Why Invest in Las Vegas?
The unique advantages of Las Vegas for real estate investors.
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The goal of real estate investing is financial freedom. However, financial freedom is more than just replacing your current income; it's about maintaining or improving your current lifestyle for life. To have lifelong financial freedom, you need a passive income that meets three requirements:
Rents must outpace the cost of living: Inflation consistently erodes the purchasing power of a fixed amount of money. For instance, if the inflation rate is 5%, what you can buy today for $100 will cost $155 in 10 years. If rents fail to pace with the cost of living, your financial independence will be short-lived.
Lifelong: You will not run out of money during your lifetime.
Reliable: You will receive the rental income every month, even when the economy is doing badly.
Whether rental income can outpace the cost of living, as well as how long the rental income will last, depends on the city in which the property is located. The reliability of your income is dependent on the tenant, their value in the eyes of their employer, and the resilience of their employers during economic downturns.
In this post, I will only discuss how Las Vegas meets the requirements for rental income that outpaces the cost of living and why it will provide an income that will last.
Appreciation and Rent Growth
The imbalance between sellers and buyers drives prices. If there are more sellers than buyers, prices will fall until the number of sellers is roughly in equilibrium with the number of buyers. Conversely, if there are more buyers than sellers, prices will rise until the number of sellers is roughly in equilibrium with the number of buyers. How fast prices rise is dependent on how imbalanced the number of buyers vs. sellers is.
How do rising property prices affect rent prices?
Higher property prices reduce the number of people who can afford to buy a home, forcing them to rent. This, in turn, increases demand for rental properties and drives up rent prices.
Lower property prices make it possible for more people to purchase a home, reducing the demand for rental properties and causing rents to decrease.
In order for prices (and rents) to increase at a rate faster than the cost of living, there must be significantly more buyers than sellers. This is the result of sustained and significant population growth. What is the current population growth situation in the Las Vegas Valley?
Las Vegas has an average annual population growth rate of 2-3%, which may increase due to recent news that Las Vegas is now the top city in the US for people relocating due to job opportunities.
Why are so many people moving to Las Vegas? Jobs. The Las Vegas Valley spring job fair had over 20,000 open jobs, which is a large number for a city the size of Las Vegas. These jobs will attract more people to move to Las Vegas, all of whom will require housing. This will increase demand for housing and will drive up prices and rents.
Why can't Las Vegas build more homes to meet the demand for housing? Limited private land for expansion. About 90% of Clark County is federal land. In a study I did in 2019, I determined that Las Vegas only had about 22,000 acres of undeveloped land. The average rate of raw land consumption exceeds 4,000 acres per year. Consequently, available raw land is being rapidly depleted, and soon the only option for expansion will be redevelopment. This has already begun in certain areas of the Las Vegas Valley.
Below is an aerial view of the Las Vegas Valley from 2020. The brown-colored areas on the map indicate federal land, and as you can see, there is little undeveloped land left. Additionally, significant growth has occurred between 2020 and the present day, which means that even less land is currently available for development.
Raw land in desirable areas costs over $1 million per acre. Due to the high cost of land, new homes in these areas start at $550,000. The properties that attract our target segment cost between $320,000 and $475,000. So, no matter how many new homes are built, the number of homes in the $320,000 to $475,000 price range will not increase. Therefore, the number of properties that attract our target tenant segment is almost fixed.
Lifelong Income
Your financial independence depends on the long-term economic growth of the city where you invest, with jobs being the critical factor. However, it's not just about the jobs your tenants have today because all non-government jobs have a limited lifespan. The average lifespan of a company is 10 years. Even an S&P 500 company has an average lifespan of only 18 years. This means that every non-government job your tenants have today will eventually come to an end. Without new companies moving into the city and creating replacement jobs, only low-paying service sector jobs will remain.
What is the future job outlook for Las Vegas? Today, there are new projects worth approximately $30 billion that are either under construction or planned. These projects will create thousands of additional jobs in the future.
Another major source of future jobs is companies moving out of California. Below is a chart showing the top 10 destinations for companies leaving California. I see no reason why the trend of employers leaving California will change in the future.
The rapid pace of job creation is expected to continue for the foreseeable future, resulting in a bright long-term job outlook for the Las Vegas Valley. Sustained economic growth will ensure that your rental income lasts for a long time.
Summary
Las Vegas offers unique advantages for investors due to its combination of land shortage, sustained and significant population growth, and a rapidly expanding economy. This combination almost guarantees:
Your rental income will outpace the cost of living.
You will not outlive your rental income.
As your equity increases rapidly, reinvesting it into additional properties can significantly reduce the total capital required to acquire the multiple properties needed to replace your current income.
If you would like to learn how we can help you achieve financial independence, please reach out: