Prices dropping for first time.
Investors can now see the light at the end of the tunnel. We now have the definitive “top of the market”. Real estate data for April and May shows that the U.S. housing market is softening. New home sales fell 19% to their lowest level since April 2020. Redfin reports 19% of home listings cut their price over the past month. Inventory is increasing, while mortgage applications and existing home sales are also falling. Demand is pulling back—fast—in the face of mortgage rates that have spiked dramatically. In Las Vegas we are seeing our investors aggressively slashing prices to unload properties. Listings no longer have multiple offers and buyers lined up in the driveway.
It’s time to be patient and let prices continue to fall. The last peak to valley was 5 years. It is still too early to purchase investments.
The other reason you should wait is cashflow. The returns are still less than 5% in most cases. With inflation approaching 9%, buying real estate won’t even keep up with inflation.
Long Term Rental Rates Increasing
As leases come due, we are essentially splitting the difference between what tenants are currently paying and market rent. Asking too much rent will force a tenant to leave. We don’t recommend getting too aggressive on rent increases because there are significant dangers in getting new ones:
- Repairs and vacancy costs will easily eat up that increase.
- There is a risk of getting a bad tenant who damages your property. Security deposits rarely cover a really naughty tenant.
- Evictions are really really difficult now. What used to take 4 weeks now takes 4 months.
- Because it’s so hard to get rid of bad tenants, our standards are much higher and it takes longer to get new tenants.
Short Term Rental Blues
Not only are we witnessing a sudden downturn in bookings, Clark County is set to slash short term rentals. Next week, the council will probably institute these draconian measures:
- One owner per property (Names will be cross referenced on LLCs so you won’t be able to play shell games)
- 10 guests per property. 1000 ft minimum distance.
- Property managers will get fined in addition to the owners.
- You will be required to submit the last 3 years of your records.
- You will be required to submit monthly statements of your guest details and income.
- If you were spanked before, you will be denied a license.
- If your property is on well or septic, you cannot get a license.
They will be issuing only about 3,000 licenses with a lottery system. Since there are about 12,000 unlicensed operators, 9,000 short term rentals will be hit by a bus by spring of next year.
Short Video on Trusts, LLCs…
