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Vegas Valley Real Estate: Sell my Current Residence Before or After Upgrading?

(This blog is written for a current real estate market that has rising or level prices, you may not want to use this philosophy in a declining market)  The other day I met a man who wanted to purchase a new place in Las Vegas.  He was an older gentleman who wanted to unload his current residence, a small two story condo, and buy a single story home with a pool.   Like many people who currently own in Las Vegas Nevada, he was looking to take advantage of the huge price reductions and upgrade to a larger place.  This gentleman was very serious about purchasing immediately…until… the reality kicked in that he would be losing money on the property he was planning to sell even though he would be gaining the same loss or coming out ahead from the next purchase.  Mimicking many people I’ve heard rant before he declared; “I don’t want to sell right now because I’ll lose too much money on this home.  I’m waiting for the market to go up before selling and then I’ll purchase a larger home then.”  It’s very important fact to point out, that this particular condo was owned free and clear and condos in his neighborhood, like many neighborhoods here in a Vegas currently, were lasting less than a week on the open market before being swarmed with multiple offers from hungry buyers.

At this point, I would really have liked to ask the simplest of questions, “Really?  So how’s that working out for you?”  But, logically, being in real estate as long as I have and knowing when someone is truly set in their ways, it seemed like a waste of breath.  However, if someone is reading this blog right now who may be my redeeming grace, an opinion I could possibly change, someone out there in the same situation as this gentlemen, whose sitting on the fence, stubborn as an ox in winter, but curious enough to read on, I’d love to break this man’s ‘logical’ argument down to the bare bones for you and show you just how totally irrational and, downright foolish, it is.

OK, let’s first start with the fact that this gentleman owns a condo.  Did you know that, in general, condos and townhomes are the first real estate types to go down in value during a crash and the last real estate types to recover during a boom?   Yep, that’s right, therefore, unfortunately, by the time this man can sell his condo for what he wants for it (which requires a real estate market that rises in value to meet his expectations), then spends two to six months or more looking around to purchase his new single family home in a market that was already rising, he’ll probably end up spending tens of thousands of dollars more than he has to on the future upgrade purchase.

Secondly, did you know that, during real estate crashes, larger homes generally sell for much cheaper per square foot than smaller homes of the same nature?  Why?  The answer is kind of complex, but it basically boils down to the ‘herd mentality.’  Warren Buffet was once quoted as saying, [if you want to make money], “Be fearful when others are greedy and greedy when others are fearful.” For those of you who paid attention during our real estate boom throughout the country, especially on the coasts, you may have noticed that during the mid 2000’s people were slinging money bidding on houses like it was going out of style.  To some extent, this is always true during a boom.  However, just the opposite happens in a crash.  People instead become extremely tight with their money, question everything, and try to spend as little as possible.  Investors buy smaller/cheaper properties because they are trying to minimize risks and primary residence and second home buyers don’t tend to overpay as grossly for a property they like because there are, or at least it is perceived, ‘many more fish in the sea’ if a particular house should not pan out.  And, of course, to everyone, investor or primary residence purchaser alike, ‘the economy is bad’ and unnecessary risks are to be avoided at all costs, hence larger homes tend to sell much cheaper in price per square foot during a crash.

Lastly, let’s just say you took this gentlemen’s advice and waited to sell your current home first.  Now let’s skip forward in time.  Your home is now sold; now what?  You’re now hurried to find a rental in a market that is more competitive than before? Or maybe you are encroaching on relatives and friends for a place to live ‘temporarily’ while you look for your new place?   This also causes a huge array of possible dilemmas.  Where’s all your ‘stuff’ being stored in the mean time?  Is your new ‘temporary’ residence large enough for all of it or will you rent storage space as well?  Will you feel pressure to rush and find the first place that is available rather than somewhere you really want to live so you can get back to a permanent living situation?  Will you feel stress about the uncertain length of time your new ‘temporary’ living conditions will be accommodating you?  How will your daily routines be interrupted?  All this time I’ve been saying ‘you’ and ‘your’, but what about those that live with you, if you are not single?  How will they be reacting to all this change?  Last, but not least, when you finally do get around to house shopping again from your new, unstable, living quarters, do you understand that in a rising real estate market, sellers have the advantage and buyers lose out on perks like having their closing costs paid by the sellers (several thousands of dollars in out of pocket expense now shifted to YOU).  Doesn’t this whole paragraph just sound delightful to you?

So, let’s revisit this gentleman’s core logic again.  What would have brought more merit to his way of thinking?   Is it savable at all?  The answer is yes.  If you cannot or are unwilling to rent for a while if you sell your current home first; if you cannot afford to float two mortgages for a reasonable length of time while you are trying to sell your previous home after your new purchase; or if you are unwilling to become a landlord; then YES, you would have made a solidly logical decision for erring on the side of conservative.  Unfortunately, like this man, that’s not why many potential upgrade buyers recall their decision to purchase immediately when faced with this dilemma, but, hey, it is what it is, and I’m willing to call a spade a spade if you are.  I’m hoping this blog may provide someone out there with the courage to do what is smart, not just what appears (be it falsely) to be the safe move.   Make the well planned, calculated risk, and purchase your larger upgrade home before you sell your current one.

Thank you very much for reading my blog, I hope this information helped you out.  For this blog and other helpful tips and tricks please visit our tourism and real estate website http://PlacesInLasVegas.com or, for all aspects of general real estate, our parent website http://LasVegasRealEstateConnection.com.

 

Sincerely,

 

 

James Bellile

Phone:  702-222-0815

*All blogs are personally written by James.  Although we encourage and are grateful for sharing, all information is copyrighted by James and needs to be given credit.  Thank you.

Las Vegas Real Estate: Where did all the houses go?

Perhaps you’ve been driving around looking at the condition of the Las Vegas valley.  If so, you’ve probably noticed that many new home builders have increased production substantially and are advertising their developments much more ferociously than they had been doing the last few years, correct?  You may also have noticed that a few commercial complexes are popping up here and there and some infrastructure is being added to the previously halted road construction projects throughout the city, but especially the south side and northwest corner.  How about downtown?  Did you notice that many of the older commercial areas off Las Vegas Blvd have been either knocked down or shut down and fenced off with steel mesh fencing?  Did you notice the freeway signs scattered throughout the city stenciled “Zappos” adopted highway?  During your escapades about, did you happen to notice the lack of residential home signs out there in people’s yards?  I wrote a blog almost two years ago titled Las Vegas Globalization.  It was a monster of a blog, coming in at 10+ pages, and I sincerely thank the one or two people who graced their eyes on it to the end.   Although it was long and dull to most, so far, it’s well worth the read, as, everything I’ve listed above, and more, I already predicted would happen, has happened, almost to the number.

This blog is dedicated to describing these tell tale signs of upcoming growth and exposing them for what they truly are, our government’s attempt to falsely inflate everything to appear much more stable than we really are.  Everyone knows that this is election year.  The last thing politicians, both Democrats and Republicans alike, want before new voters casting their ballots in November is the open existence of a stalled and stale economy which has remained throughout the last four years.  Did you know that there are still an estimated 100,000 properties alone in the Las Vegas valley that have missed payments and are in danger of foreclosing?  Yet we have barely 4,500 single family homes currently listed for sale on the available retail market, very few new properties being listed each day, and more than 3,000  properties (all types) a month being purchased by a frenzy of buyers continuously multiple bidding nearly every listing out there.  Top put that into perspective, those shortages of numbers are almost what they were during the crazy boom we had in 2004-2006 where people were bidding 10%-20% over listed prices and writing offers on car hoods so they could run back in the properties and present to the owner before the owner picked from a line of other offers.

Why does this shortage exist currently?  The largest reason is a law called AB284.  This was a law passed by our state government last year in October of 2011.  I encourage you to look it up for exact details, but, basically, this law forces banks to have all the necessary paperwork in order before proceeding to foreclose on a property (imagine that, they didn’t track it too well before, apparently, as there are estimates of several hundred to several thousand illegal foreclosures just here in the city) and then, if a property owner wants to work with the bank instead of foreclosing, the bank is encouraged to assist the property owner with a short-sale or loan modification.  Furthermore, the bank, in most cases, cannot place a new Notice of Default (a Notice of Default is the first legal step in the foreclosure process approximately 90 days of missed payments) against a property until all avenues of resolution, outside of foreclosure, have been exhausted.  Sounds like a good deal, right?  Wrong.  You see, the banks restrict loan modifications to a 2% interest rate on the remaining loan balance in 99% of all cases out there.  Principle modifications are unicorns, not just unicorns, but purple unicorns in velvet.   Here’s the problem with that, Las Vegas real estate has fallen more than 60% since 2006 so the remaining balance on many loans still offers a payment greater than what rent would be on the same property and stiffs the owner with an access of 40% debt on their loan so most loan modifications will never go to completion, but rather, they are used as a stall method by the homeowner to remain in the property for free (it’s important to note, because few Notice of Defaults are filed, the homeowner may actually want out, but may be stuck in the home) and they are actually liked by the banks as this stall tactic is stalling new inventory from hitting a buyer frenzied market that has falsely now increased in price 10% in most neighborhoods to as much as 30% in some neighborhoods since last Christmas.  So the question becomes can this go on?  The answer is YES it can, not inevitably of course, but until the game of musical chairs stops its music again just like it did in 2007 and the market crashes again.  You see our state legislators are not even convening until February 2013.  Therefore, at best case scenario, AB284 can’t be modified or overturned until the Summer of 2013 and the effects of the overturned law wouldn’t be felt until early 2014.

  So, now that I’ve disclosed these facts, I’d like to revisit the first paragraph and address this growth in new construction developments and downtown.  Because there is nearly zero move-in-condition inventory on our market, cash buyers have been snatching up most of that which is left.   This leaves normal, everyday, people who need a loan to purchase their home with no alternative than to go to the new home builders.  Hence the reason new home sales are now up almost 400% since Christmas and most builders have increased their prices by as much as 30% in that time as well forcing a loan buyer to overpay for a property if they want a nice home.  Likewise, people at the top of the food chain see this trend and, although they haven’t built yet, as many are recovering from bad business years themselves or are emerging from business bankruptcy, also the fact that the election results have not come in yet, they have taken steps to acquire land for future development which is why you are seeing so much new vacant land and steel fencing downtown.  Simply put, as always, the rich are getting richer and the poor are getting poorer… fast.  One more point of interest, how many people do you know who have gotten a raise in the last four years at their current jobs locally in Las Vegas?  If you’re a tip earner, you may notice a small increase to your paycheck, but how about the tips?  Are your tips anywhere near the same as what they were in 2007?

Furthermore, I mentioned Zappos above.  Zappos, for those who don’t know, is Zappos.com, a huge online shoe retailer that was purchased a while back by Amazon.com for 500+ million dollars.  The CEO of Zappos is Tony Hsiech and he is hailed for being responsible for the revitalization of downtown San Fransico a few years back.  Zappos headquarters was in Henderson, but, very early in the year, Mr. Hsiech moved his operation to downtown Las Vegas, where he has publically pledged to help revitalize downtown along with our mayor, previous mayor, and a few other influential figures throughout the city.  As you can see by the first hand growth of the new city hall, revitalization of some downtown businesses, and First Friday growth from what started as a few hundred people a few years ago to what is now thousands of people, they are having some good successes.

So, what shall be the ending of this blog?  I guess what I’d really like to convey to a reader, who fought this far, is that, whether it’s false growth or real growth, knowing when the music stops in the game of economic musical chairs is far more important than debating what’s real and what is not.  I saw a lot of people make A LOT of money flipping houses this spring.   I was even involved in a few successful ventures myself.  But, if flipping isn’t your thing, keep in mind, with inventory disappearing, how long before the supply of rental houses disappears as well?   Whether you are an investor or just the average person who doesn’t want to rent anymore, this should be of concern to you.  Move-in-condition properties are becoming harder and harder to find every single day and the acceptance of paying above the marked listed price is becoming a normal practice again already.  Are you starting to see a repeat of 2006 coming?  So when’s the crash again?  2017, 2018, 2020?  Maybe never, maybe our politicians will be able to convince or, at least, scare, enough people into holding onto their upside-down homes long enough to fight it off for another generation or longer.   The time to buy is now.  Act on it.

Thank you very much for reading my blog, I hope this information helped you out.  For this blog and other helpful tips and tricks please visit our tourism and real estate website http://PlacesInLasVegas.com or, for all aspects of general real estate, our parent website http://LasVegasRealEstateConnection.com.  My team offers several services; buyers, sellers, distressed sellers, renters, and property management.  Honest and truthful professionals to a fault.  Call us direct @ 702-222-0815.

 

Sincerely,

 

 

James Bellile

 

*All blogs are personally written by James.  Although we encourage and are grateful for sharing, all information is copyrighted by James and needs to be given credit.  Thank you.

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