What do Airplanes and Las Vegas Real Estate Have in Common?
In 1927, Charles Lindbergh was planning the world’s first non-stop cross-Atlantic solo flight from New York to Paris. He faced a choice between using a single-engine or two-engine plane. The proponents of the multi-engine plane believed that if one engine died, he would still have a working engine.
However, after further evaluation, it became apparent that the plane could not continue for any significant distance on a single engine. While the multi-engine concept seemed good in theory, having two engines offered no practical advantage—it merely doubled the odds that he would crash into the Atlantic.
The choice of multi-family vs. single-family is similar to Charles Lindbergh’s decision. The belief is that with multi-family, even if a unit is vacant, you will still have income. However, the reality is quite different.
With four units, the vacancy odds are four times higher than a single-family property. And, when there is a vacancy, will the remaining units provide enough cash flow to cover all costs? Also, what if you frequently have one or more units vacant?
Maintenance is another issue. A fourplex means four times the appliances, plumbing, HVAC, water heater, and other repairs, driving up maintenance expenses compared to a single family.
In Las Vegas, a multi-family property costs roughly the same as two single-family homes. While multi-family units typically attract transient tenants who stay just 1–2 years and cause frequent damages, our target demographic—families with children who choose single-family homes—stays an average of five years and takes care of the property. This longer tenancy significantly reduces turnover and vacancy costs. As a result, two single-family properties typically generate more net income than a fourplex. Here's the math.
Typical 4-Plex Characteristics
Note: The property cost and rent came from averaging the 55 4-plexes for sale as of 12/11/ 2024. The typical in-between tenant renovation cost came from property managers who specialize in multi-family properties.
Almost all 4-plexes in Las Vegas were built before 1986 and are located in distressed areas. The typical tenant stays less than one year, and the time to renovate and re-rent is three months. The typical cost for the in-between tenant renovation is $2,000. The typical unit rent is $800-$900/Mo. The typical cost for a 4-plex in reasonable condition is $650,000 - $750,000.
Assuming a one-year tenant stay, the unit is vacant three months out of every fifteen months. Assuming a higher-end $900/Mo rent:
- Gross 10-year rent: $900 x 4 units x 12 Mo x 10 Yrs = $432,000
- Lost Rent due to vacancy: Gross 10-year rent x (3 Mo Vacant / 15 Mos) ≈ $86,400
- Number of tenant turns per unit over 10 years: 10 Yrs / 15 Mos = 8 turns/unit.
- The number of tenant turns over 10 years for the 4-plex: 8 turns/unit x 4 units ≈ 32 turns
- Renovation cost for 32 turns: $2,000/turn x 32 turns = $64,000
- I will ignore all other costs to keep the example simple.
- Net 10-year rent: $432,000 - $86,400 - $64,000 = $281,600
Our Single Family Target Property Characteristics
Out of our population of over 530 properties, the average tenant stays for more than five years. The typical in-between tenant renovation cost is $500. (The low turn cost is due to Las Vegas pro-landlord lease agreements and the tenant segment we target.) The time to renovate and re-rent is one month. For the property segment we target, $700,000 can get you two properties. The typical rent for such a property is $1,800-$1900/Mo. I will assume rent is $1850/Mo for the following:
- Gross 10-year rent: $1,850 x 2 units x 12 Mo x 10 Yrs = $444,000
- Lost Rent due to vacancy: Gross 10-year rent x (1 Mo Vacant / (5 Yrs x 12 Mos)) ≈ $7,400
- The number of tenant turns over 10 years for the two units: 2 turns x 2 units = 4 turns
- Renovation cost for 4 turns: ≈ 4 turns x $500/turn = $2,000
- I will ignore all other costs to keep the example simple.
- Net 10-year rent: $444,000 - $7,400 - $2,000 = $434,600
The net rent from the fourplex over a 10-year period is significantly lower than that from two single-family homes. This is due to shorter tenant stays, longer vacancies, and higher turnover/repair costs.
Final Thoughts
Today, the performance of aircraft engines is day and night compared to that in 1927. However, the behaviors of typical tenants occupying (at least in Las Vegas) multi-families have not, and will not change. So, if you want to take advantage of Las Vegas real estate's strong projected financial performance, go solo-engine, i.e., invest in single-family properties that target reliable tenants.
Real estate investing is a business. Your decisions must be based on your financial goal, not the dogma of others.
