In Nevada’s housing market, cash is king.

It’s a message that Leona Caldwell, a Las Vegas realtor who works primarily with low-income and working class home buyers, emphasizes whenever she sits down with someone searching for a house.

“Be ready for a hell ride,” she tells clients, explaining that without the need for a loan or mortgage, cash buyers can more quickly complete home sales with fewer steps than other homebuyers, giving them a leg up in the process. 

Across the state, an increasing number of cash purchasers — including investors, investment pools, larger corporations and wealthy buyers from out of state — are driving up the pressure and squeezing out would-be purchasers reliant on loans and mortgages.  

Between the first quarter of 2020 and 2021, cash buys increased by 41.6 percent in Washoe County, and rose 19.9 percent from 2015. In Southern Nevada, 31 percent of purchases in June were made with cash — a 6.1 percent increase in cash purchases since February 2021 and a 3.7 percent increase since June 2016.

In Caldwell’s nine years in the Las Vegas real estate business, she has seen the housing market rise and fall. But with an influx of cash buyers purchasing homes left and right, she said she and her clients have seen offer after offer outbid every time, with many families giving up on the housing search altogether.

“I have a guy who is an electrician, all different kinds of people, but it's mainly the workers,” she said. “They are the heart of our community, and basically we cannot do anything for them.”

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As the housing market across the state tightens and home prices are rising, individuals with deeper pockets are offering to not only pay for homes with cash, but often place offers above a home’s listing price. That directly leads to higher appreciation rates, according to Brian Bonnenfant, project manager for UNR's Center for Regional Studies. Between the first quarter of 2015 and the second quarter of 2021, the median home price in Washoe County rose 92.5 percent.

"That's not good news. That's very bad for entry-level homebuyers or just normal worker bees trying to get into a better house," he said. "So the cash buys, the investors, they do tend to put superficial pressures on appreciation rates in the overall housing market."

In the north and south, cash purchases are up steeply year-over-year after declining for years since the Great Recession. The rise stems partly from supply and demand pressures, said Brian Gordon, a principal with the economic and real estate analytics firm Applied Analysis.

"There's limited inventory in the market. And so the competitive environment for homes has increased," Gordon said. "We'd expect that the share of cash buyers have the potential to continue to increase particularly as availability remains tight in the local market."

Cash versus loans

If home buying is a war, Leroy Reynolds is losing the battle.

For the last six months, Reynolds — a maintenance technician and military veteran —  has worked with Caldwell to search for a house for his wife and three children. 

He’s looked at four or five houses, but all were snatched up by cash buyers before he could put in an offer. 

“I’m looking for a single-family home just to start my American dream and just to go forward, man, to push forward,” said Reynolds, who was approved for a Veterans Affairs (VA) housing loan. “But with the cash buying right now, I’m kinda out of the loop.”

Though Reynolds has a guaranteed loan, he is still at a severe disadvantage because the VA has stringent appraisal and inspection requirements. Cash buyers, on the other hand, can waive inspections and sellers have fewer hoops to jump through.

On a home tour last week, Reynolds ultimately decided not to put in an offer because the sellers wanted to waive contingencies, meaning that if the appraised value is less than the sale amount (and the bank cannot guarantee a return on its loan), then Reynolds would have had to make up the difference in cash or lose a $3,000 deposit if he backed out — more money than he could gamble.

“It’s kinda been a struggle,” he said.

Reynolds is not alone. Across the state, cash purchases of homes in Nevada’s major metropolitan areas have hit new highs in recent months. Research from UNR's Center for Regional Studies show that in Washoe County, cash purchases of homes peaked at 28 percent of all sales in March.

In the long run, Gordon said he expects the market to normalize and the higher rates of cash purchases to fall along where the market has been historically. In Southern Nevada, cash purchases tend to account for about 20-30 percent of house purchases, and in Northern Nevada, that figure usually hovers around 15-20 percent.

The rise in cash purchases coincides with spiking median home prices. Median home prices in the Reno-Sparks area in July 2021 reached a high of $530,000 — about a 30 percent increase since January 2020 and a 69.4 percent rise since 2016. In Las Vegas, the market peaked about $405,000 in July, reflecting a 28 percent rise in housing prices among single-family residences since the pandemic began and a 72.3 percent increase in the last five years. 

Who has the cash?

In Washoe County, Bonnenfant said that most cash purchases appear to be driven by investors, such as mom-and-pop rental property owners and larger rental investment corporations. He said that there are also trends of millennials joining investment pools that combine assets and money to purchase homes. Still, it is impossible to know exact details because there is no central repository or tracker for which buyers purchased what property.

Tax cap information on non-primary homes (houses that serve as vacation, rental or investment properties) shows, however, that in the fourth quarter of 2020, 31 percent of single-family homes had investment income tax rates in Washoe County. In 2017, the number of non-primary homes reached 40 percent.

Though California transplants are often blamed for contributing to Northern Nevada's housing shortage and higher home prices, Bonnenfant said studies from the University of California found that residents are moving out of state but not at unusual rates. 

He added that despite growth predictions, Washoe County experienced lower rates of in-migration than expected through the COVID-19 pandemic, but still saw an increase in home sales —  supporting evidence of investment purchases and indicating that many of the home purchases are being made by investors, such as mom-and-pop rental property owners and larger rental investment corporations. There are also trends of millennials joining investment pools that combine assets and money to purchase homes, he said.

A report from the Nevada State Apartment Association (NVSAA) attributes the increasingly hot apartment market to the region’s tight housing supply and growing population.

“Of course, this growth is being boosted by people moving here from more expensive parts of California, including the Bay Area, Sacramento and Southern California,” NVSAA Executive Director Susy Vasquez said in a press release. “This trend seems likely to continue, at least for the foreseeable future.”

It’s a similar story in Southern Nevada — Vivek Sah, director of the Lied Center for Real Estate at UNLV, said that he does not believe that the presence of house flippers or individual investors looking for short term profits in the area is large, but, along with wealthier individuals typically coming from out of state, corporate buyers are sweeping into the market and purchasing swaths of homes in neighborhoods and then renting them out. 

“I think in a year or so you'll see these communities ... renting communities rather than renting apartments where there is more of a transient feeling,” Sah said. “That's kind of a shift and I think that … a lot of [cash buyers] are those corporate buyers and a lot of those again are from California, from high-priced markets, who are buying for cheap.”

One potential homebuyer, casino executive Michael Kleman, said he has seen buyers purchase for the rental market firsthand.

In February 2020, Kleman placed an offer on a home in Las Vegas for $375,000. The seller accepted, but one month later the pandemic hit Nevada and Klemen canceled the deal after his employer, MGM Resorts, furloughed about 90 percent of its workers. 

“I got cold feet, so on April 1, a day before our actual close date, I backed away,” Kleman said. “Probably the worst decision of my financial life.”

Now, homes in that same neighborhood are selling for up to $80,000 more than they were last February — Kleman said he noticed that many buyers in his price range end up turning around and renting out their newly acquired properties. 

“Whether it's hedge funds now buying houses or people saying, ‘Oh, I own two houses already, I'm going to buy three, four, five and keep the rental income coming in,’ it's just frustrating,” Kleman said. “Something that was once aspirational has just been turned into a moneymaker for people that have the cash to go about it, and I think that's really the ceiling for a lot of people.”

Competing for a home

Competing with cash buyers is almost impossible, said Diane Arvizo, the director of the Nevada Rural Housing Authority's homeownership program. The agency offers down payment assistance, lower financing rates and mortgage tax credits to qualifying Nevadans across the state.

Despite the challenge of competing against cash buyers, Arvizo said that the Rural Housing Authority's homebuyer's program is experiencing a record volume of borrowers committed to buying a home, just not in all regions.

In Northern Nevada, because the job market was less affected by the pandemic, the number of people seeking housing loans has increased, she said. But in harder-hit Clark County, the program has experienced a "massive drop" in loan activity. 

Seventeen percent of the program’s loan volume used to be in Clark County, Arvizo said, but volume this year has dropped to only 10 percent.  She and others are waiting for the number of loans to increase as the economy improves, but in smaller counties such as Elko, the homeowner program is already seeing tremendous growth — going from 11 percent of program loans in 2019 to 15 percent in 2021.

Arvizo explained that the increase in users of the rural homebuyers program is driven partly by the escalating rent prices in cities such as Reno and Las Vegas. 

A Nevada State Apartment Association report showed that asking rents for apartments in the Reno-Sparks area during the second quarter of 2021 averaged about $1,475 per month, up by almost 7 percent compared to one year earlier. In Las Vegas, the average rent is $1,322 a month, an almost 18 percent growth from one year prior.

Faced with rising rent prices, renters are now considering becoming homeowners and using their money to pay off the mortgage of a house they own, Arvizo said.

But with cash buyers snapping up a greater share of homes in metropolitan areas, purchasing activity through the homebuyer program has greatly increased in Eastern Nevada, specifically along the I-80 corridor from Winnemucca to Elko and West Wendover.

"I think good cash buyers are really trying to snatch up homes in the heart of Reno, areas that they can rent out, or people coming from California that want to live right in the city," Arvizo said. "We serve the rural areas, so I think that rural homebuyers just have a leg up because they're willing to go out a little bit further."

But buyers even in rural Nevada are still struggling to find homes in the market.

Bethany Frediani said she and her husband already own a house in Gardnerville, but wanted to start looking for something closer to Carson City and Reno, where her husband works as a travel nurse. 

The 32-year-old owner of Shelby's Book Shoppe in Minden said that they went to tour a house last summer, but by the time they finished the tour, the sellers already received two cash offers and one of them was $20,000 over the asking price.

“I think that was when we realized that we were gonna have to stay put for a while,” Frediani said. “We still hope to move, eventually. But clearly, not until things calm down.”

In addition to the cash offers, the other struggle she and her husband faced is that they would have to sell their old house before buying a new one. She knew that it could sell quickly, but there was no guarantee that they could find something affordable before having to move out.

Though the Rural Housing Authority has seen an increase in applications, the statewide program has scaled back on its homebuyer program, according to Dwight Pace, the Nevada Housing Division's statewide homebuyer programs supervisor. 

Pace said that the statewide program is focusing on preparing potential homebuyers so that when supply and demand even out, they will be qualified and ready to purchase a home.

Uncharted territory

There are many opinions, but little certainty as to how the influx of cash buyers will affect Nevada’s housing market in the long run.

The majority of foreclosed homes during the Great Recession were held by investors, Bonnenfant said, pointing out that flipping speculators helped create the housing crash when they defaulted en masse. If the ownership pool in a housing market becomes saturated with investors and an economic shock creates a panic leading to investors walking away from loans, that could trigger the next drop in the market, he added.

But Bonnenfant said that scenario is unlikely, given the amount of money investors have already paid in cash, higher appreciation rates and other factors that have led investors to have more skin in the game. 

“You would have to lose a lot of equity that's now in the market for [investors] to walk. So you'd have to have housing prices drop first — and severely — for them to walk and that's just not going to happen,” Bonnenfant said. “We might see some plateauing ... and some plateauing is really what we're hoping for, and what will eventually happen.”

Sah added that the 2008 financial crisis was driven by subprime, risky mortgages and loose underwriting standards that promoted cheap finance-based home purchases, sometimes without income verification.

“People just borrowed money from banks and paid for those investment homes hoping to sell and make a profit,” Sah said. “This time is a bit different … you see a lot of other dynamics affecting the market.”

Meanwhile, homebuyers are navigating the market as best they can. For Kleman, the casino executive, that means renewing the lease on his rental and opting out of the market for at least another year, or until the market evens out.

Frediani is in a similar position. She and her husband are waiting and watching the market, but are not sure when prices might become reasonable again. She said they may take assignments elsewhere for a while and rent out their house in an attempt to save enough money to be able to compete.

“We don't know if we'll ever be able to move from where we are,” she said. “The future is all up in the air.”

Though it seemed Reynolds managed to find a happy ending to his housing search when a seller accepted an offer on Tuesday, negotiations broke down during the inspection stage of the closing process.

The veteran, who spent a combined nine years in the U.S. Army and Navy, said that he and family will keep searching until they find a home.

“I'm staying persistent,” Reynolds said. “It’s just like in the Army. When plan A doesn’t work you move onto plan B and when plan B doesn’t work, you go to plan C.”

Photographer Daniel Clark contributed reporting to this story and Video Producer Tim Lenard created the video used to showcase Leroy Reynold's story.