What to Buy in Las Vegas?
We've had many new investors subscribe to our newsletter in the last couple of months (thank you and welcome) and almost all ask the same basic questions. In this issue I will cover one of the most frequent questions.
What are the best types of properties to buy (condo, single family, town home, or multi) in Las Vegas?
This is a great question with a simple answer: select town homes and single family homes. I would want to know why town homes and single family homes are the best investment and not condos and multi family. The answer to this question is what I will cover in this article.
The selection criteria for most investment properties is simple and the major factors are listed below. The method of obtaining the needed information is not easy and is the reason we developed the software and processes that enable us to find the 0.1% of available properties that are good investments.
- The time-to-rent is < 30 days
- The property has no identifiable defect based on the available data
- The location attracts good, credit based, tenants
- The rehab cost and rehab risk are acceptable
- The specific property, location, subdivision and support facilities (grocery stores, etc.) are acceptable.
- The purchase price works for the client
- The property passes our approval chain
As a general statement, in Las Vegas a small percentage of the available town homes and single family homes can meet the above requirements. In Las Vegas few, if any, multi family and condos can meet the above requirements. Below are general comments on the four types of properties. Note that this only applies to metro Las Vegas at this specific point in time.
Condos (this excludes high-rises which have additional issues)
In general, condos in Las Vegas have the following characteristics:
- Except in rare cases, condos cannot be financed. Even if you are buying with cash, the inability to finance condos still matters because sooner or later you will want to sell. If condos remain unfinanceable, your primary buyer pool will be other investors buying with cash and they will base their offer on CAP rate. If rents do not rise, the value of the property does not rise.
- Condos compete with apartments. A large number of new mega apartment complexes are being built around the metro area and they are offering significant incentives/discounts to acquire tenants. The result is high vacancy rates for most condos and lower than expected rents.
- The high condo HOA fees make profitability very difficult.
- The good part of condos is that the complete exterior of the property is maintained by the association so you are sheltered from some unexpected expenses. While this seems like a huge advantage, residential construction in Las Vegas is driven by the climate: tile roofs, stucco siding, metal doors and windows, slab foundations and desert landscaping (rock) do not require much maintenance. The systems (HVAC, plumbing, electrical, appliances, etc.) are pretty much the same as you would find in a condo or single family home anywhere in the country so system maintenance costs are not hugely different for condos.
- Singles or couples without children are the dominate tenant pool with condos. These people are highly mobile making tenant turns more frequent than desirable.
- Many condos rent at low rates so the primary pool is cash based tenants. Cash based tenants carry no "financial history" so they are almost impossible to screen. The result of having cash based tenants is that skips, evictions and damage are much more common than with credit based tenants.
Note: I include duplex, triplex and fourplex in multi family. Buildings with more than 4 units require commercial financing and are outside the scope of this article.
- Multi families in Las Vegas typically rent to cash based tenants which are problematic as I mentioned above.
- The corollary is that multi family properties are only sold by investors. And, in my experience, investors do not sell performing assets. Thus, multi family properties for sale are typically not performing due to tenant or maintenance issues. And, with the inherent issues with cash based tenants as I described above I find it hard to justify investing a large amount of capital up front to correct the deferred maintenance and still have to deal with cash based tenants.
- Like condos, multi family properties compete with apartments.
- Singles or couples without children are the dominate tenant pool. These people are highly mobile making tenant turns more frequent than desirable.
- Single family properties appeal primarily to people with children. And, since they want to provide a stable environment for their children, they tend to stay in place for multiple years.
- Single family homes are expensive compared to other property types.
- Single family homes do not compete with condos or apartments so the presence of the new mega apartments is not a factor.
- In every other location I have owned investment properties, exterior maintenance cost has been a huge factor. In Houston and Atlanta I seemed to always be replacing roofs, siding, rotting window frames, termites, pests and landscaping issues. However, this is not the case in Las Vegas due to the construction necessary for the desert climate so most of these traditional maintenance costs are greatly reduced. As I mentioned previously, tile roofs, stucco siding, slab foundations, metal windows and doors and desert landscaping (rock) require little maintenance.
- When it comes time to sell a single family residence investment, you have two buyer pools: home owners and investors.
- Single family homes have the highest entry cost per door of the four types of properties discussed in this article.
I get frequent questions on the difference between condos and town homes. With condos, you own only the air gap within the walls of your unit and a share of an undivided common interest in all buildings, grounds, etc. With town homes, you own the physical structure and the land upon which it sits. In other parts of the country these would be called attached homes but here they are called town homes.
- In Las Vegas, town homes tend to have similar characteristics to single family homes. However, since town homes are lower cost, many compete with condos for tenants which SFRs do not. Working with Jenni McKenna of McKenna Property Management we've selected a small number of town home complexes that are located in good areas that are completely built out so no mega complexes will be built near by.
- We only deal with select configurations of town homes which also have garages, which few condos have. So, while town homes in general might compete with condos and apartments, the ones we work with do not.
- The town homes we deal with have reasonable HOA dues and most rent for between $1000 and $1300 per month. At this rental rate you are only dealing with credit basted tenants.
In Las Vegas we primarily deal with SFRs and select town homes because they best meet the financial goals of our clients.
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