High Rise Condos Continue to Drop in Price...Maybe Time to Buy for Some?

Question

I recently attended the public auction held to sell 20 units in the three MGM Signature towers located just off the Las Vegas strip. The auction was held on April 21st and was attended by about 125 people. All units were sold.

The auction saw new record low sales prices for both one bedroom and studio units in the MGM Signature complex. The top one bedroom sold for $255K and the low sold for $185K. The previous low comp for a one bedroom unit was $274K. So this sale brought the comp down quite a bit from $274K to $185K. The top studio unit sold for $200K and the low sold for $142K. The previous low comp was $174K. So again the comp came down from $174K to a new low of $142K.

It will take approximately one month for these units to officially close and for the new lower comps to register in the MLS. There are still 24 REO/bank owned units available within the Signature towers. Once the new comps register, there will be another great buying opportunity for anyone still interested. I will then be advising my investors to put in some cash offers for lower than the new low comp prices and test the waters.

This MGM auction, and others that are coming up shortly at different locations, are proving that high rise prices in Las Vegas are finally coming down to levels where they are extremely affordable as a second/vacation home option. In some cases they could even work as an investment...but there are definitely stronger cash flow plays elsewhere in the valley...so an investor in high rises would have to have an ulterior motive as well (ie: holding for appreciation, second home, vacation split, etc.)

I wonder how much lower they will go?

Jon Holdman · Answer

I too dislike HOAs. However, if I had a place I only visited ocassionally, I really don't want to have to deal with the day-to-day maintenance issues. Used to live in Houston, and had a house about 70 mi away, near the coast. We went there maybe twice a month. Great for the rest of the family, but I spent the entire time mowing or triming trees (several acres, about half wooded) or working on the place. Hopefully, with a condo, at least some of the maintenance would be handled. If the economy does start stabilizing, and eventually improves, Vegas will see some benefit, IMHO. I don't think it will ever get back to the boom years, at least for a long time. Vegas, and nice vacations in general, are luxury items. Lots of poeple visited. Some were folks dragging down big bonuses. Others were folks cashing the equity out of there never-to-fall-in-value house. Even if the economy does get back to "normal" that normal will be much different than from 2001-2007. Maybe some of these nutty projects will get delayed indefinitely and the situation will stabilize, though at a lower level than many of these big companies expected. For example, Harrah's just might decide their hotels on the east side of the strip are just fine, rather than trying to knock them all down and building something to compete with City Center. MGM might have to sell off more of their hotels. Sure be nice to have some real competition of the strip. I love staying there, but they get almost none of my few gambling dollars, between the high limits on their table games and the crappy payouts on the video poker. Really, though, I'm not sure I'd want a condo there. FL or HI, maybe, even somewhere in coastal Mexico. But staying at a hotel in Vegas is part of the experience, IMHO.

Harrison Painter · Answer

Tempting because we know that Vegas will never die! LOL However, it will see much tougher times, especially since we are in a global style recession. In the past other countries could pick up our slack, but right now everybody is hurting! First sign of a turn-around though, and Vegas will be back, and stronger than ever..... The big question is, how long will that take? :) - Harrison

Jim Wineinger · Answer

Tempting because of location as in sin city? :D or because it is always a gamble? :oops:

Jim Wineinger · Answer

The real reason that I will not be interested in the condos are the HOA's. This would also be true for several communities such as retirement home communities in FL. Just my preference, I hate HOA's because the rules change without warning to those who cant be there to voice an opinion because they are away completing an investment or two other places!!!

Harrison Painter · Answer

Condos really scare me right now. There have been so many lawsuits, HOA problems, and the transient nature of the occupants, not sure if I would be quite ready to move in this direction....at least not just yet. Vegas is very tempting right now though.......very tempting! - Harrison

Eric A. · Answer

some cases they could even work as an investment...but there are definitely stronger cash flow plays elsewhere in the valley...so an investor in high rises would have to have an ulterior motive as well (ie: holding for appreciation, second home, vacation split, etc.) I wonder how much lower they will go? In your opinion where else in the valley would you invest? -Eric

Richard Warren · Answer

The City Center project is in a bit of trouble. It was jsut disclosed that there are an enormous number of unresolved problems uncovered on inspections. The partners are feuding and it is pretty ugly. http://www.biggerpockets.com/renewsblog/2009/03/30/rolling-craps-sin-city/ Many of these hi-rise condos can be rented out as hotel rooms and that can be used to offset some of the costs. As Glenn says, it is really for people who want a second home in Vegas as opposed to a real cash flow deal. The high HOA and other fees would make it difficult to make a real profit stictly as a rental. :cool:

Glenn Plantone · Answer

I agree with both comments. I think that we will likely see some continuing declines in the high rise market, but that we will see even larger declines in the luxury home market. I recently saw a home that was listed at 4.7 million go under contract for under 1.5 million. However, when I say that the time to buy high rise properties may be here for some, I am referring to people who want to have a second home or vacation home that they can purchase at an affordable price and that they can rent out to defer some of the costs. Because prices are becoming so reasonable, this option is much more realistic than it was two years ago.

Jon Holdman · Answer

When you talk about renting these condos, do you mean as a vacation, nightly rental? Seems difficult to coordinate use of the unit as a second home with any sort of long term rental. What are the occupancies like for a vacation rental? What about management fees? I have to guess occupancy is not that high since I've been getting more hotel offers than ever and I'm sure I don't gamble enough to even be a flea on MGM's radar. What happens when City Center starts opening, or is it already?

Jeff Tumbarello · Answer

How do they cash flow? Buy them when they start to cash flow