On this first episode of the Investment Property Showdown, we are talking to two of the best property
managers in the country. They have gone through all the trials and errors of starting a property
management company, and they have grown their businesses successfully. Today, we’re talking about
why an investor should choose Las Vegas or Memphis to buy and hold investment property.
Douglas Skipworth is with CrestCore Realty in Memphis, and George Trombley is with Blackbird Realty in
Las Vegas. By the end of this discussion, you can decide whether you’d rather invest in Memphis or Las
Vegas. Or maybe both.
Why Should Real Estate Investors Buy in Memphis?
Memphis is economically stable. There is consistent growth in the region, and it’s a solid rental market.
The rent to price ratio is the best in the nation. You can get more bang for your buck when you buy
investment property in Memphis. We have big companies like Fed Ex in town, and there’s a steady
demand for quality rental houses. You can get a lot of house for your money, and bring in big rent
compared to your purchase price.
Why Should Investors Buy Real Estate in Las Vegas?
A few years back, Las Vegas was the foreclosure capital of the world, so many houses got dumped into
the rental market. Houses that were once worth $400,000 were suddenly available for $80,000. The
market is coming back in Las Vegas, but there are still a lot of great deals. Vegas as a lot of conventions
and the people who live here service those conventions. Vegas also just picked up a hockey team
franchise and there might be an NFL football team coming as well. A lot more business is coming to
Vegas, making this an outstanding investor market.
What is the Magic Number to Leverage Cash for an Investment? How Much Needs to be Put Down, and What is the Median Home Price?
In Las Vegas, the down payment for an investor is about 20 percent. That’s probably the minimum. The
more you can put down, the better off you’ll be. The median home price in Las Vegas is between
$212,000 and $215,000. Houses in that range fall into a seller’s market. Those don’t stay on the market
very long because they’re so desirable to investors. There’s a lot of bidding going on because those are
the houses that most people buy. They are three bedrooms, two bathrooms, two car garage properties
in a nice neighborhood and sometimes a gated community.
In Memphis, the median home price is just shy of $150,000. So as an investor, you can be conservative
and pay in all cash, which many people do. Or, you can put down about 50 percent to leverage your
investment. If you really want to goose it work towards cash on cash, we see people go in with less than
25 percent down. Memphis has some lenders who are helping people buy with zero to 20 percent
down, which is lower than traditional mortgage requirements.
What is the Appreciation Forecast in Memphis and Las Vegas? What Do You See in the Next 5 Years?
In Memphis, we have two markets. The suburbs are a seller’s market and there’s a lot of new
construction and growth. You’ll have about three to five percent appreciation in those houses over five
years, on average. In the city, where the properties are older and the neighborhoods are more
traditional, it’s more of a buyer’s market. The rent to price ratio is excellent, but there’s less
appreciation. The growth happens slowly and steadily.
In Las Vegas, it’s hard to forecast five years out. In this market, we look at appreciation by zip code. For
example, there’s a very popular development called Mountain’s Edge. The appreciation there has been
over 10 percent. North of town, which was traditionally a terrible place to be, is also seeing higher
appreciation rates because everything there is new and people are starting to gravitate that way.
There’s also a beltway running through the area and it’s close to the air force base. So there are a lot of
military people who buy a house and live there for a few years and then turn it into a rental. Henderson
is the largest city in Nevada when we measure the amount of land it occupies. It’s become a desirable
place to buy rental properties. So it’s hard to say that this market appreciates at a specific rate because
we have pockets all over the market that are higher or lower.
What is the Formula for Success when Investors want the Best ROI? Specifically, what Type of Property, what Location, and How Much Down?
For the Las Vegas investor, the formula is a single-family home in the $200,000 to $250,000 range. Try to
find a house that’s not in an HOA because tenants like to rent there better. They can be really intrusive
and tenants don’t like to receive letters about trash bins being left outside too long. Investors should
plan to make a down payment of about 20 percent, and you want to have a great property manager.
The Memphis investor should look at either the city or suburban market. In the city, an older house will
only cost about $50,000, and you’ll earn about $800 in rent. On the flip side, there’s new construction in
the suburbs where you’ll pay between $125,000 and $150,000. With those properties, you’ll earn over a
thousand dollars a month, even up to $1,700. You can put down 20 or 25 percent to get more
appreciation initially. We also recommend single family homes, or a small apartment or duplex.
Final Thoughts: What is Your Most Important Advice for New Investors?
In Las Vegas, the most important thing an investor can do is to pick a property manager who spends
more time on management than on sales. If you have a house for rent and your property manager is too
busy showing homes to potential buyers in order to get a higher commission, your house is going to sit
vacant and you’re going to lose money. So make sure your manager is accessible and easy to get a hold
of, even late on a Friday afternoon. If you can’t get a message to your manager or a fast return call, the
tenants won’t get good service either, which is a problem when the air conditioning goes out or the
water heater starts leaking.
In Memphis, there is a lot of economic development going on. Those big projects are attractive for the
stability of houses in the core of Memphis. Investors need to do two things. First, find the right property
management partner. Check them out online, get referrals and make sure they are right for you.
Second, treat your investment property as a business, not a hobby. Mind the store even though you
have a great property manager.
Conclusion: Memphis or Las Vegas?
It seems that an investor with about $50,000 to spend should go to Memphis. Then, when there’s a little
more available to put into a property, it’s a good idea to go to Las Vegas and spend some time looking
for a great investment home and then bidding on it before the competition gets there first. Both the Las
Vegas and Memphis markets are really hot. While they’re different places to invest, they are probably
two of the top rental markets in the nation.
Thanks to Doug and George for their time. You can find them at CrestCore.com for Memphis and
Blackbirdrealty.com for Las Vegas. As always, if you have any questions about this series or building
your property management business, you can contact us at EverythingPropertyManagement.com