Las Vegas Investment SWOT Analysis

Dec 9

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In January, we will publish our 2023 investor outlook. This year it will be particularly challenging because there are so many variables. The economy, interest rates, inflation, the housing market, Ukraine, etc. I use SWOT analysis when I need to organize and consolidate subjective information. If you are not familiar with SWOT, here is a reference. Simplistically, SWOT is a method of categorizing information into four categories.

A SWOT (strengths, weaknesses, opportunities, and threats) analysis looks at internal and external factors that can affect (in our case) real estate investments in Las Vegas. I’ve used SWOT analysis over the years to consolidate and organize subjective information.

I will base our 2023 Investor Outlook on the SWOT. I would appreciate your opinion of what I've included. What am I missing? What should I eliminate or change? General comments?

I hope you find the SWOT information useful and I look forward to your feedback.

Strengths

Land shortage. At the current consumption rate (~5000 acres a year), Las Vegas will run out of developable land in about 6 years. The only growth path would be tearing down and redeveloping, resulting in high new home prices. This will push up the existing home prices as well.
The population is growing and is projected to grow by 2% to 3% annually (Source 1, Source 2).
Enough jobs to support the growing population. Depending on the job site, there are between 26,000 and 31,000 open jobs in Las Vegas.
Massive construction projects (>$22B) will create thousands more jobs. Many new jobs match our target tenant segment, increasing demand for residences and driving up rents and prices.
Pro-business government, no state income tax, low property taxes, and low energy prices continue to attract business to Las Vegas.
Very few properties are underwater. Very few distressed sales. There will be no repeat of the 2008 crash.
Decreasing inventory. See the charts below. This shows that instead of mass panic selling, more would-be sellers simply stay on the sideline and wait for more favorable conditions. Few people are forced to sell. Decreasing inventory will stabilize prices, and prices will increase if the inventory falls enough.

Weaknesses

Dependance on tourism. People have to have a place to live, but they do not have to vacation. If the economy goes into a steep recession, fewer people will vacation. That may cut down tourism jobs. However, the tenant pool we target is not tourism-dependent. Plus, tourism is up in Las Vegas. "An estimated 3.6 million people visited Southern Nevada in October, 7.3 percent ahead of last year and just 0.8 percent off October 2019." RJ
See any other weaknesses I should include?

Opportunities

Fewer buyers. Less competition. The few people anxious to sell are willing to contribute to the buyer's closing costs (buy down the interest rate) and reduce prices, making first-year break-even or even cash flow positive. While there are a few good deals, there are still no steals.
This is likely the “bottom” of the current market correction barring any major threats listed below materializing.
Prices and rents go up for the foreseeable future due to the strength listed above.

Threats

The perception of a water shortage - I wrote an article on the Las Vegas water supply. The short answer, Las Vegas is unlikely to run out of water. However, electricity rates could increase if more power is purchased from California. But because tenants pay for all utilities, higher rates will have little impact on owners.
The federal government decides to release vast amounts of federal land. This has not happened. Because it would require a congressional vote and the ~~clowns~~ politicians do not seem able to work together, this is unlikely.
Inflation remains high or even increases. This will cause the Fed to continue hiking interest rates aggressively, pressuring down home prices. However, the current consensus is that inflation and interest rate hikes are expected to come down in 2023. “Federal Reserve Chairman Jerome Powell confirmed Wednesday that smaller interest rate increases are likely ahead and could start in December.” CNBC
The economy slips into a recession. The Fed is expected to reverse course and cut interest rates if that happens. Lower interest rates increase demand for homes and will increase prices, especially when supply is already low.
The war in Ukraine expands unpredictably.
Rapid and significant inventory increases. However, I can not think of a likely source of inventory increase. With significant equity in the homes, few are forced to sell. With few distressed properties, there will not be a massive wave of foreclosures that hit the market at the same time. Home builders have no reason to suddenly release a large amount of inventory. Can you think of a scenario that may cause a rapid and significant inventory build-up?

That’s it for my current SWOT elements.

What did I miss? Please reply to this email and let me know. I look forward to your feedback.

What do you think of this guide? As always, I welcome and appreciate your feedback.

To find out if my services are a fit for you, book a discovery Zoom call with me.