The Best Types of Properties to Buy in Las Vegas
So we are on the same page, I believe every investment 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 - You would never buy a property just for appreciation but appreciation is very desirable. Especially when using a 1031 Exchange to reinvest equity or adapting to market changes.
- Located in an area where you can make money and risks are low. Key factors include state income tax, property tax, insurance cost and landlord favorable regulations. Regulations include property related laws like the time and cost of evictions, rent control, code compliance requirements, etc.
Achieving the three criteria requires a combination of the right property and the right location. In this article, I will only focus on the property aspects. Also, notice that the criteria does not specify a property type. What drives property selection is not the property type, it is the ability of a specific property to meet the sustained profitability requirement. Also, the property that will best meet the requirement today is not necessarily the same type that will best meet the sustained profitability requirement in the future.
In the remainder of this article, I will focus on the current Las Vegas market. Also, I will be using generalizations, which may or may not be true for individuals so use the following as guidelines, not immutable facts.
In general, condos in Las Vegas have the following characteristics:
- Condos compete head-on with apartments and this is a growing problem. 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. It is difficult for condos to compete with the new apartment complexes.
- Most condos cannot be financed. While this may not seem important if you are buying with cash, it is likely to have a large impact to you in the future. Since condos cannot be financed the only future buyers are likely to be investors. If occupancy rates decline due to competition from apartments, the value of condos will fall.
- High condo HOA fees tend to make profitability difficult.
- Condos have the advantage of the association maintaining the exterior of the property. While this seems like a huge advantage, typical residential construction consists of tile roofs, stucco siding, concrete block fences, metal doors and windows, slab foundations and desert landscaping (rock), which do not require much maintenance. The systems (HVAC, plumbing, electrical, appliances, etc.) in condos are pretty much the same as in a single family home so maintenance costs are not significantly different.
The tenant pool for condos tends to be singles or couples with out children. This tenant pool tends to move more frequently making tenant turns more frequent than desirable.
This includes duplex, triplex and fourplex. Buildings with more than 4 units require commercial financing and are outside the scope of this article.
- Multi families in Las Vegas typically rent for between $500 and $800/Mo. This is a tenant pool that lives primarily cash based lives so skips, evictions, property damage and judgments mean little. The result is that skips, evictions and property damage are much more common than desirable.
- Only investors own multi family. And, in my experience, investors do not sell performing assets. Thus, it is safe to assume that multi family properties for sale are not performing due to tenant or deferred maintenance issues.
- Like condos, multi family properties compete with apartments.
- All the multi-family properties I have seen are located in distressed, high crime areas.
- Below is a chart comparing the number of multi-family properties built by year. These properties have had hard usage and need significant rehab and updating.
- Each unit has a full set of appliances and systems, just like any other residence and each unit will need maintenance just as frequently. The difference is that a fourplex has 4 times as much maintenance as a single family property.
- In most cases, there is a fee associated with renting a unit. The fees is about the same as a single family increasing your overall cost.
- Landlord insurance tends to be lower than single family homes since the community's policy tends to cover the structure, but not the interior (cabinets, flooring, etc.)
- Single family properties appeal primarily to families with children. Families want to provide a stable environment for their children so they tend to stay in place for multiple years.
- Single family homes tend to be more expensive per door than other types of properties.
- Single family homes do not compete with condos or apartments so the presence of the new mega apartments is not a factor.
- Due to the desert climate constructions consist of tile roofs, stucco siding, slab foundations, metal windows and doors and desert landscaping (rock) which require little maintenance. So, maintenance costs are little different than condos or multi-family units.
- When it comes time to sell a single family residence, you have two buyer pools: home owners and investors.
- Historically, single family homes have appreciated faster than other types of properties.
I get frequent questions on the difference between condos and town homes. With condos, you have exclusive use of the air gap within the walls of your unit and an undivided share of all buildings, grounds, etc. With town homes, you own the physical structure and the land upon which it sits. This id called fee-simple, just like a single family home. In other parts of the country where I've lived, Las Vegas town homes would be called patio homes or attached homes.
- Town homes tend to have a small yard. This is a big differentiator from apartments or condos.
- Town homes have one or more garages, a big differentiator from most condos and apartments.
- Town homes tend to have a lower HOA than most condos but higher than single family homes.
- Most town house complexes tend to have a community pool, like apartments and condos.
In Las Vegas, our experience is that single family homes and select town homes tend to be better investments than condos and multi-family properties. Note that this article only applies to Las Vegas and every location is likely to be unique.