Las Vegas Builders Rush To Fill Housing Gap

Over the last several months, the Las Vegas housing market has taken a dramatic turn.  Seemingly overnight, Las Vegas has gone from a nationwide foreclosure leader to an epicenter for new housing starts.  How?  Why?  The answer begins with the passage of Nevada Assembly Bill 284.  AB-284 added significant and far reaching restrictions on banks looking to foreclose on delinquent mortgages.  As a result, many banks have slowed foreclosures dramatically or even stopped foreclosing all together.  Last year, in the month of April 2011, over 3000 homes were foreclosed upon in Las Vegas...this year, April 2012, only 410 homes went back to the bank.  This is a drop of 87%!  Over the last three years, over 50% of home sales in Las Vegas have been bank owned REOs.  The inventory of available REOs is now standing at only 510 properties.  Since monthly sales in Las Vegas are still averaging around 4000 transactions, this leaves a significant gap in supply vs. demand.

With home prices remaining at 20 year lows, and interest rates also at historic all time lows, the demand for property in Las Vegas is extremely strong and we are seeing multiple bidding and price increases as inventory continues to shrink.  Some say the good old days are back again.  Others fear this current trend is artificial because of government interference.   Either way, one thing seems clear; the banks want to do anything but foreclose.  Banks are putting more effort into negotiating short sales, we are seeing postponements and cancellations of scheduled foreclosures, and more loan modifications are finally making it through.  Also, with government support, banks are trying, whenever possible, to sell their foreclosure inventory in bulk packages and avoid the individual real estate investor.

In order to address this gap in supply vs. demand, local home builders in the Las Vegas valley have been scrambling to ramp up again for new construction.  National builders are being left behind for the time being as they lack the operational agility to mobilize quickly enough to meet this sudden need for housing.  New construction starts doubled last month from around 300 permits (the lowest in the last 25 years for Las Vegas) to 600 permits pulled.   Just yesterday, I personally sold a new construction home at one of the Harmony Homes neighborhoods and was quoted a 4-5 month build time (framers are two months behind).  Las Vegas unemployment has dropped to 11.7% from highs of 14% just 2 years ago.  We cannot get skilled construction workers back to Las Vegas quickly enough for what is about to take place.   I have been predicting a housing shortage in Las Vegas for quite some time but this is much sooner than even I expected.  I thought we would eat thru another 100,000 foreclosures prior to a construction boom, but the bank’s change of policy, initiated by government regulations, is about to change all of that.

With the presidential election coming up in about six months time,  interest rates at historic lows, and inventory literally nonexistent, we see an opportunity to build homes for the next 9 -18 months and move them very quickly in this market.  I have partnered with a local builder and will be buying lots, building homes, and selling them as fast as we can build them over the next 9-18 months.  Lots that are developed and completely ready to build are on sale for $30,000 to $40,000 per lot.  These same lots cost builders near $120,000 per lot just five years ago and are now selling for around 25 cents on the dollar.   The price of land has not begun to bounce back at all, whereas home prices have begun to creep up.

Owner occupants are continually getting shut out of home purchases because they are up against cash buyers in almost every transaction.  The same is true for financed investors.  With these historically low interest rates it is cheaper to buy than to rent if you are an owner occupant and returns on investment of near 15% can be achieved by financed investor buyers.   The perfect storm for building and selling homes in Las Vegas has arrived.

We have opportunities for investors looking to partner in the purchase of finished lots, building homes, and the purchase of turnkey investment properties.  As the 7th busiest buyers’ agent in all of Las Vegas last year and one of the busiest investors, I have personally rehabbed and flipped over 100 homes in the last two years and sold over 500 homes in Las Vegas in the last five years.  I have partnered with over 35 cash investor/partners in the last several years and have always maintained a minimum of 12% returns for my clients.  References are available upon request.

New Program Offers $15K in Down Payment Assistance to Qualified Home Buyers

Team Plantone in Las Vegas, NV recently announced that they are working with Wells Fargo to help potential Las Vegas home buyers qualify for a special program that can provide home buyers with up to $15,000 in down payment assistance to purchase qualifying residential real estate.  This new program, called Neighborhood LIFT, is sponsored by two non-profit organizations... the Wells Fargo Foundation and NeighborWorks America.  The down payment assistance provided by the program is forgiven at the rate of 20% per year for every year that the home buyers remain in the property.  This means that the down payment assistance is fully forgiven after 5 years of residency in the home.

In order to qualify for the program, applicants must meet certain qualifications and the home itself must also qualify.  Team Plantone has been working closely with the local program representatives from Wells Fargo to develop a plan for helping interested home buyers qualify for the LIFT plan and find their perfect home that also meets the LIFT criteria.  

Qualified applicants must have a household income that does not exceed 120% of Area Median Income (AMI) adjusted for family size.  Applicants DO NOT need to be first time home buyers, but if the applicant owns a home already, that home must be sold prior to closing.  There are also several requirements limiting the properties that can be purchased using Neighborhood LIFT funds.  Team Plantone is working with Wells Fargo to help potential participants in the LIFT program find suitable properties.

Team Plantone and Wells Fargo are offering this service free of charge to any interested home buyers in the Las Vegas area.  If you are interested in learning more about the Neighborhood LIFT program or applying for down payment assistance, please contact Team Plantone for more information.

Las Vegas Real Estate In For Another Roller Coaster Ride

Las Vegas real estate is currently experiencing its largest upheaval since the bubble burst four years ago.  The passage of Nevada Assembly Bill 284 has resulted in extreme and far reaching consequences that have rapidly and dramatically changed the face of the Las Vegas real estate market.  Most notably has been the unbelievable drop in foreclosures over the last seven months and the resulting steep decline in standing inventory of REOs.  In August of 2011 there were 4,063 notice of defaults (NOD) filed in Clark County.  The notice of default is the first step in the foreclosure process.  In the following month, September 2011, there were 3,108 NODs.  Immediately after the passage of AB 284, in October of 2011, there were only 44 notice of defaults filed in all of Clark County!  44!  In the six months since that time the largest number of NODs recorded was 209 in January of 2012.

At first glance, one might be tempted to look at these numbers as a positive for the Las Vegas housing market.  If banks can’t foreclose then there will be no new foreclosures coming up for sale on the market (true.)  If there are no new foreclosures then the existing supply of distressed properties for sale on the Las Vegas MLS will be consumed (also true...there are currently only 400 REOs for sale, less than a two week supply.)  So once the REOs and foreclosure properties are consumed buyers will be forced to purchase “conventional” sales and pay the higher prices that those owners are asking for their properties (false...here is where the paradigm breaks down.)  In a perfect world, it would be nice to assume that falling foreclosure rates would signal a rise in home prices as potential buyers are forced to purchase homes through conventional channels and pay the higher prices needed to break even by sellers who bought several years ago when Las Vegas prices were on their way up.  Unfortunately, that’s not what is happening...and here’s why:

1.  Over 50% of sales in Las Vegas in the last three years have been cash deals.  Why?  Because the Las Vegas real estate market has been kept afloat by investors.  These investors have come in to take advantage of the great cash flow rates that can be generated by purchasing distressed properties, in many cases renovating them, and then offering them for rent to displaced homeowners.  But this equation only works if the homes the investors are purchasing can be bought at a cost low enough to allow the properties to cash flow once they are rented.  If there are no longer distressed properties to buy, the investors will not pay more for conventional homes, they will simply stop buying real estate in Las Vegas and move on to the next opportunity.  This will effectively eliminate over 50% of Las Vegas real estate sales, drastically slowing demand and dramatically hurting the Las Vegas housing market’s chances for recovery.

2.  Loans are still extremely difficult to come by.  It has never been harder to qualify for a home loan.  Many would-be buyers continue to be sidelined by lending restrictions and the ongoing credit crunch.  Some buyers have been able to successfully purchase foreclosures or REOs using hard money or alternative financing and then refinance into a more attractive loan after several months.  This type of purchase was only possible because of the instant equity available to home buyers when they purchase a foreclosure or REO.  Eliminating foreclosure properties from inventory eliminates this option.

3.  Even when potential home buyers are willing to pay the asking price on a conventional sale and have the necessary pre-qualifications to obtain financing for a home purchase, properties are simply failing to appraise for the sale price.  We have run into this time and time again when selling our own properties.  Because the only comps available to appraisers, in many cases, come from years worth of foreclosure sales, the properties are just not being appraised high enough to allow sales to go through with financing.  This means that even when owner occupant buyers are willing to pay the price that the seller is asking, the banks are not willing to finance the purchase without a qualifying appraisal...thereby killing the deal.

Of course these are just the immediate effects of AB 284 on the market itself.  None of this takes into account the effect that AB 284 is having on the lending institutions themselves.  If the banks are unable to foreclose on non-performing assets, they are unable to put themselves in a position to be able to loan more money...a situation that further delays the recovery of the lending industry and the end of the credit crunch.

Now What?

The logical next question for investors is, “Does this mean that the Las Vegas real estate market is dead for investors and it’s time to move on?”  The short answer is “No.”  There are still great deals with tremendous cash flow to be had in Las Vegas.  But you have to know where to look.  The strategies that were working six months ago are not working now.  The trustees’ sale is hopeless.  What few properties that are available are being bid up to prices that no longer make sense for an investor.  REOs are almost non-existent and are also selling for ridiculous prices.  So, once again, we have had to reach deep into our bag of tricks, completely reimagine our acquisition process, and find a way to secure high quality, high cash flowing properties for our investor clients...just like we’ve been doing consistently for the last three years.  In the second part of this article, I will tell you how.

Until then, if you are interested  in learning more about how to invest in the new face of Las Vegas real estate please contact me directly:

Glenn Plantone
VIP Realty
(702) 656-3264 xt: 203
glenn@teamplantone.com
www.teamplantone.com

What Is Trust Deed Investing?

You may have heard the term “Trust Deed Investing” or “Trust Deed Investments” bandied about recently is the press as well as private discussions.  Many people, eager to find a source of secure returns that can pay more than the 1-2% currently being offered by savings institutions and Treasury bonds have turned to trust deeds.  

Trust deeds are actually very similar to conventional residential mortgages, with a few key differences.  First, with a trust deed investment, the investor is the “bank.”  They loan money to a real estate professional for a particular real estate acquisition, and the borrower makes monthly payments to them for the duration, or term, of the loan...just like a conventional mortgage.  Trust deeds have locked-in rates of return, terms, and pre-payment details specified in the contract.

There are a few differences, however, between conventional mortgages and trust deed investments.  First, the typical borrower in a trust deed investment is not an owner occupant of a property, but rather a real estate professional looking to acquire an income property.  Many of these properties are purchased by the professional, renovated, and then refinanced or sold at the end of the trust deed term.  Second, trust deeds typically pay a much higher rate of return to the investor than banks charge on a regular residential mortgage.  Mortgage rates at the time of writing stand right around 4%, where trust deed investments are paying between 7-9%.  Last, trust deeds require a higher percentage of equity in the property than a mortgage from a bank.  Banks typically require owner-occupant buyers to put anywhere from 3%-10% down on a property.  This means the bank will finance between 90-97% of what the home is currently worth (90-97% LTV.)  With a trust deed investment, the borrower is typically only allowed to borrow between 65%-80% of what the property is worth. (65%-80% LTV or ARV.)  This larger equity spread provides greater protection for the investor in trust deeds.

Most trust deeds are negotiated by trust deed brokers.  These brokers act as connectors between investors who want to lend money and borrowers who need money for their projects.  The brokers pre-screen the borrowers and also handle all the necessary paperwork involved in the transaction.

Security

Trust deeds are generally viewed as a very secure form of investment for several resons. First, most trust deed brokers limit the loan amount to between 65% - 80% of the after repair value (ARV) of the property in question. This ensures that, in the case of default by the borrower, the property could be sold for more than the amount of the loan and the funds repaid to the investor. Second, the investor becomes the first position lien holder on the property and, as such, his investment is secured by the property itself.

One aspect of trust deed investing that does pose a risk to the investor and often scares potential investors away is the lack of control the investor has over who is borrowing the funds.  With typical broker facilitated trust deed investments, the broker screens the potential borrower and the investor has to trust that their decision and risk assessment is accurate.  We operate a little differently in that regard.  This is because we only broker trust deeds for our own properties. The investor knows that their funds will be going to purchase Team Plantone properties and we are happy to provide a long and detailed record of our years of success in the residential rehab industry in Las Vegas. This is important because it gives the investor an added layer of security. Not only do they know that the loan to value (LTV) ratio on the loan they provide will be strong enough to insure the security of their funds, they have the added peace of mind of knowing that Team Plantone has completed almost 200 rehab-to-rent projects in the last three years and has never defaulted on a single payment.  (If you are interested in learning more, see the testimonials page on our website: www.teamplantone.com)  In addition to increased security, private brokering provides an added cost savings as well.  Since we are only brokering for our own projects, we are able to provide the highest returns possible to our investors without those returns being cut by Brokers Premiums or other fees.

High yield trust deed investments are available to private individuals, corporations, non-profits, pension plans, 401Ks, retirement funds, IRAs, Roth IRAs, Self-Directed IRAs and SEP accounts. If you are interested in learning more about trust deed investments, the yield and secuity they provide, investment minimums and more please contact Glenn Plantone directly at (702) 656-3264 xt: 203