Irvine Housing Blog

Posted: 04 Nov 2010 03:30 AM PDT

This post on Las Vegas will only be on the IHB for one day. It's a secret revealed only to regular IHB readers.

Irvine Home Address ... 7677 ALEXANDER HILLS ST, LAS VEGAS, 89139
Resale Home Price ...... $135,900

Listen, do you want to know a secret?
Do you promise not to tell, whoa, oh
Closer, let me whisper in your ear
Say the words you long to hear

Beatles -- Do You Want to Know a Secret

As most of you know, I have formed an investment fund to acquire auction properties and flip them for profit. I have been very busy since mid-September when I turned my attention from raising money to actually doing the work. I have been intentionally mum on the blog about this endeavor; although, I will feature properties I acquire there from time to time in the future. Quite honestly, I don't want to attract too much attention to this opportunity for fear of competitors entering the market and driving down the margins. Due to that concern, this post will only appear on the IHB today, and tomorrow morning, it will be taken down. I want to inform my regular readers, who are most of my investors, without giving opportunity for potential competitors to review days later.

I would also like to start by saying the two properties I am featuring today are not typical. These were both outstanding deals for different reasons. The typical margins I am obtaining are about half as large. That being said, both of these properties are in escrow, so I have good reason to believe the margins presented are real. There is still a chance that either or both will fall out of escrow, but Alexander Hills is scheduled to close on November 18. When it does close, I will no longer be able to accept new investors into the fund.

Home Address ... 7677 ALEXANDER HILLS ST, LAS VEGAS, 89139

Resale Home Price ... $135,900

Home Purchase Price … $86,000
Home Purchase Date .... 9/24/2010

Net Gain (Loss) .......... $41,746
Percent Change .......... 48.5%
Annual Appreciation … 308.5%

Cost of Ownership
-------------------------------------------------
$135,900 .......... Asking Price
$4,757 .......... 3.5% Down FHA Financing
4.23% ............... Mortgage Interest Rate
$131,144 .......... 30-Year Mortgage

$25,725 .......... Income Requirement

$644 .......... Monthly Mortgage Payment

$118 .......... Property Tax
$11 .......... Homeowners Insurance
$280 .......... Homeowners Association Fees
============================================
$1,053 .......... Monthly Cash Outlays

-$58 .......... Tax Savings (% of Interest and Property Tax)
-$181 .......... Equity Hidden in Payment
$7 .......... Lost Income to Down Payment (net of taxes)
$17 .......... Maintenance and Replacement Reserves
============================================
$838 .......... Monthly Cost of Ownership

Cash Acquisition Demands
------------------------------------------------------------------------------
$1,359 .......... Furnishing and Move In @1%
$1,359 .......... Closing Costs @1%
$1,311 ............ Interest Points @1% of Loan
$4,757 .......... Down Payment
============================================
$8,786 .......... Total Cash Costs
$12,800 ............ Emergency Cash Reserves
============================================
$21,586 .......... Total Savings Needed

Property Details for 7677 ALEXANDER HILLS ST, LAS VEGAS, 89139
------------------------------------------------------------------------------
Beds: 3
Baths: 2 F 1 H
Home size: 1502
Lot Size: 0.15
Year Built: 2003
------------------------------------------------------------------------------
Clean, beautiful 2-story home situated in the gated community of Lamplight Cottages. Desirable floor plan with 3 bedrooms, 2-1/2 baths. Open kitchen with a built-in island, granite countertops, built-in microwave, custom cabinetry, and tile floors. Living Room and stairs have dark chocolate hardwood floors and dramatic vaulted ceilings. Great Community with Pool, Clubhouse and lush green park. This home is owned by equity seller and available for quick close.

Bullish on Las Vegas's low end properties

Everyone is worried that Las Vegas prices will never bottom. In my opinion, properties in this price range are already there. The higher price ranges, like the second property I am going to show you, still has air to deflate, but the properties under $150,000 are not going to go much lower if at all.

I say that for one simple reason: prices are very affordable. Look at the income requirement on this house. With current interest rates this detached single-family house is affordable to someone making $25,725. That is a full-time single breadwinner making $12.86 per hour, or two breadwinners making that combined. That is affordability.

Further, the cost of ownership is much lower than comparable rents:

10483 CAROLINE ROSE ST	1,095
10439 MORNING SORROW ST	1,095
7570 GRASSY BANK ST	1,195
6191 BROKEN SLATE WY	1,100
8432 RAVENCREST ST	1,300
8225 GOLDEN FLOWERS ST	1,200

This property should rent for about $1,200 per month, making it a good cashflow rental property even at full retail cost (these properties have tremendous cashflow value at auction prices).

The combination of excellent affordability and the huge savings on the cost of ownership versus rental is prompting every renter with good credit to buy. The large positive cashflow is causing many cashflow investors to buy these properties both at auction and on the MLS. Between the local owner occupants and the outside cashflow investors, there is real demand at these price points.

I know I plan to buy several just like this one.

Selling to the tenant

The second property I have in escrow is a good deal that became a great deal because I sold it to the tenant.

Whenever I bid on an auction property, I always include a renovaton budget, and if the property is occupied, I budget cash-for-keys to pay the occupants to leave without trashing the house. In cases like this one where I was able to sell the property to the renter that lived there, I avoid both of those costs, and the savings falls to the bottom line.

Home Address ... 7888 SPINDRIFT COVE ST, LAS VEGAS, NV 89139-6109

Resale Home Price ... $295,900

Home Purchase Price … $201,700
Home Purchase Date .... 10/4/2010

Net Gain (Loss) .......... $76,446
Percent Change .......... 37.9%
Annual Appreciation … 253.5%

Cost of Ownership
-------------------------------------------------
$295,900 .......... Asking Price
$10,357 .......... 3.5% Down FHA Financing
4.23% ............... Mortgage Interest Rate
$285,544 .......... 30-Year Mortgage
$56,013 .......... Income Requirement

$1,401 .......... Monthly Mortgage Payment

$256 .......... Property Tax
$25 .......... Homeowners Insurance
$280 .......... Homeowners Association Fees
============================================
$1,962 .......... Monthly Cash Outlays

-$126 .......... Tax Savings (% of Interest and Property Tax)
-$395 .......... Equity Hidden in Payment
$16 .......... Lost Income to Down Payment (net of taxes)
$37 .......... Maintenance and Replacement Reserves
============================================
$1,494 .......... Monthly Cost of Ownership

Cash Acquisition Demands
------------------------------------------------------------------------------
$2,959 .......... Furnishing and Move In @1%
$2,959 .......... Closing Costs @1%
$2,855 ............ Interest Points @1% of Loan
$10,357 .......... Down Payment
============================================
$19,130 .......... Total Cash Costs
$22,900 ............ Emergency Cash Reserves
============================================
$42,030 .......... Total Savings Needed

Property Details for 7888 SPINDRIFT COVE ST, LAS VEGAS, NV 89139-6109
------------------------------------------------------------------------------
Beds: 4
Baths: 3 F
Home size: 3314
Year Built: 2001
------------------------------------------------------------------------------
This is a non-MLS sale, so there is no property description nor is there a link to

I think properties at this price point in Las Vegas still have some air in them. Of the properties I have purchased for the fund, the ones in this price range offer the greatest potential margins because so few auction buyers have the cash to trade these. Higher margins means it is easier for a flipper to lower price to move the property if necessary. That in turn means that prices for these will likely head lower. Further, the price-to-rent ratio is not good at these higher price points:

7871 SPINDRIFT COVE ST	1,850
7831 ABALONE BAY ST	1,850

Cashflow investors will not be attracted to these properties, so it is up to owner-occupants to clean up this mess. There is much more supply than there are buyers ready, willing, and able to absorb it. Prices in this range will fall.

But that is the risk of being a flipper. Catching falling knives offers great margins to those with the dexterity to juggle. Also, the margins provide more room for error or later price reductions.

Investor site up soon

I want to thank all the investors for their patience while I prepare the website to report on all the fund's properties. My attention has been on acquiring and processing these properties so far, but developing the investor website for reporting is now my priority. I have developed the report which will serve as a template, and I have the accounting system in place to track the details of the individual properties. You will be receiving an email from me soon with details on how to access the member's site. If you want to see the PDF reports on these properties, I have those available for your review. Email me and I will send them to you. The website will have all the same information when it is ready to go.