Las Vegas Real Estate Investing 101: Episode #321

Las Vegas Real Estate Investing

Oana gives her insights into the Las Vegas real estate market and what investors are likely to expect. She also explains how to properly calculate ROI, as many investors do not consider price appreciation into their calculations.

Las Vegas real estate investing 101

Todd: Hello. Welcome to Todd Miller TV joined here today with Oana. We’re going to talk about investing in real estate in Las Vegas.

Oana: OK.

Todd: OK. So I get a lot of calls from people who say, “I’ve got 30 grand cash. I want to buy a house just as an investment property.” And I say, if you would – I think to myself, if you’d only called like three years ago, we could have done that, maybe even two years ago. So, what’s the floor? What’s the bottom you can get into the market here cash?

Oana: Probably about $110,000.

Todd: OK, 110. What happened to the $30,000, $40,000 houses?

Oana: They were purchased and they’re now worth a lot more.

Todd: OK. All right. Probably a lot of double at the bottom end.

Oana: Oh yeah, definitely. I mean look, if you bought a house for 25,000 three years ago, yeah, it’s worth 50,000 now.

Todd: OK.

Oana: And those people are not selling them. They’re hanging on to them because they’re cash flowing and they have nowhere else to go but up so why put them on the market?

Todd: What about the REOs that are potentially going to come on the market because there was this shadow inventory, 58 percent of all houses in Las Vegas are under water. We know that there will be more REOs at some point or they’ll get sold to hedge funds and they’ll eventually hit the market. Do you think that that’s going to cause the market to crash or do you think those will just come on to the market at market value and …

Oana: They are actually coming on the market above market value.

Todd: OK.

Oana: So what’s going on is the institutional sellers, they are looking at the market. They are looking at the market trends. They are forecasting this. Look, we’re talking about billions and billions of dollars of the real estate. So they’re spending a lot of time tracking the market trends. So what they’re doing is they’re looking at the market and when I do a broker’s price opinion, I’m looking at the market and I’m allowing about one percent per month for appreciation. But they’re looking at the market and they’re saying, “OK, one percent per month for appreciation plus a premium for market scarcity.”

Now, that premium varies as a percentage but it is significant. And we’re talking, in a lot of cases, that premium is more than 10 percent.

Todd: OK. What about the people that are out there doing videos like this that are saying, that market scarcity is false, that there’s all these houses that are going to flood the market and prices are going to collapse so if you have the house, you should sell it now.

Oana: Well, the people who say that the market scarcity is false must have a wonderful crystal ball and they must have access to properties that the rest of us don’t have access to because what’s on the market is what’s on the market.

Todd: OK.

Oana: As far as the shadow inventory is concerned, that’s irrelevant. It’s irrelevant for a lot of reasons. Number one, we’ve had the shadow inventory for more years than I can count at this point.

Todd: Right.

Oana: And it has not shown up. The second reason why that’s irrelevant is because the institutional sellers have that inventory but they have no reason to dump it on the market. They have experience with that and they’re not going to do it again. They are metering out the inventory and it is coming on the market at absorption rate or even lower than that which is the reason why our inventory is so low and it has been low for a long time.

We’ve seen appreciation at – it was about half a percent a month a year ago at this time and it actually pushed up to about a percent a month in the last probably four, five months. And we’re seeing that. It’s difficult to really trend that unless you’re looking at it very carefully and you’re really looking at when did these houses go under contract, what happened to them. And you’re seeing it in the short sales too.

What’s interesting about Las Vegas real estate investing in short sales is that they’ll come on the market for price x. They’ll be an accepted offer. By the time the bank approves it, the bank will approve it for a much higher price than what the agreed upon purchase price was because the bank has realized that we are in appreciating market and they’re not going to honor a price that was valid six, eight, nine months ago when that property first went under contract.

Todd: OK. So, let’s talk about a $100,000 property that you can get a $1,000 a month rent for.

Oana: OK.

Todd: You’re getting in gross terms one percent per month return on your money in rent and then potentially one percent per month in appreciation in Las Vegas real estate investing.

Oana: Right.

Todd: So that’s – in theory, you could be getting 24 percent appreciation per year gross not counting any property fees, taxes, insurance, things like that you would have on a house potentially. Do you think that number – because when I talk to investors, all they want to know – we ignore potential appreciation. They just want to know cap rate which is the percentage of their cash that they get every year back.

Oana: OK. So I’m going to answer that kind of be a little cheeky about Las Vegas real estate investing.

Todd: OK.

Oana: Investors ask me, “Is it a good time to invest?” And my answer is, “Are you a good investor?” OK. An investor needs to keep in mind everything about the property, not just the cap rate but also the appreciation or depreciation on a property.

Todd: OK.

Oana: OK. So, excluding any part of that really doesn’t make sense. When investor says, “I’m going to exclude the appreciation.” Then would you exclude the depreciation if it was a down trending market? That doesn’t make sense.

Todd: No, they all say they want to buy it 30 percent on the market because they heard the market is going to crash.

Oana: Well, they may have heard that and perhaps they are wiser than people like Warren Buffett who are doing everything they can to purchase property in our market. He’s Las Vegas real estate investing.

Todd: Yeah. Awesome. OK. So, that’s Oana’s take on Las Vegas real estate investing. This is something we will track throughout 2013 and moving forward. Anyway, that’s my update for today and hope to see you on another video. Thanks.