Buy And Hold: It's The New Flip

After leading the nation in foreclosures for the past three years, the real estate market is changing quickly here in Las Vegas.  Banks have literally stopped foreclosing on homes, and the lack of REO listings have combined with other factors to push Las Vegas REO inventories to record lows.  As of March 2012, there are only 956 REOs (bank-owned, post-foreclosure homes) listed for sale on the Las Vegas MLS.  When you consider that Las Vegas is still averaging approximately 4000 homes sold per month and that ½ of our sales consist of REO properties, these numbers mean that we currently have a two week supply of REOs available on our MLS.  This is an unbelievably small amount of standing inventory.``

Now you might be thinking that this is surely good news for homeowners.  Fewer REOs driving prices down means that homeowners will begin to once again sell their homes for reasonable prices and this will drive an economic recovery right?  Not really.  The problem with this theory is twofold.  First, more than 50% of the sales in Las Vegas continue to be cash sales to investors.  Why?  Because banks are still keeping a tight grip on their funds and finding loans is continuing to present serious difficulties for the average home buyer.  Second, even if potential owner occupants can find financing, we are seeing appraisers that, time and time again, are unwilling to appraise properties for their selling price.  If you can’t get an appraisal for the home, it doesn’t matter how much someone is theoretically willing to pay for it.

On the other side of the fence we are watching foreclosure inventory continue to decline as banks shrink away from foreclosure proceedings.  In February of 2012 the banks only took back 737 homes at the Las Vegas Trustees’ Sale.  Even the “vultures” at the sale only picked up 597 homes.  This is one of the lowest totals in the last several years.  As a result of the robo-signing fiasco, AB 284, and government intervention in various forms, banks have ceased most of their foreclosure proceedings on properties that they have every right to repossess because they are worried that the foreclosure may be overturned on a technicality.  

What does all of this mean for the Las Vegas real estate market moving forward?  No one can really say for sure.  What we do know is that we faced a similar situation at the beginning of 2010 where REO numbers began to decline dramatically and it became more and more difficult for our investor clients to acquire investment property in Las Vegas at reasonable prices.  Now, as then, many REOs are going to a highest and best situation and are being bid out of the realms of cash flow for potential investors.  In 2010, we dealt with this problem by developing a system for aggressively purchasing short sales.  This succeeded and we were able to continue to provide properties for our investors.  But we have learned and grown from our previous endeavors.  This year, as REO inventory lightens, we are focusing on purchasing bulk portfolios, private auction properties, bank-owned non-listed REO packages, and some short sales as well.  We recently closed on a 15 home package and a 9 home package purchased directly from the banks, who were looking to move their inventory quickly.  

And so we get to our title: “Buy And Hold:  It’s the New Flip.”  Because it has become so competitive searching for properties with great spreads, the flipping market has slowed tremendously.  The savvy investors are now buying and holding properties and taking advantage of the phenomenal interest rates that can currently be had (and will, most surely, soon be gone.)  There has never been a more perfect time to leverage your investment or IRA dollars into real estate.  Historically low prices, combined with rock bottom interest rates make this the perfect time to buy and hold cash flowing property in Las Vegas.  Our cash buyers are getting returns of 8-12% annually on their money, and financed buyers are doing even better with returns of 15-25%.  

If you are interested in learning more about what we do or investing in the Las Vegas real estate market, please contact Glenn directly.