Posted: 22 Mar 2011 03:30 AM PDT
Nevada has a great many empty homes, and after my experiences flipping occupied properties, I will be happily focused on the empty ones.
Home Address ... 7625 VELVET MIST ST, LAS VEGAS, 89131
In the cleanup phase of the Great Housing Bubble, the lucky ones are those profiting from recycling the dead carcasses from yesteryear. I have been sifting through the debris in Las Vegas for about six months now. For a variety of reasons, I have been mum on my activities, but today I am going to share some anecdotes and lessons learned from my new adventure.
The most important of these lessons relates to the topic of today's featured article. According to the US Census Bureau, there are 167,564 houses in Nevada. That's a lot of empty homes -- which is good if you want to survive as a flipper. Occupied homes are troubles magnified. Buying them is harmful to your financial health.
The pros and cons of occupied properties
Buying occupied properties at auction is always riskier because you never know what will happen with the previous occupants. I purchased two occupied houses for investors who were able to enjoy positive cashflow from the first month of ownership, so there are potential advantages. Since occupied properties have more risk, they have appealingly large margins -- at least they look like they have large margins. When you factor in the lost time and the potential for litigation or damage by the occupants, houses with people in them are something to be avoided.
Squatters on my dime
I have one property I purchased in November, and the former owners are still squatting there. The former owners pulled an interesting legal move. They had the wife file for bankruptcy in her maiden name a few days after the foreclosure auction, and they put the property into the estate. Well, our search didn't pick up the bankruptcy because it wasn't in the owners name, so we began foreclosure proceedings. Late in the process, the bankruptcy attorney accuses us of harassment, and we have no idea what he is talking about.
Once we discovered the suit, we had to initiate our own suit to have the property removed from the bankruptcy proceedings. They didn't own the property when they filed, so they can't obtain protection from the bankruptcy court to stay there. If they had filed before the foreclosure, they would have had other rights, but if they had filed before the foreclosure, it would have shown up in a title search, and I wouldn't have bid on the property.
The cost of all this legal maneuvering is expensive. The time to properly evict these people has been costly in two ways. First, the declining market means my resale price is declining while i wait. in addition, I have opportunity cost on money tied up in a non-performing asset. I am not a bank. I can't amend, extend, and pretend I am making money. I either sell quickly for a profit or I don't profit.
Ye ol' crack house
By far the most bizarre story I have is a property I purchased in October.
Back in 2005, a recent Salvadoran immigrant obtains his citizenship. With his workman's salary and a penchant for liar loans, he puts together an empire of 8 properties in Las Vegas from 2005 to 2007. The last of these properties was his crown jewel -- the property I bought.
The property is in a older Las Vegas neighborhood called Spring Valley. The neighborhood is dominated by ranch style houses ranging from 1,400 SF to 1,800 SF. It has seen better days, but this is not a bad neighborhood. It is mostly median income middle-class families trying to get by.
My property is the large 5 bedroom home at the end of a cul-de-sac. It is the only one in the area with a large pie shaped lot with an outbuilding and RV parking. Back in 2007 when Vicente the Fox, our recent immigrant, bought this property with his liar loan, it was the finest property on the street.
Vicente the Fox began using his large property as a salvage yard. He put individual locks on all the bedroom doors and leased out the rooms to boarders and skimmed their rent. He tried to convince them to keep paying him even after I bought the house.
The boarders were united by their love for crystal meth. There is no evidence this place was used as a meth lab -- thankfully -- but when the constables came by to evict the last boarders, they confiscated a cigar box full of used pipes and other paraphernalia. In the two weeks after we took possession the house was broken into three times.
The amount of junk on this lot is staggering. There are eight automobiles on this property, and none of those are in the garage because the garage was full of stuff. All eight cars are in the back and side yards. There were 4 working refrigerators on the property, a dirt bike, an air conditioner, anything and everything you can imagine, and lots of it.
I call our former owner Vicente the Fox because he carefully avoided us whenever we tried to serve him formal eviction papers. He didn't live at this house, and his former address is an apartment where he skipped out on the rent. However, since I was unable to serve him, I could not fully divest him from the property and the junk sitting on it.
He teams with a local
Surprisingly enough, it turned out in my favor because when I let him back on the property to get his stuff, he cleared out much of the garbage along with the stuff of value. My worst fear was him picking over the good stuff and leaving me with a $5,000 mess to clean. He took a number of paint cans and other items that would have required me to bring in special disposal teams.
There is no good resolution for this property. I will lose money on the deal, and Vicente the Fox will have a roving pile of garbage scattered at friends and acquaintances houses all over town.
Eventually, this property will get sold. Hopefully, it will be to a good family that restores it as the jewel of the neighborhood. That's the outcome I want.
Flippers are maligned for bringing down the quality of life in neighborhoods. The reality is that the delinquent former owners are the ones who brought down the neighborhood. Flippers like me are the ones taking back the crack houses from rent-skimming former owners and putting families back into them.
After those two experiences, it's easy to see why dealing with vacant properties is much preferred. I'll focus on the empty ones. There are plenty to choose from.
(AP) – 6 days ago
I haven't looked into the Census Bureau's methodology, but that number sounds a bit too big, doesn't it? There are unquestionably a large number of vacant homes, but that many?
That put's their median somewhere in the late 90s. The Las Vegas market is the apocalypse bubble bloggers predicted would occur in every market. As a reaction to Las Vegas, lenders decided it was wiser to build a huge shadow inventory. The likely have saved themselves a great deal of strategic default.
Strategic default will dominate the Las Vegas housing market for the foreseeable future. With prices stuck 60% below the peak, late buyers have little or no hope of getting back to breakeven in their lifetimes. How many of you are willing to work 20 years to pay off a mistake like that?
The economy had become overly dependent upon construction. This cruel purging has wiped out everyone in real estate and construction. When activity returns, it will feel like a huge resurgence compared to the severe contraction of 2008. The industry will regrow into a smaller economic engine utilizing less of the workforce. Perhaps they will only build one mega-resort at a time for a while.
The people who are down on Las Vegas forget its phenomenal growth prior to this recession. Las Vegas is not Detroit. Detroit watched the auto industry leave with no replacement to fill the void. The economic engine of Las Vegas is gaming and sin.
My wager is that vice will be popular in the future and people will continue to flock to Las Vegas for its vices. Therefore, Las Vegas will recover, and so will its real estate market. I could be wrong. I could lose my bet on Las Vegas's future.
I would like to see that NAr study. I know several who strategically defaulted there because their mortgage was too big relative to the value. Perhaps they are the other 40%? The strategic defaulter's there aren't hiding their faces in shame.
The rental market is strong because many people were booted out in a foreclosure, but they still had jobs, so they stayed in the area and rented. If there were a major exodus from the area -- as is happening in Detroit -- then rents would decline along with prices.
The things people take and leave behind
One of the properties I bought in March had the kitchen stripped out by the former owners. It's an empty room with a pipe hole in the wall.
For some reason, people like to leave vacuum cleaners behind. Perhaps they don't want the dust from a foreclosure in their new house? I don't know. But I find one left behind in nearly every property.
I had one property where the former owner removed every doorknob in the house, but then they left them in a pile on the floor and didn't take them. In that same house, they took the garbage disposal. What's the resale value of a used garbage disposal?
The owners of today's featured property left it broom clean. They even left a note on the water softener telling the next owner it needed service. Who does that? Who leaves a maintenance note on a property they are losing in foreclosure? Good people. That's who.
The virtue of quick processing
In early March, with B of A coming off its Nevada moratorium, I had a few properties in escrow, so I decided to deploy the last $200K I had available. The number of properties pushed through the Las Vegas auction site in March to third parties has been remarkable. I picked up five this month. Any rumors of an end to the foreclosure problems in Las Vegas will be dashed when the March foreclosure numbers are announced. Remember you heard that here first.
On March 2nd, I bought two properties, and with a new sense of urgency rivaling a FedEx operation, we got one of the two properties on the market two days later in time for weekend showing.
We still had work to do on this property. Basically, I decided to list the property while we were working on it to see what happened. Worst case is that I turn off some potential buyers who see it before it is ready. I wouldn't do that here in Irvine, but Las Vegas is a different market, so I thought I would try it.
Early the next week, even before Jacki gets crews out to start work, an interested buyer makes an as-is offer within $5,000 of my asking price. Since I was just about to embark on a $5,000 renovation, this offer was a no-brainer, and I took the deal. I was in escrow within eight days of the auction.
That was eye opening.
I realized I had been operating as if I were flipping in Irvine or Orange County. In Las Vegas time-to-market is more important than quality of presentation. The properties in my existing inventory -- the stuff that is losing value as it ages -- all show very well. We focused a great deal of attention on small details, and likely overspent what we should have to make these properties show well. It hasn't made a difference. Price is what sells in Las Vegas. Get to the market quickly and less expensively than your competition, or you lose money.
As good as good can get
This week as I was patting myself on the back for the quick flip, I took the money from some recent closings and bought three more properties. The featured property below was purchased on Friday, March 18, 2011. That's last Friday.
On Saturday, Jacki has the locks changed, took a few photos, and installed the Supra key. Sunday morning some prospective buyers looked at the property. Monday morning (yesterday) we got a full asking price offer which I have accepted.
Four days from auction purchase to full-price offer. We may open escrow today. It doesn't get better than that.
Home Address ... 7625 VELVET MIST ST, LAS VEGAS, 89131
Resale Home Price ... $95,900
I hope enjoyed my Las Vegas anecdotes. As you can see, most of my time and energy have been devoted to that end. I don't think I have revealed any trade secrets or given my competitors any valuable information. Perhaps a few may be dissuaded from trying when they know how hard it really is.
It's a hard business, and if you don't know what you're doing, you can quickly lose a lot of money. It requires a lot of time, money, patience, the ability to accurately value property, and a working understanding of real estate law. It can be a lucrative business if you can figure out before the opportunity disappears.
Surviving the turnover of the first group of properties, I feel like I have the team and the systems in place to do well. I am looking forward to the rest of 2011. For those of you interested in my fund, I'm sorry, but it is closed to new investors. Maybe next year....
|You are subscribed to email updates from Irvine Housing Blog |
To stop receiving these emails, you may unsubscribe now.
|Email delivery powered by Google|
|Google Inc., 20 West Kinzie, Chicago IL USA 60610|