Trustee’s Sale Becomes Best Buying Option as Home Prices Rise in September

As you may know I have been very heavily involved in the Las Vegas real estate market for the last six years, both as a private investor and as a licensed real estate agent. As an agent specializing in undervalued properties, I have sold homes and condos to both owner occupants and investors at great discounts…before and after the bubble burst.

The current Las Vegas market represents one of the greatest buying opportunities that we have ever seen in real estate. Prices have over-corrected as a result of the credit crisis and have come down to levels that are way below builders’ costs. We are seeing condos selling at about $35-$45 per square foot and single family homes selling as low as $50 to $60 per square foot. From October of 2007 to May of 2009, the average median home price in Las Vegas fell approximately $10,000 per month…every month. As prices began to stabilize in the summer of 2009, investors realized that a bottom was arriving and began to flood back into the market. This past summer saw record sales volume in the Las Vegas valley. There were over 3700 closes in both June and July, 2009…beating even the previous monthly highs set in the summer of 2004, at the height of the bubble. Of these closings, 45% were cash deals and 40% were to investors (as opposed to owner occupants)…these numbers also exceed the percentages posted in 2004.

This extraordinary demand for great properties at great prices in Las Vegas caused the median home sale price to increase in September…the first increase in the Las Vegas market in over two years. September also saw sales taper off slightly. The general consensus, however, is that this decline is not because of a reduction in demand, but rather because of a drastic reduction in supply. In September only around 1800 homes were returned to bank ownership through the foreclosure process. In contrast, 3358 single family homes sold in this same month. Since almost 70% of all these sales were on foreclosure/REO properties, this represents a situation where more homes are being sold than are coming on to the market. The prices are low, the demand is high and, as a result, prices are starting to creep up on these REO sales. In addition, we are seeing multiple bid situations on almost every REO property that comes up for sale. These circumstances are making finding good deals by buying REO properties very difficult.

The most viable option at this time for acquiring properties below market value is at the trustee’s sale. Once the owner of a property passes his 90 day notice of default period, he is issued a notice of trustee’s sale. After the NOS, or notice of sale, is given, the owner has 21 days to cure the default or the property will be sold to the highest bidder at the trustee’s sale. Buyers at the trustee’s sale in Las Vegas are currently picking up properties for a discount of about 20% under the already heavily discounted REO listings that are setting current market values. For example: If a home sold in 2007 for $300,000, and it is now worth about $100,000 on the REO retail market, it may be picked up at the trustee’s sale for around $80,000. This would represent a buy price of approximately 25 cents on the dollar from the highs of just a few years ago.

I have spent the last several months working with a handful of investors and have made several purchases through the trustee’s sale. If you are interested in finding good properties at the best prices in the hottest foreclosure market we have ever seen (and may ever see) please give me a call or shoot me an email and I can go over the details with you. Buying at the trustee’s sale represents not only a great opportunity for the buy and hold investor to purchase properties for cash flow, but also represents the only viable opportunity for flip investors in Las Vegas to actually resell a property for a quick flip profit.

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The Las Vegas Real Estate Market Bottom is Here!

The moment we have all been waiting for…for the past two years…has finally arrived! You will not hear about this on the national news…yet…because the news sources are always well behind when reporting trends. You will hear it from me: a full time investor and “on the street” veteran agent that is seeing firsthand a dramatic change in the face of Las Vegas real estate.
I am here to announce that the bottom of the Las Vegas housing market is here. Let me explain why I believe this to be the case, and why now may be the best time since the great depression to be buying up real estate, especially in the Las Vegas market.

In late 2006 and early 2007 the Las Vegas real estate market hit its all time median price high of around $320,000. Shortly thereafter, the now infamous “credit crunch” began in late summer 2007 and the entire economy, especially the housing industry, has been reeling backwards ever since. Over the last 18 months, the median home price in the Las Vegas valley has dropped an average of $10,000 per month…settling in at around $125,000. Prices have literally plummeted by as much as 75% in some segments of the Las Vegas market. And guess what? The free fall is over. They are not going to go down anymore.

I understand that this is a bold claim. But there are several factors that you must evaluate when trying to determine the bottom of a housing market. I have quoted these factors several times over the last two years, and have always maintained that they did not all line up…until now. The factors are: 1. The inventory of homes listed on the local Multiple Listing Service (MLS). 2. The number of homes being sold in the marketplace. 3. The average median price of homes. Once the inventory stops increasing, the volume begins trending upward and the median price stabilizes… you have found the true bottom of the market.

Looking first at number 1: The inventory of available single family homes in Las Vegas remained relatively stable at about 22,000 homes through much of 2008. This inventory is now at a level of just under 12,000 homes listed on the market ready for sale. Inventory is nearly ½ of its 2008 levels. Homes under $200,000 now have less than 4 months standing inventory. Homes under $100,000 have less than 3 months inventory. A normal healthy inventory is considered a 6 month supply of homes. The inventory of available homes is getting scarily low as realtors are worried about what to sell if they do not get some fresh foreclosure inventory.

Foreclosures reached an all time high in March of 2009 with over 7700 new foreclosures announced in Clark County. A large factor in this number being so high was the moratorium announced by the Obama administration that ended in the first quarter of the year. In contrast, April 2009 totals are showing only 1289 homes were foreclosed on in Clark County. This is the smallest amount of foreclosures for the Las Vegas area in the last 16 months. As foreclosures dry up, this will continue to contribute to the huge decrease in standing inventory that we are now observing.

Moving on to #2: With each passing month since early 2008, sales volume has picked up in Las Vegas. There were over 4000 sales in the Las Vegas market in April of 2009. Because of the lower prices more people can afford to buy…and they are buying. More investors are entering the market as properties have not cash flowed like this in over 10 years, and home prices are now at 1998 levels. It does not take a brain surgeon to figure out that if you have 1300 new listings (new foreclosures), and you sold 4000 homes, your inventory is shrinking dramatically on a monthly basis.

The final factor to consider is median home price. The median home price in Las Vegas has dropped a TOTAL of $10,000 over the last three months…as opposed to $10,000 PER month…which had previously been the steady rate of decline for the last year and a half.

Inventory is getting smaller, prices have dropped to very affordable levels and appear to be leveling off, and sales are getting busier each and every month. The sheer numbers of foreclosures are finally decreasing from their highs also. All of this data helps to paint a clear picture of what is happening in the Las Vegas real estate market. But let me also share with you some non scientific observations that we can add to the equation.

As a full time investor and a licensed realtor I am getting shut out of properties left and right. Most properties both low end (under $150,000) and higher end ($300,000 and up) are receiving multiple offers and are now selling for prices above the list price. I am amazed at the amount of traffic I am coming across when I go out to look at properties. Some homes are getting 15-20 offers in the first couple of days after listing. More than 90% of all my purchases this year have been cash deals and I am still getting rejections in some cases even when we are coming in with full price cash offers.

Well, my friends, the cat is now out of the bag. Everyone now knows that Las Vegas real estate is cheap. Homes are well below replacement costs as the average foreclosed home is selling for around $78 a square foot. I just closed this week on a 2221 square foot home for $117,000 or $52 a square foot. It took nearly a month to negotiate this one down. Homes and condos are 50-75% off their highs and people are buying everything in sight. The good old days are back again. And, for the record, even if I am off slightly in my evaluation and we drop another 10% or so, it is still the best time to be buying real estate in Las Vegas. We have historically low interest rates of around 5%, great government incentives, especially for first time buyers with the $8,000 chameleon-like tax credit, and new lower comparable sales to justify banks accepting your lowball offers.

So if we have hit the bottom…as I suggest…how long will we be here? Will the market spike up or slowly trudge along the bottom until the economy as a whole begins to recover? I will explore those thoughts in more detail in my next article.

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How to Profitably Invest in Foreclosures

Within the realm of real estate investing, each type of investment (foreclosures, fixers, land, REITs, etc) has its good and bad times to buy. To be a successful investor you need to be able to identify not only which type of investment is the best at any given time but also which sub-category within that investment type you should look to specialize in, and when in the market cycle to buy.

Perhaps you are new to real estate investing (or not) and have heard that foreclosures currently abound and offer the best way for investors to gain instant equity in a property. This may well be very true. But the designation “foreclosure” is a general term comprised of many types of properties. Understanding the different types of foreclosures, where in the time line a particular foreclosure stands and which type of foreclosure offers the bet deal is critical to your success as an investor.

Along the time line of the foreclosure process, there are three basic areas that present buying opportunities for investors. The first of these has investors buying before the foreclosure auction. The second opportunity comes through buying homes directly at the auction. The third and final possibility is to buy properties after the auction is over, either directly from the bank or from an auction company. These bank owned properties are referred to as REO’s or Real Estate Owned. Each of these stages in the process provide unique benefits as well as challenges. The smart investor will need to contrast the pros and cons of each method in order to find the best and safest investment opportunities within the broad field of “foreclosures.”

The first opportunity for foreclosure investors, buying before the auction, encompasses the period of time when home owners are behind on their payments and realize they are in danger of losing their home but have not yet been foreclosed upon. This sub-category will include listed properties from the multiple listing service (MLS), short sales, notice of defaults (NODS) and notice of trustee’s sales (NOTS). For a number of important reasons, this is not a good time for anyone to be attempting to sell a home through “normal” retail channels. The sluggish nature of the housing market, the excess low priced inventory on the market, lending resrictions, and the anxiety of potential buyers willing to sit on the sidelines and wait for conditions to improve combine to make selling retail nearly impossible for most home owners. Sellers cannot compete against foreclosures so unless they too become a foreclosure they have no viable way to sell their home. This means that we as investors will have a very hard time finding a property to purchase with equity in it, at this stage of the foreclosure process.

There is one segment within this first stage to which we should direct a little bit of extra attention: short sales. A short sale occurs when an owner is in trouble and a potential buyer comes in and negotiates with the bank to purchase the property for a value less than the amount owed on the loan. This provides both a potential solution to the home owner and a way for investors to get a home at below market value. The downside to this method is that with the huge amount of foreclosures blanketing the nation, short sales are taking way too long to complete (4-6 months on average) or aren’t going through at all. Some recent statistics show that only about 20% of short sales actual close. There are still many companies, Realtors, and investors that are quite successful in short sales, but this niche is difficult and not one in which most investors find success.

The second opportunity for investors comes through buying properties at the foreclosure auction or trustee’s sale. Note that some states liquidate foreclosures through judicial proceedings, while others, like California and Nevada, have trustee’s sales that are held on the courthouse steps. The positive side of buying foreclosures at auction is that the competition for the property you are looking to buy is not usually all that stiff. However, in trust deed states you must have cash or the equivalent of at the time of the auction to be the winning bidder. This eliminates a huge majority of potential buyers as most folks do not have $100,000 or more easily accessible in cash. Because REO properties are now selling for levels under amounts owed on comparable properties in the (NOTS) stage, buying at the trustee’s sale is not a viable way to buy in most situations. Most properties brought to auction at this point are failing to sell for asking price and are reverting back to the banks and becoming bank owned REO’s. Again, there are professionals who are buying good properties at trustee’s sales and auctions, but it is not an easy way for a beginner to break into the foreclosure arena and it is a very small segment of the market at this time.

By far the best, easiest, safest, and most lucrative way to buy foreclosure properties at this time is during the third and final stage of the process: when the properties that are not sold at auction revert to the banks and become REOs. Because of the huge volume of foreclosures now on the market and the record numbers that will be coming in over the next 12-18 months, banks are lowering their prices daily just to move inventory. Banks are also, in many cases, placing homes with listing Realtor agents that specialize in selling REO homes.

If the properties do not sell in a 60-90 day period (after initial price discounting) many properties are going back to the bank and being re-listed t an even lower price with an auction company or sold off in bulk REO portfolios of $5 million and up for literal pennies on the dollar. Another benefit of bank owned properties is that they are almost always vacant, making it easy to get inside and inspect them before purchasing. This is usually not the case when purchasing in other stages of the foreclosure process where most homes are still occupied by owners or tenants.

As an investor and licensed Realtor that has bought homes in all stages of the foreclosure process, both for myself and for my investor clients, I am advising my clients to take full advantage of what could be one of the best foreclosure buying markets we will ever see. I personally am based in the Las Vegas area and I have seen the Las Vegas real estate market go from the #1 hottest in the nation in 2004, to one of the slowest in 2007. In 2009 volume is increasing and Las Vegas is once again becoming one of the best and busiest real estate markets in the U.S. There is one thing and one thing only that is driving this change: foreclosures.

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