simply cannot do it by yourself and there is no reason to try. You need a solid investment team and the most important member is the property manager followed by the Realtor. Keep in mind that extremely few Realtors have any investment knowledge or experience. And, while property managers know what rents well, they generally know little about profitability. You need a strong team that can work together or I would skip the location. (I can expand on this if interested.)

SWOT

When you are comparing different locations you will have a combination of objective data (numbers - easy to compare) and subjective data (opinions, interpretations, points of view, emotions and judgment - hard to compare). An excellent tool of organizing the date is SWOT Analysis. If there is an interest, I can provide more information on SWOT.

Local Knowledge

Books, seminars, podcasts all provide general knowledge. When you buy a property, you are buying a specific property in a specific location subject to the local costs and regulations. If there is interest in how you can get this local information, let me know.

A long post but I thought your question was a good one and wanted to provide the best answer that I could.

Hello @Jon Schwartz,

Great question. Below is my $0.02.

You are focusing on the most important element, location. If you buy in a bad location, there is little you can do to recover. As long as you buy property in a good location, all but the worst mistakes will be corrected over time through appreciation, inflation and rent increases. My definition of a good location and investment property (you must have both):

• Sustained profitability - The property must generate a positive cash flow today and into the foreseeable future.
• Likely to appreciate over time - Properties appreciate in locations that have increasing demand, which is the key driver for sustained profitability.
• Located in an area where you can make money and business risks are low. Only in such an environment can you achieve both current and long term profitability.

A few comments on the above:

Return - Return (ROI, cash flow) are only a snapshot in time. These calculations only predict what the property is likely to do today; it tells you nothing about how the property is likely to perform in the future. See the diagram below.

The red line represents a declining market (rents and prices are constant or declining) and the green line represents an appreciating market (rents and prices are increasing). You need to carefully consider how the location is likely to perform in the foreseeable future.

A comment on static prices, they are not static. Official inflation is running at about 3%, which does not include food or energy. I will use 5% as a more realistic inflation rate (if you drive a car or eat). If you are renting out a property today for $1,000/Mo. and rents are not increasing, what is really happening?

This is why appreciation, at least equal to inflation, is critical.

Another reason appreciation is important is that appreciation is a good indicator of economic health. If a location is not appreciating or is static or declining, it would be unwise to invest in such a location. Also, rents lag prices by 2 to 10 years so the trend you see in property prices now is what you can expect rents to do in the future.

The last criteria I listed was, located in an area where you can make money. This is a big factor. In some places it is very hard to make money due to the cost of doing business and regulations. Significant cost factors include: property taxes, insurance costs, state income taxes, property age and construction, climate, and eviction cost and time.

As an example, we own homes in both Las Vegas and Austin. Below is a comparison of three cost differences:

Remember that it is not how much money you make, it's how much money you keep. Construction and climate are also major cost drivers. When I owned properties in Houston and Atlanta it seemed that I was always replacing: roofs, siding, wooden windows and dealing with landscaping issues. Below is a typical Las Vegas property. Not a lot of maintenance cost with Las Vegas properties due to the climate and construction.

The cost and time to evict is also a good barometer of how owner friendly the location is. In Las Vegas, a full eviction is $500 and less than 30 days. In comparison, in some cold weather states you cannot evict people during the winter. Or, if someone is sick or over 65. In other locations it can take 1 to 2 years to evict. Tenants are very aware of such laws and know how to work the system.

Some people might comment that nightmare evictions are rare. I agree. I view nightmare evictions like cancer. As long as someone else has the cancer, it is a statistic. If it happens to you, it is a nightmare.

With all the above said, my list for selecting an investment location is as follows:

• Appreciation - I covered the importance of appreciation due to inflation and as a health barometer. Check the property price trends for the location.
• Population growth - If people are moving into a location, it is probably a good location for jobs and desirable place to live. If people are moving away, demand will drop and prices will be static or declining.
• Urban sprawl - Not talked about much but you have only to look at any major city and you will see locations that were 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 newer areas. See this site for time lapses. Try:
  • Memphis
  • Atlanta
  • Austin
  • Las Vegas - Almost no urban sprawl
  • Cleveland
• Demographic trend - Be aware that the population of many locations are aging. You need to match the property to the demographics. For example, if the median population age has risen from 35 to 40 over the last ten years, buying a three bedroom home targeting young families may not be the best option.
• Crime - High crime areas and long term profitability do not go together. I would not consider any city on the top 100 most dangerous cities list. You might know one of these cities well and know that there is a great area near the city. The problem is that companies looking to open new locations will not choose high crime cities. Also, people with sufficient funds will leave these areas and the area will go into decline.
• Climate - Properties in areas with hard freezes and excessive moisture will tend to require more maintenance than in milder and dryer climates.
• Age of the property - The older the property, the more maintenance it will require, unless all the major systems and components have been updated recently.
• Property cost - There is a tendency for new investors to choose locations with very inexpensive properties. Remember that price is a function of demand. No demand, low price. High demand, high price. Of course, you need to hit a balance. If your budget allows a maximum of $250,000, do not consider coastal California.
• Taxes - Both income tax and property taxes are a direct hit on profitability. Look carefully.
• Insurance cost - Insurance cost is a good barometer of the likelihood of damage, usually due to climatic or seismic events. Be certain to take the cost of landlord insurance into account when comparing locations.

This is getting to be a long post so I will end it here. If anyone is interested in how to easily obtain deep local knowledge about any given location, let me know and I will do a follow up post.

Johnathan, best wishes on your hunt for a good investment location.

Hello @Bridget Scileppi,

I believe that the property type is not important. What is important is whether the property meets the following three criteria:

• Sustained profitability
• Likely to appreciate over time
• Located in an area with acceptable business risk

The property that best meets the above criteria is the property you should buy. Let the numbers be your guide on property selection, not any preconceived bias. Also, remember that ROI is only a snapshot in time, an estimate of how the property will perform today, not 5, 10 or 20 years from now.

So how do you determine which property type to buy?

Before I continue, understand the relationship between jobs and sustained profitability. The relationship is pretty simple: no jobs, no rent. A rental property is no better than the jobs around it. Let's start with location considerations.

Location

Some location characteristics to watch for:

• Long term major employer outlook, both the market segment(s) and the specific companies. How did they do in the last crash? Also, the average life of a S&P 500 company is 15 years. You have to assume that the current major employers (unless they are government or utilities) will die off over time.
• New business relocating to area - Unless new businesses are relocating to the area, the area is or will decline, as will your rent and property value.
• Population growth - Population trend is an excellent barometer. If people are leaving a location, the long term outlook is bad. If people are moving to a location, the prospects improve.
• Per capita income growth - If the increase in per capita income is not greater than inflation, incomes are going down.
• Taxes - High taxes are a direct hit on profitability. This includes income tax, property tax and any other kind of tax.
• Cost and time to evict - Tenants know the eviction laws and if they know it will take months to evict them they are more likely not to pay the rent. This can be mitigated by the tenant pool.
• Rent control - If governments are usurping the rights of property owners, look somewhere else.

The point is, only buy where you can meet the three criteria.

Target Tenant Pool

Once you have a location selected, it is time to select the key employers and market segments who that will do well in the foreseeable future. Once you select the employers, you can determine a tenant pool that best meets the following criteria:

• Has stable employment in a market segment that is very likely to be stable or improve over time. These are the target employers you selected.
• Pays all the rent on schedule
• Takes care of the property
• Does not cause problems with neighbors
• Does not engage in illegal activities while on the property
• Stays for many years

I can go into more details on tenant pool selection if you are interested.

Once you know your target tenant pool, determine the property characteristics that will target them:

• What type? Condo, high rise, single family, duplex, single story, two story, etc.
• What configuration? Two bedroom, three car garage, mud room, etc.
• Location - Acceptable access to the target tenant employers?
• Rent range - What rent range best matches the target pool?

Summary

Instead of deciding on a property and hoping it will meet the three criteria, do the homework, starting with the location, and let the target tenant pool determine the property.

I hope the above helps.

Selecting a good investment location for long term buy and hold is critical. What makes it more difficult is that traditional metrics like ROI or cash flow are only snapshots in time. They estimate how the property will ideally perform today but tell you nothing about future performance, maintenance costs, etc. And, on a long term hold, the foreseeable future is more important than what is happening today. In this post I will cover:

• A clear goal
• Using the right metrics for comparing properties
• The characteristics of a declining market vs. an appreciating market.
• The process I would follow for selecting a location.

My Goal

I believe every investment property should meet the following three criteria:

• Sustained profitability - The property must generate a positive cash flow today and into the foreseeable future.
• Likely to appreciate over time - Properties appreciate in locations that have increasing demand, which is the key driver for sustained profitability.
• Located in an area where you can make money and business risks are low. Only in such an environment can you achieve both current and long term profitability. Business risks refer to regulations such as rental control, code enforcement, eviction rules, etc.

Simplistically, if the property is not generating a positive cash flow today and is not likely to appreciate (price and rents), look somewhere else. I will talk more about declining markets vs. appreciating markets later.

Use the Right Metrics

I frequently see people making property and location decisions based on simple metrics like rent/price or simple ROI calculations. (Another mistake is using constants for maintenance and vacancy; each property is different but I will cover this if anyone is interested.)

The following are two similar properties, one in Las Vegas and one in Austin. Email me if you would like the details on the properties.

Notes:

• I used the same monthly fees for both properties to keep things comparable.
• Debt Service: 25% down, 5.125% rate, 30 year fixed.
• Management: 8%
• Closing costs: 3%
• Income tax rate: 0%, neither Texas or Nevada have state income taxes

If I used the popular rent/price ratio, here is the results:

The clear winner is the Austin property. But is this actually true? I will compare the two properties using the following formulas:

• ROI = (Income - DebtService - ManagementFee - Insurance - RETax - PeriodicFees) x (1 - StateIncomeTax) / ( DownPayment + ClosingCosts)

Below are calculations for both properties:

• Austin: (1,700 x 12 - 1100 x 12 - 8% x 1700 x 12 - 1625 - 6022 - 41 x 12) x (1 - 0) / ( 25% x 252500 + 3% x 252500) or -3.6%
• Las Vegas: (1,490 x 12 - 1110 x 12 - 8% x 1490 x 12 - 450 - 1490 - 41 x 12) x (1 - 0) / ( 25% x 255000 + 3% x 255000) or .98%

Despite the Austin property having a significantly higher rent/price ratio, it has by far the worst actual return by over 4%! The lesson here is that simplistic formulas can be very misleading. Even more important, this formula, like all others, only reflects an estimate of current return, not what will or is likely to be in the future.

Declining Market Vs an Appreciating Market

People generally buy investment properties with the intention of holding on to them for many years. If this is the case then what is likely to happen in the foreseeable future is actually more important than the current situation. ROI and cash flow only indicate today's return, they tell you nothing about future returns.

Multiple studies have shown a strong correlation between property prices and rents (see Federal Reserve study). Basically, rents lag property prices by 2 to 10 years or, if prices are stable (declining in real dollars) or declining, rents will follow. See the illustration below.

In a declining market, the current rent reflects property prices from 2 to 10 years ago and they are likely to be relatively high compared to areas with appreciation. Declining locations work for the short term but over time you can end up underwater and have insufficient rent to cover your operating costs. Another issue is the quality of the tenant. As rents fall, you are more likely to have increased problems with evictions, skips and property damage. The diagram below illustrates this problem.

If you doubt that this can happen, in every major city I know there are areas that were once the "best" in town are now distressed high-crime areas. The locations did not evolve from being the best to depressed over night, it happened over the years.

An appreciating market is the opposite of a declining market. Rents still reflect property prices from 2 to 10 years ago but since property prices have risen more than rents, initial returns will be lower than a declining market. Since your largest cost (debt service) is fixed, as rents rise over time your return increases, as illustrated below.

In summary, invest in an appreciating market if you plan to hold a property for some time. You initial return will be lower than a declining market but over time you will make far more money plus the property will appreciate.

My Process for Selecting a Good Investment Location

A little history. I was living in NYC when I decided to change my profession and sell investment real estate. I knew that NYC was not the place so I started my search for where to move to.

After a lot of consideration I decided that if I developed a criteria for a good investment property I could work backwards to select a good location. My original set of criteria was much more complex and it took me time to simplify and focus the criteria to what it is today. I listed them at the beginning of my post:

• Sustained profitability - The property must generate a positive cash flow today and into the foreseeable future.
• Likely to appreciate over time - Properties appreciate in locations that have increasing demand, which is the key driver for sustained profitability.
• Located in an area where you can make money and business risks are low. Only in such an environment can you achieve both current and long term profitability.

Evaluating each location at the level of detail to determine the above criteria is satisfied is not possible. So, some gross filters are needed to trim down the list:

• Minimum population - I would only consider cities with a population exceeding 1M. My concern is that if the population is less than a million it will be too dependent on a single industry or market segment.
• Not on the list of the 100 most dangerous US cities. Here is one such list. Why is this important? Long term growth. No one wants to live in a high crime environment so those with the means to move, do so. The median income of the people who remain falls and city services follow. Also, few non-government organizations will choose such a location to open new facilities.
• Taxes - There is a reason so many people and companies are leaving the "blue states". Here is one source.
• Rising $/SqFt property prices. I found no single perfect data source but here are some good sources: Zillow, Trulia, Redfin
• Increasing population: Simplistically, if people are moving out of an area, it is not desirable. Declining population means declining demand for housing which will result in declining property prices: US Census data
• Increasing inflation adjusted per capita income. One of the better sources.

At this point you should have a short list of locations and you can dig into each remaining location. Below is the process I would follow from here:

Summarizing the remaining steps:

1. Already covered this step.
2. Not all target tenant pools (or population segments) make equally good tenants. We carefully choose a tenant pool and the result is an average tenant stay of about 5 years, 3 evictions in 10 years and little tenant damage.
3. Once you have a target tenant pool, you can determine the property profile that matches your target tenant pool. The four factors are: type, configuration, location and rent range. From the property profile you can determine the price range of such properties and profitability. If the prices are out of your budget or the properties are unlikely to cash flow, select another location and start with step 1 again.
4. Unless you have a strong investment team, you will fail. The key member is the property manager followed by the Realtor. If you are unable to find a strong team, go to another location.
5. You and your team evaluate individual properties based on: price, rent, time to rent, rehab cost and risk, average tenant stay, probable maintenance cost, etc.

Summary

I covered a lot of material in this post. If anyone has questions please post them or send me an email and I will do my best to respond.

It’s been over a year since my last post on this thread and I thought an update was in order. First, a few responses.

@Jennifer L. 

Thank you for the kind words. People were very kind to me when I first started investing in real estate. My way to repay their kindness is to help others.

@Rosemary Villaquiran 

If you are considering Las Vegas, you are choosing an excellent time to invest as you will see below.

@Michael Robbins

I agree with your opinion that the Las Vegas market has a lot of growth upside.

In this post I will cover the current market, what we anticipate, and the difference between investing in a declining or static market and an appreciating market.

Current Las Vegas Market

I always prefer charts to text so below are some graphs I hope you find interesting. All the charts cover the preceding 18 months and only include resales of single family homes.

Median $/SqFt vs. Date

Median Sales Price vs. Date

Months of Supply vs. Date. A 6 month supply is considered balanced.

I believe the above charts speak for themselves. Las Vegas is a very hot and dynamic market today but what do we see happening in the foreseeable future?

The Foreseeable Future

Before I continue, understand that no one can predict the future. What I will do is to tell you what I see and what I think it means. You will need to draw your own conclusions.

While Las Vegas is doing exceptionally well, continued growth in Las Vegas will depend upon more businesses and people moving to Las Vegas. As more people move to Las Vegas, demand for housing will increase driving up rents and property prices.

People and businesses who are considering investing in or relocating to a location base their decision as much or more on perception than hard data. For example, people and businesses being forced out of California by the high cost of living and regulations will not explore every town in America. What they will do is to follow where others are going and where they perceive will be a better place. When I see articles like the following I know that people and businesses looking to relocate will have a very positive perception of Las Vegas. This is extremely important because it will get Las Vegas on their short list.

• Las Vegas Now the Nation's Hottest Housing Market - Las Vegas passed Seattle as the #1 housing market.
• Las Vegas may be the best city to retire in the US
• New large data center - possibly for Google.
• Amazon adding 1,000 jobs.
• Nevada sees population boost as people leave California in droves.
• LinkedIn Workforce Report - Migration - Las Vegas is #5. Employment - 20% increase in employment in the last two years.

People are also relocating to Las Vegas because of the many job opportunities. Below are the major projects that have/will create thousands of short term jobs as well as thousands of long term jobs when the projects are finished.

• Sphere Las Vegas
• Resorts World Las Vegas - $7B
• Drew Las Vegas - $3B
• Raider's Stadium - $2B
• Wynn Resorts World - $1.9B
• Las Vegas convention center expansion - $750M

Part of what is driving the migration of both businesses and people to Las Vegas is the 2018 Tax Act. There are many articles predicting significant out-bound migration from California. This migration is not something that is going to happen in the future, it has already started. Today 30% of real estate sales are to Californians. I will look at just one population segment of California to put the potential numbers into perspective. California currently has about 6M retired citizens. If only 0.25% of the current 6M people decide to move to Las Vegas and assuming all are married (two people per residence), this will require an additional 7,500 residences. In 2017 the total number of residential properties sold was about 35,000. If you add the additional demand of 7,500 residences, you are without doubt going to see prices and rents rise.

Keep in mind that Las Vegas is a +2.2M population city, not a state like Texas or California so these types of numbers have a huge impact. Another factor that will cause prices to rise is the lack of land for expansion. Las Vegas is surrounded by federal land and most of the privately owned land in the Las Vegas valley is already developed. See the GIF below. Note that there was a lot of development in 2017 and it continues in 2018. This means that there is less available land than what is shown in the GIF.

I believe the combination of businesses and people moving to Las Vegas will drive up rents and property prices for the foreseeable future.

Is Las Vegas Still a Good Place to Invest?

There were several posts asking whether it is too late to invest in Las Vegas. My answer is that now is a great time to invest because of what is happening today and what is likely to happen in the foreseeable future. Today, with 25% down, select class A single family homes generate a +3% (real) return. Cash purchase are over 5%. Could you buy low cost properties with a higher short term return in other locations? Absolutely. So why would anyone consider investing in Las Vegas at an initial lower return when you could buy lower cost properties with a higher return in one of the many static or declining markets? The answer is in two parts.

• Why you will get higher returns in the short term in a declining or static market than an appreciating market
• How do you profit from a static or declining market vs. an appreciating market.

Declining vs. Appreciating Markets

People generally buy investment properties with the intention of holding on to them for many years. If this is the case then what is likely to happen in the foreseeable future is actually more important than the current situation. Also, keep in mind that metrics like ROI and cash flow only indicate today's return. They tell you nothing about future return. A good indicator of future return is the relationship between prices and rent.

Multiple studies have shown a strong correlation between property prices and rents (see Federal Reserve study). Basically, rents lag property prices by 2 to 10 years, depending on the individual market. See the illustration below.

In a declining market (or static if you do not adjust for inflation), current rents reflect the property prices from 2 to 10 years prior. The result is that the ratio of rent/prices tends to be higher than an appreciating market. However, rents and property prices will remain static or decline over time. Static rents and prices are actually declining if you consider inflation. If you doubt such things happen, in any major cities there are areas that were once the top places to live and are now distressed areas. How would you fare if you purchased a property years ago in what is now a distressed area?

In an appreciating market, rents also reflect property prices from 2 to 10 years prior so returns tend to be lower initially. However, in an appreciating market, rents and property prices will rise over time. Since your major cost (debt service) is fixed, returns will rise with rents.

So you can see what the impact of the two different markets have on return and appreciation, I put together the following two tables. The first table is based on a property we just purchased. We are planning to hold the property indefinitely with the intent of passing the income stream to our children. So, we are more interested in the foreseeable future than we are today. We also value the appreciation since we may reinvest equity or adapt to market changes using a 1031 exchange in the future.

Appreciating Market (click on the table for full size)

The following table illustrates what happens in a static or declining market. This is not a specific property, just one that I saw mentioned in a Biggerpockets post. As you can see, the initial return is higher. However, there will be few, if any, increases in rent or property prices. We just completed a 1031 for a client who sold a property in the Oklahoma City area at a slightly lower price than they paid for it some years ago. If you considered inflation, the situation is worse.

Static or Declining Market (click on the table for full size)

There are a lot of numbers in the above tables but the key ones are rising rent and appreciation in an appreciating market vs. the higher initial but flat cash flow in a static or declining market. If you are planning to hold for only a short period of time a declining market appears very desirable. If you plan to hold long term, then an appreciating market is the clear winner.

Summary

In this post I covered the current Las Vegas market, what we anticipate will happen in the foreseeable future and the difference between investing in a declining or static market and an appreciating market.

Do not hesitate to post follow on questions.

@Robert Adams, thank you for starting this excellent thread. Below are my thoughts on the current Las Vegas investment market and what I see happening in the foreseeable future.

Current Las Vegas Market Status

Below are graphs showing the current Las Vegas housing market for the trailing 12 months for single family homes:

Median Sales Price

Average $/SqFt

Number of Single Family Homes on the Market by Month

The above data comes from the Las Vegas MLS. They do not provide such data for rentals so we keep our own. Essentially, we take an inventory snapshot on or about the 18th of each month. Note that the rental inventory is very low. We should be closer to 3,000 available rental properties as opposed to 1,500.

In part, due to the declining rental inventory and increasing demand, rents have kept pace with rising property prices and we are still finding properties with good returns. Also, we expect the number of good properties to increase over the next few months since inventories have risen slightly as shown in the chart below.

One frequent question we get is why builders are not taking advantage of the lack of supply and building thousands of new homes. The answer is simple. There is very little desirable land left so there is no space for large scale development. The GIF below shows the growth between 1984 and 2016. Note that about 85% of Nevada is federally owned, including all the land around the Las Vegas valley.

We have increasing demand with very limited available land for expansion. In such a situation, prices (rent and sales prices) will continue to increase. The question is how much and how soon? (Warning, here comes the crystal ball.)

Las Vegas Growth For the Near Future

Before I continue, understand that no one can accurately predict the future. The best anyone can do is to project current trends in light of anticipated events.

I believe that for at least the next 3 years the Las Vegas real estate will experience significant growth. (I also believe Las Vegas’ growth will continue beyond 3 years but that is far beyond my comfort level to make predictions.) Some of my reasons for making this statement include:

• Changing perception of Las Vegas - from a tourist destination (“Sin City”) to a good place to live.
• Historical trends - The historical relationship between home prices and rental prices.
• The 2018 tax act.

Changing Perception Of Las Vegas

I am seeing a lot of positive headlines like the following:

• Las Vegas Now the Nation’s Hottest Housing Market
• Las Vegas may be the best city to retire in the US
• Las Vegas is booming again, and bracing itself for next slump - Diversification and the new Las Vegas School of Medicine.

Headlines like these “legitimize” Las Vegas as a good place to live, not just a holiday destination. And, people moving to Las Vegas is not something that will happen in the future. Today, 30% of the home buyers on the Las Vegas real estate market are in fact Californians. And we believe this is just the tip of the iceberg. More on this later.

Historical Trends

There is a historical relationship between sales price and future rental prices. (See The Long-Run Relationship between House Prices and Rents for one example study.) Basically, home prices lead rental prices by 2 to 10 years. (Note, the lag of rent to price is why declining markets appear to be great investments. Rents reflect property values 2 to 10 years ago, not the declining property values of today.) If this is the case then the question is, what is Las Vegas’ lag time? I will error on the side of caution and assume that the lag time is 3 years. If so, what has happened to home prices over the last 3 years in Las Vegas will likely occur with rents. Below is a graph showing average $/SqFt for single family homes for the prior 3 years.

The graph shows a 41% increase in $/SqFt (($150 - $106)/$106). Do I believe that we will see an equal increase in rental prices over the next 3 years? I have no idea but I believe the rent increases will be significant. The unknown is whether rents or property prices will rise faster. However, this is not so important to long term investors. Costs are relatively fixed so investors will be able to ride the rent and appreciation curve no matter where they start.

The Impact of 2018 Tax Act

I believe that the rate of Californians moving to Las Vegas will increase significantly in the second half of 2019. Why? Because the population of California will actually see the impact of the 2018 tax act in the first quarter of 2019 when they start preparing their taxes. There are even warnings in the news about the impact of the 2018 tax act: Article CNBC, Article Forbes. When people realize the impact, they will look for a lower cost place to live. Las Vegas will be one of the top choices. Plus, by moving to Las Vegas, they remain close to their former home and all their California friends and family will want to come “visit”. How big are the numbers of people who may move to Las Vegas?

Today there are over 6M retired people in California. If only 0.25% of these people choose to move to Las Vegas and I assume 2 people per residence, you are looking at 7,500 properties (6,000,000 / 2 * .25%). In the entire metro area, only about 35,000 properties sold over the last 12 months. An additional 7,500 buyers chasing the same small set of properties will significantly drive up rent and prices.

Companies will also be forced out by California taxes and regulations. And a portion of them will choose Las Vegas. I believe some of the reasons for selecting Las Vegas will include:

• Proximity to California.
• Business friendly environment.
• No state income tax.
• Low cost of commercial energy compared to California: California $0.1781/kWh. Nevada $0.0764/kWh.
• Low property tax rate.
• Overall low cost of doing business.
• Very low probability of natural disasters. Think about the impact on businesses of the fires and earth quakes in California or the hurricanes on the east coast. The high probability of such natural disasters dramatically increases the cost of insurance and lost days of productivity.

Summary

While no one can predict the future, I believe Las Vegas real estate investments will continue to do very well for the foreseeable future.

Hello @Bill B. and @Account Closed

Thanks for the feedback. Some comments:

On 1/2000:

As of yesterday morning there are 5,971 available properties on the MLS. However, this is just a snapshot of a rapidly rolling inventory. Good properties are staying on the market for only a few days.

Bill: Are there one to 2 good deals per month? No, much more. It also depends on what you consider a good deal. We have a very well defined criteria for our client’s properties and we see 20 to 30 potentially good deals per month. Since we make offers based on return, we only get about 20% of that number.

I define a good deal as a property that meets the following three criteria:

• Sustained profitability - The property must generate a positive cash flow today and into the foreseeable future.
• Likely to appreciate over time - No one knows the future but some properties/locations are more likely to appreciate than others.
• Located in an area where you can make money and business risks are low.

Do we buy just based on return? No. Remember that ROI and cash flow are only a snapshot in time, an estimate of how a property is likely to perform today. ROI tells you nothing about how the property is likely to perform in the future. We have a higher goal of long term profitability, not just profitability today. (Though it must cash flow positive today.) Another aspect of our property selection is the tenant pool the property targets. We select properties that "good" tenants are ready, willing and able to rent. We define a good tenant as someone who:

• Has stable employment in a market segment that is very likely to be stable or improve over time.
• Pays all of the rent on schedule
• Is credit based, not cash based.
• Takes care of the property
• Does not cause problems with neighbors
• Does not engage in illegal activities while on the property
• Stays for multiple years

We also consider factors like rehab cost, rehab risk, accessibility to jobs, long term maintenance costs, time-to-rent, crime, age, construction, location, and average length of tenant stay in that area in that price range. In short, what looks good to us might be different from what looks good to you.

On $/KWH

The section of the article was titled Corporate Expansion so the rate specified is for commercial. I used the comparative commercial rate data from this site. The number they stated for Nevada is 8.09/KWH. For California, the number they stated is 14.66/KWH. I choose to use $0.08/KWH and $0.15KWH respectively using normal rules for rounding numbers.

I agree that individuals may or may not care much about energy costs. However, energy intensive companies care very much about the cost of energy. Energy cost is a fixed overhead for them. In some cases, energy (for example, data centers) is their single largest cost item. If they can significantly reduce their fixed operating cost by by moving to another state, they have and will continue to do so. Rob Roy’s designs are only one of the reasons Switch has grown so fast. The other “secret” to their success is that their data centers are located in areas with relatively low energy costs. But data centers are not the only companies that consume large amounts of energy.

If I did not address all your questions, please post followup questions.

Hello,

Great thread! Most of the posts seem to center around two topics:

1. Can you still buy good investment properties in Las Vegas?
2. What is the current state of the Las Vegas market and what is likely to happen in the foreseeable future?

I will address both topics starting with buying good investment properties.

Good Properties

Yes, we find them every day. However, they are not easy to find. Currently, good properties are about 1 in every 2000 available properties. You have to have the right tools and processes to find them. What real return (including all recurring costs and not including unrealized gain like principal pay down, etc.) can you expect with 25% down, 30 year fixed? Between 2% and 4%. Higher if you buy with cash.

Current Market Condition

The value of anything is determined by demand. For example, would you pay $100 for a half consumed bottle of water? No? Suppose you are lost in the Mohave desert and dying of thirst. You would be willing to pay $100, $1,000 or any amount of money for the same half consumed bottle of water. Such is the difference demand makes. The same is true with real estate. I look in some cities and a 1,500 SqFt single family home is selling for $15,000. The same house in some coastal cities in California would sell for $2,000,000 or more. Like the previous example, it’s the same house but different demand. So, let’s start by looking at the current Las Vegas real estate and rental demand situation today.

Current Demand

I will subdivide the demand question into sales and rentals.

Sales

The best demand barometers I know of for the current market is the trend of: days on market, $/SqFt and inventory.

Days on market is the number of days between when a property is listed and the date when the property is placed under contract. As you can see below, the days on market is currently about 15 days. This includes over priced properties that may well sit on the market for months or longer so 15 days is a very short period of time for real estate. The short days on market indicates a high level of demand.

Price per SqFt ($/SqFt) is another indicator of demand. The chart below shows $/SqFt since 2008.

Note that while prices have increased since the bottom in 2011, we are still at about 80% of the 2007 peak prices. Also, Las Vegas has the further to go to reach pre-crash peak prices than any other major city.

Inventory is measured in months of supply. A six month supply is considered balanced. As you can see below, current inventory levels are about 1.8 months of supply, which indicates a high level of demand.

Rentals

The following data is for the entire MLS, not just the narrow property profile we target. As you can see, rents have steadily risen since 2013.

Over the last few months, total available rental properties has fallen. Below is the total number of rental properties available on the 18th of the month, by month, by type.

As you can see, rental inventory has decreased drastically since January. Note that we have not even entered the peak rental demand period of June through September.

Typically, time-to-rent is 2 to 3 weeks. Today, we are closer to 2-3 days.

Current Demand Summary

The numbers clearly indicate there is significant demand for both properties to purchase and properties to rent. Declining inventories in both sales and rentals indicate that property prices and rents will continue to increase, at least in the remainder of 2018. How about in the foreseeable future?

Future Demand

While no one can accurately predict the future, you can infer what a market is likely to do by looking at current and recent trends. Stock investors do this all the time. Fortunately, while stock prices can change almost instantaneously (sometimes due to seemingly unrelated events), real estate markets generally change very slowly, which makes trends easy to spot.

Purchase and rental demand is largely driven by:

• Jobs - Real estate is no better than the jobs around them.
• Population growth - More buyers means increasing demand.
• Urban sprawl - If people are leaving an area, demand in that area will fall. This is true even if the population of the metro area is unchanged or growing.

Population growth

Las Vegas’ population grew by 2.2% in 2017. This is a healthy and sustainable growth rate. Nevada ranked 3rd in Atlas Van Lines annual migration report in terms of most popular states to move into. See the graph below. The numbers show what percentage of moves are inbound vs. outbound from the state. Greater than 50% indicates more people moved into the state than out of the state.

Below is a 2015 graphic (I was not able to find a more recent similar graphic) showing the top states from which people are moving to Nevada. Note that the population of Las Vegas is about 80% of the population of the state of Nevada so the majority of the new population is likely moving to Las Vegas. Note that while the numbers shown below may seem small if you compare them to the population of California, the total population of Las Vegas is approximately 2.3M so the number of people moving in has a big impact.

Jobs

Rental properties are no better than the jobs around it and Las Vegas is experiencing a lot of job growth. However, the quantity of jobs is only half of the story.

Job quality is almost as important as job quantity. For example, in many parts of the US high paying manufacturing jobs have gone away, such as the automotive manufacturing jobs for which the average pay was about $40/Hr plus benefits. Today, these same people are most likely working in the service sector. Services sector jobs typically pay between $11/Hr and $13/Hr. So, while the overall job quantity did not change, the quality did. If people are earning less, what they can afford to pay for rent will fall over time as well. What does this mean to you as a landlord?

The best metric I know of for determining overall job quality for an area is inflation adjusted per-capita income. See the chart below from the St Louis Federal reserve.

As you can see, per capita income continues to rise in Las Vegas which means quality is increasing.

A good measurement is the rate of unemployment. As you can see below, unemployment is around 5%, which is great compared to what it was in 2010. How do the current number of jobs compare to pre-crash job numbers? In 2016, Nevada surpassed pre-recession employment levels with 70,000 fewer construction jobs. (Note: Las Vegas metro area is about 80% of the total state population.) Here is a report by the Federal Bureau of Labor Statistics on Las Vegas employment.

As the population of Las Vegas continues to grow, unless the number of jobs increases as well, unemployment will rise. Below is a chart showing the rate of unemployment for the metro area from the St Louis Federal reserve.

As you can see, despite the increase in population, unemployment continues to decline and per-capita income continues to increase. A very good combination for the future.

While it is hard to quantify the number of jobs generated by small to medium businesses, it is easy to quantify for large projects.

Major Projects

Below are some of the top projects under construction in Las Vegas. These projects create large numbers of both short term (mostly construction) jobs and long term employment once the projects are complete. And, every worker will need a place to live.

• Resorts World Las Vegas - $7.2B
• Drew Las Vegas (formally the Fontainebleau) - $3B
• Raider’s Stadium - $2B
• Wynn Resorts World - $1.9B

Other Sources Of Growth

Blue State Refugees

Since Nevada is adjacent to California, I will focus my remarks specifically on California. However, people who leave blue states due to the high cost of living will look at places like Las Vegas.

I’ve researched one segment off California population that will be greatly impacted by the 2018 Tax Act and rising prices and taxes and that is people living on a fixed income.

California has about 6M retired people. Due to the 2018 Tax Act, an unknown percentage will choose (or be forced) to leave the state and look for a lower cost of living. Las Vegas is a known location to the people of Los Angles and San Diego. The fact that it is only 4 hour drive away from friends and family is a major plus. Lets look at the numbers.

If 0.25% of the 6M retired people in California decide to move to Las Vegas and we assume that all are couples, the number of residences needed will be:

6M x 0.25% / 2 = 7,500

To put this in perspective, the total number of single-family homes sold in Las Vegas in 2017 was 34,659. If an incremental demand for an additional 7,500 residences occurs over the next coupled of years, demand will further increase sales and rental prices.

You might question whether this is only a short term situation because developers could just add thousands of new homes to meet the demand. The short answer is, “No.” The reason is a lack of available and desirable land.

Limited Land

Las Vegas is an island surrounded by federal land. See the map below. The areas in red are federal land.

See the gif below to see how the metro area has consumed the available land between 1984 and 2016.

Las Vegas is in a situation where:

• Population is growing
• Job quality and quantity is increasing
• Unemployment is decreasing
• Due to the low cost of living and no state income taxes, is very likely to attract a percentage of people seeking a lower cost of living

However, there is more to the story.

Corporate Expansion

The 2018 Tax Law reduced tax rates and encourages US corporations to expand operations within the US as opposed to overseas. Below is a small example of the factors that make Las Vegas a desirable location for businesses.

• The fiber optic lines connecting the West and East coast run under Las Vegas Blvd.
• Within 2 days driving distance to 20% of the population of the US, which is desirable for distribution centers.
• Las Vegas is one of the few large metro areas with dual sources of electric power: Hoover Dam and California. This is a huge advantage for server farms, manufacturers and others who cannot afford to lose electrical power.
• Relatively low energy cost. For example, below is a comparison between the statewide energy cost in California vs. Nevada.

• No state income tax.
• Nevada’s proximity to California is important for companies looking for new locations.
• Nevada is a Right to Work state, along with 27 other states. For information on the benefits to employers, see this Wikipedia page.
• Nevada is a business-friendly environment.

While Las Vegas is a desirable location for business expansion, what will drive large expansions? The reduced tax on repatriating funds that have been sitting in offshore accounts for years. Apple just made a $38B tax payment in order to repatriate their cash held overseas. Apple also announced plans to add 20,000 US jobs. Apple is only one of many companies who hold money overseas due to high US taxes (35%). With the 2018 tax changes, I believe more will follow Apple’s lead. Below is a list of the top 10 US companies that have funds stashed overseas.

The above are the biggest but only a small subset of the total number of US companies with overseas deposits. One article I read placed the total dollars sitting in offshore accounts at $3.1T!

If you suddenly inject close to $1T into the US economy and it is done efficiently (not by the government) this will have a huge impact on US growth. Companies will be looking to expand in the US and will be looking for new US locations. Las Vegas has enough advantages that a percentage of the expansions will be in Las Vegas, which will bring more people to the city, who will all need places to live.

Summary

Las Vegas continues to be an outstanding place to invest. However, good properties are difficult to find using traditional methods. As to the foreseeable future, if just a few of the opportunities I described above occur, Las Vegas should continue to expand for the foreseeable future.