Las Vegas and Henderson Rental Housing Market Articles

Graph representing the rise in mortgage interest rates drawn on a chalkboard lying on a wooden table. A model of a house with a red roof is on the chalkboard. Finance and real estate concept.

It’s no secret that interest rates have risen. In an effort to curb inflation, the Federal reserve decided to raise interest rates for the first time since 2018. As everyone knows all too well, low interest rates coupled with low available housing inventory caused the real estate market to explode and rise at record speed. The median price of a Las Vegas home has been $450,000 for quite some time now – and rising. This is creating affordability issues and reports have indicated that it is unsustainable. Granted, even with a median price of a home at $450,000, a low interest rate, as has been the case, is still allowing homebuyers to afford these rising prices. How will rising interest rates affect the rental market though?

For the time being, no shift is expected. The rental market has been strong in recent years, with rents rising at record speed. The recent increase by the Fed should have minimal impact, as the increase was relatively minor at 0.25%. Currently, interest rates on the market for home buyers are hovering between 3.5% – 4.0%. Though that is higher that in previous months, interest rates remain close to record lows.

How could the rental market be affected by further increases? If rates continue to go up, eventually affordability will be an issue, and many homebuyers will simply be outpriced. That includes investors who rely on leveraging and obtaining mortgages. When that happens, a shift in real estate prices may occur to counter rising interest rates. Yes, real estate prices may begin to plateau or even see decreases. At that point, some sellers may decide to hold off on placing their properties up for sale, especially if real estate prices take a significant downturn. They may wait for a recovery period. In the meantime, they may consider putting those properties on the rental market. As a result, the rental market, which has a limited amount of inventory available at this time, may suddenly have more than enough and some. As a result, rental prices may soften, or plateau, as well.

Of course, minor changes to interest rates will most likely keep the real estate and rental market status quo. However, at today’s prices, even a small increase can add a significant amount to a monthly mortgage payment. For example, on a $450,000 property, with 10% down, the loan balance would be $405,000. At 3.25%, the monthly principal and interest would be $1763. At 3.5% the payment would be $1819, at 4% the payment would be $1934.

While it is difficult to predict what happens in the future, its no secret that rising interest rates can affect the rental market.

A man looking for houses for rent online. Young man using a real estate website on the laptop

Obtaining top market rent is the goal of most property owners. And with good reason – costs of owning a rental property have risen over the last few years and the increase in market value helps offset those costs. However, there is a difference between obtaining top market rent and overpricing a property. How so? And how does overpricing a rental actually cost you money in the end?

Listing a property for top market rent means that you have priced your property within a price point that other similar properties have actually leased for. If, for example, other comparable properties (similar size, amenities, location) have obtained a rental rate between $1500 – $1800 per month, top market rent would be $1800 / month. Of course, in an appreciating market, rental property owners may price their property a notch higher, but within reason. If trends indicate continued appreciation, this is usually not a problem. A lack of interest or activity can be remedied with a relatively minor price adjustment, assuming the property is in good and rent ready condition.

However, asking a rental rate significantly over other properties can lead to overpricing a home. Even in a strong rental market, where appreciation is occurring and inventory is slim, this is possible. While there is no set formula that can tell a property owner that their property is overpriced, the higher it deviates from comparable properties, the more potential there is for overpricing it.

How would a property owner know that their property is overpriced? Simply, by interest and showing activity. The rental market is based on how much tenants are willing to pay for rent. When inventory of rental properties is low while demand from tenants is high, properties appreciate because of supply and demand. Thus, if potential tenants are not interested in a property that is in good, move in condition with no negative internal or external factors, the lack of interest can be placed solely on price point.

Listing a property at an overpriced rate can cost a rental property owner money. Lack of tenant activity leads to accruing expenses, such as utilities and maintenance, along with lost rent. Think about it: How much does one month’s lost rent translate over the course of a one year lease? If your monthly rent was $1200, that is a loss of $100 / month over 12 months. $2400 monthly rent? That is a whopping $200 per month over 12 months. And those losses don’t include expenses incurred simply from the property being vacant.

While vacancies cannot be eliminated in the rental business, they can be mitigated. Pricing a property competitively is key to reducing expenses and finding a quality tenant within a reasonable amount of time.

Exterior view of multifamily residential building

Whether your watching home remodeling, home hunting or other home and garden shows, it’s inevitable that at some point, a rental investment is discussed. The story goes: A homeowner purchased a duplex and needs to remodel it in order to rent it and generate cash flow. That cash flow can go towards the existing mortgage or offer more financial freedom to the home owner. The idea sounds amazing! So, is it your turn to buy a rental property?

For many years, countless investors have purchased rental properties and generated steady financial income. Of course, real estate investors tend to vary on there parameters, investment budget and strategy. If you’ve been thinking of purchasing a rental property, your first step is to determine how much property you are able to buy, the same as when purchasing a home for yourself. Keep in mind that when purchasing a rental property, if you plan on assuming a loan, interest rates and down payment requirements are different than when buying a primary residence. So be sure to speak to a lender first.

Once your prequalified and establish a price point, the search for a prospective property can begin. What should you keep in mind as you embark on your search? Ensure you know how much your prospective property will rent for. Some investors entered the rental market with unrealistic rental expectations, thinking that they can rent the house they bought for much more than the market could substantiate. Keep in mind: Even in an appreciating, in demand rental market, you can over price your rental.  As a result, this led to disappointment right from the beginning. If possible, partner with a quality property manager who can provide you with realistic numbers prior to your purchase.

Second, don’t forget that the age and condition of the property you buy may require some initial investment to bring it up to rentable condition and in turn, generate competitive market rent. Having a reserve for these costs and other incidentals is key.

Purchasing a rental property can be overwhelming, there is no doubt about that. Choose professionals who can guide you and help you. Before you know it, exploring the rental market and even entering it as a landlord may not be so overwhelming.

Curious as to what property management is all about? Visit www.nicklinpm.com and explore what Nicklin Property Management does for its clients.

Another year. Another rising real estate and rental market. 2021 ended on a strong note, with rental prices at an all time high and the median sales price of an existing property approaching $450,000. The year defied expectations and appeared to set the stage for another year of appreciation. So, what can we expect with the rental market during 2022?

As much as we experienced steep appreciation during 2021, we anticipate a strong market, strong demand and more stability. Rental prices should remain at current levels with modest appreciation. Of course, much depends on the general economy, unemployment and inflation. Inflation leads to higher costs of goods, such as building materials and goods. As a result, maintenance costs rise for an owner of rental property. Fuel also rises, which contributes to rising costs of labor. As a result, both the cost of building homes and maintaining them rise, leading to rising real estate prices. This combined with strong demand, leads to higher rental prices, which we have seen over the last couple of years. Also, HOA expenses can also go up, such as monthly or quarterly dues.

Additionally, when real estate prices rise, so do property taxes, since they are typically assessed based on value. Owners of rental properties have to now pay out more, sometimes considerably, based on these new assessed values.

As a result, rental rates have seen considerable appreciation as they offset these higher costs and as demand continues to be strong.

 

Aerial view of Las Vegas Lake, Nevada.

It may appear that with thousands of residential properties built every year within the Las Vegas valley, land – or the lack of – may become an issue. However, builders have gotten creative in recent years to accommodate the demand for new housing.

For example, one nationwide builder embarked on purchasing smaller parcels of land and then subdividing them into smaller lots to build, for example, only 20 homes within a community. Because the lots were in more of a rural area of the city, requiring a specific minimum size, the builder was able to provide semi-custom homes for a premium price point. They took advantage of smaller parcels that perhaps other builders had passed on created a niche for themselves. And with great success.

Though Las Vegas has experienced significant growth and residential density, we can say that land is still readily available. While large parcels may be less common within city limits, a number of builders have decided to go into the suburbs, offering uniquely crafted communities for those willing to live a little ways from the hustle and bustle of the city.

For example, Cadence in Henderson is off Lake Mead Pkwy, a mere 10-15 minutes away from Lake Mead yet a fair distance from downtown and the Strip. However, with shopping available within a reasonable distance, community parks, pools and playgrounds within the community, multiple builders have embarked on building over 13,000 homes within the master plan. And thus far, they are not having difficulty selling them – for a premium!

In the far Northwest and edge of the city, Skye Canyon is currently in progress, with thousands of homes already completed and occupied. The appeal? The community prides itself on its close proximity to the northwest mountains which offer outdoor activities and winter skiing. The community itself offers parks, playgrounds and a recreational center, all designed to reflect a mountain type lifestyle. Homes are selling well, also for a premium.

So, while building large communities in the central part of the city may have slowed down, developments in the suburbs are rapidly gaining popularity as they offer numerous amenities, all contained within the development itself. As Las Vegas continues to expand and grow, we can only expect builders to develop more master planned neighborhoods as they look for ways to accommodate demand in housing.

Aerial view of residential neighborhood in northwest Las Vegas, Nevada.

September was another record setter in the Las Vegas valley! Both resale and rent values increased on average, adding to an already record setting year. The median price of a home rose to $406,500 according to Las Vegas Realtors. Rent values rose on average between 3-9% (Zumper).

Though Las Vegas saw an increase in resale values between August and September, the fact is, it’s a far cry from the appreciation seen thus far in the year. As a matter of fact, the median sales price remained at $405,000 the two months prior, barely making an increase during September.

In essence, the market is taking a much needed break. Constant and significant appreciation can lead to over inflated prices which is not healthy for a market. Already, many individuals are out priced of a home, compared to just 6 months or a year ago. Fortunately, interest rates are remaining low, allowing many to to still qualify for high mortgages. And for the time being, rates should remain that way.

However, what does this slow down mean for the market? At this time, it is simply means that the market is pumping its brakes a little due to significant appreciation over the last year. Additionally, as the end of the year approaches, a seasonal slow down is typically expected.

Of course, a real estate market is based on many factors – economic climate, jobs, consumer confidence and interest rates, to name a few. These can affect a real estate market in a positive or negative way. For the time being, indicators appear to point to continued appreciation, though modest. Inventory continues to remain low, both in homes for sale and for rent. And most buyers are still in the game.