Helping the Housing Recovery in Three Steps - Part One

My colleague Tamara Lemmon recently brought to my attention a piece she wrote for foreclosure.com outlining what must be done to accelerate the housing recovery.  She has allowed me to share the article with you here on my blog:

"Warren Buffet, in his annual letter to shareholders of Berkshire Hathaway, said, “Last year, I told you that ‘a housing recovery will probably begin within a year or so.’ I was dead wrong.” While Buffet remains bullish on a housing recovery near term, he acknowledges that how long that recovery is in the making will depend on a variety of diverse factors. It is the responsibility of any president or political leader seeking or holding office to help stimulate the recovery of the housing market and to lead the United States out of the current recession. Although this process is complex and dynamic, there are three key steps that can help steer the macro-economy as well as the housing sector in the right direction: a decrease in the amount of red tape currently stifling foreclosure proceedings, incentives to lenders for making home loans, and a decrease in the national debt via a balanced budget.

After the real estate bubble burst at the end of 2007, the United States housing market endured foreclosure rates that quadrupled from their baseline in 2005 to the peak of the housing collapse in mid-2009. Since 2009, foreclosures have steadily declined nationally, and have broken off sharply in certain regions due to the influence of outside forces. Las Vegas is an excellent local market to consider as an example. Las Vegas retained the dubious title of “foreclosure capital of the U.S.” for five straight years from 2007-2011. In late 2011, foreclosures suddenly and dramatically ground nearly to a halt. In August of 2011, there were 4,063 notices of default issued in Clark County, NV. In October 2011, just 2 months later, there were only 43, a decrease of almost 99%! Most experts believe that this drop was due to the passage of Nevada Assembly Bill 284 which placed extensive new regulations into effect for any banks seeking to process foreclosures in the state of Nevada.

It is incumbent upon any leader seeking office, to determine if the decline in foreclosures that has resulted from these and similar measures nation wide, is helping the housing recovery and the economy at large or hurting them. Again, Las Vegas can be used as a test market. The median home price in Las Vegas has risen steadily for the past nine months, for a gain of as much as 30% in some submarkets of the valley. On the surface, this would seem to be nothing but good news for beleaguered Las Vegas homeowners. The problem is, even with all of this upward movement in price, 70% of Las Vegas homeowners are still upside down on their mortgage, with 36% owing more than double what their home is worth. In other words, the upward pressure being exerted on the median home price in Las Vegas is due to the artificial lack of inventory created by the abrupt halt in foreclosures. The majority of homeowners still cannot sell their home for what is owed, so those homes are essentially “frozen” within the market. They cannot be resold or refinanced. This drives the prices of the relatively few homes that are available to unreasonable levels, and sets the stage for a potential second real estate bubble in cities like Las Vegas. Nathan Martin, blogger for Economic Edge, puts it this way, “Each new up cycle produces more debt, recession follows, clears out the debt and allows growth to resume. But when you interrupt the debt clearing process, real growth cannot resume as incomes cannot support more debt.”

In order to prevent this, we must loosen regulations prohibiting foreclosures and allow banks around the country to re-initiate the normal foreclosure process for delinquent borrowers. This is not cruelty; it is practicality. Foreclosure stops the bleeding. Foreclosure provides a reset button for home values in hard hit communities. Once a home has been foreclosed upon, it can re-enter the market at the correct value. Eventually, if the needed foreclosures are allowed to proceed, home prices will finish correcting, inventory will “thaw”, banks can clear their books of non-performing assets freeing up capital to lend, and the real estate market can finally return to normal. Halting foreclosures not only delays this recovery, it creates a paradigm that is ripe for a second housing bubble and a second housing collapse. While it is likely that banks will find their own way around bills like AB284, and resolve issues such as those surrounding MERS, the continued submission of legislation aimed at slowing or blocking foreclosures should be viewed as counter-productive to the economy. The first step to any viable economic and housing market recovery plan must be to legislate the resumption of the normal foreclosure process in all states, free of unnecessary red tape."

If you are interested in learning more about the opportunities that are available for investors in the current Las Vegas real estate market, contact Glenn at VIP Realty.

Historic Buying Opportunities in Northwest Las Vegas

“I will tell you how to become wealthy. Close the doors. Be fearful when others are greedy. Be greedy when others are fearful.”
Warren Buffet

We are currently facing the greatest economic downturn since the Great Depression. Individuals and corporations alike are tightening their belts and refusing to spend money…holding on to whatever they have in an attempt to weather the storm. Certainly prudence in this economic climate is wise. But what should also be remembered is that many of the great American fortunes were made in the 1930s. As others looked for cover, the great investors of the time looked for opportunity. We are faced with the same choice now that they faced then…try desperately to hold on to what we have, or build our wealth.
So where are the opportunities in today’s storm? Where can we invest with any kind of security? The surprising answer (given the recent bubble burst) is real estate. Why? Because when you invest in real estate properly…when you do it the right way…it does not rely on the strength of the economy at large to generate returns. This is because, in the world of real estate, cash flow is king. Appreciation potential is secondary. Not so with the stock market, by contrast. If you invest in stocks, the stocks must appreciate in value in order for you to realize a gain on your investment. If the economy weakens and your stocks depreciate in value, you lose money. A similar situation occurred with those who invested in real estate two or three years ago and ignored the need for properties to positively cash flow. These investors relied on appreciation to generate returns. When, instead of appreciating, the real estate bubble burst and price came falling down, these investors lost everything and faced disaster.
The good news is that, done correctly, not only can this mistake be avoided, but real estate can become the greatest investment opportunity of your lifetime. The key is cash flow. If you purchase a property that cash flows strongly then your investment will generate returns for you even if it declines in value. The bonus, of course, being that when the property does appreciate in value (which historically real estate always does) you will make even more money.
The key then becomes identifying and isolating these strong cash flow buying opportunities. Las Vegas is currently leading the nation in foreclosures, with 1 in every 60 homes in some stage of default. Our home prices have dropped over 70% in some cases from highs of two years ago. When you combine these low prices with a very strong rental market, you create great the best real estate investment opportunity we have seen in years.
Zeroing in even further, I believe that the Northwest area of the Las Vegas valley, specifically, is a hidden gem for real estate investors. While the Henderson and Summerlin areas tend to draw more attention, the Northwest valley has rents that are only slightly lower than these areas, but home prices that are substantially lower. The Northwest is also the newest area of development in Las Vegas. The majority of homes on the market are less than five years old. Tucked conveniently between two freeways, the area features a burgeoning infrastructure with new government and retail development. A brand new hospital and library complex recently opened, along with 3 new high schools, a middle school and 2 elementary schools. The college of Southern Nevada has a new campus beginning construction later in the year and retail developments continue to pop up at every intersection.
As an example, one of my clients recently purchased a one bedroom condo in the Northwest for $41K. This same condo is now renting for $750 per month. This has resulted in a positive cash flow, after all management , insurance and other applicable fees, of over $400 per month. Also in the Northwest, I was able to broker a deal for a different client on a 2 bedroom condo for $51K. This is now renting for $950 per month and producing a positive cash flow, after all expenses, of over $600 per month. And the truly great thing about these deals is that they are not isolated bargains. It did not take us months of looking and grueling negotiations to purchase these properties. Deals like this are reasonably plentiful in the Northwest Las Vegas valley. But you do need to know where and how to look, and you need to make your offers in a timely manner. As prices have come down, investment money has begun to pour back into the Las Vegas valley. Competition is beginning to heat up for buyers, but there is still enough supply to meet the increase in demand.
As a full time investor , I own over 20 rental properties myself so I know what to look for in a potential deal. I also specialize in helping out of town investors purchase and maintain investment property in Las Vegas. The first part of this equation is obviously finding and negotiating a great price on a property her e in the Las Vegas valley. The second part is providing my clients with full service property management. After we find a property that cash flows strongly at a great purchase price, we will put all of the property management features in place to insure that the investment is truly hands off and turn key.
If you are interested in these opportunities, this is a great time to come to Las Vegas and allow me to give you a personal tour of this neighborhood. Hotel prices are low (you can stay at the Trump for $79 on a weekend night), flights and cars are cheaper than they have been in years, even food is on sale.
We do not expect prices in this area to dip much lower, if at all. With mortgage rates at historic lows, we are seeing cash coming back into the Las Vegas real estate market as domestic and foreign investors look for stable, profitable places to put their money. I have personally hosted clients from Canada and China in the last month. I would love to host you as well.