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

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 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.

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

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

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

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%.

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.

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.

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 16^th 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.

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.

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.

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.

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 29^th and 30^th 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 3^rd and 4^th 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.

HAFA (Home Affordable Foreclosure Alternatives) short sale program became effective on April, 2010, and ends at the end of 2012. While HAFA was created to streamline the short sale process by setting clear timelines, documentation requirements and procedures to make short sales easie, HAFA has been a total failure since a recent report from the Congressional Oversight Panel that oversees TARP states that the Treasury has spent just $4.3 million on HAFA for 661 short sales.  How much money did TARP have, 700 Billion and they spent 4.3 million, wow!

Clearly further modifications are needed and it came at the start of 2011. You can find the changes below

• HAFA no longer requires that servicers verify the borrower’s finances. This means that sellers would probably not be required to fill out an inch or so of financial documents.
• HAFA no longer requires servicers to determine if the borrower’s monthly payment is higher than a 31 percent debt-to-income ratio. No change here as the vast majority already qualify.
• HAFA no longer requires second-lien holders to agree to accept 6 percent of the unpaid principal balance owed them, up to $6,000. Servicers now decide who gets paid how much, with a cap still at $6000. So a second lien holder that is owed $30,000 or $50,000 can get the full $6,000. This is a good thing, since some of these second mortgage holders can actually make more money by settling for $6,000 rather than selling the loan to a collection agency, excellent for the poor borrower/seller.
• HAFA now requires borrowers seeking a short sale get an answer/agreement within 30 days.

There were three road blocks to doing short sale deals in Las Vegas:

1: The seller had to prove hard ship (gone)

2: Specific Performance which means that the lender can go after the borrower for the difference between the selling price and loan amount. Now the banks are willing to forgo this but Fannie Mae and Freddie Mac don’t. Naughty Feds

3: Second mortgages: The banks sell these to collection agencies as of right now after foreclosure

The bottom line is that foreclosing on a home or condo in Las Vegas costs banks 10% more than short selling it. Any vandalism, which many Las Vegas foreclosures have been  subject to, severely adds to this cost. Banks have learned by now that letting borrowers who are in default live in their home longer than 4 months will result in a happier situation and saves money when they foreclose and it is far more politically palatable than foreclosing as soon as 4 months is over. Now if the same borrowers can short sale their home without proving financial hardship, the banks will save money and that is the reason that new rules should help to drastically cut the number of Las Vegas foreclosures in a few month.

I hope what I wrote above made sense but don’t blame me if things don’t work out that way since making sense ain’t got nothing to do with how banks do things.

Silly real estate pundits have been writing about how bad Las Vegas real estate market is in the first few months of last year. Well a whopping 41,915 single family Las Vegas homes, condos and townhomes have been sold in Las Vegas, North Las Vegas and Henderson through the Las Vegas MLS and another 5,945 properties were sold to a third party in the Las Vegas Trustee Sale Auction with additional properties which have been sold through various bank owned auctions which should put the total number close to 50,000. The supply of distressed properties in Las Vegas area is not endless and we have easily burned though the majority of these.

The total number for foreclosed properties in Las Vegas was 23,920 and 19,180 of these have sold through the Las Vegas MLS in 2010. Some of the rest have sold in bank owned auctions and some are not ready to sell yet. I have shown that home prices have been going up and down in a narrow range (10%) for the type of transaction; see Las Vegas homes market for foreclosures, short sales, auction homes. Condo prices in lower price ranges are up about 10%-15% in many cases.

We are witnessing a serious attempt by the banks to raise prices in all types of residential real estate and all price ranges!!! Time after time we see Las Vegas bank owned listings have been withdrawn from the market and re-listed at 5%-10% higher. We used to have a real estate tradition in Las Vegas pre-2008 and it was; if the property didn’t sell within three months, raise the price by 10%!!! I don’t think bank attempts can succeed in the current market but banks are playing hard ball now.

We have had a couple of complaining e-mails from the listing agents along with rejection letters for offers on $400,000-$500,000 Las Vegas bank owned luxury homes because our offers were 10% below the lowest COMPS. These listing agents were attempting to teach me how to calculate the correct COMPS!!!! Unless these complaint letters are really snobby, I don’t answer them. But while I do not have any problems about paying COMP prices for $150,000 single family homes offers should be made with future direction of the market which is totally different for single family homes that are priced in $150,000 range rather than homes that are priced in $500,000 price range.

As for Las Vegas real estate market for 2011

If things go the same way they have been, we will start a slow recovery in prices which will go on for a year or two, I have explained in Las Vegas economy and its effect on Las Vegas real estate that four levels of trickle downs have to happen and we have started seeing the second level which is a double digit increase in casino and convention business. Now our casinos have to feel good enough to give their workers more hours (I am not talking about new hiring) and employees have to feel good enough and pay down some debt before they start spending money.

I will write about why I expect Las Vegas foreclosures to down drastically in the future.

We are a couple of years away from sharp recovery in Las Vegas real estate and when it arrives it will not be linear. Masoud

When a short sale offer is accepted by the seller, earnest money deposit is required to show the bank that the buyer is serious about the deal. However, the listing agent should be smart enough to make the EMD amount reasonable. EMD is held in the escrow company for a period of time in order to get a bank approval from the bank.

We made an offer on a Las Vegas multifamily building on Friday morning.  The buyer had some questions about some expenses that were not customary so I left the listing agent a message on Friday morning to call me to answer the questions. We also e-mailed him to call us at the same time in order to have a record. I called and left a message late Friday afternoon for the listing agent to call me again.

I did not receive a response on Friday, on Monday I e-mailed the listing agent again to call me. I did not hear from the listing agent, however he e-mailed us a ridiculous counter offer that required the buyer to put up more than $7,500 Earnest Money Deposit (EMD) in the escrow which the seller could cash out immediately and hold for a duration of six months, and the buyer could get his EMD back only if the listing agent failed to get the short sale process through.

I called the buyer Late Monday afternoon, after the listing agent ignored two phone calls and e-mails and asked the buyer what does he think the chances of a listing agent who is severely communicationally challenged to get a short sale deal through, his answer was ZERO.

We informed the listing agent that we were going to withdraw the offer due to the listing agent’s failure to answer the buyer’s question and wished him luck in explaining this to the seller. However, I bet anything that the poor seller will never know why he lost a viable cash buyer for his short sale listing.

A listing agent’s number one job is to be accessible and to answer questions about his/her listing and Las Vegas Realtors or real estate agents who think they are doing a buyer a favor by answering their phone calls only betrays their sellers.

Here is the deal; when a Greater Las Vegas home is going to be foreclosed on or with some homes that are sold through a short sale process, the owner stops paying taxes and HOA fees for their residence. However late HOA fees, back taxes and service liens, such as sewer, enjoy the status of super priority liens since these are the first to be collected upon the sale of the home and ahead of other liens.

Nevada (Home Owner Associations) HOA’s can only collect up to nine months of late monthly fees, however there is no limit on the amount of collections fees that collection agencies can charge. A real estate attorney stated that he has seen a $5500 collection fee for $100 in late HOA fees.

The arbitrary collection fees can run in $4,000-$6,000 range and the only way to contest this fee is by filing a law suit so this led to deals being cancelled in the last minute. The collection agencies obviously didn’t like this and are contesting Mr. Burns ruling in Nevada courts, I am rooting for Commissioner Burns.

If Commissioner Burns ruling stands it could bring down closing costs for a $100,000 foreclosed home in Las Vegas by 2% or more and that is good thing.

Have you ever wondered why you see so many different figures quoted in the media regarding home prices in Las Vegas?

Some quote “Average Price” and some quote “Median Price”, and some don’t say!

There is no ONE price for EVERYTHING! Las Vegas homes prices are the function of:

1. Transaction Type: Auction, REO, Short Sale, Normal Non-Distressed Sale or New Homes

2. Time Frame Measured: For the Month? For the Quarter? For the Year? Last Year or This?

3. Type of Structure: Single Family Detached or Traditional Condo/TH or High Rise Condo?

4. Area Measured: Clark County? Las Vegas-Paradise MSA? Henderson? North Las Vegas?

5. Data Source: MLS? DataQuick? Case-Shiller? County Assessor? US Census Data?

Below you can find the median home prices in Las Vegas by transaction type.

Las Vegas home market by transaction type, foreclosure homes, short sale homes, auction homes and classic sales

As you can see this graph shows a stable market, jumping UP and DOWN in a narrow range (about 10%).

The other graph shows market shares by transaction type. Although foreclosures make up only 20% of total residential listings, still more than one third of homes sold are foreclosures.

Las Vegas homes sold market share transaction type, foreclosure homes, short sale homes, auction homes and classic sales

 The other point is that competition for homes that are priced less than the median number for each transaction type is still fierce and we are yet to get an acceptance without multiple offers;, however we win our fair share of deals even after multiple counter offers because we have become experts in writing foreclosure offers.

Lastly, I have told a couple of perspective buyers to GO FISH rather than looking to buy homes here. These buyers want to get an additional 40% discount from current prices for Las Vegas homes while there is absolutely no reason for any seller to even consider their ridiculous offers when they are getting multiple offers for their homes that are near or higher than comparables. When knowledgeable buyers talk about 40 cents on the dollar, they are talking about prices in 2004-2007 and not now.

Before I discuss Las Vegas economy and its effect on Las Vegas real estate pricing I want to discuss a couple of points.

1: I am NOT an economist.

2: The Southern Nevada Index of Leading Indicators is done by UNLV. The following is from their web-site.

The Southern Nevada Index of Leading Indicators is composed of 10 economic series, based on criteria used to build the National Index of Leading Indicators. The series and their respective weights are as follows:

• Residential building units permitted 0.7
• Residential building valuation 0.9
• Commercial building permits 1.0
• Commercial building valuation 1.4
• Taxable sales 1.0
• Air passengers enplaned and deplaned 1.0
• Sales of gasoline (gallons) 1.2
• Gross gaming revenues 1.4
• Visitor volume 1.1
• Conventions held attendance 0.5

Now, keep in mind that Clark County, Nevada, and more specifically Las Vegas has been basically a two industry town (gambling and construction). In 2003-2007 Las Vegas was severely overbuilt for our current economic conditions so residential building units permitted and commercial building permits are NOT going to recover for a number of years. Residential building valuation and Commercial building valuation are down and will not recover until sometime after the other indexes recover.

The Nevada and Las Vegas economy is a function of US economy with a lag time. First, visitors have to feel good about their own financial situation and that requires a lag time of 6 months to a year from the stock market recovery to come here and spend (lose) their money. Then casinos have to feel good about their situation (NOT the Jersey Shores guy) for a while to start giving more hours to the employees who are under employed (I am not talking about new hires) until their employees feel good about their financials so they start spending money here, so it can trickle down to other businesses here. Las Vegas real estate prices will start appreciating significantly only after, a lot of trickling downs.

But now we are starting to see signs of recovery. Excluding residential and commercial real estate, other indicators are rising and if things don’t get worse we should be at the beginning stages of recovery.

Again the following is from CBER:

“The economic picture for Clark County is improving a little bit more than for the state as a whole. September gaming revenue was up 1.5 percent from a year ago—down 2.5 percent from a very robust August. Had August not seen such a dramatic increase in baccarat, however, the September gaming numbers would show an increase. September visitor volume and taxable sales were also up over a year earlier. The Las Vegas unemployment rate rose from 14.7 percent to 15.0 percent in September, and residential construction permits fell sharply.”

I will discuss the Las Vegas home market in my next blog post.

As for me: it is good to blog again and the reason for not blogging in more than a month is that we got slammed after I revamped Las Vegas homes, condos, land and commercial real estate and taking care of our clients is time consuming. The other reason is that I haven’t been well.  I’d like to thank all who prayed for my recovery which is slowly starting too.

Property taxes for many Las Vegas homes and condos have been cut by 15%-25% or more, however many listings show 2009-2010 taxes instead of the new rate. Thus property taxes have to be verified when showing or making offers on homes or condos since a $500 per year reduction in taxes for a $125,000 home can significantly affect the loan amount for buyers who want to finance their home and can equally affect cash flow for Las Vegas real estate investors.

MGM CityCenter Mandarin Oriental Hotel condos sales have not sold as quickly as City Center condo sales at Residences at Veer Towers  because Mandarin condos are far more expensive than Residences at Veer Towers and as I have written before that Mandarin Oriental has been built for buyers for whom price is not a concern.

Below is the number of sales by month and average sale prices at CityCenter Mandarin Oriental Hotel ultra luxury condos

 I have blogged about the history of price cuts at Mandarin Oriental condos at CityCenter, Las Vegas and at least at this time there is no sign of any further price cuts, however nothing keeps a buyer from making a lower offer than list price on these condos. What is the worst thing that can happen? CityCenter will decline the offer!  

Additionally, Casinos on the Strip are doing well as their winnings last month was up by 21% compared to the same month last year, so MGM is making money and can hold on. I have not written about Vdara which is a luxury high rise condo hotel because I don’t think that Vdara condos offer a decent deal to investors and if any price cuts do come, it should be Vdara which is a condo hotel for sale at CityCenter Las Vegas.

At any rate if you want to make an offer on a Mandarin Oriental Hotel call me, I have been tracking sales at City Center as sold numbers became available in the Clark County recorders site.

 Masoud, 702-478-7800.