Las Vegas and Henderson Home, Condo, and Townhouse Rental Tips

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Overpricing your rental in a hot market can happen and lead to lost rent!

Increasing house prices, houses on isometric piles of gold coins

Listing a rental property above going rental rates can lead to extended vacancy periods

The Las Vegas rental market continues to be in demand as rental prices remain strong and inventory slim. For landlords, the last few years have seen appreciation unheard of in years prior. As a result, some rental prices being asked are far above other comparable rental properties. If you’ve been tempted to list your home far above other rental rates, you might end up losing money in the process! How?

There is such a thing as overpricing your property, even in a red hot market. Remember, affordability comes into play for most individuals. Even though the market is appreciating, it doesn’t mean that income’s have compensated. While the market, being made up of tenants, can absorb increases, eventually, the market tops out. And even with limited inventory, tenants will shop around to find a property at fair market rent. As a result, many properties that are severely overpriced will end up staying on the rental market for an extended period of time.

In the end, this leads to lost rent. Every day that a property stays on the market is a day of lost rent. And even if a higher price is achieved after some time, will it actually offset the amount of time the property stayed vacant compared to less of a vacancy period at a lower rental rate.

Additionally, vacant properties may attract unwanted visitors. It becomes obvious after some time that no activity at a house may mean that a property is empty. And so, experience has shows us that this can lead to vandalism and theft.

Thus, even in a hot market, pricing a property competitively allows for showings quickly and finding that quality tenant. Don’t forget, you can always increase the rent after 12 months, or whatever lease term you enact.

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Rents still rising in Las Vegas

A for rent sign on display on the side of a down town apartment building.

A for rent sign on display on the side of a down town apartment building.

According to www.rentcafe.com (https://www.rentcafe.com/average-rent-market-trends/us/nv/las-vegas/), rents are continuing to rise in the Las Vegas valley. The average apartment is approaching $1500 / month, while many neighborhoods throughout Las Vegas are well over $2000 / month. As a result, many landlord’s are making sharp increases in rental rates when their properties come available or simply raise rents on existing tenants who’s leases are up or coming up.

Since Nevada has no limits, or a rental cap, Landlord’s are able to raise the rent with no restriction. Granted, some Landlord’s understand that a sharp increase may create a vacancy at their property and so, they approach a rent increase reasonably, only increasing to cover their higher ownership expenses and some. A vacancy results in lost revenue and vacancy expenses, such as utilities and necessary repairs. Thus, even if the property re-rents for a substantially higher rate, the cost of a vacancy can wipe out any profit.

Rental inventory continues to remain slim, thus, rents are continuing to rise as demand persists. Additionally, the higher cost of owning a property, such as insurance, taxes and repairs will result in higher rents as owners look to offset their expenses.

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Will rising interest rates affect the rental market?

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.

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Rental Properties and Inflation. What should you know?

House and growth chart with arrow. Increasing demand for buying and renting real estate.

It’s no secret that homes are renting for record breaking rates. Over the last 10 years, many properties have appreciated 50-75%, forcing many renters to downsize or combine households to make their rent payments. More recently, inflation is getting the blame for much of the price hikes that are consumers are facing. How does all of this affect rental properties? What has caused rental properties to increase dramatically?

  1. Supply and Demand: Much of the rental rate appreciation in the rental market occurred because of high tenant demand and lack of supply. As a result, Landlords were and are able to raise rental rates because tenants simply do not have much choice. Inventory remains slim and rental rates high. As a result, moving to a new property will only incur more costs, such as supplying a new security deposit and moving expenses. Thus, many tenants are staying put in their homes and absorbing increases in rent unless it is absolutely impossible.
  2. Increased costs of ownership: When property values go up, so do property taxes. As a result, owners of rental properties are now faced with this increased expense. These can be considerable, especially since property values have increase drastically, some 25% just during 2021. As a result, property taxes are recalculated based on these increased values and owners assessed a higher tax bill.
  3. Inflation leads to higher costs of maintenance: It doesn’t take a rocket scientist to figure out that nearly everything has increased in price, from gas to paint and tools to common household supplies. As a result, owners are now facing higher costs of maintenance. As a result, these higher costs are offset with increased rent.

The end result? Higher costs all around and increased rent prices. As the current situation continues, we can only expect more of the same. This situation is forcing many to re-evaluate their situation. Rental assistance resources are being utilized more today than ever before. Yes, a new era has arrived that appears to be here for the foreseeable future.

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Should I buy a rental property that needs repairs?

House with magnifying glass

Buying a rental investment is exciting. After searching perhaps for quite some time, putting in multiple offers, you finally land an accepted offer! As you go through the due diligence period, your home inspection reveals multiple items needing repair. Suddenly, your excitement escapes you and turns into doubt and apprehension in buying the property. Before you throw in the towel, consider a few things.

What exactly does the home inspection reveal? Are they overall minor issues that can be fixed easily? Will the seller be willing to repair those few items? If not, are they relatively a simple fix that won’t cost too much? While a list of repairs may at times look daunting, a closer look may reveal that the main components of the home are in good working condition and minor wear and tear repairs are needed, ones that can easily be offset with the first month’s rent.

Are there major items on the home inspection? Work with your real estate agent to see if the seller will cover those items or offer a credit towards them. If not, make some basic calculations to determine if the property is still a good fit. For example, if you were to complete some high ticket repairs, is the initial investment worth it? How long will it take to offset those expenses with rent? Are you buying the property below fair market value?

Real estate is an investment that requires the occasional, well, investment. It has been a go to for many high profile investors over the years, however, setting realistic expectations is key. Remember, homes have many working parts and subject to repairs, especially as they age. Not every seller has had the time and money to invest back into a property. So, when looking for an investment, remember to calculate the cost and determine if a property will still be a good investment, even if repairs are needed.

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What should you look for when buying a rental property?

Suburban Las Vegas neighborhood

If your looking at today’s real estate market and want to make an investment, you’ll be joining countless other real estate investors looking to get their hands on a slice of Las Vegas real estate. Though prices are at an all time high, so are rents. As a matter of fact, according to Realtor.com, rents rose 16% from one year ago. Many investors are starting to see significant returns, especially if they purchased a rental property a few years ago.
Nonetheless, many investors are in the market now, sifting through the tight inventory, looking for that gold nugget. As with any investment though, there are a number of factors that will determine how profitable a rental property can be. Or how much expense might be associated with it. So, what factors should you consider?

Age of Property
Everyone loves the smell of a brand new car. But not everyone can always flip the bill on one. And so the used car market is a popular one. The same goes with housing. Most investors would prefer brand new housing – not because of the new house smell necessarily, but because everything is, well, brand new. All major components of the house are brand new and should have a significant life expectancy, minimizing expenses for the first few years of ownership. However, brand new homes are in high demand and typically priced higher than a resale home – though that gap has closed some. The higher price keeps many investors from buying brand new. And so, the resale market is a popular one. When looking at resale properties, what should you keep in mind? Here are a few points:

  1. Are major components, such as appliances, HVAC or hot water heater nearing the end of their life expectancy? If so, keep in mind that those may fail and need replacement. Prepare for those expenses.
  2. Is the home generally older, perhaps 30 years or more? Keep in mind that certain items may be needing replacement, such as the roof. The house may need some remodeling. Repairs may be common place. Are you prepared to allocate a budget for those?

Property Type

Las Vegas has an abundance of housing. There are single family homes, condominiums, town homes, mid and high rise units and multi family buildings. Have you decided what you want to own? Perhaps your budget will determine what you will be considering. For example, the median price of a single family home is higher than that of a condominium in Las Vegas. However, what other factors should you consider?

  1. Many communities have homeowners associations. Each month, quarter or annually, they assess fees for maintaining a community. These fees can vary, depending on the community amenities. Are you prepared to absorb those?
  2. Back to HOA’s on this point. Keep in mind that condominiums and town homes typically have HOA’s to maintain the community pool, park and perhaps gated entry. Monthly fees are used to cover that expense. However, many times those fees also cover the insurance necessary for those common areas as well as the exterior of the building, roof and some components of the building. As a result, homeowners insurance may cost less.
  3. Single family properties typically need insurance for the entire dwelling and property. As a result, those costs can be higher than that of a condo or town home. On the other hand, you might find that the HOA dues are lower.

When all is said and done

In the end, you have to do a side by side comparison to see what the constant, ongoing costs will add up to. This, coupled with potential repairs, will prepare you for owning a rental property. Of course, researching what the potential rent for a property will be is necessary as well. A good property manager can be an invaluable asset in this process. This way, you can be a well prepared, savvy investor who has done their homework and knows exactly what kind of a property you are looking for.

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Are you requiring tenants to carry renter’s insurance?

While most homeowner’s are primarily concerned with obtaining Homeowner’s/Landlord insurance, covering the property, liabilities and damages from unexpected malfunctions and disasters, some fail to keep up with their tenants renter’s insurance policy, making sure it’s current and active. While it is highly important to maintain homeowner’s insurance (or called a Landlord / Fire policy if property is a rental), what’s the advantage of requiring tenants to carry a renters policy?

Tenant Benefits

First, there are significant benefits to a tenant! For example, should a fire or water event occur within the  property, the homeowner’s insurance will typically cover the damages to the structure itself. However, many times it will not cover the tenants personal belongings and furniture. Homeowners insurance may also not cover injuries that occur, exposing a tenant to liability.

On the other hand, renters insurance is designed to cover personal property, just in case of the unexpected – a theft, fire, water damage, etc. If someone gets hurt inside the property, renters insurance can offer a measure of protection, offering liability coverage. Other covered items can include: Coverage of a tenants personal property in the event of a windstorm, frozen pipes (that eventually leak and create a major water event), vandalism or a vehicle impact!

If a tenant is temporarily displaced from the property due to these items, renters insurance can cover the cost of alternate living arrangements.

Finally, renters insurance is typically inexpensive to obtain for a tenant and can potentially save thousands of dollars in the event of an unexpected situation.

As a Landlord, requiring renters insurance adds a measure of protection and can help a tenant with unforeseen costs. To ensure that a renters policy is obtained and maintained, you can request to be added as an additional interest. That way, you are updated by a insurance company when a change takes place.

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