Short Sales Continue to Rise at MGM Signature Towers

As a licensed Realtor here in Las Vegas, over the last three years I have followed the sales trends at the MGM Signature Hotel Condo very closely. (I have also sold 15 units over that time period.) I have also written and published several articles geared primarily towards investors looking to purchase MGM units at today’s new, low prices. This article is directed more towards the original owners who purchased properties at the height of the market and are now finding themselves upside down in their units. In this article, I will offer information on current market statistics and what options may be available to MGM Signature owners going forward.


As you are probably aware, since the MGM property auction of April, 2009, prices have been dropping dramatically. In the first quarter of 2010 (Jan 1st to March 31st), we saw 18 one bedroom units at the MGM Signature sold through the multiple listing service. Unit 125-714 established a new, low price for one bedrooms at $165,000. This same unit had sold new in 2007 for $705,000. That means the new sales price was roughly 24 cents on the dollar. During the first quarter, the highest sale price for a one bedroom was $271,000. These sales statistics do not include cash deals at the trustee sale.


Studios at the MGM Signature in the first quarter of this year sold for prices ranging from $114,000 to $218,000. Unit 125-205 is a low floor, strip side studio unit with a patio that sold new for $485,000. It sold this quarter for $114,000. (Also approximately 24 cents on the dollar.) The good news for new investors is that studios can actually cash flow at these lows. One bedrooms are still not cash flowing, even at the new lows, because of their higher HOA dues. This is the reason why we are seeing the studios in the MGM towers selling for a higher price per square foot than the one bedroom units.


Since the beginning of 2009, when we began to see foreclosures mounting at the MGM Signature, there have been a total of 168 studios and 67 one bedroom units foreclosed upon and resold within the 1728 unit complex. This represents about 14% of the total complex. I believe that we will continue to see distressed sales on MGM Signature properties since virtually every original investor is upside down and very few paid cash for their entire investment. However, I do believe that the nature of those distressed sales is changing in a very significant way.


As of this writing, there is only one bank owned REO foreclosure unit in the entire project. This is because foreclosures are slowing dramatically and being replaced by short sales. There are a total of 41 units currently listed for short sale. Because of the government’s push to get short sales approved and accepted, they have picked up dramatically in the Las Vegas market. Last year short sales amounted to 8% of all sales while REOs accounted for about 75%. Already this year, short sales have risen to 25% of all sales while REOs have dropped to 50%. At this rate, I project that we will see a total switch of REOs and short sales by the end of the year.


There is a huge advantage to having your unit go through a short sale vs. a foreclosure. Credit experts tell me that a foreclosure will generate a 200 point hit to your credit report as opposed to an average of near 50 points with a short sale. Also, if you work with a seasoned Realtor and they are able to successfully negotiate a short sale that eliminates a deficiency judgment, you do not have to worry about the bank coming after you for the difference between what you owe and what the property fetches at the foreclosure auction.


Most analysts feel that we are in for a long ride before property values are anywhere close to the levels of 2007. At the April meeting of the Real Estate Insiders Club here in Las Vegas, Mary Riddel, Associate Professor of Economics at UNLV, made it clear that she believes we are in for about 8-12 years before we see any substantial appreciation in real estate values in the Las Vegas Market.


So, if you are an upside down MGM Signature owner, what are your options?


Keep in mind that I am not an Attorney, CPA, or Investment Advisor and I do suggest that you seek legal, professional counsel before deciding how to proceed. My goal here is to give you some general outlines and to summarize your present options.


Hang On: If you can, this will preserve your credit. In considering this option though, you need to determine if you can afford negative cash flow from your unit over the next 10 years or longer until values rise to more than the amount that you owe and/or cash flow becomes greater than your costs of ownership.


Foreclosure: Most likely your worst option of the bunch. If you stop making payments on your unit, the bank will eventually auction off the property and take it away. This will hurt your credit tremendously and stay on your credit report for up to 7 years. You will also be vulnerable to a deficiency judgment.


Deed in Lieu of Foreclosure: Just turn the keys into the bank and be done with it. This will immediately release you from most of your personal indebtedness associated with the defaulted loan, however you will still be vulnerable to a deficiency judgment. A deed in lieu will hurt your credit a little less than an actual foreclosure but far more than a short sale.


Short Sale: More and more property owners are now looking at this option. With an experienced Realtor, you have a good chance of being able to successfully navigate the short sale process and sell your property to the new investors now coming in. However, if you inadvertently hire an inexperienced representative, you may very well find your unit foreclosed upon before you are able to get a short sale approved by the bank and sold to a buyer.


If you are considering short selling your MGM Signature unit, I would love to discuss your options with you. I specialize in both the MGM Towers and short sales. I am currently successfully negotiating 5-7 short sales per month and we are seeing bank approvals coming in at a much faster clip in the last few months.


Please feel free to contact me should you have any questions at all about the market, and/or the process for properly handling your unit.


Glenn Plantone

(702) 769-9872 or gsplantone@gmail.com

How to Calculate Real Estate Capitalization Rates (CAP Rates)

If you are looking to purchase investment property, you are going to see the term CAP rate, or real estate capitalization rate, used quite frequently. Fortunately, CAP rate is easy to calculate and easy to understand.

The first step to calculating CAP rate, or capitalization rate, for investment real estate, is to determine the sales price. If you have already purchased the property, then you would simply use the total price you paid for the home including closing costs, etc. If you have not yet purchased the investment property,then use the asking price plus the amount you plan to pay for closing costs, etc.

The second step to figuring the CAP rate for an investment property, is to determine the yearly Net Operating Income (or NOI) for the property. In order to do this, take the monthly rent that you plan to receive for the property and multiply by 12 months. Then take the monthly operating expenses for the property and multiply by 12 months. Subtract the operating expenses from the rent total to obtain the Net Operating Income or NOI. (Remember, when calculating expenses, you need to total all expenses associated with renting the property, including maintenance, HOA fees, reserve fund, management fees, property taxes, homeowners insurance, etc.)

As an example: If you expect to receive $1500/month in rent, your total yearly rent will be $1500 x 12 = $18,000. If your monthly operating expenses are $300/month, then your yearly expenses will total $300 x 12 = $3,600. Subtract the expenses from the rent for a yearly Net Operating Income (NOI) of $18,000 - $3,600 = $14,400. The final step in calculating CAP or capitalization rate for a property is simply to divide the Net Operating Income (NOI) by the sales price. As an example: If you have a yearly Net Operating Income (NOI) of $14,400, and you purchased the property for $150,000, then you have a CAP rate of $14,400/$150,000 = .096 or just over 9% CAP Rate.

In my next article, I will discuss how to determine a target CAP rate for your investment properties.

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

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.

HUD Drops 90 Day Seasoning Rule - Makes Acquiring and Reselling Foreclosures Even Easie

The Department of Housing and Urban Development recently announced a temporary policy change that will have significant positive benefits for anyone looking to acquire foreclosures, especially those looking to fix and flip.  Previously, FHA has required that any borrowers seeking to finance their home purchase using an FHA loan, must purchase the property from a seller who has been the owner of record for 90 days or more.  This has made it difficult for investors looking to rehab gutted foreclosure properties and resell them for a reasonable profit since they then had to either hold the property for 90 days (dramatically increasing their holding costs and decreasing potential profit margin) or they could not sell to buyers looking to purchase a property with an FHA loan product.  The 90 day seasoning rule also made it difficult for investors or primaries looking to purchase REOs using FHA loans.  With the available inventory of REOs shrinking and demand rising, banks are usually able to liquidate their best REOs on the open market within days or weeks of taking title after a foreclosure.  Since the bank did not, in those cases, own the property for 90 days or more, those looking to pick up bargain priced REOs using an FHA loan couldn't do so.

This will all change starting February 1st when HUD will begin a one year period during which the 90 day seasoning requirement will be lifted.  In a document announcing the change, HUD Secretary Shaun Donovan said, "As a result of the tightened credit market, FHA-insured mortgage financing is often the only means of financing available to potential home buyers.  FHA has an unprecedented opportunity to fulfill its mission by helping many home buyers find affordable housing while contributing to neighborhood stabilization."

"FHA borrowers, because of the restrictions we are now lifting, have often been shut out from buying affordable properties," said FHA Commissioner David H. Stevens. In the same document Stevens states,  "This action will enable our borrowers, especially first-time buyers, to take advantage of this opportunity."

The temporary lifting of the 90 day seasoning requirement will come with some restrictions that are designed to prevent abuses. Probably the most significant is a clause stating, "In cases in which the sales price of the property is 20 percent or more above the seller's acquisition cost, the waiver will only apply if the lender meets specific conditions."  It appears that all that is necessary to meet these "specific conditions" is to show that substantial improvements/repairs have been made to the property to justify the extra cost.  This should not be a problem for rehabbers as they can show these improvements via receipts, before-and-after photos and descriptions of work completed etc.

This change to the FHA guidelines is scheduled to only last for a year, so now is definitely a great time for investors interested in flipping properties and home buyers looking to purchase a residence to jump into the market.  If you are interested in purchasing REO properties for investment purposes in Las Vegas, foreclosure capital of the nation, please contact Glenn Plantone today.

Glenn Plantone (702) 769-9872 or teamplantone@gmail.com

MGM Update January 2010

As those of you who follow my articles and blogs know, I have been tracking the MGM Signature Towers Hotel Condo in Las Vegas very closely over the last year. Many of my investors have asked me to write an update on the project. Here is the most recent information on price and sales trends from the beginning of last year (2009) to the start of this year (2010).

The MGM Signature is a Hotel Condo complex consisting of three high rise buildings that were completed in 2006. This makes it one of the few Las Vegas high rise condo projects that was completely finished and sold at boom prices. All three buildings (576 units per building) totaling 1728 total units were sold before the real estate bubble burst in 2007. In 2006 an average studio unit (520 sq. feet) sold brand new for $485,000 and an average one bedroom unit (874 sq feet) sold for $745,000. The least expensive studio sold originally for $318,250 and the least expensive one bedroom was sold for $494,000. Most were financed with 20% to 30% down and there were very few cash sales.

The MGM now represents a unique buying opportunity for investors as the real estate crash has sent prices tumbling to between $0.20 and $0.25 on the dollar from their original sales prices only four years ago. By the end of 2009, we were seeing several studios selling in the $120,000 range and one bedrooms in the $180-$190,000’s. I have followed the project since the prices started falling in 2007 and by 2009 I was ready to recommend the project to my investor clients. I continue to work hard to find units for my clients and the lowest possible prices and because of my experience and knowledge of the project, I have the distinction of having negotiated the lowest purchase prices for both a studio ($99,900 at the end of 2009) and a one bedroom unit ($176K for a beautiful 8th floor pool and mountain view just one week ago.)

In 2008 we saw very few foreclosures and very few resales on the MGM properties. That changed dramatically in 2009. Last year there were over 220 studios and 90 one bedroom units that were foreclosed upon. This figure represents about 18% of the total project. By comparison, other condo projects in Las Vegas experienced foreclosure rates as high as 35% in 2009. I believe that we will see an avalanche of foreclosures on the MGM Signature properties in 2010. Normally, this wave of foreclosures would mean even lower unit prices to come. But I think the heavy demand for the MGM Signature units will keep prices stable throughout 2010. Because the prices have dropped so steeply, the properties are now able to generate positive cash flow. This is keeping demand extremely high for the few available units that come onto the market. We have run into multiple offer situations for all of the foreclosure units that have come onto the market over the last several months.

The MGM Signature was built and marketed as a hotel-condo, as such, it offers tremendous flexibility. You are able to live in the unit full time if you desire, rent it out independently to a long term tenant, lease it out for short term nightly rentals and manage it yourself, or place it with a management company who will handle short term nightly rentals for you and split the revenue with you. Using a management company is the most popular choice for most investors. With sufficient notice, you are able to stay in your own unit as often as you like with minimal cleaning costs if you choose to have the room serviced by your management company. Most investors use the MGM Hotel Residential Services Company as their management company, but many do not realize that there are three other companies that provide excellent service, some with higher occupancy and in most cases better revenue splits for the investor. This, of course, could mean a higher cash flow on your investment. I have a detailed analysis of the similarities and differences between the four companies if you should desire to compare them. (Contact me if you would like to receive a copy of this comparison.)

Currently, there are four ways to buy a unit at the MGM Signature. The first is to buy a resale unit. I don't recommend this method. Resale units are either units that have been bought by other investors at cheaper prices and are now being resold or units where the owners are desperately trying to lose as little money as possible on the sale.

The second method is to purchase a short sale. The short sale route is long and tedious but we have had some success. We tie up the unit at a good low price and wait and hope that the negotiator is able to get an approval from the bank before the unit is sold off at the foreclosure auction. I have had a couple of short sales that have ended with a successful purchase and lost a couple to the foreclosure auction.

The third way to acquire MGM Signature units, is to buy a bank owned foreclosure property (an REO.) This is a great method and the most common way I use to acquire properties for my investor clients. We are able to get a good look at the unit, get good clean title, and have the purchase of the unit done safely and easily. Because of my contacts with the various listing brokers I have been able to develop great relationships and purchase many units for my investors at the best possible prices.

The final way to acquire units, is to buy them at the foreclosure auction (trustee's sale) before they return to the bank and become an REO. This method has its risks but with proper due diligence it represents the absolute best way to get the lowest price possible.

I have been very successful in purchasing Signature units for my investors because I have been attacking this project from all three sides.

I highly recommend that anyone interested in the MGM Signature come and stay at the hotel-condo and visit with me so that you can gain a clear understanding of all the variables that are involved in this project. We can tour the property, talk about and meet with the management companies, look at the one bedroom vs. the studio units, discuss the psychology of views (strip side vs. mountain side) and get a general overall understanding of the property.

I will be following the MGM Signature Towers very closely this year as I project it will be a great time to pick up units at prices well below the developers cost to build. Feel free to contact me directly should you have any questions or interest. May we all have a great 2010.

Thanks

Glenn Plantone

702.769.9872 (cell)

teamplantone@gmail.com