Fierce Competition for REOs Means Investors Need to Change Course in 2010

I love the Las Vegas real estate market!  Just like the city itself, the Las Vegas real estate market is always changing, always exciting.  We saw the market reach bottom last year and begin to stabilize again as investors rushed back in to Las Vegas to snatch up foreclosure deals that generated phenomenal cash flow and excellent potential for appreciation.  2009 was definitely the year of the bank owned foreclosure property, or REO.  In 2009, nearly 75% of all real estate sales in the Las Vegas valley were bank owned foreclosures (of the 71 homes I personally sold last year, 69 were foreclosures).  However, towards the end of the year, these numbers began to change.  Foreclosure inventories started to tighten up and as the year went on, the number of foreclosures as a percentage of total home sales continued to shrink.  By January of 2010 only 57% of all Las Vegas real estate sales were bank owned foreclosure  properties.  Why?

The short answer is that there are fewer homes going into foreclosure.  In December, 2009 there were only 1228 homes and condos foreclosed upon in all of Las Vegas, and in January, 2010 there were just 1352 homes and condos that made their way to the foreclosure trustees sale.  These numbers are way down, to less than 15% of the total number of foreclosures reported in Las Vegas during the same months a year earlier.  A major reason for this decrease in foreclosures, is the change in focus at the banks from foreclosing to short selling or modifying loans.  As the Obama administration continues to push for banks to work with beleaguered home owners, short sales have risen sharply, as foreclosures have declined. 

After having been in the low teens in early 2009, the number of short sales as a percentage of total home sales in Las Vegas rose to 22% in February of 2010. 

I believe that short sales will be the answer in 2010 for investors looking to acquire property in Las Vegas at discounted prices.  As REO inventory continues to shrink, even all cash investors are finding that while prices are low and cash flow is high, getting an REO under contract is a difficult and often unsuccessful prospect.  By the end of 2009, homes listed in the multiple listing service (MLS) were, once again, like the old days of 2004 and 2005, getting multiple offers and selling for levels above their listing price.  Houses that are priced right can be getting 10 to 15 offers within the first couple of days on the market.  In February of this year, 50% of all home and condo sales were cash deals.  The investors are back again in Las Vegas and they are dominating the market place.  At this point, it is virtually impossible for a VA ($0 down) or FHA (3.5% down) buyer to get an REO home under contract.  Both investors and potential owner occupants have a much better shot at securing a home if they go with a resale or new construction home.  Unfortunately, resales and new construction do not offer the great prices that REOs do.  So what is an investor to do?

I believe that the next great way to acquire properties will be through short sales.  Short sales are gaining momentum as banks realize that they present a much better alternative for all parties involved than a foreclosure.  Althoug short sales may sell for around the same price as bank owned REOs, the bank saves all of the fees and costs associated with a foreclosure, so their bottom line is much better.  Plus, having a tenant or owner in place means the property will likely remain in better shape (less theft and vandalism) than a foreclosure.  Short sales also represent a faster sale for the bank with no rehab and no down time for vacancy.  Short sales are also great for investor buyers as they are much less competitive than REOs and in many cases they come with a built in tenant.  Frequently, the owner or renter will wish to stay in the home they have already been living in and, in some cases, may even pay higher than average rent to do so.

New legislation, such as the Home Affordable Foreclosure Alternative Program (HAFA), which takes effect on April 5th, will aid homeowners in getting short sales approved and should keep more people from losing their homes to foreclosure.  The banks are already receiving government incentives to negotiate with homeowners and facilitate short sales, so this new legislation should only further ease the process.  Some banks are starting to implement new, more streamlined systems for short sale negotiations, such as Bank of America's new "Equator" system.  It will take time to see how these new systems work, but I personally just got a B of A short sale approved at record speed this week. 

In the last week alone, I have had 3 short sales approved and accepted by the bank.  The first one was a 2200 sq ft. SFH at only $119K and the other two were 2 bedroom condos at $48K and $50K.  All three of these were tied up by my investors in a matter of minutes after I announced them.  This method of concentrating on bank approved short sales is undoubtedly the best way to purchase property in 2010.  There are no multiple offers, no need to bid way over list price to secure a deal, just simply "I want it and I got it" at the approved price. 

 Being a small boat in the ocean enables me to quickly change and adapt to the continuous fluctuations in the Las Vegas real estate market with quick precision.  This gives me a tremendous advantage over the large REO companies (ocean liners) that need to retool, chart their new course and attempt to change direction.  Mark my words, short sales will be a very large part of the Las Vegas Real Estate Market in 2010.  This is where we all need to be focusing our buying efforts.

If you are interested in purchasing short sales in the Las Vegas area, contact Glenn Plantone at:
(702) 769-9872 or [email protected]