Las Vegas wins the crown of the hottest housing market in 2018 based on price growth. Vegas has benefited from the spillover effect of high cost homes from the San Diego and Los Angeles area, as residents flee for more affordable housing and lower taxes.
“People are coming to Las Vegas. We have been seeing major job creation and diversification in industries,” said Chris Bishop, president of the Greater Las Vegas Association of Realtors. “All those things together led to a perfect storm.”
What’s interesting is that Las Vegas has now surpassed Seattle as the city with the fastest home price growth according to the S&P CoreLogic Case-Shiller 20-City Composite index.
Vegas posted a 13.5% year-over-year increase in September 2018. It, along with Phoenix and Tampa, had the biggest gains and largest losses 10 years ago, according to S&P.
“Vegas has been a boom and bust market,” said David M. Blitzer, managing director and chairman of the Index Committee at S&P Dow Jones. “It was consistently one of the four fastest rising prices cities around and when the crunch came it was one of the cities that went down the most. It seems to be repeating its big swing practice now.”
From Boom To Bust: Las Vegas
There’s just one problem. When you appreciate so quickly, there’s generally a bust that ensues. Las Vegas is the KING of boom bust real estate cities, partly because there is an never ending amount of land for expansion.
Unlike San Francisco, where there are intense zoning laws and only 7 miles by 7 miles of land, Las Vegas can keep on building as far as the eye can see.
Take a look at this price chart from Corelogic and Yahoo. You have to be CRAZY to buy the blue line (Las Vegas) real estate unless you love to throw up on roller coasters!
Sure, Las Vegas real estate prices still have about 20% – 30% to go to reach its previous peak after PLUNGING 62% to its bottom in 2012. Yes, the median home price in Vegas wis arounds $294,600, compared with $628,900 in Los Angeles, $830,000 in Orange County-Anaheim and $650,000 in San Diego. But prices are cheap for a reason.
As a real estate investor, you need to buy low and sell high. You’ve also got to forecast the future. Buying Vegas property now is too late in the cycle.
It’s much better to buy property in areas that are LESS volatile with higher cap rates and lower valuations. Las Vegas inventory is up 30% and will likely to continue rising.
Instead, focus on investing in the heartland of America. There is a structural shift towards lower cost areas of the country due to affordability for both the companies and the employees. This trend will continue with the help of technology and remote work.
Las Vegas is too risky. Instead, look at places like Austin, Memphis, San Antonio and Houston instead. Prices are even cheaper than Las Vegas, and you can get cap rates closer to 10% versus sub 5%.
The best way to invest in real estate is via real estate crowdfunding and earn slow and steadier returns. Real estate investing is a long game.
Invest On The Best Platforms
With real estate crowdfunding, you don’t need to risk $100,000 or more to invest in commercial real estate. Instead, you can invest as little as $1,000 and be better diversified. The best real estate crowdfunding platforms today are:
1) RealtyMogul, founded in 2012 and primarily for accredited investors. So far, RealtyMogul has distributed over $100M, have 170K members, and have funded over $2B in property deals. I’ve spoken to their CEO, Jilliene Helman at length, and she is focused on building a multi-decade long business with the highest quality commercial real estate deals.
2) Fundrise, founded in 2012 and available for non-accredited investors. I’ve worked with Fundrise since the beginning, and they’ve consistently impressed me with their innovation. They are pioneers of the eREIT product. Most recently, they were the first ones to launch an Opportunity Fund in the real estate crowdfunding space to take advantage of new tax laws.
Both of these platforms are the oldest and largest real estate crowdfunding platforms today. They have the best marketplaces and the strongest underwriting of deals. Investors should carefully consider their own investment objectives when assessing the gamut of real estate opportunities that are available.
About the Author: Sam started Financial Samurai in 2009 as a way to make sense of the financial crisis. He proceeded to spend the next 13 years after attending The College of William & Mary and UC Berkeley for b-school working in investment banking. In 2012, Sam was able to retire at the age of 34 largely due to his investments that now generate roughly $220,000 a year in passive income, partly thanks to his investments in real estate crowdfunding. He spends time playing tennis, hanging out with family, consulting for leading fintech companies and writing online to help others achieve financial freedom.