Big Money Bets on Las Vegas Real Estate Market: Episode #316

Big Money Bets on the Las Vegas Real Estate Market

Todd: Hello. Welcome to Todd Miller TV. Joined here today with Oana and so I read an article that big money is betting big on the Las Vegas real estate market and they gave some examples.

One was Paulson who was the big hedge fund manager who has purchased enough land in the southwest here in Las Vegas. It’s one of those places to buy as many – to build as many as 25,000 houses. The Blackstone Group we know is buying thousands of residential properties and holding on, on these rentals.

So how does that translate to the average consumer out there who is trying to buy a house right now knowing that big money is really flowing in to real estate?

Oana: So this should give the consumer a lot of confidence.

Todd: OK.

Oana: So if these guys are coming in and buying a lot of property, then they see real estate appreciating and in all reality in Las Vegas, real estate probably bought them out a couple of years ago.

Todd: OK.

Oana: We’ve seen in some places substantial appreciation particularly on the lower end. There has been a lot of appreciation and there’s – we can see at this point monthly appreciation on the lower end which is tremendous. We’re seeing appraisals where appraisers who are looking back and not forward are giving credit up for as much as half a percent per month on appreciation.

Todd: OK.

Oana: So we’re seeing the Las Vegas real estate market definitely as an uptick. Look it took years for the market to crash 50 to 70 percent. It’s going to take years for it to recover but that means that even though the market has bottomed out a couple of years ago, we’ve got a long way to recover which means if you’re buying now, it’s still a great time to buy because for the most part, the market is still going up.

We’re seeing a lot of new construction. Now when new construction comes on the market, they almost always come on the market 25 percent or more over the same house that’s a resale house.

Todd: OK. So, a new home on the market more for more than a resale house.

Oana: Right.

Todd: Why is that?

Oana: Well a lot of it is psychological. Kind of that new car smell, that new home smell.

Todd: OK.

Oana: OK. So people like new homes. We like new shiny things. OK? And then part of it is that it’s still – it costs more to build than it does to buy resale.

Todd: OK, right.

Oana: It just costs more to build. So their costs are more and of course they have to make a profit and it’s old-fashioned supply and demand. People are willing to pay more for new construction.

But that means that as new construction values go up, so does resale because it’s going to keep pace with it. You’re still going to have that spread. As new construction goes up, resale will go up with it. You’re still going to have that premium for new construction but resale will still benefit from every price increase that new construction has.

Todd: OK. So let’s talk specifically about the Las Vegas real estate market.

Oana: Yes.

Todd: Low inventory.

Oana: Yes.

Todd: Super high demand.

Oana: Yes.

Todd: Prices appreciating.

Oana: Absolutely.

Todd: OK. Do you think that investors who have bought over the last couple of years, even though they could take their profits now are holding on saying, “Why should I sell when everything is appreciating?”

Oana: Exactly. So look at it this way. You’ve got a property that’s maybe priced under $100,000. Your property will actually appreciate as much empty as it does with a tenant in it without having the wear and tear on it.

Todd: So if you buy a house in the Las Vegas real estate market and not even put a tenant in it and you don’t get that 1000 bucks a month rent, you’re still fine because it’s appreciating at 1000 bucks a month.

Oana: Exactly.

Todd: And you don’t have a tenant to worry about.

Oana: Yes, yes.

Todd: That’s interesting.

Oana: So that’s what you’re seeing. You’re seeing these investors who are putting these houses on the market. These houses are vacant. OK? And they’re priced on the high end and you’re thinking, “Well why are they there?” Because the investor is going to make more money when a purchaser comes in.

Las Vegas has been selling homes for cash. More than 50 percent of our sales on a monthly basis had been cash purchases for I would say the last three, four years.

Todd: Yeah.

Oana: And so because we’re not subject to appraisal for more than half our purchases, that means that investor is not so concerned with appraisal as they’re more concerned with having somebody come in who’s willing to pay their price for the home and that’s happening over and over again, even people financing. They’re having to pay more than appraised value.

I mean it’s not uncommon for somebody – with even an FHA loan to have to come in with $10,000 on top to cover the difference between appraised value and purchase price simply because there is no inventory.

When I’m sitting there and I’m trying to determine the value of a property and I’m looking at what’s in the Las Vegas real estate market, I’m looking at them saying, “You know what? I can price my property higher than anybody else because there’s nothing available on the market.”

Everything that’s on the market has an accepted offer. So if you want to buy in this neighborhood, I’m it. So you’re going to have to pay a premium for my house because I’m the only thing available in the Las Vegas real estate market.

Todd: And we do have listings that are in the MLS for higher than everything that’s sold, for everything that’s listed.

Oana: Right.

Todd: And getting offers on them for the list price.

Oana: Yeah.

Todd: OK.

Oana: We do.

Todd: What about – because I know there are people out there who follow my video blog who are going to say, “Yeah, but it’s just going to cause another crash because anything that goes up has got to go down. So it’s all speculation.”

Oana: It is. Look, this is real estate and real estate goes up. Real estate comes down. The bottom line is from where we were, prices have come down 50, 70 percent depending on where you are.

Todd: OK.

Oana: OK? Prices have come up. They’ve come up substantially. In some places, prices have come up 30 percent.

Todd: OK.

Oana: OK? So yes, it is speculation. You do have to know what you’re doing. You do have to know to watch the values of your property. It’s like with any other investment. It’s buyer beware. Be educated. Stay on top of your investment. We’re not going to sit here and tell you that oh, your property is going to go up 30 percent in a year. I would never tell that to anybody because I don’t have a crystal ball.

Todd: If you were managing a portfolio of properties for investors, would you tell them – what would you tell them for whether to buy more, sell now or hold or combination and what timeframe would you say?

Oana: If cash flow is not an object, then I would say hold what you have and buy more.

Todd: OK.

Oana: For how long? I don’t know. Watch the market. I would say probably for the next three years, we’re probably good.

Todd: OK.

Oana: But it also depends on property specific. Are you at a point where that portion of the Las Vegas real estate market has plateaued? Clearly right now we’re not there. I don’t think anywhere in the value.

Todd: Right.

Oana: But we are going to get there. You might want to take your money from this neighborhood and put it in this neighborhood because this neighborhood is kind of maxed out. So that’s what I’m saying. You have to watch and it’s on a house by house basis. It’s like with any other investment. Watch what you’re doing. Be knowledgeable and make choices everyday because if you don’t make a choice, that’s a choice too.

Todd: OK, good. All right. So thank you very much.

Oana: You’re welcome.

Todd: All right. So I just want to share some insight with you because big money has flown in to the Las Vegas real estate market. It’s at the trustee sale. It’s purchasing residential properties. We know this specifically because we do have some big investors who have portfolios who are trying to buy a bunch of houses. So we see it on a daily basis.

Anyway, I thought I would share that with you. That’s my update for today and hope to see you on another video. Thanks.