How to Determine if a Las Vegas Rental Property Is a Good Investment?

You’ve made a good decision if you’ve decided to invest in Las Vegas rental property. In this market, the rents are climbing, there’s a large pool of qualified tenants, and home values are rising. It’s a competitive market, but the home prices in Las Vegas are still attractive, especially compared to other U.S. cities.

To have a profitable investment experience, however, you have to buy the right property.

How do you know if a potential opportunity is a good investment?

That will depend on several things, starting with your own investment goals.

You’ll have to work around the current market trends and the local tenant demands when you’re selecting a good investment property. While the right acquisition will depend on why you’re investing and what you’re hoping to achieve, several things will tell you right away whether a property you’re considering has good rental investment potential.

Las Vegas Location Impacts Investment Success

Location is important when it comes to investing, and you don’t have to be a real estate expert to know that. When you’re choosing a rental property, you have to make sure that it’s in a desirable neighborhood. Think like a tenant. Most will prefer areas that are close to good schools and within a few minutes of shops, restaurants, grocery stores, and other conveniences.

The right location is a big part of earning positive cash flow and an impressive return on your investment. Location drives the rental value of your property, the quality of tenants you attract, and the number of vacant days you have to struggle through before placing a well-qualified renter.

You will want to find a property in a neighborhood that’s easy to reach and offers a reasonable commute to work, school, entertainment, and recreation. Parks will help and so will things like hospitals, libraries, movie theaters, and shopping malls.

Look for a location that will appeal to the best possible renters.

A good location is about more than just aesthetics and ease. You’ll also want to invest in a property that’s in a desirable neighborhood. Research crime statistics and check school ratings. Think twice if there tends to be a lot of vandalism in the area or a lot of vacant, unoccupied properties.

Low Maintenance Las Vegas Rental Homes are Good Investments 

Typically, home construction in Las Vegas is pretty low maintenance. Stucco exteriors, tile roofs, and slab foundations generally last a long time without much work. Las Vegas weather is fairly low impact as well. We don’t see issues like heavy snow or storms to damage property.

You can spot a good investment property by the amount of maintenance it will require. You’ll have to think about the work that needs to be done to initially prepare it for the rental market, and you’ll also need to think about long-term planning. Is the roof old? Are the appliances and fixtures deteriorating? How old is the home? Has it been updated?

Different amounts of time and resources go into maintaining investment properties. A short-term vacation rental that targets tourists and visitors will always need more maintenance because of the constant turnover. If you’re looking to rent out a home to long-term tenants, you shouldn’t have to pay for cleaning and painting quite as frequently. But, you’ll want to have some kind of budget in mind so you know what the investment property will require. Typically, the useful life of paint is 2-5 years. Properties that aren’t in good shape will be more expensive to get rent-ready. You’ll spend more time and money fixing them up before you can even list them on the market.

A well-maintained property will attract stable, long-term renters. These properties may not be attention-grabbers on the sales market. They won’t have the fancy design and custom pools or marble floors necessarily. But, that’s okay. You’re investing in a rental home, not a place for yourself.

It’s also a good idea to avoid the fixer-uppers unless you have the budget for renovations. For some investors, this is part of their investment plan. Maybe you’re hoping to buy cheap properties and then fix them up before you rent them out for top dollar. If that’s your goal, you’re going to intentionally look for those specific homes. But if it’s not your goal, focus on the homes that don’t need a lot of work right away.

A lot of time and money may be spent renovating a “fixer” house and not only do you have to consider the renovation cost, but you also have to think about the carrying costs while you’re rehabbing that house for rent. You won’t collect rent right away. It may take months.

A well-maintained rental home that only needs some minor updates may be your best option when you’re looking for a good Las Vegas investment property.

Measure Cash Flow and Appreciation Potential

You’re investing to make money.

So, to understand whether you’re investing in the right rental property, you need to understand how much money you’ll earn in rent and how much the property is likely to appreciate in value over time.

When calculating your expected return on a property, most investors will use the 1 percent rule. However, this is not a good way to evaluate a potential rental investment in Las Vegas.

The 1% “rule” essentially says that an investor should look for a property where the initial rent value will be at least 1% of the all-in cost of purchase and rehab. Example: Purchase and rehab cost is $400,000 and initial rent price $4000.

For Las Vegas rental property investments, this simply doesn’t work.

The best way to evaluate a property for rental investment is to calculate estimated rental income versus expenses. It is important to use conservative estimates for this. Using a free rental property calculator, you can plug in the projected rent and expenses to get an idea of cash flow and potential return on your investment.

The appreciation potential usually matters more to Las Vegas investors.

We expect high single-family appreciation over the long term in Las Vegas. Plus, rental values increase over time, and you can charge more rent when you upgrade the property. During turnover periods, you may put a new counter or backsplash in the kitchen. You might update the flooring or install new appliances.

Think about how much your property will be worth when you are finally ready to sell in 10 or 20 years.

That appreciation potential will tell you whether you’re making a strong investment. All land is going to appreciate a little bit over time, but you want an investment that will increase in value more than the rest. This goes back to the property location. It also helps when you have preventative maintenance plans in place and you spend time and resources protecting the condition of your investment and growing its value.

A note about land in Las Vegas: The Las Vegas valley is surrounded by federal lands.  85% of all land in Nevada is owned by the federal government. 87.5% of all Clark County land is owned by the federal government. At the end of 2019, the amount of vacant buildable land in the Las Vegas Valley was less than 28,000 acres, of which 5,000 to 7,000 acres is not viable for residential development. Consumption rate is about 5,000 acres/year. See the animated GIF below. The areas in brown are federal land. The time-lapse only goes through 2018, and there was a large amount of development in 2019, 2020, and 2021. The shortage of land combined with the increasing population almost guarantees property prices and rent in Las Vegas will continue to rise over time.

why Las Vegas property values will keep going up - Las Vegas land use over time

Estimate the Expenses for a Las Vegas Rental Property 

A good investment property will guarantee short-term income through rental payments and long-term returns through appreciation and increasing values.

But there will also be expenses.

You don’t pay for the property once and then forget about it. Instead, there are ongoing expenses for marketing, maintenance, property tax, insurance, vacancy, and other costs.

You can’t anticipate every expense when you’re deciding whether or not to invest in a home. But you can budget accurately and set aside a reserve for any of those sudden surprises.

When you’ve identified a potential opportunity, you need to get an idea of what these ‘fixed’ expenses will be:

  • Mortgage
  • Property taxes
  • Homeowner’s insurance
  • Property management fees 
  • HOA fees (if applicable)
  • Preventative services such as landscaping and pest control

Variable expenses will almost always be more challenging to predict. These will be your unexpected repair costs, vacancy costs, and general wear and tear. Many investors like to estimate 5% per year for vacancy, and 5% per year for “capex” (large repairs or updates), for example.

A good investment evaluation will allow you to at least identify where most of your money will be spent.

Seek Advice from a Las Vegas Property Manager 

When you’re trying to decide if a particular property will make a good and profitable investment as a rental home, don’t hesitate to reach out to a property manager. A local Las Vegas property management company that understands the local market can be an invaluable asset.

Many investors don’t call property managers until after they’ve purchased a home. They wait until they’re ready to lease it. But, if you contact a management professional before you buy, you can access their expertise and leverage their professional network and resources.

Property managers can help you determine:

  • Expected rent value for a particular Las Vegas investment property.
  • Whether repairs and updates will be needed to maximize rental value.
  • Estimated maintenance expenses.
  • Whether the property will appeal to good renters.

Your property manager will have trusted vendors and contractors available. They can also refer you to insurance agents, legal and tax experts, and brokers.

When you’re ready to invest in a Las Vegas rental property, please contact our team at Strawberry Property Management Las Vegas. We’d love to work with you on finding the right rental investment.