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Irvine Housing Blog

Irvine Housing Blog

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Buy Las Vegas Real Estate

Posted: 05 Aug 2010 03:30 AM PDT

I am a reputed housing bear, but there are markets where I am very bullish. Everyone who wants a great long-term buy-and-hold property should be looking in Las Vegas, Nevada. 


Irvine Home Address ... 647 SPRINGBROOK #22 Irvine, CA 92614
Resale Home Price ...... $359,000

Are you still feeling lucky tonight?
Throw the dice again... let it ride (let it ride)
Wanna do this one more time?
Hit me again... let it ride (let it ride)

Are you gonna play tonight?
Sleep with me, just right by your side
Gonna do this one more time
Hit me again... let it ride (let it ride)

Charlie Clouser -- Let It Ride

For someone who writes bearishly about real estate almost daily, it will surprise some to hear me be completely and unabashedly bullish. I am very bullish on Las Vegas. I will put my money down there, and let it ride. 

Booming Vegas or Real Estate Bust?

By Eric Fry -- Aug 3, 2010, 2:03 PM

Over the weekend, your California editor jumped the border into Nevada. He took a spur-of-the-moment road trip to Las Vegas with his co-editor, Joel Bowman.

During their two-day romp in Sin City, neither editor engaged in any activities that needed to “stay in Vegas.” No drunken debauchery to report…or not report. No big-ticket gambling losses…or small-ticket moral lapses. Just the same old wholesome living with which they routinely bore themselves.

While most of the tourists were busy losing their money and sleeping off hangovers, your editors were busy gathering macro-economic data points. After all, Las Vegas may be famous for its ostentatious casinos, but it is infamous for its outrageous housing bust.

No city in the country throws a better housing bust than Vegas.

Although the residential real estate market in Las Vegas has been stabilizing for the last two years, home prices remain more than 50% below the peak levels of 2006. “In 2000,” the Las Vegas Sun reports, “the median price of existing homes was $134,500. That shot up to a high of $285,000 in 2006, but in 2010 prices have been running slightly more than $120,000.”

Hard Landing Las Vegas

I want to take a moment to think about the numbers given above. In 2000, the average annual mortgage interest rate was 8.05%, and the stable median home price was $134,500 in Las Vegas. If you borrowed 80% of that amount ($107,600) the mortgage payment would have been $793.28. Today, a 30-year fixed rate mortgage can be obtained for 4.56%, and the median home price is $120,000. If you borrow 80% of that value today ($96,000) the mortgage payment would be $489.85.

The median home in Las Vegas -- a 3 bedroom 2 bath detached property -- can be owned for less than $500 per month.

It that isn't affordable, I don't know what is. The house is cheaper, and the cost of debt is much cheaper. Anyone living in Las Vegas who is choosing to rent when they could buy is a fool. Anyone thinking of investing in Las Vegas, now is the time -- not because prices will come roaring back (they won't) but because the price-to-rent ratio is outstanding, and unless you are buying in the worst neighborhoods, I don't see how prices could go much lower. Unlike the inflated markets in California -- the foolishly percieved safe havens -- the property values in Las Vegas really can't go much lower, and although appreciation is years away, the rental stream makes ownership there very rewarding.

I personally plan to acquire all the Las Vegas real estate I can buy. And no, neither Ideal Home Brokers nor the mystery fund I might know something about is going to invest in cashflow properties there. I am not selling you on Las Vegas because I will profit from convincing you. I am bullish on Las Vegas real estate because I perceive it as the best buy-and-hold value we will see in our lifetimes.

I know it is hard for the kool aid intoxicated to get their minds around buying properties that will see no appreciation for ages, but realistically, there isn't going to be appreciation in any real estate market for ages. The best, and in my opinion, the only good reason to buy-and-hold real estate is for the rental cashflow. You want perpetual cashflow, not a cashless asset that requires taking on debt to convert to spending money.

Not surprisingly, mortgage defaults and foreclosures have been soaring over the last three years. “Since January 2007, Nevada has ranked No. 1 in the nation in foreclosure filings [as a percentage of total mortgages],” the Sun continues. “[Among cities], Las Vegas was ranked No. 1 in 2009 and will be near the top again in 2010.”

And to judge from a recent report by the New York Fed, Las Vegas will not be surrendering its “No. 1” position any time soon.

“Although the official home-ownership rate for Las Vegas is a respectable 58.6% as of August 2009,” DailyFinance observes, citing the Fed study, “the ‘effective’ rate is more like a dismal 15%… How is the ‘effective’ home-ownership rate different from the official one? The authors of the New York Fed study removed those homeowners who have negative equity – those who are ‘underwater’ and owe more on their mortgage than their home is worth.”

In other words, 58.6% of all Las Vegas residents may own a mortgage, but only 15% of them own a home.

The overhang of distressed mortgage debt is why a recovery will take forever in Las Vegas. All the debt must be extinguished. For those waiting for house prices to go up, the crushing weight of all the other homeowners who are giving up will keep foreclosure inventory high for many, many years. The one scenario that could make prices go lower is if interest rates move significantly higher before unemployment improves. With the entire housing stock trading at a 20%-40% discount to rental parity, a modest increase in interest rates won't significantly harm affordability like it will here.

The commercial real estate market in Las Vegas is almost as distressed as the residential market. Office vacancy rates have plummeted from about 8% in 2000 to 24% recently. Therefore, even if the Vegas real estate market is recovering, a lot more recovering will be required to restore stability…and rising prices.

Given your California editor’s familiarity with these macro-economic data points – and his unfamiliarity with Vegas itself – he expected to roll into a tawdry wasteland last Friday when he rolled off of I-15 onto Las Vegas Blvd. He expected to find clusters of low-budget tourists roaming the sidewalks of half-empty hotels. He expected to find deserted casinos in this gaudy patch of desert…and cut-rate pricing on everything.

But he found the exact opposite. The place was packed – every square inch of it – and priced for boom-time conditions.

On Day One of his visit – a Saturday – most of the best-known hotels on the Strip were either sold out or offering rooms at Midtown Manhattan prices. On Day Two, hotel room rates dropped sharply, but the crowds remained at capacity. All along the Strip, the casinos and restaurants were bustling, while the sidewalks and poolside lounge chairs were packed to capacity.

Finding a lounge chair anywhere close to Mandalay Bay’s wave pool required Green-Beret-style recon missions…or a lot of money. High-rolling hotel guests could chose to roll out $250 to $1,000 to rent a cabana…for one day!

The cabanas were full.

I have told people on many occasions that I strongly believe in the economic recovery of gaming and tourism in Las Vegas. Once the rest of the economy begins to improve, the unemployed start going back to work, and people have two nickles to rub together, they will put one of them in a Las Vegas slot machine. A reviving economy in Las Vegas will signal the end of the recession better than any government report.

Where is all this money coming from? How on earth could the sluggish US economy play host to such seeming prosperity?

Your editor has no decisive answer to these questions, but he does have indecisive guesses:

First up, he observed a very large percentage of “ESL” tourists. The crowded sidewalks featured almost every language on the planet. Apparently, Vegas appeals to foreigners.

Secondly, your editor suspects that Vegas has become a leading “staycation” beneficiary. Vacation destinations like Paris, Venice and Cairo are as expensive as they are distant. So why not go to Vegas, which enables tourists to visit the Eiffel Tower, the canals of Venice and the pyramids of Cairo…just by strolling from one end of the Strip to the other. Better still, these sites offer valet parking and free booze.

Whatever the exact causes, the Las Vegas economy appears to be recovering. Sin is still selling.

Drunken debauchery will always be popular. Once people can afford it again, Las Vegas will be there waiting to take their money.

One busy weekend does not necessarily make a trend. But the official numbers seem to support your editor’s first-hand impression. Tourist visits are on track to jump 3% this year to about 37.5 million, which would be the largest number of visits since 39.1 million tourists visited Sin City in 2007.

Vegas may not have returned to its peak prosperity, but neither has it descended into anything resembling a bust. Perhaps, therefore, the Vegas housing bust is drawing to a close…no matter what else is happening in the rest of the country.

As we noted in yesterday’s Reckoning, the weight of stubbornly high foreclosure rates – coupled with stubbornly high unemployment rates – continues to weigh on the national housing market.

I have written that Gaming Interests Could Save the Las Vegas Housing Market. Maybe someday I will raise the billion dollars required to save their housing market. I hope nobody there is holding their breath.

The extra breadwinner 

Even the condos were put to work during the housing bubble. Properties both bid and small were steady breadwinners for many families. I imagine they miss that extra income now that the housing ATM has been turned off. Some are still receiving the squatter's stimulus, but eventually that will run out as well. All these equity-stripping former owners will need to adjust to a new life based solely on their wage income. The horror of it is unimaginable.

  • This property was purchased by the previous owner on 9/12/2001 for $237,000. The owner used a $225,000 first mortgage and a $12,000 down payment.
  • On 2/21/2002 he obtained a stand-alone second for $24,000 which recouped his down payment and pulled $12,000 out to spend. Not bad for 5 months ownership.
  • On 9/8/2003 he refinanced with a $240,000 first mortgage.
  • On 9/8/2004 he obtained a $100,000 HELOC.
  • On 8/15/2005 he got a HELOC for $141,000.
  • Total property debt was $381,000.
  • Total mortgage equity withdrawal was $156,000. Not bad for a small condo.
  • Total squatting time was about 1 year.

Foreclosure Record
Recording Date: 05/27/2010 
Document Type: Notice of Sale

Foreclosure Record
Recording Date: 02/18/2010 
Document Type: Notice of Default 

Foreclosure Record
Recording Date: 12/17/2009 
Document Type: Notice of Sale

Foreclosure Record
Recording Date: 09/09/2009 
Document Type: Notice of Default 

The flipper has been wisely lowering price to find the market. The margin is getting pretty thin, and without any upgrades, the price may have to go even lower to find a buyer. 


Irvine Home Address ... 647 SPRINGBROOK #22 Irvine, CA 92614

Resale Home Price ... $359,000

Home Purchase Price … $311,000
Home Purchase Date .... 6/16/2010

Net Gain (Loss) .......... $26,460
Percent Change .......... 8.5%
Annual Appreciation … 89.3%

Cost of Ownership
$359,000 .......... Asking Price
$12,565 .......... 3.5% Down FHA Financing
4.60% ............... Mortgage Interest Rate
$346,435 .......... 30-Year Mortgage
$70,987 .......... Income Requirement

$1,776 .......... Monthly Mortgage Payment

$311 .......... Property Tax
$0 .......... Special Taxes and Levies (Mello Roos)
$30 .......... Homeowners Insurance
$335 .......... Homeowners Association Fees
$2,452 .......... Monthly Cash Outlays

-$287 .......... Tax Savings (% of Interest and Property Tax)
-$448 .......... Equity Hidden in Payment
$22 .......... Lost Income to Down Payment (net of taxes)
$45 .......... Maintenance and Replacement Reserves
$1,784 .......... Monthly Cost of Ownership

Cash Acquisition Demands
$3,590 .......... Furnishing and Move In @1%
$3,590 .......... Closing Costs @1%
$3,464 ............ Interest Points @1% of Loan
$12,565 .......... Down Payment
$23,209 .......... Total Cash Costs
$27,300 ............ Emergency Cash Reserves
$50,509 .......... Total Savings Needed

Property Details for 647 SPRINGBROOK #22 Irvine, CA 92614
Beds: 2
Baths: 2 full 1 part baths
Home size: 1,100 sq ft
($326 / sq ft)
Lot Size: n/a
Year Built: 1985
Days on Market: 27
Listing Updated: 40382
MLS Number: S623642
Property Type: Condominium, Residential
Community: Woodbridge
Tract: Lr
HIGHLY SOUGHT AFTER END UNIT WITH VIEW OF GRRENBELT! No one above or below! This charming Cape Cod style home is located in the desireable Woodbrige area of Irvine. Open and spacious floorplan offers soaring ceilings and an abundance of natural light! Beautiful travertine flooring throughout the downstairs. Family room offers gas fireplace, The interior has been freshly painted with neutral colors. Inside laundry, Stainless steel appliances in kitchen wth breakfast bar. Large patio area with views of greenbelt and plenty of room to BBQ and entertain. Located in the highly sought after Irvine Unified School district and the Woodbridge Association features approximately 40 parks and pools, two 'landmark' lakes and swimming lagoons, two beach clubs, 24 tennis courts, plus many other recreational amenities!

desireable? GRRENBELT! That is really embarrassing to have a jarring misspelling in ALL CAPS.

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