Constructing a market comparison between Las Vegas and Charlotte creates another illustration of two cities with characteristics that are in stark contrast to one another. Las Vegas is well known as one of the nation’s foremost entertainment epicenters with an elaborate gaming industry, and a highflying city culture that has made it the topic of many stories and urban legends. On the other hand, Charlotte is a much less auspicious city, nested in North Carolina and home to a grand multiplicity of banking interests, second only to New York.
When looking at a trend line of the price history between the two markets since 2003, there are two things that dramatically stand out. The first is that the market price level in Charlotte has moved very slowly over the past decade, resulted in a compounded annual growth rate of little over 1%. The second major item that sticks out is the dramatic rise of prices for real estate in Las Vegas, the dramatic crash that subsequently ensued, and the long trough that has only recently resumed a recovery path.
One cannot help but see the contrast in these two markets from the perspective of opportunity and stability. Las Vegas was exceptional for people who timed the market correctly, but has been absolutely dreadful for people who purchased at the top, and rode the roller coaster all the way to the bottom. These people have incurred horrendous losses that resulted in many properties being foreclosed by the banks. Many of these properties were eventually 
purchased by individuals and investors as prices regressed toward a more reasonable level, and have been regressing back toward 2003 levels.
The ROI profiles of the respective cities are equally telling. The estimated rate of cash flows in the two cities are slightly negative for Las Vegas and slight positive for Charlotte, but the more interesting aspect is the impact of leverage and appreciation.
Market prices in Las Vegas have recovered to a point that is just slightly above where they were in January of 2003. This has resulted in a slightly positive amount of compounded appreciation, which leverage up to a modest return, which is offset by the estimated negative cash flows.
In contrast, the slightly positive estimated positive cash flows in Charlotte are increased by the positive leveraged cash flow from the linear appreciation pattern for the city. One of the unique aspects of a city such as Charlotte is that the steady, modest rate of appreciation makes the timing of your investment much less critical than with a market such as Las Vegas.
The contrast becomes even more dramatic when the time table is shifted forward. When the start date for our analysis shifts forward to 2009, the overall rate of appreciation ends up looking almost identical between the two cities, with Charlotte following a flat trajectory an Las Vegas dropping into a trough and encountered an increase in market prices that only recently brought the two markets toward parity.
The consideration that investors should keep in mind when evaluating markets such as Las Vegas and Charlotte is that linear markets provide much better protection against poor timing of your purchase. For people who buy-in at the top of a market cycle, markets such as Las Vegas can be the kiss of death. The reason for this is because cyclical 
markets tend to rise and fall in very large swings. This can be wonderful when you buy-in to the upswing, but is horrendously destructive when you buy into the collapse.
Intelligent investors understand that the first order of business is to look after the risk that you are undertaking with an income property investment. Cyclical markets provide the opportunity for a great adrenaline rush when you are lucky, and buy just before a big rally. An example of this can be expressed by moving the timetable for our analysis between Las Vegas and Charlotte up to 2010.
When we start our market comparison in 2010, it alters the picture considerably. The price recovery in Las Vegas has primarily taken place during this time interval, and people who purchased at this time have had the benefit of significant price appreciation. This demonstrates the great secret behind success in cyclical markets, which is to purchase in front of a significant uptrend in the market price level.
By extending this market price chart through to the estimated ROI profile of each city, we can very clearly see if you purchase in Las Vegas at the right time, it can produce very significant leveraged appreciation to drive an overall ROI profile that is well in excess of Charlotte over the same time interval. The key word is “if.”
