Why no correction?
This is a complete mystery to me. I have been preaching a correction for 2 years now and I look like the boy who cried wolf. There was no benefit to Limestone Investments as many of our investors are still on the sidelines waiting for the market to drop. It’s still my belief that the government has just prolonged the inevitable. Here are the reasons why I think we are still going to have a correction soon:
- The number of Notices of Default in Clark County have doubled in the last 3 months.
- There a lot of “Blue Tapes” (notices of foreclosure) going on doors in my neighborhood.
- Zillow is unloading property at a loss.
- Redfin is predicting a slow down in the sunbelts.
- There is a significant shift in the mass exodus from California.
- Over 65% of the purchases in Las Vegas last month was from speculating investors.
- The government is struggling to cover its debt obligations.
What happens when a car rolls goes off a cliff? It’s not predictable and the landings are never pretty. I have actually been a truck that went off a cliff. It wasn’t pretty. I also lived through 9/11 and the mortgage bomb of 2006. Neither of those real estate events were pretty and the real estate corrections always happened about five years after the event. The 9/11 event nearly wiped me out so I’m saving cash as we get closer to the edge of this new economic cliff.
Local Real Estate ROIs
From an investor’s perspective, the Las Vegas market is horrible. Cash flows are nearly zero. With inflation hovering at 6%, you are actually going backward if you are successful in purchasing a property. If you are banking on appreciation, your odds are terrible. Fundamentally, there is no reason to invest in real estate unless you are earning both cash and appreciation. A frequently asked question I get is what kind of returns can I get now? Here are some examples:
- Commercial Mom & Pop Strip Malls -> 5% Unfortunately, you have to have at least $500k cash to play in this game.
- 3/2/2s in the barrio -> 3%
- 3/2/2s newly built -> 2%
- 3/2/2s in upscale neighborhoods -> 2%
- Condos in upscale neighborhoods -> 1%
- Condos Under $100k -> -4% What? Really? You lose money on these? Rents don’t cover HOA, repairs and management expenses.
- 5/4/3s in guard gated exclusive neighborhoods -> -5%
- Fourplexes -> -8% We no longer manage these. The exciting crackhead videos are over.
- High rise condos -> -10% (Why do people buy these? To impress their friends I guess.)
I see absolutely no reason to invest in real estate at the moment and this is what I do for a living.
More Rent Increases – YAY
There is a silver lining to the storm clouds that are building. Rents have gone WAY up in the last year and will continue to increase next year. Our strategy has been to split the difference between market rents and the current rent a tenant is paying. Why? There is a huge risk in getting a new tenant. The good old days of tossing a tenant in 3 weeks are over. A naughty tenant can cost you 4 months rent! New laws from our liberal legislatures are making our lives miserable.
We have raised the barrier to entry for new tenants. Our income, credit requirements and rent verification processes have been beefed up to mitigate naughty tenants. This translates to taking longer to get new tenants. We manage over 300 doors and our tenant screening process is lowered the number of our delinquent tenants to nearly zero.
In summary, it’s cheaper and less risky to do a modest rent increase with an existing good tenant than it is to get a new one.
Why are property managers boycotting Zillow?
About 2 years ago Zillow started extorting property management companies. Before we stopped using Zillow, less than 5% of our tenants came from Zillow. It was a simple math conclusion: Why make owners pay for a service that has little value? Zillow made their process such that we either had to force all our owners to pay those fee or not at all. Most property managers in Las Vegas essentially told Zillow to pound sand. Here are two more things you should know:
- Since most property managers are not advertising on Zillow, tenants are discovering that Zillow has only a fraction of the inventory and no longer using Zillow to find rentals.
- From your perspective as an owner, it appears that all properties are on Zillow when in fact, only the properties that were rented are populating their site. The pull that data from the MLS – not from us.
We currently advertise on 40 other websites and don’t need Zillow to find a good tenant for you.
New Member of The Team
Welcome Art Reyes! He is an investor who came to us in the last recession. Not only did he purchase a multi family building in the barrio, he decided to live in it and manage it himself! You will never meet a more courageous real estate agent. You have no idea how happy we are to have someone with real experience. Not only is he experienced, he knows his way around a computer. He will be my assistant over the next year while he builds his own portfolio of properties. Yay team.
Clark County Short Term Licensing
There are many bills out there aimed at investors. Fortunately, many of the evil ones died but the most recent one that will have a significant impact on the short term rental market. If you are currently licensed in Las Vegas, Henderson or North Las Vegas, the new AB 363 will not affect you. Investors who have property in Clark County MAY be able to become licensed. When licensing officially opens, it will be a bloodbath because there is a minimum of 660 foot rule in that ordinance. Of the 8,000 unlicensed short term rentals in Clark County, it is likely that 4,000 short term operators will be thrown under the bus. If your properties is not in the city, not in an HOA and you want to become licensed, reach out to us soon.