Will Cash Flow For Cash

Over the last five years I have sold a lot of real estate in many different markets nationwide. In 2003, droves of investors came into the Las Vegas market and purchased single family homes and condos. In 2004, the scene repeated itself in the Phoenix market. In 2005, towns like Albuquerque and Austin saw investors moving in to snatch up large quantities of new construction homes. Finally, in 2006, the Carolinas became hot and certain areas on the Gulf Coast enjoyed profitable buying conditions.

I was on the move throughout this time period, visiting all of these markets and helping my investors find deals there. All the while, I was sitting on the sidelines at home. After 2003, home prices in the Las Vegas valley became too high to cash flow and purchasing here no longer made sense to investors. Of course, that all began to change in the summer of 2008 as the real estate bubble burst abruptly and prices began free-falling throughout much of the West. As home prices plummeted, Las Vegas began to make sense again for investors because the point of cash flow was once again reached. The “point of cash flow” is a simple equation in which the amount of money an investor can make from renting a home exceeds his/her costs of ownership. These costs of ownership include the mortgage, taxes, insurance, repairs, and property management. With a 20% down payment (or in many cases less), positive cash flow can now be achieved in the Las Vegas market for the first time in several years. This is due primarily to the rock bottom prices of the foreclosures that have been flooding the market. Not only has Las Vegas lead the nation in foreclosures for well over a year, but the amount of foreclosures coming on the market now are near triple the amount from just a year ago. Currently, in the Las Vegas valley, nearly one home in 40 is in some stage of the foreclosure process. The median home price has come down approximately $10,000 per month, every month for the last year and a half from a high of near $300,000 to a new median price of only $140,000. These drastic price reductions have created a new buying boom.

Local newspaper articles and analysts talk about a 30% declines in home values here in Las Vegas. But as a full time investor myself and a licensed Realtor, I can tell you the reality is that we are seeing prices that are being discounted 50-70% off of where they were just two years ago. Many of my deals over the last couple of months have been coming in at well below 50% of older, higher values from 2006. I recently sold a one bedroom condo at $31,000 that sold for $148,000 two years ago. That is nearly 20 cents on the dollar! Three bedroom homes, only two years old, that sold new as high as $300,000 are now priced under $120,000. I recently closed on a three bedroom, 1300 square foot home for $75,000. This same home sold for $244,000 just three years ago. Deals like these are typical of what I have been getting for my investors.

These incredible prices open the door for virtually anybody to step back into the Las Vegas market and begin buying once again. Utilizing the government’s Housing Recovery Foreclosure Bill, 1st time buyers have a $8000 tax credit to take advantage of and Baby Boomers and retirees looking to relocate to a warmer weather destination do not have to head south of the border as the Southwest has become affordable once again. The vacation capital of the world now makes sense for second home and vacation home buyers, and, of course, investors are delighted to be able to cash flow on their investments in Las Vegas once again. All of these groups will also benefit from price appreciation over the next several years as the market continues its recovery.

The only bad news, as we all know, is that lending guidelines have tightened up considerably over the last year. But, to offset this, prices are ½ of where they were two years ago. If you have a good job, and good credit, it is a great time to be buying a home. Interest rates are at historic lows and now is a great time to lock in a good rate on a 30 year fully amortized note, rates literally have no place to go but up. Current reports show that nearly 85% of closings in this market are being financed through a lender. So it is clearly still possible to get a loan. However, of the nearly 50 deals I have closed this year, only five of them were financed. Nearly 90% of my deals have been all cash. Not only am I getting more deals accepted, but I am getting them at or near list price in most cases and getting them pushed through rapidly. I just had a lender for a bank owned property countact me stating that they were willing to accept our lower than list price offer as long as we could close in 10 days with all cash (as we had stated). They had two other offers on the table for more money but banks do not want to fool around with financing either. They want to take the sure cash sale even if it is at a huge discount. This just goes to show that even though financing is available, cash is still king right now in this market.

June and July of 2009 have seen record sales in Las Vegas with 4702 and 4602 closes in each of the last two months. After 18 months of declines we have seen 3 months of holding steady on pricing. Investors have sensed the bottom has been reached and are coming in droves to pick up homes and condos at the bottom of the market. So, folks, if you have been able to save some money, or if you still have a line of credit open, I suggest you come back into the Las Vegas market and start looking around for some real bargains. The banks are ready to deal and the timing to buy a great foreclosure is as good as it gets.

Continue reading

Glenn Plantone Quoted in Las Vegas Sun

I recently had the pleasure of being interviewed for an article written by Brian Wargo for the “In Business” section of the Las Vegas Sun. Following is a reprint of the article which was titled, “Single Family Homes Catch Investors’ Eyes – Buyers Focus on Rental Income More Than Appreciation Potential”:

Southern California investors have returned to the Las Vegas market in force to look for bargains on single-family homes and helped drive Las Vegas to a record number of sales in June, housing industry experts said.

The number of investors buying new and existing homes in Las Vegas rose 35 percent when June numbers are compared with June 2008, according to San Diego-based DataQuick.

The demand for investors buying existing homes has helped that segment of the market fare the best when it comes to real estate investing over the past year and kept housing prices stable between April and June, analysts said.

“Real estate has always been a good investment, and right now it has never been better from a residential standpoint,” said Steve Bottfeld, executive vice president of Marketing Solutions. “I just wouldn’t invest in commercial (real estate) because it is about to go through what residential already has.”

DataQuick reported that investors made up 37.5 percent of the buyers of both new and existing homes in June. That’s the second highest June this decade when it comes to investor-purchased homes, next to the 39.4 percent in June 2004. It’s also the highest percentage of investors as buyers since it was 37.6 percent in February 2006, said DataQuick spokesman Andrew LePage.

The influx of investors into the market is evident since it hit a low of 25.3 percent in September 2008 in the aftermath of the housing boom. In June 2008, investors comprised 27.8 percent of the sales, below the 30.3 percent average for Las Vegas between January 2000 and June 2009, LePage said.

No one should confuse this class of investors in residential real estate with those during the boom that bought and flipped houses, Bottfeld said. These investors are looking to hold long term and earn money off rental income, he said.

It makes sense because if someone can buy a home for $100,000 in cash and rent it for $1,000 a month, that equates to a 12 percent return before taxes and other expenses are included, Bottfeld said. Even getting an 8 percent return is better than the 2 percent they might get at their bank, he added.

Glenn Plantone, a Realtor and president of the Real Estate Insiders Club in Las Vegas, said investors are taking advantage of a steep drop in prices since they peaked in 2006. In some cases, prices of homes in the northwest fell 70 percent.

Homes that sold for about $300,000 are going for about $110,000 he said.

“They are buying them for cash flow,” Plantone said. “We are not even talking about appreciation potential.”

The market to rent homes remains strong because people understand the value compared to renting an apartment, Plantone said. And for those homeowners who lost their home to foreclosure, they want to stay in a home.

“It is a lot easier to rent houses than condos,” Plantone said. “We are getting people who are walking away from a $2,000 a month home payment and going across the street to rent a home for $1,200 in immaculate shape.”

Despite the interest in Las Vegas, it is not as strong as Phoenix where 39.6 percent of sales were bought by investors, LePage said.

Most of the investor buyers that Plantone said he has dealt with are Southern Californians. Many are small businessmen who have several hundred thousand dollars to invest and have been waiting for an opportunity in real estate.

Plantone said these buyers are savvy because none of his investors has bought a property for more than $121,000. They are looking for homes built in 2003 and later.

Robyn Yates, the broker-owner of Windermere Prestige Properties said not only are investors coming from Southern California but there has also been a lot of interest from foreign buyers, especially in Asia. Some are even buying homes without seeing them in person, she said.

Many investors have been hurt by the decline in the stock market and liquidated some of those assets or took out money from their 401k despite having to pay a penalty, she said. In some cases, there are a group of five people pooling cash to buy 10 homes, but most are individual investors, she said.

“Some of them were just holding onto cash until the opportunity was right,” Yates said. “I think they are going to be around for another couple of years.”

As long as homes can be bought much cheaper than builders can construct them, there will be a market for investors in Las Vegas, Yates said.

Plantone said that many of these buyers will leave the market when prices go up $20,000 to $30,000 because their investments won’t pencil out for rental income as they will now.

“That’s why investors have been so aggressive,” Plantone said. “I am telling people they may not see a better time to buy since the Great Depression.”

Investors are winning out over frustrated first-time buyers for the properties because they are offering more than the list price and because they have the advantage of offering cash, Plantone said. It was only three months ago that buyers could get properties below list price, he said.

Any investors who bought in 2007 or early 2008 wouldn’t have had any luck with appreciation, although buying single-family homes fared the best out of all real estate investment categories over the past year, according to Larry Murphy, president of SalesTraq, a Las Vegas housing research firm.

“The single-family home has always been the preferred house of choice with most people,” Murphy said. “Most people want the picket fence and the back yard and not being attached to someone.”

Between the first six months of 2008 and first six months of 2009, the median price of single-family homes fell 34 percent, Murphy said.

The best performer on price appreciation when it comes to planned communities was Silverstone Ranch in the northwest valley. The Pulte Homes community had a median price of $226,000 in 2008 and that fell 19 percent to $182,500 through the second quarter this year, Murphy said.

Homes performed better than an acre of undeveloped land, whose median price fell 42 percent over that timeframe, he said.

Third on the list were mid-rise condominiums, which fell 49 percent in the past year They were barely ahead of high-rise condos whose values fell 50 percent and other condos and town homes which fell 51 percent, Murphy said.

The worst investment over the past year was apartment conversions with values falling by 56 percent, Murphy said.

The worst of the that segment was the Meridian at Hughes Center on Flamingo Road, east of the Strip that was converted from apartments to condominiums between 2005 and 2007, Murphy said.

The property, which had a failed attempt at trying to convert into a condo-hotel because of Clark County regulations, sold for $604 per square foot when it first entered the market. The average price was $539,000, Murphy said.

Through June, the average resale price has fallen to $87,611 or $121 a square foot, Murphy said. With that drop in price has come rising foreclosures. Murphy reports that 201 of the 680 units or 30 percent have been foreclosed upon, and that number is likely to rise. The foreclosures have been running as high as 25 a month so far in 2009, he said.

Murphy said he’s not surprised apartment conversions have fared the worst because in essence some are 20-year-old buildings that have a new granite countertop.

There was a strong demand for condo conversions during the housing boom because they were the only units available that could be bought for $200,000 or less. With homes more affordable today, that softens the demand for conversions, he said.

Land came in second after single-family homes because despite the meltdown in the market, it remains a precious commodity, Bottfeld said. Even though Las Vegas is overbuilt, there is a limited supply of land because of restrictions by the federal government, he said.

There is not as much movement on buying high-rise condominiums because the inventory is limited and banks have been reluctant to put that inventory on the market at bargain prices, Plantone said.

The high-rise condominium market that has fared poorly is condo-hotels in which buyers put the room in the daily hotel rental pool. Demand for hotel rooms has been weak in the economy and hotels only return about $30 for every $100 in rental income, Plantone said.

Continue reading

© 2022 VIP Realty Group. All Rights Reserved