INVESTMENT PROPERTIES IN TAHOE

Lake Tahoe has always been a top real estate investment location. With around 70% of the homes not owner-occupied, and a high demand for local long term rental properties, we’ve seen the demand for investment properties continue throughout the decades.

In late 2022 we have seen an increase in 1031 exchange purchasers over the past year due to the strong rental market and softening sales market. These are usually all or mostly cash purchasers, and are able to get fair terms from sellers… with the right agent on their side of course.

But what are the current options for investors in Tahoe? Are there any restrictions? What things should you watch out for?

TYPES OF INVESTMENT PROPERTIES

LONG TERM RENTALS

You have a couple options for long term rentals… single family homes and condos, or multi-family duplexes, triplexes and apartments. There are positives and negatives to each property type. Most locals with kids will want to rent a house, if they can afford it. But the majority are going to go for the cheapest place they can find that is clean, which draws them to duplexes and apartments.

The majority of locals have dogs and/or cats, so allowing pets is huge. Having a fenced yard is also a big plus for those with kids and/or pets. Garages are also in high demand for storage and to protect vehicles in the winter months. Other than being close to the Lake or ski resort, there aren’t many differences in rental income potential based on what neighborhood your property is in. But there are a few neighborhoods that bring in higher rental amounts. These are the Tahoe Keys, Al Tahoe, Heavenly, and Montgomery Estates neighborhoods. These neighborhoods are almost exclusively single family homes, with the exception of Al Tahoe and Heavenly which have some duplexes and a handful of apartments.

Please keep in mind the figures listed below are estimates only and should only be viewed as “potential” income figures using “average” property condition and location. For specific income potential on a property, once you have a few narrowed down that you are interested in, we will use the assistance of a local property manager (see list at bottom).

Single Family Homes/Condos

The local Tahoe long term rental market has always been very hot. With house prices usually out of reach for the majority of locals, residents are forced to turn to rental properties for housing. There is very little new development in Tahoe which has caused a massive supply and demand issue for years.

But investors need to remember that the max a local can afford is limited due to the fact the majority of jobs in the area are low wage ones. Due to this we see that rental income figures don’t always line up with purchase prices. That’s not to say you can’t charge higher amounts than the examples I list below. But you will have a much smaller pool of potential renters if you go too high on monthly rental pricing.

As an example (using figures from today 12/1/2022):

• 2 bedroom house that is priced to sell at $500,000 could rent for around $2,000/month.
• 3 bedroom house priced at $600,000 could rent for around $3,000/month.
• 4 bedroom house priced at $800,000 could rent for around $3,800/month.

There are unique situations that would increase the monthly income potential, one being if the property is located in the Tahoe Keys and has a boat dock attached (almost all Tahoe Keys homes & condos have private boat docks) or is very close to Heavenly Ski Resort. On average a boat dock or ski resort location will add $500/month to $800/month to the rental amount.

Duplexes/Triplexes and Apartments

Multi-family properties are another option. Duplexes, triplexes and apartment buildings are common in Tahoe, but most are in poor to fair condition. They are also in high demand as they fit a role of the lower cost rentals for the lowest income earners.

As an example (using figures from today 12/1/2022):

Duplex/Triplex:

• studio unit will rent for around $1,200/month
• 1 bedroom unit will rent for around $1,600/month
• 2 bedroom unit will rent for around $2,000/month
• 3 bedroom unit will rent for around $2,300/month

Apartments:

• studio apartment will rent for around $1,000/month
• 1 bedroom apartment will rent for around $1,300/month
• 2 bedroom apartment will rent for around $1,600/month
• 3 bedroom apartment will rent for around $2,000/month (there are very few 3 bedroom apartment units in town)

Having a garage will add about $400/month in potential rental income. Having a fridge and washer/dryer is important as most tenants will not have their own. The majority of tenants in Tahoe have dogs and/or cats, so allowing animals is a big plus and will open your rental property up to a lot more potential renters. You will just want to add a pet deposit of a couple hundred dollars. Some owners also add $50 to the monthly rent per animal.

Once you narrow down a list of potential properties you are interested in, we will get you in touch with a good local property manager (see below for contact info) so you can know what potential rental income a specific property could bring in to help you make the decision as to which property will work for your needs.

SEASONAL RENTALS

We have seen an increase in seasonal or partial year rentals that are getting quite a bit more per month vs a normal yearly rental. While not technically considered short term rentals, these seasonal rentals offer the ability of owners to use the home themselves for their own vacation use during spring/fall when it isn’t rented out.

For these types of seasonal rentals you usually are going to need a property that has been recently updated and has a good look and feel, as well as being close to ski resorts or the lake. Also it will need to be furnished with everything needed for the tenant to live there (kitchenware, linens, appliances, furniture and so on).

These seasonal rentals usually only get rented a total of 6 months out of the year. This is usually 3 months in summer and 3 in winter. If the property is located close to the Lake or in the Tahoe Keys the summer rental will be stronger. If it’s located close to Heavenly Ski Resort then the winter rental will be stronger. But you will probably have it vacant in spring and fall which are historically our off seasons.

But do be aware that if you are renting out a house with 3 bedrooms that is located close to the ski resort you will most likely get interest from large groups of ski resort employees in the winter months. This usually means you will have around 8 or so folks living in your home and they most likely aren’t going to be the cleanest tenants and also put a lot of wear and tear on a home. I know because I was one of those ski resort tenants who shared a home with 6 other young folks and there were parties every week and lots of rough housing… you know, typical stuff you do in your 20’s. So be careful with your pre-rental checks and when in doubt take a higher deposit.

We can get you in touch with a local property manager (also see list and contact info below) so you can get an idea of what rental income you could get for your property and if it would make a good seasonal rental.

SHORT TERM RENTALS (AIRBNB/VHRS)

Short term rentals have been a popular option in Tahoe since the 1940’s when cabin owners would let friends and family rent out their properties for vacations. Then in the early 2000’s we saw a huge increase in people wanting to rent out homes while on vacation with the invention of the internet and sites like CraigsList, AirBnb and VRBO.

As demand grew the number of investors buying homes in Tahoe and putting them on the short term rental market also grew. This quick growth has caused some locals to get frustrated. They view their residential neighborhoods as being taken over by commercial hotels being run out of homes. This frustration caused local government entities to impose strict rules for short term rentals. One even went to the extreme of banning them completely.

The strict rules differ in each jurisdiction, with 6 different jurisdictions around the Lake. Currently it is very difficult to get a short term rental permit in the South Shore of Lake Tahoe. It’s a little easier on the North Shore. Each jurisdiction is different, but for the South Shore a short term rental is considered any rental of 30 days or less (El Dorado County/City of SLT, CA) or 28 days or less (Douglas County, NV). Rentals that fit in that timeframe are regulated by the county/city.

We can get you in touch with a local short term rental property manager (also see list and contact info below) so you can get an idea of what rental income you could get for your property and if it would make a good short term rental. Just remember rental income potential for short term rentals will fluctuate a lot more than longer and seasonal term rentals due to it relying on the tourist demand.

Check out our dedicated Vacation Rental page for more information: VACATION HOME RENTALS (VHRs) IN LAKE TAHOE

COMMERCIAL

Tahoe is a tourist area, and the commercial spaces show that with most being retail or restaurants. There is also limited space for commercial properties and Tahoe is almost built out right now. That means any new commercial buildings will need to purchase an old property and rebuild on the same site.

We also have unique rules for commercial properties that can make it difficult for new property buyers/builders. One of these rules is CFA or commercial floor area. CFA was created to limit the size of commercial spaces, to prevent large buildings from being built. You pay per sqft for CFA and the cost ranges depending on supply/demand. Currently CFA is around $50/sqft but has historically ranged from $30/sqft to $65/sqft.

With it being a seasonal tourist destination, almost all local businesses have a feast and famine income stream. Summer and winter are busy with tons of tourists as consumers. Then spring and fall are slim with mostly only locals as consumers.

While Our Team does do some commercial real estate, we usually refer our clients to a local commercial agent who we have worked with many times and does a great job. For more information reach out to our Team Lead Amanda Adams.

OTHER RESOURCES

We have personal contacts at each of these property managers listed below and can assist you with a direct contact. Or you can reach out on your own directly to them.

ADDITIONAL INVESTMENT PROPERTY ARTICLES

Tahoe Real Estate Market Updates

Rental Income Opportunities (from 2021)

1031 Exchanges

Condo vs Single Family

Investors Driving Up Rents