The bottom of the cycle is always dominated by cahs buyers. Cash is king. Cash buyers stabilize a market when lenders are unwilling to loan. The cost of cash is higher than the cost of debt, so prices must fall to attract cash investors. As today's featured property shows, if you lower prices to the mid 90s levels, cash buyers are enticed to the strong cashflow and potential for appreciation when the market reverts back to the mean.
Foreclosures, Short Sales Account For Most Transactions
POSTED: 1:34 pm PST February 8, 2011 UPDATED: 12:04 am PST February 9, 2011
LAS VEGAS -- Thanks to tighter lending standards, coupled with a massive inventory of foreclosures and short sales, the majority of homes sold in southern Nevada are being purchased with cash, according to the Greater Las Vegas Association of Realtors.
The agency reported that 51 percent of transactions involved cash buyers in January, as investors sought to take advantage of low prices.
"It's a combination of things," corporate broker Forrest Barbee said. "We've got a lot of foreign investors. Foreign investors can't get loans. Canadian investors, Asian investors. A lot of cash coming in from there."
Barbee contends that even though half of the homes being sold are to investors, it's a good thing.
"These are real investors putting good tenants in properties," Barbee said. "They're also putting money in the property and spending money on appliances, drywall, paint or whatever."
I know i am doing my part to employ construction workers and buy housing related products.
According to the GLVAR, the median price of a single-family house sold last month was $125,000, down 5.3 percent from $132,000 in December. The average listed price was $157,081. The median price of condominiums that sold last month was $64,900, up 4.7 percent from the month before.
The total number of homes sold dropped 19.7 percent in January. Last month 3,214 houses were sold, down from 4,007 in December.
Bank-owned homes continued to dominate sales, representing 48.8 percent of transactions, while 26.6 percent were short sales, the GLVAR said.
Lenders control 75% of the transactions in Las Vegas, and they indirectly control most of the other 25% as most of the equity sales are flippers like me who got their property at an auction called by a lender.
While both figures are proof that families still struggle to pay their mortgages, the agency claimed the increase in cash buyers is a positive sign.
“Cash buyers are still purchasing thousands of local homes that might otherwise sit vacant,” said GLVAR President Paul Bell.
A house with no occupant is a completely wasting asset. It produces no benefit and deteriorates with disuse.
But some homeowners disagree, saying that their neighborhoods are becoming more transient.
Dawn Lane, owner of the Professional Realty Group, said people who want to buy a home in Las Vegas to live in are getting priced out of the market.
"They have an opportunity to buy a home and when they go to put an offer in, you've got investors purchasing the home for cash," Lane said. "What's a better deal for the bank? Let's take the cash and run."
And although Lane said it's great homes are being sold, the investors could end up hurting Las Vegas in the end.
"If we're trying to build neighborhoods up again, don't we want solid families or people invested in our community who wants an opportunity to live in Las Vegas and grow?"
But Barbee, the broker, said homeowners can still buy a home through restricted government programs.
Below is a property purchased by a cash investor in Henderson just southeast of Las Vegas. As you can see, it is selling for just over its 1996 purchase price. If houses double in price every 15-20 years, this property should be selling for $180,000 to $200,000. That's how far these properties have overshot to the downside.
-$60 .......... Tax Savings (% of Interest and Property Tax) -$141 .......... Equity Hidden in Payment $8 .......... Lost Income to Down Payment (net of taxes) $15 .......... Maintenance and Replacement Reserves ============================================ $850 .......... Monthly Cost of Ownership
Cash Acquisition Demands ------------------------------------------------------------------------------ $1,219 .......... Furnishing and Move In @1% $1,219 .......... Closing Costs @1% $1,176 ............ Interest Points @1% of Loan $4,267 .......... Down Payment ============================================ $7,881 .......... Total Cash Costs $13,000 ............ Emergency Cash Reserves ============================================ $20,881 .......... Total Savings Needed
Property Details for 622 WOOD ROSE CT, HENDERSON, 89015 ------------------------------------------------------------------------------ Beds: 3 Baths: 2 F Home size: 1299 Lot Size: 00.13 Year Built: 1996 ------------------------------------------------------------------------------ MOVE IN READY - NOT a Short Sale or REO! Seller responds quickly. Newly rehabbed 1-Story home with 3 bedrooms and 2 bathrooms. Kitchen has white cabinets with a breakfast nook. Back-yard is fully landscaped with desert landscaping. Home is not far from schools, shopping and freeway access.
This perperty was a complete consmetic do over. We replaced or repainted everything in this house. Unfortunately, we don't have any of the before pictures. It was a mess.
Jacki has been working on her artistic architectural photograhpy. This master bath shot turned out well.
Rental property investment performance
Asking Price
$118,900
All Cash Purchase Financial Analysis
Net Income
$7,185
Capitalization Rate = Net Income / Total Cost
6.0%
Mortgage Purchase Financial Analysis
15-Year
30-Year
Mortgage Interest Rate
4.3%
5.0%
Actual Monthly Cashflow
$0
$88
Cashflow after Financing
$3,774
$3,486
Initial Capital Investment (down payment)
$39,577
$23,780
Cash-On-Cash Return =Cashflow / Investment
9.5%
14.7%
Rental Income
Terms
Calculations
Gross Rent
$1,150
Vacancy and Collection Loss
5.0%
$58
Monthly Rental Income
$1,093
Operating Expenses
Terms
Calculations
Property Tax
2.67%
$264
Homeowners Insurance
0.50%
$50
Maintenance and Replacement Reserves
0.50%
$50
Homeowners Association Fees
$15
$15
Property Management Fees (% of Gross Rent)
10.0%
$115
Monthly Cash Expenses
$494
Net Operating Income
$599
Monthly Payment (based on maximum loan)
$511
Actual Monthly Cashflow (assuming impounds)
$88
Interest Expense
$396
Total P&L After Expenses and Debt (loan amortization plus excess)
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