Near the end of October 2021, I started my search for my next investment property. Below is the conviction doc I created to study the Las Vegas market.
Background
While many believe Vegas is all party, there is a wide misconception about its residents. Not everyone works on the Vegas strip.
With various sports teams moving to Vegas in the last 2 years, such as the Golden Knights and Raiders, these large businesses are already projecting growth in tourism. Allegiant stadium should drive traffic for concerts while T-mobile arena will be home to many concerts and UFC events.
Vegas home prices have skyrocketed as remote workers remain flexible to work anywhere they want. Nevada provides a 0% income tax, which is appealing to Californians that are looking to save 8-13% on their income. After calculations, this is potentially a free home where the tax savings covers mortgage payment.
Important metrics to track (2021 data)
Price to rent ratio
21.12 (anything over 20 means it’s more beneficial to rent vs buy)
Personally, I think sitting around the 20 mark makes it more attractive to investors as it makes sense for renters to continue renting, but you won’t overpay as a buyer.
Compare to Memphis’ R2P ratio of ~10, which motivates residents to buy homes rather than rent. On the up side for Memphis, it means as a buyer, you’re purchasing for higher cash flow.
Housing supply
~1.5 months vs 3 months national average
Housing supply indicates the amount of listings available for sale correlating to the number of listings that are sold per X period of time. Let’s say on average, 50 houses sell per month in Henderson. That means 75 homes are listed and if no new listings appear, supply will run out within 1.5 months
Population growth
3.23% annually, 32.52% since 2010 census
Why has Henderson grown so fast? This can be attributed to the city's masterplan communities, which promise business hubs, parks, and schools for X number of houses they build. Masterplan communities attract buyers because they can be assured home building ratios don’t overrun infrastructure and amenities.
Home price growth
- 89135 is Summerlin, which is one of the most desirable neighborhoods in Clark county for buyers. Driving around this area, you’ll notice it's stunning.
- 89123 is Silverado Ranch - great for new home buyers and is rated one of the safest cities. High cash flow here too
- 89074 and 89052 covers Green Valley. Specifically, Green Valley Ranch is one of the best neighborhoods with schools at 9-7-9 rating.
Unemployment rate
7.1% in October vs national average of 6.9%
This data may be skewed as many residents are still receiving aid and don’t want to return to work.
Median household Income
$74,147 vs national average of $75,235
This is a worry if we’re looking to purchase 3/2s for around $350-400k and rent for $2300. It would mean tenants need an income of $6900 or $82,800 annually.
Owner to tenant ratio/Vacancy rates
Henderson is at 64/36 which is in line with what is healthy.
Vacancy rates are around 4% (higher than 3% healthy baseline).
Job growth and well-known companies
3.5% over the last year vs 3.3% national
Not as many tech companies, but people can work from home :shrug:
Risks
Southern Vegas home prices (and Summerlin) have grown a lot the past year. There is always the risk of interest rates increasing, which would cause a decline in home prices.
Median household income is fairly low for the rent we’re aiming to charge.
If supply accelerates and starts saturating the market, there could be better opportunities to purchase at a later time.
Conclusion (what to make of this data?)
It’s always good to note that while building hasn’t slowed in the Vegas area, there is a finite amount of space. Vegas is surrounded by military-owned land so eventually they’ll have to stop building out and start building up.
As an investor, the goal is to always decrease costs while increasing profits. Henderson homes should be fairly low maintenance as it's too hot to have real grass and the lack of rain will result in longer lasting roofs. Consider saving PM costs by managing it yourself.
Based on generic metrics you’d look at when scouting rental areas, Henderson meets our criteria in terms of population growth, job growth, and home demand. The game plan is to not overbid. Keep it around $200/sqft and it should be a good deal with a baseline of 6%+ CoC.
We project job growth to continually rise as more construction hits Vegas.
- Resorts World
- MSG Sphere
Update as of 9/1/2022
- Formula 1 is planned to expand in Las Vegas for 2023!
- Rumors of LeBron being a prime candidate to own a basketball team if the NBA expands.