Multi-family or Single Family?

I was recently asked whether multi-family or single-family properties are better investments. An excellent question. The answer (as usual) is it depends on the specific market. While I could write several pages on this subject I will keep this short.

Know that I have no personal bias for or against multi-unit properties. I owned three four-unit apartments in Atlanta and I did very well with them. However, I do not recommend multi-unit properties in Las Vegas. Why?

Multi-family (2 to 4 units) properties are valued solely based on the return (rents). Thus, you can only expect appreciation if rents rise and rents have been flat for the last few years in Las Vegas as shown in the graph below.

Thus, the values of multi-family properties in Las Vegas are not likely to increase. [Note that rents being flat are not a bad thing; many single family rental properties have come onto the market yet demand has remained strong enough that rents remain stable.] Another factor is that the multi-unit properties I've seen in Las Vegas are older and frequently need significant repairs/updating. Further, the locations of the properties I've seen were in areas where I suspect that the collection of rents would be challenging, vacancies high and rehab costs might be high too.

One clear mathematical advantage of multi-unit properties is the calculated rental risk; you will not be as badly hurt by one unit being vacant in a multi-unit property. Another factor is that cost per unit is much lower than single family homes. However, mathematics do not necessarily tell the true situation. Currently, condos and apartments have high vacancy rates (over 16%). Good single family investment properties will usually rent in less than 30 days and stay rented.

Three of the advantages of single family homes in Las Vegas include:

• Construction: One of the big advantages of (most) properties in Las Vegas is the low maintenance costs due to the construction. Roofs are tile and the exteriors are stucco. Plus, landscaping is usually desertscape and also very low maintenance.
• Purchase cost vs. build cost: Las Vegas build costs for basic construction is between $100/SqFt and $110/SqFt. The most recent investment property I sold was $65/SqFt. This is well below build costs.
• Probable appreciation: There is very limited available land in Las Vegas; all the land around Las Vegas is federally owned (only 11% of the entire state of Nevada is privately owned). Thus, there is little room for expansion and I believe that this will result in higher prices in the future. Multi-unit properties are less affected by lad prices.

In summary, while I like generally multi-unit properties, they are not good investments due to the nature of Las Vegas, flat rental rates and the advantages of single family homes.

Contact me if you are considering buying or selling Las Vegas real estate. You will be glad you did.

...Eric

Eric Fernwood
RE/MAX CENTRAL
8400 W. Sahara Ave
Las Vegas NV 89117
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