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Las Vegas homes have appreciated more than 10% in 2012

April 23rd, 2012 · Invest in Las Vegas real estate, Las Vegas homes, Las Vegas Real Estate

Las Vegas bank owned (foreclosure) homes inventory is=714, short sales homes=1567 and non-distressed homes=2507

In the last blog I wrote that despite “Las Vegas real estate experts” prediction of more than a 10% price drop in 2012, I said the prices will increase more than 10% in 2012, it already did and is on the way to 20% appreciation.

Why?  We still have the same number of underwater homes in Las Vegas and although unemployment has come down to 12% this is not enough to justify such price increases. These are the factors which these experts have based their prediction on and below are a couple predictions for 2012 from our “real estate experts”.

“Home prices in Las Vegas will continue to slide for the next six months and recovery won’t come until banks open up the spigot on foreclosures, housing analyst Dennis Smith said Thursday in his annual housing outlook webinar. Smith does not see a wave of foreclosures materializing from the “shadow inventory” that was ominously projected to hit Las Vegas. “ (By Mr. Smith may I say)

Another expert who shall remain unnamed because I like him: He projected more foreclosures and as much as a 10 percent decrease in home values at his annual Crystal Ball seminar, which drew about 150 real estate professionals. Well who was right, Masoud (that is me) of course, GOD I love to gloat in this case.

 But what happened, why the sudden appreciation in Las Vegas, North Las Vegas and Henderson homes:

The meaningless Median Number stopped sliding for a few months and news media stopped writing about sliding prices and the non-existent tsunami of foreclosure homes hitting the Las Vegas homes market. Cash flow gained from investing in good Las Vegas homes and a great shot at future appreciation plus severe lack of inventory and we have got serious appreciation on our hands. Below are some numbers:

 

Current inventory of Las Vegas homes Bank owned, REO or  foreclosure Homes Short Sales Non-Distressed
4788 714 1567 2507

 

A significant percentage of non-distressed homes are overpriced, and many homes that have available status are no longer available as it takes a little time to obtain executed contract from both buyer and seller and to open escrow at which time status is changed to under contract. So we are looking at less than 3000 homes in total inventory that are not under contract, this is a miniscule inventory.

This inventory will not grow much, unless we get a lot more foreclosure inventory and it is not coming soon.  Trustee sale auction had its lowest activity in March and only 1020 homes were foreclosed on of which 520 was sold back to the banks and this is the source of future bank owned homes in Las Vegas.

I do not see prices reverting back to 3 months ago and for a while they will keep going up.  I have been repeatedly writing if you want to buy, buy now. By the way, what I have written about today will show up in news articles in a month or two.

Relate blog posts

Las Vegas real estate market 2012 Part 1

Las Vegas real estate market 2012 Part 2

Las Vegas real estate market 2012 Part 3

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Las Vegas real estate market 2012 Part 3

March 26th, 2012 · Invest in Las Vegas real estate, Las Vegas condos, Las Vegas homes, Las Vegas Real Estate

In the last two blog posts

Las Vegas real estate market 2012 Part 1

Las Vegas real estate market 2012 Part 2

 I have explained what Las Vegas real estate analysts base their analysis and predictions on and why they are wrong. The proof is in the current Las Vegas real estate market.  As I wrote, we currently have less than 1390 foreclosures that are listed in the Las Vegas MLS that are not under contract and new listings go under contract awfully quickly.

Below is other controlling factors which are not fully discussed by other Las Vegas real estate analysts:

1: Las Vegas residential real estate is at least 15% undervalued as I have discussed in previous blogs, see the blog about Case Schiller Graph of Las Vegas home prices which you can see in

Why you should invest in Las Vegas real estate in 2011

All other Las Vegas real estate analysts predict a 10% decline in the meaningless median price in 2012. However, watch them change their tune shortly since recent newspaper articles have reported 2.5% increase in this meaningless median price. They will say they saw it coming a while ago, when months before they predicted a 10% decline just a few years ago!!!

I can’t talk with authority about the median number since I do not track all listings all over Las Vegas. However for the part of W. Las Vegas that I do track carefully, I predict at least a 10% appreciation in the $70,000-$200,000 price range for single family homes based on COMP over COMP method, which is the only way to arrive at a correct result.

What is comp over comp? Comparing how much a 4 bedroom 2000 square foot home in subdivision X in Las Vegas has sold for in the beginning of 2012 and the end of 2012. That is comparing the price of the same floor plan in a sub-division.

This is not the first time I have gone against all these analysts put together, nor will it be the last. What can I say; I am a warrior, really!!!

3: Home pricing in Las Vegas is mainly controlled by 5 major financial entities. They are Fannie Mae, Freddie Mac and Bank of America, and to a much lesser extent Wells Fargo and HUD. The rest are just bit players. Keep in mind that these “banks” do control foreclosure pricing and have to approve short sales, non-distressed pricing follow the other two.  If these banks play their cards right (yeah that would happen!!!) we could possibly see significant appreciation this year.

4: The new law (AB284) which took effect on Oct 1st, 2011 requires that anyone filing a Notice of Default (NOD) in Nevada must provide and include an affidavit stating that they are in possession of the actual note and deed of trust and that they have the authority to foreclose on the subject property, and this is the way it should be. 

There was a lot of noise that this will halt foreclosures in Nevada. Although Notices of Default went down by 70%-80%, foreclosing on properties didn’t fall nearly that much.

One of the reasons that I waited to do a real estate market report for 2012 was to see the actual effect of AB284, here it is:

Foreclosures from Sold back to the bank Sold to third party total
1/1/2011-3/1/2011 3700 1015 4715
1/1/2012-2/29/2012 2115 1470 3625

 As you can see the total number of Greater Las Vegas foreclosures has dropped only by 23% in the first two months of 2012, however the all important number of foreclosures going back to the bank most of which would be listed in the Las Vegas MLS is down by 42% and that is significant, but the sky didn’t come down. The significance is due to the low number of foreclosures in inventory right now which is estimated at below 7000, including current listings in the Las Vegas MLS.

5: Nevada will receive 1.5 Billion from the bank settlements and another 750 million from Bank of America, some of which (Lord knows how much) will go toward cutting principal and other foreclosure assistance. Believe me this isn’t much but it will have some effect on our real estate market. Add up all these factors that I have discussed and you will see that our real estate market can’t really be only dependent on how many homes are under water or the unemployment numbers in Nevada.

Las Vegas real estate market is dynamic, not static and new factor come to play all the time.

However the overwhelming factor is Las Vegas real estate is undervalued and at this point, one of the safest investments on earth that give the investors a great shot at double digit return on the money in 5 years and this is the reason why Las Vegas broke the all time sales record last year and will smash that this year.

I have had great feedback from Las Vegas real estate investors on the 4 videos that I recorded about how I pick some of the best Las Vegas investment properties for my clients so I will repeat them here

Picking the best Las Vegas investment properties part 1

Picking the best Las Vegas investment properties part 2

Picking the best Las Vegas investment properties part 3

Picking the best Las Vegas investment properties part 4

 Las Vegas real estate market 2012 is a multi part blog I will get into some statistics next.

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Las Vegas real estate market 2012 Part 2

March 3rd, 2012 · Invest in Las Vegas real estate, Las Vegas condos, Las Vegas homes, Las Vegas Real Estate

Tsunami of Las Vegas foreclosures predicted by Las Vegas real estate analysts for the past 4 years has turned in a bucket full of foreclosures and there is an unprecedented run by Las Vegas real estate investors on Las Vegas homes, condo and townhomes, not seen since 2004-2005

Las Vegas real estate market 2012 Part 1

In the last blog post Las Vegas real estate market 2012 Part 1 I discussed how “Las Vegas real estate analysts” analyze Las Vegas real estate market and why their assumptions and predictions derived from their analysis is WRONG.

Las Vegas news papers are full of articles predicting a tsunami of foreclosures in the past 4 years which never materialized and I am the only so called Las Vegas real estate experts who has been writing what they say is Bull Crap.

Let’s see what is going on March, 1 2012, Las Vegas foreclosure inventory which is listed for sale in Las Vegas MLS and NOT currently under contract is about 1390, this is not a bucket full of foreclosures, let alone a Tsunami. There are 2595 Las Vegas bank owned homes, condos and townhomes that are currently under contract.

There is a run on Las Vegas residential properties the likes of which I have only seen in 2004-2005 when residential real estate pries doubled. WHY?

2: We broke the all time record for selling Las Vegas residential real estate in 2011

The reasons are:

A: The most important reason is the return on the investment, in today’s global economy it is very tough to gain 6%-12% return on any kind of investment that doesn’t entail huge risks. A Las Vegas real estate investor can buy a GOOD home in a good investment location and make 6%-11% or a bit more return on their money. Return on the investment goes down with increasing price or being located in a highly desirable owner occupied area such a Summerlin, Anthem or Green Valley in Henderson. The net return on investment in Summerlin can be as low as 3%-4%.

I am going to show two examples of current listings which we have e-mailed our investors and the estimated cash on cash return for the investor, both went under contract quickly and are pending sale.

Las Vegas, Listing Number Asking price Estimate Cash on cash return Our pictures
1222385  117,000 8%-9% Our Pictures of the 812 Royal Castle Lane, Las Vegas
1216315  110,000 8.5%-9.5% Our Pictures of the 7424 Sun Spot, Las Vegas

 

The reason we take our own pictures is that listings usually don’t have good pictures. To see how we chose the best investment properties, see 4 videos that I have done on the subject you can find them

Picking the best Las Vegas investment properties part 1

Picking the best Las Vegas investment properties part 2

Picking the best Las Vegas investment properties part 3

Picking the best Las Vegas investment properties part 4

These videos can enlighten you about how we tried to take the crap shoot and guessing out from investing in Las Vegas real estate.

If you want to spend tens of thousands of dollars on a Las Vegas investment property, take 45 minutes and watch them, I guarantee it will be worth your time.

Take a look at the return on the investment 8%-9.5 % and show me another “safe” investment that would provide an investor with this kind or return on the money. This is the reason that we broke the all time record selling Las Vegas homes or condos in 2011 and why we smash that record this year.

If residential real estate pricing is the same in 5 years, investors would have made 40% or higher on their investment in 5 years and again this is the reason that hedge fund managers are considering buying single family homes in Las Vegas. Actually one outfit is buying home at or near MLS prices (retail prices) from the Trustee Sale Auction and has purchased 250 homes so far. When asked why you are doing this the answer was difficulty of buying from MLS and getting outbid by other investors.

Although I have repeatedly written about my dislike for banks which is the reason that I never went after listing foreclosures (then I have to work for the bank, YAAAAAAAAK), I have nothing against hedge funds, so dear hedge fund managers

Come to Uncle Masoud

I have set up an awesome system for identifying some of the best investment properties in Las Vegas.

Las Vegas real estate market 2012 in a multi part blog series and I will continue it next.

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Las Vegas real estate market 2012 Part 1

February 14th, 2012 · Invest in Las Vegas real estate, Las Vegas condos, Las Vegas homes, Las Vegas Real Estate

How Las Vegas real estate analysts arrive at their predictions of the future of Las Vegas real estate and why the factors that they fail to account for skews their analysis and predictions.

Before I get into the statistics of Las Vegas residential real estate in 2012, I am going to discuss a few important factors that don’t necessarily show up in these numbers or news articles.  However let’s discuss the factors that these analysts account for.

Most Las Vegas real estate analysts try to predict how many Las Vegas homes, condos or townhomes are or will be under water (owe more than the home is worth) in the next 5 years and then try to make a prediction of the real estate market  based on their prediction of this number !!! Don’t believe me, read any newspaper article in Las Vegas in the past month.

They also correlate unemployment numbers with Las Vegas real estate market and keep saying nothing changes until unemployment numbers go down, hence the new prediction that our meaningless median price will go down and will not recover until 2013. They predict another 10%-14% price drop in 2012.

 Let’s summarize this: Say we have about 100,000 under water homes and condos in the Las Vegas metro at this time and our unemployment is at 13.6% which has dropped 2% from last year. Unless Las Vegas can replace one of two major industries, namely the construction industry, unemployment numbers will not go down to 2006-2007 levels for a long time and that we will burn through about 25,000-35,000 distressed homes and condos, so we will have a supply of foreclosures and short sales for the next 3-5 years. Thus it will take that long for real estate prices in the Las Vegas Metro to recover. Sound logical and good, ha? WRONG!!!

 I reject this approach for the following reasons:

1: The problem is that Las Vegas was a two industry town, gambling and construction; however they built what should have been built in 10-15 years in 3-4 years and are done. The construction industry has to be replaced by something else. However, the unemployment number is not the deciding factor in future real estate pricing. The UNDER EMPLOYMENT number that no one really discusses is.

For example, one of our clients was a server in a casino who used to make more than 80K per year. This dropped to about 25K since her hours were cut severely and her home was foreclosed. Now she is getting busier and makes more money. The Las Vegas real estate market will improve when people like her get more time and can set money aside to buy a home and this will not show up in unemployment numbers since people like her already have a job.

 Las Vegas casinos have had their 2nd or 3rd best year ever and even the Center for Business and Economic Research at UNLV, which is pretty conservative, stated “Clark County showed positive growth when compared to a year earlier. Gaming revenue was up by 7.8 percent, taxable sales by 8.6 percent, and employment by 1.8 percent. Business activity in Clark County is beginning to show signs of improvement over the previous year, but it is still susceptible to national and international uncertainties”.

 Additionally these real estate analysts base their prediction on a static economic environment in the next 5 years while our experience clearly shows that our economic trends are highly dynamic. For example, just last week it was announced that  Nevada is going to get 1.5 Billion dollars to help with these under water homes so not all 100,000 under water homes will end up on the market.

Las Vegas real estate market 2012 is a multi part blog series. In the next blog I will discuss why we have broken the all time sales record for Greater Las Vegas homes and condos while news articles try to scare the Jesus out of prospective Las Vegas real estate investors and these people are not stupid.  I was recently telling a client about the fact that the vast majority of our clients have a master degree or higher and he said that he has an MBA degree. Actually we have had several Harvard MBA graduates and these guys are investing in Las Vegas real estate now.

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How to insure failure in selling Las Vegas luxury homes

July 6th, 2011 · Las Vegas homes, Las Vegas Real Estate

If you want to make sure a million dollar Las Vegas luxury home listing doesn’t sell, do these:

Do you know what a rare commodity in Las Vegas real estate is these days? I’ll tell you, it is cash buyer for a million dollar plus Las Vegas luxury homes and we had one a couple of weeks ago. They are relocating from the South and visited Las Vegas over the weekend to see homes.

We currently have 329 homes in the Las Vegas MLS with an asking price of more than one million dollars. Of the 329 only 14 are bank owned or REPO homes, 19 are short sales and the rest are non-distressed sales. Only 79, million dollar plus luxury homes have sold since Jan-2011. 9 have been bank owned, 12 have been short sales and 58 have been non distressed sales. This means that only 10 non-distressed luxury homes have been selling per month.

Now, if you have about 300 listings and are only selling 10 luxury homes per month, Mr./Mrs. home seller, you need all the help you can get.

Most buyers pay a great deal of attention to pictures when choosing to see a home, that is the reason that the Las Vegas MLS now allows up to 25 pictures, since pictures sell homes. In going through the home listings there a couple of homes that only had one picture of the exterior of the home.  My buyer did not choose to see these homes, while one may have matched his criteria.  It is the listing agent’s job  to help the seller, not hurt his chances of selling the home.

We also contacted 12 listing agents to set appointments on Thursday for weekend appointments. 3 never ever got back to us and the sellers will never know about this and lost their shot at a cash buyer.

However,  the most unbelievable case was two listings that demanded to see the buyer’s proof of funds before showing the listing. These were non distressed homes and there was nothing special about them to make a buyer want to see them badly. This is CRAZY, what buyer is willing to disclose their financial situation to complete strangers in order to see a listing. I am willing to bet anything that these homes will NOT sell.

The sellers or their Realtor have insured that the homes that I discussed will fail to sell. Now if a seller doesn’t want to sell luxury homes in Las Vegas, why list it? If the seller really wants to sell, stupidity doesn’t get it done.

Do you due diligence before you list your home, you Realtor can do their best to sell the listing or insure that it doesn’t sell at all. Masoud

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Why you should invest in Las Vegas real estate in 2011

May 18th, 2011 · Invest in Las Vegas real estate, Las Vegas condos, Las Vegas homes, Las Vegas Real Estate

Why investing in Las Vegas real estate is one of the best real estate investment opportunities in the United States?

1: Because Las Vegas housing market has over corrected and is undervalued (according to Case Shiiler) by at least 25%

2: Double digit cash on cash return is possible on one of the safest investment opportunities in today’s economy

3: Las Vegas economy has passed the bottom and is rebounding

Here is the proof;

The following graph shows the Case-Shiller Housing Price Index from January 1987 to December 2010.

Case Shiller Las Vegas housing graph compares median price for Las Vegas residential real estate with the composite median price of 10 other cities in US

Case shiller Las Vegas housing graph 2011

 The Case Shiller graph shows the median price for homes sold in Las Vegas and compares it with a ten city composite of other major cities in the United States which is shown by dotted lines.  The flat line which closely followed real pricing for Las Vegas homes up to 2002 is the median price of homes if the housing bubble and following crash did not happen.

As you can see the Las Vegas housing prices matched or were higher than the 10 city composite until 2007. Both peaked at about $225,000 in 2007. However the 10 city composite median price has fallen to about $150K which is a 36% decline from the peak values.

Las Vegas median home prices have fallen to about $100K and this represents a 56% drop from peak values. Additionally, had things progressed normally (the only thing that we ain’t got in Vegas is normal) the median prices would have been at $130K. The $30k discrepancy represents OVER CORRECTION which results in Las Vegas housing prices to be undervalued by about 30%.

Now you understand why Las Vegas real estate in general and housing in particular are such a great investment opportunity.

This is the reason that real estate investors worldwide are investing in Las Vegas housing, more than 50% of Las Vegas homes are sold to cash investors.

Conclusion: Case Shiller graph shows why Las Vegas is one of the best bets for investing in United States real estate. Since the Las Vegas housing market has over corrected it is less susceptible than the 10 city composite and cash flow is better.

I have mentioned Larry Murphy’s name as the only Las Vegas real estate analyst whom I truly respect and the following was in his last e-mail.

“If you want to look like a genius in 5 years from now, buy all the Las Vegas real estate you can buy today”.

 I couldn’t agree more, but not all real estate, or for that matter homes or condos, are the same. For example cash flow for a $300K home may not be as good as cash flow for a $125K home, however a flipper may make better margins by buying the more expensive home.

You need a Las Vegas real estate agent who can tell an investor what he/she should invest in and why and all you have to do to find one is to call Masoud at 702-478-7800.

Let me know who you are by becoming my friend on my Las Vegas real estate Face book  page or Masoud’s Las Vegas real estate tweeter page.

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$1 Billion Las Vegas real estate note auction, retail 101

May 3rd, 2011 · Invest in Las Vegas real estate, Las Vegas Commercial Real Estate, Las Vegas Homes, condos and Real Estate auctions, Las Vegas Real Estate

This is the second blog post about Las Vegas real estate note auction May, 17, 2011 for retail properties.

In the last blog post,  $1 Billion Las Vegas real estate note auction, Retail I stated that I picked 10 good Las Vegas retail properties that will run in the note auction. Please e-mail me for additional info about them.  You can find my contact links on top of the left column.

By far and away the best Las Vegas commercial real estate deals are foreclosures or bank owned properties and there are less than 40 listed in Las Vegas the commercial real estate MLS for the whole valley. Non-distressed retail properties that are listed in the Las Vegas commercial MLS sell for around $60 per square foot for class (C) buildings in low income areas, better class (A)retail properties sell for about $250 per square foot. The asking price for a retail property in Rampart Street in Summerlin is $800 per square foot.

Conversely, comparable bank owned (REO) retail properties to those running in the Las Vegas note auction sell for $80-$180 per square foot which is 25%-30% discount over non-distressed. I project that the note for the retail properties will offer investors an additional 20%-30% discount over the comparable bank owned (foreclosure) properties.

 However, there has to be a good discount for buying the note and going through the foreclosing process (it is not as bad nor as expensive or time consuming as judicial foreclosure states) as opposed to buying the property as bank owned after the bank forecloses on the property or buying the property from the Las Vegas Trustee Sale Auction. By the way, the act of foreclosure which changes the owner of the property from the borrower to the lender takes place in the Nevada trustee sale auction.

I called several attorneys to ask about the foreclosure process for commercial properties in the State of Nevada.  Jim Smyth and Josh Correlli of Kaempfer, Crowell Law Firm in Las Vegas were kind enough to answer my questions while a few others weren’t. They said that if there are no complicating factors the commercial foreclosure process takes less than 6 months and could cost less than $20,000, due to the fact that Nevada is NOT a judicial foreclosure state. However, complicating factors which are beyond the scope of this article can make the foreclosure process much longer and costly. Only a foolish investor will bid without having lawyers involved from the beginning and I have a couple of great ones for you. Actually a couple of owners (borrowers) had tried to turn in the titles of their properties to the lender more than a year ago and the lender refused.

The other issue is that many borrowers declare bankruptcy to avoid specific performance (the lender can sue the borrower to make up the difference between the loan amount and sold price of the property). This is NOT an issue here since these are non-recourse loans and the lender can NOT bring up the issue of specific performance.

Many of the 10 retail properties that I have picked should be priced at about $150 per square foot and I project they can be purchased at below $100 per square foot, now that is called a DEEP DISCOUNT.

Summary:

 I have picked 10 of the best listings for Las Vegas retail properties which will be run in the biggest commercial real estate auction ever in the US.

These ten listings are mostly over 70% occupied and in some of the best retail locations in Las Vegas, North Las Vegas and Henderson

The reason for the note auction is that many of these listing were either refinanced or purchased in 2004-2007 and now their value is less than 40% of the mortgage.

These Las Vegas retail properties will provide the new owner with double digit cash flow.

Due to confidentiality agreement I can’t write about specifics of each property. Viable investors can call me for further info 702-478-7800. Masoud

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$1 Billion Las Vegas real estate note auction, Retail

April 27th, 2011 · Invest in Las Vegas real estate, Las Vegas Commercial Real Estate, Las Vegas Homes, condos and Real Estate auctions, Las Vegas Real Estate

In this blog I will discuss the Las Vegas real estate note auction May, 17, 2011 for retail properties.

For one thing, Las Vegas is no Detroit, there are very few undesirable properties here and the majority of retail properties are in good locations and 3-4 in the most desirable locations. For example the property that is located at 11105 South Eastern in Henderson is located at the mouth of and serves the huge Anthem community, awesome location.

  I have picked about 10 of the best listings and my picks are viable, occupancy is over 70% and are money making Las Vegas commercial properties.  Some with 70% occupancy and in the best locations, however the income gained from these operations can’t service their outstanding loans. In some cases the borrower is two years late and in one, the owner wanted to turn in the title (Deed in Lieu) and the lender refused, why? See Effect of Zombie Loans on Las Vegas real estate market 2011

 So if these are great properties, why are they broke, why are banks auctioning off their notes?

1: Well many of these properties have been refinanced in 2004-2007 for stupid amounts of money and the owner (borrower) has already taken their original investment out of the property. In other cases the loan was used to purchase the property at the peak of the real estate bubble.  If that was NOT the case many of these properties would NOT be in trouble today. Loan to value (LTV) ratio for some properties are in the 150% range while the property is 80% occupied.

2: The real estate market crash that added to their vacancy, however I highly doubt if these properties would have been viable without the crash. Banks were throwing money away in 2004-2006.

For example; one would be hard pressed to find a better located retail property than one on the corner of Sahara and Decatur. Check out the traffic count: about 90,000 vehicles a day and around 150,000 people within the 3 mile area. Now a foolish bank made a $56,000,000 or about $170 per square foot loan on this property and the post real estate crash has left it with 150% LTV. Auction.com puts the real estate value for this property at $33 million now! I wouldn’t hold my breath to see such a bid. The owner (borrower) has offered to buy back his loan at discount and the bank rejected it because it is NOT in their DNA to cut principal for a borrower, although it has happened for some other large properties in Las Vegas. Now if someone ends up with this property at, say at $15-$20 million, then the LTV ratio will go down noticeably and make this property viable again and a good investment candidate.

I will discuss other Las Vegas Retail Properties in the note auction later

PS: Nevada is NOT a judicial foreclosure state and call me 702-278-7800

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$1,000,000,000 Las Vegas real estate note auction, May 17th

April 26th, 2011 · Invest in Las Vegas real estate, Las Vegas Commercial Real Estate, Las Vegas Homes, condos and Real Estate auctions, Las Vegas Real Estate

This is the best opportunity to invest in Las Vegas commercial real estate that I have ever seen.

I discussed what happened in the first Las Vegas real estate note auction and why it provides Las Vegas real estate investors with an unequalled opportunity to invest in Las Vegas commercial real estate at deep discounts. But first things first.

What does a commercial real estate note buyer really buy?

The investor buys an amortized schedule of future monthly payments for a loan that is backed by commercial real estate.  For example, the investor buys $1000 monthly payments for a period of 15 years. However future money must be discounted back to the present time due to inflation. We can calculate the return, by determining the net present value of an investment property’s cash flow and sale proceeds for periods of X number of years. The value of any investment is simply defined as the total cash that an investment will throw off during its existence.

A few listings in the Las Vegas real estate note auction are performing loans and will be sold as such.

Big deal so where is the opportunity?

The vast majority of properties auctioned off in 3 weeks are non-performing loans and great candidates for foreclosure. Some property owners haven’t made a payment on their mortgage for two years and there is little chance of saving the property from foreclosure. There is no reason for the borrower (current owner) to want to keep making payments on a property that is 100% upside down. These notes will be sold at deep discounts for several reasons.

1: Most real estate investors are not familiar with buying notes, thus less competition.

2: Banks do not expect full market value for these loans, if the note was performing, it wouldn’t get more than 80 cents on the dollar and these notes are non-performing.

3: Most institutional note buyers are NOT familiar with Las Vegas real estate market, and newspapers have scared that heck out of them.

4: Relatively straight forward process of foreclosing on a Las Vegas property scares investors and the reason is lack of knowledge.

Some asked me why all these banks are selling their loans now. My answer was see Effect of Zombie Loans on Las Vegas real estate market 2011.

I will discuss Las Vegas note auction that starts on May-17 further

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About the first Las Vegas commercial real estate note auction

April 25th, 2011 · Invest in Las Vegas real estate, Las Vegas Commercial Real Estate, Las Vegas Homes, condos and Real Estate auctions, Las Vegas Real Estate

The first Las Vegas commercial real estate note auction took place a couple of months ago and City Place Apartments that is located a few hundred yards from the UNLV (University of Nevada at Las Vegas), at 1550 East Harmon (awesome but low income location) was sold.

City Place Apartments has 224 studio, one and two bedroom units. The rental average was $500/month and occupancy rate was 56%. The place was run down due to the current owner’s inability to keep the place up. I went and talked to a couple or residents there. The gross income generated from this property was $67,500.

Upon close inspection I estimated that if the owner spent $1 Million more to upgrade appliances and kitchen cabinets, carpets and common areas, the occupancy rates would go much higher than current 56%.

10,000 in non-performing loan was sold for 3.8 million for City Place Apartments

City Place Apartments’ note was sold in a Las Vegas note auction

The Las Vegas real estate auction didn’t heat up until the last couple of hours from dead line, the reserve (minimum price set by the note seller) was met and one very lucky Las Vegas real estate investor purchased a seriously non-performing note for this apartment building for $3.8 million dollars. Assuming that the new buyer would immediately move to foreclose on the property and would spend the additional million dollars to upgrade the property, the total cost for the new owner would run about $4.8 million dollars that when divide by the number of units his costs per unit would have run about $17K per unit. It is IMPOSSIBLE to find such pricing for an apartment complex in Las Vegas, even in rough areas.

Of course the winning bidder only purchased the note and now has to foreclose on the property, which may be time consuming, but the legal fees shouldn’t be that bad. Now let’s look at the income generated by 80% occupancy which is not unreasonable after upgrading the property. The gross income runs about $80K/month and assuming 25% (very conservative) in expenses, 60K net income per month or $720,000/year is possible. Even though I gave you the worst case scenario about the money needed to upgrade the property or 25% in expenses, still cash on cash return for this property would be 15%.
Now another Las Vegas commercial real estate note auction is coming up where hundreds of million dollars in office, retail, industrial and multifamily properties will be auction off in Las Vegas in 3 weeks.

If you are an institutional investor or have many millions sitting in a bank account which give 1% interest, you should not miss this opportunity. This is by far the best way to invest in Las Vegas commercial real estate that I have ever seen. If you are interested call Masoud at 702-478-7800.

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Effect of Zombie Loans on Las Vegas real estate market 2011

April 19th, 2011 · Invest in Las Vegas real estate, Las Vegas Commercial Real Estate, Las Vegas Homes, condos and Real Estate auctions, Las Vegas Real Estate

This is part 2 of Las Vegas Voodoo real estate market 2011

What are Zombie loans in Las Vegas real estate?  Zombie loans are non-performing real estate loans that the borrower has stopped payment on a long time ago (in some cases for two years) but banks refuse to foreclose on the loan. These are dead mortgages that the owner (Borrower) wants to get rid of and the banks don’t want to foreclose on.

Why are banks refusing to foreclose of non-performing loans?

1: All of the sudden banks have found God and started to love their customers? Wrong

2: Banks can’t afford to foreclose on these loans? Probably right

I have heard this from two people that I highly respect and would appreciate input from those who know more than I do about this.

When the US government went over the banks books they learned that if all their assets were depreciated to present value, most banks would go out of business. So they let the bank keep the original value of their assets until it changes hands. For example if they foreclose on the property.

I am NOT an economist, however what they said matches reality, and this is the reason that it takes about two years to foreclose on residential properties in Las Vegas. Additionally, there are many commercial properties in Las Vegas where the owner (borrower) quit paying their mortgage 2 years ago while the building is sitting empty doing nothing. When I try to contact the bank, asset managers will not talk to me to sell the note (mortgage, loan) while they refuse to foreclose on the non-performing loan themselves.

Additionally, if they have to foreclose on the property they put the full loan amount as the minimum bid which assures that no other investor would bid on the property at the Las Vegas Trustee Sale auction. This way they do not have to depreciate the loan on their books and this is exactly what happens at the trustee sale auction a majority of times.  A good example of banks refusal to foreclose would be a 178,000sf industrial on Wynn Road which has been sitting empty for a couple of years and when I had a viable owner user with proof of funds and contacted the trustee in the matter, the bank refused to talk to me. Why, because they had to depreciate their books by $6,000,000 if I was successful in doing the transaction.

Now those who are making a living as a Las Vegas real estate analyst by predicting a tsunami of foreclosures obviously are ignorant of the above and it is their job to know. The astronomical bank profits that news channels report will eventually give the banks the ability to get rid of more bad assets and it is happening in real time in Las Vegas.

Las Vegas commercial real estate note auction

The best opportunity to invest in Las Vegas commercial real estate is coming up next month in the form of a non-performing note auction for tens of millions of dollars in commercial real estate notes. These are non-performing loans for multimillion dollar office, retail and industrial properties. In this auction investors can purchase non-performing loans which they can foreclose on later and get the property at deep discounts from other buying opportunities in greater Las Vegas including bank owned commercial properties. I will explain this process in a future blog.

Anyway, now you know why I titled the last blog post Las Vegas Voodoo real estate market, because we got Zombie loans all over the Las Vegas area and no one can see them.

If you want more info about the Las Vegas commercial real estate note auction, call me at 702-478-7800, Masoud.

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Las Vegas Voodoo Real estate market report 2011

April 17th, 2011 · Invest in Las Vegas real estate, Las Vegas condos, Las Vegas homes, Las Vegas Real Estate

 Las Vegas Shadow foreclosure inventory, shadow investors and zombie loans-we got it all in the Las Vegas Voodoo real estate market

We have 125,000 empty homes and condos in Las Vegas, the property values will go down by 1000%, shadow investors want to unload 500,000 homes and condos in 3 years and we have zombie loans (loans in default that banks do not want to foreclose on) walking around in the day time around the Strip and nobody can see them. We got it all in Vegas, baby!

There was an article in the Las Vegas Review Journal on April 16th that I will not give a link to which discusses the Las Vegas real estate market in the next 3-5 years. It claims that Las Vegas has about 65,000 vacant homes and assumes that if 1500 homes are absorbed per month we have a 4 year inventory.

Man it is getting so deep that I’ve got to wear fishing boots.

Silly season is on and so called Las Vegas real estate “analysts” that can’t see past the tip of their nose and have been WRONG at every turn, now are predicting what Las Vegas real estate is going to be like in 3-5 years. This is really silly because no one can predict what Global economy, which US economy and Las Vegas real estate pricing is a function of, will be like. Why global economy? Well, if gas prices stay in $3-$4 range, Las Vegas would be doing far better than if gas prices went to $7-$8 per gallon.

The other reason is that these guys assume that the Las Vegas economy will be static, meaning the same economy in 3-5 years. It may or may not be, however current numbers are showing decent gains, such as large gains in convention attendance and gaming.

Here are real numbers for you:

Total number of foreclosed (bank owned) residential properties sold through Las Vegas MLS in Greater Las Vegas since Jan, 1, 2011 = 11900

Total number of properties foreclosed by the banks and sold back to the in Greater Las Vegas since Jan, 1, 2011 = 8000

Total number of properties foreclosed by the banks and sold to the third party in Greater Las Vegas since Jan, 1, 2011 = 2385

Banks have sold 3,900 homes, condos and townhomes through the Las Vegas MLS than they have foreclosed on and purchased at the Las Vegas trustee sale auction. The mountain of foreclosures that these silly guys are predicting is failing to materialize again, for the second year in a row.

Given that these so called real estate analysts have been regurgitating the same stuff (I am being polite and didn’t use crap) in the last 3 years, don’t take what they say seriously.

I do not know what will happen in 3-5 years, or if we are at the bottom. Additionally, I am not silly enough to claim otherwise. However the best real estate deals in Las Vegas are getting multiple offers. I e-mailed 16 very good investment home listings to a Canadian investor and in 3 days 5 of the 16 were under contract.

The most important factor that governs real estate pricing in Las Vegas is zombie loans which I will discuss in the future. As for me after a very difficaut 6 month, this is the best I have felt in 15 years, Thanks for all your prayers, may the Good Lord bless you all and I love you one and all.

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Las Vegas real estate investors, HOA is your best friend

February 24th, 2011 · Invest in Las Vegas real estate, Las Vegas homes, Las Vegas Real Estate

Las Vegas real estate investors, HOA is your best friend

Investing in Las Vegas homes which have a strict home owner association (HOA) is one of the best tools to increase the odds of future appreciation

Before moving to Las Vegas I lived in Nebraska for 20 years, much of it in a log home that was 1000 feet from the nearest road, free as a bird and private as private gets. No HOA there as in many other parts of United States. When we chose to buy a home in a Las Vegas common interest community with an HOA, I had serious reservation about a home owner association dictating to me what I could or couldn’t do with my own property, but had no choice as I loved the location, plan and all other things about my home.

What is a Las Vegas home owner association? Home Owner Association controls a common interest community which normally is separated from others by a common wall around the community. Good HOAS force home owners to keep up their property and disallows activity such as parking 3 broken down cars in the drive way or front yard or someone coloring their home pink. HOAs act as an arbitrator when a problem arises between neighbors too.

Although HOA fees can run from $10 per month to hundreds of dollars per month, depending on amenities and services rendered, this fee is well worth the price. A good HOA is the best tool that an investor has in order to increase the odds of future appreciation.

We have one of the most draconian HOAS and they have upset me a couple of times with demands that I found to be excessive, but I didn’t fight them because I knew it was the same for everyone. The other side of the coin is that I live in one of neatest and best kept up Subdivisions (another name for common interest communities) in the Las Vegas area.

 Las Vegas homes for sale that are listed in my subdivision go under contract in less than a week, sell quickly and for top price.

Isn’t future appreciation one of the most important goals that a Las Vegas real estate investor is looking for?

The other point is that more than 90% of newer homes in Las Vegas are built in common interest communities and trying to avoid them will result in buying older homes or in less desirable areas as far as a Las Vegas real estate investor is concerned.

Lastly, best kept up communities demand the best rental rates and in many cases the HOA fee can be built in the rental rate as good, strict HOA communities bring more rental income than similar properties that are not in a HOA community.

Conclusion: A smart Las Vegas real estate investor not only doesn’t avoid HOAs, he or she should look for strict HOAs and they are easy to find. All an investor has to do is to look at the neat front yards and well kept common areas. Non HOA communities lack both and it will translate to lower rental income and less future appreciation.

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Las Vegas industrial vacancy will be at 1.9% by 2013, WOW

February 21st, 2011 · Las Vegas Commercial Real Estate, Las Vegas Real Estate

Another amazing prediction about Las Vegas real estate market by an out of town real estate ”expert”

I think the easiest job in the world would be becoming an outside Nevada Las Vegas real estate expert as there is no test for it. All you need to do is to declare yourself to be one and then you can say something completely stupid to get published in our newspapers, in this case Las Vegas Sun, even though this time they made it clear that Linneman Associates has not been very accurate. The last is a Philadelphia economic firm called Linneman Associates that predicts Las Vegas will have one of the biggest improvements in the nation within its industrial real estate.

While Las Vegas industrial vacancy currently stands at about 15.8% these guys have it at 13.1%, however they are predicting this number to fall to 9.7% by the end of 2011, 4.9% by the end of 2012 and eventually 1.9% by the end of 2013. I guess the way they are going; we will have .5% negative vacancy by the end of 2014.

The reason is that Las Vegas was invaded by aliens from planet IndustriousNoVacancy have escaped from area 51 and are gradually taking over the vacant industrial properties in Las Vegas.

Although the industrial vacancy would go down with an improvising economy, there are absolutely no signs that recovery would be fast. Even in 2004-2006 our industrial vacancy was more than 3% and there are many big box buildings currently sitting empty.

I have repeatedly written that my readers should pay no attention to these outside Las Vegas, Las Vegas real estate “experts” and I couldn’t offer a better proof.

By the way this blog is proof that I am still here, even though sometimes my injuries take me places no one should go.

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Las Vegas real estate market, Las Vegas high rise condos

January 25th, 2011 · Las Vegas high-rise condos

There are currently only 29 foreclosure (bank owned) high rise condo listing in Las Vegas MLS, this is less than 10% of total listings

Only 2-3 years ago distressed high rise condos dominated the listings in Las Vegas MLS which resulted in 60%-80% price drops. Today the total number of bank owned high rise condos is less than 10% of total number of high rise condo listings and a few buildings have no bank owned condos.

I don’t call buildings that have less than 8-10 stories as high rise condos, I call the mid rise condos. As of today the total number of high rise condo listings in Las Vegas MLS equals 309 of these 89 are short sales and 29 bank owned condos (foreclosures).

190 high rise condos were sold in the last three month of these 56 have been bank owned (foreclosure) condos, 78 have been short sales and 56 have not been distressed sales.  

Table below shows Las Vegas high rise condo inventory in Las Vegas MLS by type, high rise condos that have sold in the last 90 days along with the percentage of condos that sold in 30 days, median sold price per square foot percentage of sold prices divided by asking price and median number of days on the market before these high rise condos sold.

Las Vegas high rise condos condos Available for sale Sold last three month Percentage of listings that sold in less than 30 days Median sold price per square foot Median Sold price/asking price Median days on the market
Non-distressed regular sale 191 56 32% $264 93% 50
Short sales 89 78 41% $237 100% 49
Bank owned or foreclosures 29 56 41% $151 98% 38

 

As you can see the real pressure in high rise condos is applied by foreclosures as the median price per square foot is only $151 per square foot while median sold prices for non-distressed is $264 per square foot.

For example in the last three months, Panorama Towers 1 and 2 only two condos have sold for more than $200 per square foot and those were 29th and 30th floor condos. The rest sold for about $127-$200 range. 6 out of the 17 condos were bank owned, 9 were short sales and only two were regular sales.

Currently other than a couple 3rd and 4th condos the price range for non-distressed condos are $236-$411 while the price range for 4 out of 5 bank owned condos is $144-$191.

There is a reason for lack of bank owned high rise listings; however that is for my customers and I will not discuss it here furthermore I don’t see the number of bank owned listing going any higher than 15% of total listings.

Many think that high rise condo prices will free fall further and I absolutely don’t see any reason for this and the reason is that our inventory of bank owned high rise condo is 1.5 month, short sales inventory is 3.42 months. These numbers don’t lead to further significant price drops.

Our inventory of distressed high rise condos is not going to endless and I think we have gone through majority of them. Keep in mind that current prices reflect our bad economy and there were announcements about companies hiring 2000 new workers in the last two weeks only which caught me completely by surprise as I thought we are at least one year away from it.

For the reasons that I discussed above I believe that it is a good time to buy Las Vegas high-rise condos and that there is good chance that in two or three years those who bought will be happy they did.

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