There aren’t a lot of condo buyers left in Las Vegas, and apparently a good chunk of those brave or deluded souls haven’t gotten the memo that your odds of "fast condo flipping for fun and profit" are not as good as your odds in the casinos. It’s tough to be a condo reseller these days.
Hubble Smith reported in yesterday’s Review Journal: [Hat tip Judge!]
Industry insiders are saying that many high-rise condos are being put back on the market for resale and, like single-family detached homes, they’re not selling.
One luxury condo broker said he walked he floors at Metropolis and saw lockboxes on nearly every door. Real-estate agents use lockboxes to access empty homes for showing. He said 70 percent of the units at SoHo Lofts are listed for sale.
You’d think that slower sales would discourange flippers, but apparently not.
About one-third of high-rise closings are showing up for resale the next day on the Multiple Listing Service, SalesTraq President Larry Murphy said.
According to Brian Wargo in In Business Las Vegas last week:
Applied Analysis suggested in its quarterly report that as many as 60 percent of all condo units closed in Las Vegas may enter the market during the next 36 months as resales.
Now that they’ve bought them and can’t sell them, condo owners have to figure out what to do with them. It seems that many flippers didn’t start out with a well thought out plan. The Review Journal also states:
Eric Smith, owner of Corporate Housing by Owner, a Colorado-based company that matches owners of executive homes with potential renters, said: "There’s so many condo owners trying to figure out what to do with their property. They’re on the phone to us all day. It’s a very hot topic."Bruce Hiatt of Luxury Realty Group said that of his 40 clients who bought at Sky, about a dozen are considering renting out their units.
Las Vegas real estate agent Sabrina Porras said she thinks investors will become more receptive to converting their homes to corporate rentals, particularly in today’s market of stagnant home sales. She plans to rent out a client’s condo at Sky for $3,500 a month.
Porras said owners can expect a minumum net return of $500 a month, providing an avenue for cash flow while waiting out the market slowdown.
A net return of $500 a month seemed awfully optimistic to me, so I went in search of an example. .
I found Unit #1507 for sale. It’s 2 br, 2 bath, 1,105 square feet for sale for $850,000.
There are plenty of opportunities to rent at Sky. According to the Sky Las Vegas website:
Find a luxury Las Vegas condominium for rent exclusively at Sky Las Vegas. Sky Las Vegas condos includes 409 units from 870 to 5,500 square feet, priced from approximately $500,000 to more than $5 million.
I found several units for rent at Sky by individuals as well. There was a one bedroom for $1950, Five units between $1,800-$4,000, and a furnished unit for $3,500. The most similar unit I found to Unit #1507 was this one: [There was not enough info from the other ads to determine similarity] It appears to have the same floor plan and view, only down a couple of floors. The asking rent for that unit is $2,700.
Even with the wonkiest of loans, it is difficult for me to see how you could net $500/month with these kinds of numbers unless you’ve put down a really hefty down payment.
Wargo also reported:
At the end of the first quarter, Applied Analysis reported there were 754 luxury units on the market with an average asking price of $803,900 or $622 per square foot. Units that sold during the first quarter averaged $764,500 or $537 a square foot, the firm reported.By the end of the year, Hiatt said he expects an 18-month to 24-month supply of condos.
That’s a long time to hang onto a condo if you haven’t figured out what to do with it. Potential investors might want to consider coming up with a well researched plan in ADVANCE.
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Good analysis, Twist. Looks like there’s going to be plenty of ghost buildings in Vegas soon.
Turnberry Place near the Sahara and the Hilton has been “occupied” for 4 or 5 years, but you almost NEVER see lights on in any of the units. They can’t all have the blinds drawn. Many of those places are empty, and the others aren’t all owned by out-of-towners who come in 5 weekends a year.
Hope those flippers have rich uncles, because there’s no way they can rent them out on a positive cash-flow basis, as you showed. And now the after-market is about to get flooded with new units. Good luck finding a condo knife-catcher in this market.
– The Judge
“Sell now or be priced in forever”
Judge-
It’s the combination of the lack of lights and all those cranes that tells you we’re looking at a train wreck.
I left it out of the post, but I couldn’t believe that Wargo had the nerve to put the following two paragraphs next to each other:
“The investor-speculator has gone,” Dennis said. “That is sobering to the market but a good thing for us, but we are looking for real buyers. We are building a community.”
All those Chinese are buying their LV condo for a weekend place to crash, or unlike locals, are less in touch with the market and don’t know any better?
Twist –
He says “the investor-speculator has gone.”
I love it when these REIC clowns say “investors have left the market.” No, they are TRYING to leave the market, but they’re stuck with an alligator that costs them money every month. They can’t/won’t sell now, and they can’t get them to pencil out positively as a rental.
They’re no longer investors. They are “accidental landlords” who now probably wish they had done what everyone else does when they come to Vegas 3 times a year — GET A HOTEL ROOM! But no, they had to have their little “getaway pad” in Vegas. The fools.
– The Judge
“Sell now or be priced in forever”
P.S. — My antispam word for this post was “doomed.” How fitting.
And who can forget this great adventure in condo investing?
“…if the unit doesn’t sell, he may live in it instead.”
-March 2006
Well, looks like he’s living in it…
(If you pull the recorded document, his previous address was in Henderson.)
You know, as time goes by and the data record of this train wreck grows, it’s getting harder and harder for the bulls and the specuvestors to avoid some serious crow sandwiches.
I wanted you to know the logic of some of the buyers…say at Turnberry . The majority of those units were not bought to flip. They were bought by many as tax havens and as a real home for others…if you have never been there it is very very nice. Say you live in CA and make over a million a year (there are lots of folks who do in CA). You are paying over $100k a year in state taxes. Say you move your corporation headquarters to NV and live there a good part of the year-at least on paper-you save over $8,000 a month in taxes (no state tax for NV residents)! Go down to the parking garage in Turnberry and its an exotic car show. Ferrari Enzo’s, Lamborghinin’s, Bentley’s, Porsche’s, etc. just sitting there with dust on them. These are not folks who worry about their mortgage payments on the place or current market value- over 65% of those units were bought for cash! Other newer builders were bought by flippin investors without an exit strategy. While the market is down on Condo’s, its down equally bad on everything Real Estate across most of the country. Just my 2 cents worth.
CCbrian – you are exactly right. Also, many of the new developments (ala trump) are not condos – but condohotels. Meaning, you CANNOT live in them more than 2-3 weeks at atime. When unoccupied they are rented out by the casino/hotel they are attached to. Essentially you are financing a hotel’s expansion, and everybody hedges the bets. Thus costs are more likely to be in line with commercial, and not residential, construction.
I wanted you to know the logic of some of the buyers…say at Turnberry.
Interesting information ccBrian – thanks for that. Does this mean that Turnberry, because it was early in the game, will remain of higher-value than the late-comers who are going to have to slash prices to stay competitive?
It would seem the biggest problem with vacant luxury high-rises is going to be maintenance. I see a downward spiral in the quality of life for people who live in a building that is only 25% occupied, assuming that some sort of escrow fund wasn’t set up in advance to pay maintenance/landscaping/cleaning fees in lieu of HOA fees from non-sold units.
All the units at Turnberry have been sold and there is a HOA. In fact, it is a well maintained HOA. The price per foot at Turnberry has dropped with the market, but no where near the other projects.Price per foot at Turnberry are selling for $200 per foot less than other projects- thus more realistic that others that sold to investors. In fact, you bought going in to Turnberry having to do at lest $150k in improvements right out the gate as they were sold as “warm shells”, and you are not allowed to rent the units out for less than 1 year and have to have HOA approval on the tenant-just like most buildings in other major cities. I think values will also hold because of the amenities like the Sterling Club that as an owner you automatically belong to- it cost $45 million to build it back in 2000. Other high rises offer nothing like it. But remember, I don’t care what they sell for, as I bought it for a minimum 10-15 year hold, and have had it 4 1/2 years already. If I sold today, even with current market conditions, I would still make money,and in another 5 or 10 years, I am sure I would still then too. Real Estate values are a cycle- but historically on average values double every 10 years, no matter what year you buy it in.
Ok, if anyone is reading this still…I put my unit on the market and it sold all cash in 24 hours two weeks ago. So there is still a strong demand for Turnberry Place. And I net over $300k profit in the 4 years I have owned it. So its not all doom/gloom for quality real estate.