Governor Sisolak Extends Lockdown

Vegas Economy

The economic ramifications of Governor Sisolak’s decision to extend the lockdown until May 15th for Las Vegas is tremendous. He announced “Phase I” as a soft opening of some restaurants and small businesses with social distancing guidelines starting May 15th. Phase II is under construction and there is no guarantee casinos and bars will be a part of the next phase. Phase II would be in the vicinity of early June.  Casinos can’t sustain this prolonged lockdown without cutting payroll. 25% of the workforce is rumored to be furloughed. This matches our daily experience. Those furloughed will eventually get the pink slip. Some jobs will never come back. Ever. For example, many hotels have learned how to check guests in without a clerk at the desk. Even if the casinos were to open soon, who would come? 95% of the flights to Vegas have been cancelled. Let’s not forget all the conventions, concerts and sporting events that have been cancelled. There will be a lot of people without work in the near future. It will get much worse before it gets better.

Real Estate Market

Prediction

We predicted a correction back in October 2018 and we are sticking to our expectations of a considerable drop in prices. We expect prices to drop about 35%. We are witnessing the same sequence of events that followed the last crash. People who were stretched thin, ran out of reserves and stopped paying the mortgage about month 6. The government is just prolonging the inevitable.  It was socially acceptable back then to tell banks to pound sand and it will happen again. Investors who are leveraged and have tenants who can’t pay rent are going to be the first to go. Many investors who’s whole income model was based on short term rentals are not going to make it. We are getting calls every day from someone who wants to unload a distressed property. All of our listings are getting significantly lower offers every day. One listing in particular was lowered 25% in the last 2 months and we still can’t unload it.

When will he hit bottom? We are guessing middle of next year. The government is scrambling to throw money at distressed owners but we all know printing money isn’t sustainable. It is difficult to know exactly when the government will run out of steam. As we approach the bottom, I be increasing the frequency of these broadcasts. Investors who followed our advice in the last recession snapped up properties and made significant profits. We will do it again. Don’t worry, we will let you know when it’s time to buy.

Rents

It’s not pretty. The media is telling people not to pay rent.  Some reporters conclude their report with a reminder “you will have to pay it later.” We predict courts will not open until mid June. We can’t do any notices or evictions until about the end of June.

Here is the good news: For the last four years we have improved our screening processes dramatically and our current batch of tenants are pretty strong. We had only about 10 tenants who did not pay April rent (about 4%). We predict another 10 tenants won’t pay May rent and then another 10 tenants in June. Half those who didn’t pay rent stuck their head in the sand. We will be getting rid of those peeps the moment courthouse doors open. The other half are leaving gracefully as owners have agreed to terminate the lease without penalty and gave their security deposit back. By advertising 10% below market, we were able to fill all those Covid departures before the tenant moved out. We are only taking on new tenants who have essential jobs and good credit. By raising our standards and lowering the price, we will continue to earn money for our investors.

If you don’t hear from us by May 5th, it means your tenant paid rent. We are slammed with placing tenants into vacant properties. Please please do not call us to find out if your tenant paid May rent. Even if your tenant pays rent, we may not know if it clears until about the 10th. We will be distributing funds on or before the 15th like usual. If your tenant doesn’t pay rent, we will be offering the same terms and reporting to you ASAP.

Distressed Investors

Are you are struggling financially? Let us help you come up with a game plan. If you cannot sustain 4 months of lost rent, you need to contact us immediately.  Now is the time to come up with a back up plan. Not when you are broke and the air conditioner fails. The storm is going to get worse. We are here to help you batten down the hatches. Captains Jim and Barb have been through 2 storms and will help you through this one.


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