Great Las Vegas Investment Properties...But Will They Rent?

Real estate prices have fallen over 70% in Las Vegas, and aggressive investors are now flooding back into the market to snatch up bargain properties. Real estate experts are touting the strong cash flow potential that Las Vegas properties now offer. Still, I have found that of the dozens of potential Las Vegas real estate investors I speak to every week, most of them share the same concern: Will I be able to find tenants for my investment properties? This is a great question. Exactly how strong is the rental market in Las Vegas? How long will it take to get your investment home or condo rented? What is the vacancy rate in Las Vegas?

Rental vacancy rates are published yearly and I am still waiting to see the data for 2009. But vacancy rates don't tell the whole story. Because rental vacancy statistics are heavily weighted towards apartment buildings, a high rental vacancy rate for a particular city does not mean that rental homes and condos are necessarily experiencing high vacancy rates. With foreclosure rates in Las Vegas leading the nation for the last two years, many families who are used to living in houses are losing their homes. These families look to rental house and condos to find a new home that fits their lifestyle. So even when overall vacancy rates in Las Vegas have been high, we have continued to see strong demand for rental houses and condos. My personal experience has followed this trend as well. On the 80 plus homes and condos I helped investors purchase last year alone, we are currently running close to a 95% occupancy rate.

It is true that average rents have fallen in Las Vegas over the last two years. But rents have fallen only around 20% while home and condo prices have plummeted over 70% from highs of three years ago. This disparity has created a great cash flow opportunity for investors now entering the deflated market. Homes that were $300,000 are now selling for $100,000 and renting for as much as $1300 a month. Condos that were $225,000 in 2007 can be had for $59,000 and are renting for $900 per month. Homes and condos are experiencing tremendous cash flow that is well above the 1% rule. (Rents should equal at least 1% of the purchase price in order to cash flow positively.)

In the last year, I have sold to many investors, but one in particular has done something that I believe I will see a lot more of this year. He has cashed out around a million dollars from the stock market, purchased 10 single family homes (all around $100,000), and is cash flowing hugely at this time. Average rents on his properties are at $1150 per month and all of his homes are now rented out. If you consider the numbers on his particular investment: Rental income minus taxes, home owners association dues, insurance, minor maintenance, and property management... he is netting about $800 per month, per house. Multiply this by his 10 properties, and he is netting close to $8000 per month in returns. This comes to just under a 10% yearly return on investment. I don't know anyone right now who is making 10% per year on their stock portfolio. And these figures don't even take into account the appreciation that he will receive year over year on his properties as the market continues to recover. Nor does it take into account the tremendous tax benefits that come from investing in real estate. Once appreciation takes effect over the course of the next several years, and rents continue to rise, this guy will look like a genius.

This gentleman took a calculated risk and faced his fears about the rental market and is feeling pretty good about it at this time. (Amir, you are my hero.) Now that he has hit his goal of 10 homes, he is planning on buying 10 more over the course of the next year.

If you would like more information on the Las Vegas rental real estate market or investing in Las Vegas properties, please contact me.

Glenn Plantone
702-769-9872
teamplantone@gmail.com

Fierce Competition for Available REOs Means Investors Need to Change Course in 2010

I love the Las Vegas real estate market! Just like the city itself, the Las Vegas real estate market is always changing, always exciting. We saw the market reach bottom last year and begin to stabilize again as investors rushed back in to Las Vegas to snatch up foreclosure deals that generated phenomenal cash flow and excellent potential for appreciation. 2009 was definitely the year of the bank owned foreclosure property, or REO. In 2009, nearly 75% of all real estate sales in the Las Vegas valley were bank owned foreclosures (of the 71 homes I personally sold last year, 69 were foreclosures). However, towards the end of the year, these numbers began to change. Foreclosure inventories started to tighten up and as the year went on, the number of foreclosures as a percentage of total home sales continued to shrink. By January of 2010 only 57% of all Las Vegas real estate sales were bank owned foreclosure properties. Why?

The short answer is that there are fewer homes going into foreclosure. In December, 2009 there were only 1228 homes and condos foreclosed upon in all of Las Vegas, and in January, 2010 there were just 1352 homes and condos that made their way to the foreclosure trustees sale. These numbers are way down, to less than 15% of the total number of foreclosures reported in Las Vegas during the same months a year earlier. A major reason for this decrease in foreclosures, is the change in focus at the banks from foreclosing to short selling or modifying loans. As the Obama administration continues to push for banks to work with beleaguered home owners, short sales have risen sharply, as foreclosures have declined.

After having been in the low teens in early 2009, the number of short sales as a percentage of total home sales in Las Vegas rose to 22% in February of 2010.

I believe that short sales will be the answer in 2010 for investors looking to acquire property in Las Vegas at discounted prices. As REO inventory continues to shrink, even all cash investors are finding that while prices are low and cash flow is high, getting an REO under contract is a difficult and often unsuccessful prospect. By the end of 2009, homes listed in the multiple listing service (MLS) were, once again, like the old days of 2004 and 2005, getting multiple offers and selling for levels above their listing price. Houses that are priced right can be getting 10 to 15 offers within the first couple of days on the market. In February of this year, 50% of all home and condo sales were cash deals. The investors are back again in Las Vegas and they are dominating the market place. At this point, it is virtually impossible for a VA ($0 down) or FHA (3.5% down) buyer to get an REO home under contract. Both investors and potential owner occupants have a much better shot at securing a home if they go with a resale or new construction home. Unfortunately, resales and new construction do not offer the great prices that REOs do. So what is an investor to do?

I believe that the next great way to acquire properties will be through short sales. Short sales are gaining momentum as banks realize that they present a much better alternative for all parties involved than a foreclosure. Althoug short sales may sell for around the same price as bank owned REOs, the bank saves all of the fees and costs associated with a foreclosure, so their bottom line is much better. Plus, having a tenant or owner in place means the property will likely remain in better shape (less theft and vandalism) than a foreclosure. Short sales also represent a faster sale for the bank with no rehab and no down time for vacancy. Short sales are also great for investor buyers as they are much less competitive than REOs and in many cases they come with a built in tenant. Frequently, the owner or renter will wish to stay in the home they have already been living in and, in some cases, may even pay higher than average rent to do so.

New legislation, such as the Home Affordable Foreclosure Alternative Program (HAFA), which takes effect on April 5th, will aid homeowners in getting short sales approved and should keep more people from losing their homes to foreclosure. The banks are already receiving government incentives to negotiate with homeowners and facilitate short sales, so this new legislation should only further ease the process. Some banks are starting to implement new, more streamlined systems for short sale negotiations, such as Bank of America's new "Equator" system. It will take time to see how these new systems work, but I personally just got a B of A short sale approved at record speed this week.

In the last week alone, I have had 3 short sales approved and accepted by the bank. The first one was a 2200 sq ft. SFH at only $119K and the other two were 2 bedroom condos at $48K and $50K. All three of these were tied up by my investors in a matter of minutes after I announced them. This method of concentrating on bank approved short sales is undoubtedly the best way to purchase property in 2010. There are no multiple offers, no need to bid way over list price to secure a deal, just simply "I want it and I got it" at the approved price.

Being a small boat in the ocean enables me to quickly change and adapt to the continuous fluctuations in the Las Vegas real estate market with quick precision. This gives me a tremendous advantage over the large REO companies (ocean liners) that need to retool, chart their new course and attempt to change direction. Mark my words, short sales will be a very large part of the Las Vegas Real Estate Market in 2010. This is where we all need to be focusing our buying efforts.

If you are interested in purchasing short sales in the Las Vegas area, contact Glenn Plantone at:
(702) 769-9872 or teamplantone@gmail.com

How to Buy Investment Properties in 2010

For much of 2009, the quickest, easiest and best way to purchase an investment property in Las Vegas, was to purchase a bank owned foreclosure, or REO. In fact, 75% of all sales in Las Vegas in 2009 were bank owned REO foreclosures. In some individual months, this number was as high as 85%.


But then a funny thing happened...Banks started to realize that short sales present a viable way for them to receive money on their loans without having to go through the hassle and expense of a foreclosure and resale. The government also stepped in with a series of new regulations aimed at slowing the nation's foreclosure rate and encouraging banks to negotiate short sales. These factors, combined with sustained high demand for REO properties, has pushed REO foreclosure inventory in Las Vegas to unbelievably low levels.


As of this writing, REO inventory listed on the MLS in Las Vegas stands at 1331 single family homes available for sale (not counting contingent and pending sales.) This number has been decreasing for about a year and now represents less than a two week supply of REO inventory. 3429 homes sold in Las Vegas in January, 2010. During the same month, only 1352 foreclosure homes went back to the banks. This represents an amazingly low supply of only 11 days of REO inventory on today's market.


Investors and realtors are seeing firsthand the results of this dramatic decrease in inventory. With prices in the Las Vegas valley continuing to hold at record lows, the competition for available REO inventory has been extremely stiff. Many investors, including my clients, are having to put in upwards of 10 offers to get just one accepted. Cash buyers continue to represent about 50% of the market and primary occupants or investors with financing in place are finding it very difficult to compete. Of the nearly 75 deals I closed last year for my investor clients, only 5 were not all cash deals. And even with all cash buyers, I have found it more and more difficult to secure properties.


As a result, I believe that 2010 will be a big year for short sales. A short sale is when a bank accepts a sale price that is less than the amount owed on the home. Short sales can be a great win-win situation for both buyer and seller. The seller is able to get out from under their loan without the negative effect on their credit that a foreclosure would have. The buyer is able to purchase a property for much less than current market value. Once a home or condo is approved for a short sale by the bank, the buyer will typically have 30 days to close on the home.


As available REO inventory in the Las Vegas valley continues to shrink, I am expecting the number of short sales to continue to increase. The amount of short sales this year is already close to double month-over-month from last year's totals. I am currently getting two to three short sales approved per month.


By way of example, I have a short sale available now that is a 2221 sq. ft., 4 bedroom/3 bath home for $119,995. This home sold new three years ago for $329,000. It is now priced at only $54/sq. ft., well below builders' replacement costs. This home only needs about $2500 to be fully rent ready (carpet cleaned, repaint, a couple of appliances) and then it will rent for $1295 per month.