If you’re buying investment property in Las Vegas—whether a high-rise condo near the Strip or a single-family home in Henderson—one question matters most: “What’s the cap rate?” It’s a simple number with big implications, and it helps you compare deals quickly, apples to apples.
Below, we’ll break down what cap rate is, how to calculate it correctly (including HOA and management), what “good” looks like in Vegas, and how to improve it before you buy.
What Is Cap Rate?
Capitalization rate (cap rate) estimates an investment property’s annual return based on its net operating income (NOI) and purchase price—ignoring financing. It’s a clean way to compare different properties and neighborhoods.
Formula:
Cap Rate = NOI ÷ Purchase Price
- NOI (Net Operating Income) = Gross Annual Rent minus Operating Expenses
- Operating Expenses include: HOA dues, property taxes, insurance, repairs/maintenance, utilities (if owner-paid), property management, and reserves
- Exclude: Mortgage principal & interest, income taxes, and one-time acquisition costs
Quick Example (Single-Family in Henderson)
- Price: $400,000
- Monthly Rent: $2,600 → Annual Rent = $31,200
- Expenses (annual): Taxes $2,400, Insurance $1,200, Management (8%) $2,496, Repairs/Reserves $1,200 → $7,296 total
- NOI = $31,200 – $7,296 = $23,904
- Cap Rate = 23,904 ÷ 400,000 = 5.98% (~6.0%)
High-Rise Twist: Don’t Forget HOA
High-rise condos can perform well, but HOA dues are the swing factor. Here’s a realistic look:
- Price: $350,000 (Strip-adjacent high-rise)
- Monthly Rent: $2,300 → Annual Rent = $27,600
- HOA: $800/mo → $9,600/yr
- Taxes $1,800, Insurance (HO-6 + contents/landlord) $500, Management (10%) $2,760, Repairs/Reserves $900
- Total Expenses = 9,600 + 1,800 + 500 + 2,760 + 900 = $15,560
- NOI = 27,600 – 15,560 = $12,040
- Cap Rate = 12,040 ÷ 350,000 = 3.44%
Takeaway: The same rent at a high-rise with a large HOA can cut cap rate significantly. Investors often accept a lower cap for prime location, amenities, and long-term appreciation.
What’s a “Good” Cap Rate in Las Vegas?
It depends on asset type, location, and risk:
- Single-Family (long-term rent): ~4.75%–6.5% in established areas
- Townhome/Condo (non-high-rise): ~4.25%–6.0% (HOA sensitive)
- High-Rise (long-term rent): ~3.0%–5.0% (HOA + luxury amenities)
- Mid-term/Corporate rentals: Potentially higher effective returns, but more management and vacancy risk
- Short-term rentals (where permitted): Can outperform cap rate on paper, but legal limits, licensing, and building rules matter
Rule of thumb: Higher cap rate usually means higher risk (location, volatility, condition, tenant base). Prime buildings trade lower caps because of stability and exit liquidity.
Cap Rate vs. Cash-on-Cash vs. DSCR—Which Matters Most?
- Cap Rate ignores financing; great for comparing properties.
- Cash-on-Cash Return includes your down payment and loan terms—the truest “what am I earning on my cash?” metric.
- DSCR (Debt Service Coverage Ratio) = NOI ÷ Annual Debt Payments; lenders use it (especially on investor and DSCR loans) to determine if the income supports the mortgage.
Smart approach: Use cap rate to shortlist, then underwrite cash-on-cash and DSCR with actual financing terms.
Common Cap Rate Mistakes (and Easy Fixes)
- Ignoring HOA/Management
- Fix: Always include full HOA dues and a realistic management fee (8–10%).
- Underestimating Vacancy
- Fix: Use a vacancy factor (3–8%) unless you have corporate/renewal history.
- No Reserves
- Fix: Budget at least 3–5% of rent for repairs/turnover, more for older properties.
- Counting Principal & Interest in NOI
- Fix: Debt service is not part of NOI. Keep cap rate “pure,” then run cash-on-cash.
- Using Pro Forma Rents
- Fix: Use actual leases or supported market comps and confirm rent-readiness.
How to Improve Cap Rate (Before You Buy)
- Negotiate price or credits after inspection (HVAC, windows, appliances).
- Target rent lifts with minor renovations (LED lighting, paint, durable LVP flooring, modern hardware).
- Optimize utilities (tenant-paid where possible).
- Shop insurance annually and confirm correct landlord/HO-6 coverage.
- Right-size management (fee vs. service level), especially for mid-term rentals.
- Choose buildings with stable HOAs (healthy reserves, low delinquencies, no major litigation).
Cap Rate in Context: Appreciation & Exit Strategy
A slightly lower cap rate in A-location assets (Summerlin, prime Henderson, sought-after high-rises) can be justified if you expect stronger long-term appreciation and easier resale. Meanwhile, “cash-flow kings” at higher caps may face softer exit liquidity or more volatility. Balance income today with equity growth tomorrow.
Vegas Investor Playbook (Quick Steps)
- Define the goal: Cash flow, appreciation, or a mix?
- Screen by cap rate: Use realistic NOI with HOA, management, and vacancy.
- Underwrite financing: Compare cash-on-cash and DSCR with actual rates, points, and reserves.
- Check rules: HOA rental limits, lease minimums, licensing, building warrantability.
- Offer with data: Inspection + rent comps + expense audit → negotiate from facts.
Final Thoughts
Cap rate is the fastest way to compare deals, but it’s not the only way to judge a winner. In Las Vegas, cap rate, cash-on-cash, DSCR, HOA health, and exit strategy all work together. When you underwrite with real numbers—and pick the right financing—you make smarter offers and close with confidence.
Want a side-by-side analysis on properties you’re considering? The Derek Parent Team can run cap rate + cash-on-cash + DSCR with today’s lending options (conventional, jumbo, DSCR, and Non-QM) so you know exactly what’s a good deal—and what to pass on.