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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Short Sales or REOs?

Over the last year, many of my clients have asked me about the feasibility of short sales…both from a seller’s perspective, as a way out of an upside down property; and from a buyer’s perspective, as a way to acquire properties below market rate. Up until recently I have advised most of my clients away from short sales…as a buyer or as a seller. The reason was simple: lots of time invested, small chance of success. As a rule, since the housing bubble burst and the credit crunch began, banks have been overwhelmed with defaults and the departments in charge of evaluating and approving short sales have been notoriously slow and inefficient. Trying to negotiate a short sale with the bank often resulted in frustration for all parties involved with a very low success rate.

As a result, I have advised my investor clients to seek out REOs as the best buying opportunity here in Las Vegas. Time, however, are changing. My recent articles on the Las Vegas housing marketing have highlighting the dwindling supply of bank-owned REO properties available. Each month the demand for these REOs and the closings exceed the fresh supply of foreclosed homes coming from the banks. This has resulted in bidding wars across the Las Vegas valley as investors and primary residents eager to capitalize on the best real estate buying opportunity in decades flock to purchase the REOs that make their way on to the market. But with the percentage of homeowners behind on their mortgages still at all time highs, why is the number of foreclosures entering the market declining? The answer may be the increase in short sales.

Brian Wargo of the Las Vegas Sun recently wrote an article discussing this increase in short sales. In it, he quote Larry Murphy, president of the real estate monitoring firm SalesTraq, who says that of the 35,742 closings through the first three quarters of 2009 75% were foreclosures and only 10% were short sales. However, of the 11,249 contingent sales currently in place in Las Vegas, 71% are short sales and only 21% are REOs or foreclosure homes. This represents a dramatic shift in banking policy.

Murphy believes banks are becoming much more willing to consider short sales because they are finally realizing that short sales generate a higher sales price for the banks than REOs. Data supports this. The median price of homes sold through foreclosure is $116,900, while the median price for homes sold through short sales is $150,000.

The federal government has also adopted standardized rules for short sales, simplifying the process. This, combined with the pressure being exerted by the Obama administration to keep homeowners out of foreclosure, is creating a much higher approval rate for short sales. This, in turn, is keeping the flood of foreclosures that we had been expecting here in Las Vegas off the books and creating the progressively lower inventory monthly of bank-owned REO homes.

All-in-all, whether you are a seller looking to get out of an upside down situation or a buyer looking to capitalize on low home prices, now may be a great time to consider the short sale as an option.

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Latest Update — MGM Signature Towers

It has been a little over three months since my last update on the MGM Signature Condos and I wanted to update my readers on the new developments that have been taking place. Those of you who are on my mailing list will have received a spread sheet I produced that details the profitability of a studio unit purchased recently for $150,000. This same unit was selling for $465,000 at its high three years ago. The spreadsheet shows that purchasing the studio unit for $150K, or roughly 32 cents on the dollar, would result in positive cash flow for the new owner.

In crunching the numbers on the MGM Condos, I have come across an interesting anomaly that I would like to share with you: The one bedroom units that are placed into the rental program have historically generated lower occupancy rates than the studios. Yet they cost about twice as much (the new lowest 1 bed sale has been $185,000), the HOA fees are nearly twice as high ($1000 vs. $500 for the studio), and they only rent for about $40 more per night. Potential investors should keep this in mind when considering studios vs. one bedroom units at the MGM Signature Towers. The one bedroom units are getting close to being a good deal for a buyer that is thinking of either living in it, renting it outside of the MGM rental program, or just holding it as a second home. But the one bedrooms are not as attractive as the studios from a pure investment perspective.

So far, the six lowest price studio sales in the entire project have been transactions that I have been able to negotiate for my clients. I was recently able to broker a deal in which one of my investors purchased a bulk bundle of four studio units at what amounted to $118,000 each. The Mountain View studio units are selling for the $120K-140K range and the strip view studios are now selling in the $140K to $180K range. The higher range would include the studios with a patio. The unit I discussed in the first paragraph that originally comped for $465K and recently sold for $150K, was a higher floor studio with a strip view and also a patio.

The inventory remains very light at this time. Currently, there are only 9 bank-owned foreclosures available in the MGM Signature Condos. 8 of them are studio units and one is a one bedroom condo. There are still quite a few short sales in various stages, but we are beginning to see a lot of short sales reverting back to the bank and becoming foreclosures as the short sale process is very slow and agents and banks are often unable to get them approved before the foreclosure happens.

Because of the light inventory of REOs and the difficulty in successfully negotiating short sales, I am beginning to look at the Trustees Sale in order to purchase affordable MGM Signature units for my investors. We are starting to see many studio units being sold at the Trustee Sale for around $120,000. MGM Signature Condos continue to be a great investment opportunity for those looking to acquire properties and utilize a buy and hold strategy. However, the really good news is that if you are looking to buy and flip, there is the opportunity to make $20,000-$50,000 per condo in a two month period through purchasing MGM Signature units at the Trustees Sale. If you are interested in this opportunity, please contact me for more details.

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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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