BiggerPockets

Three Methods for Valuing Property - And How They Matter to Investors

Friday, February 03

When we talk about what a property is “worth” we are making a judgment as to the value of that property. As real estate investors, it is crucial that we be able to accurately determine the values of our current holdings as well as our potential investments. In this article I am going to discuss the three main methods used to value property and how each of them pertains specifically to real estate investors.

Comparables

Sales comparables, or “comps”, are the most widely discussed and understood method for valuing residential real estate. This method of valuation has absolutely zero correlation to any tangible or permanent value (such as the cost of materials or land.) It is based solely on the laws of supply and demand. According to sales comparables, a property is worth exactly what consumers are willing to pay for it at that time. The most important aspect of correctly using comps to determine the value of a property is making sure that there is an apples to apples comparison. Every effort should be made to compare the home being valued with homes of similar size, location, amenities, finishes and condition.

Unfortunately, in the last year, we have run into major difficulties in the Las Vegas real estate market obtaining fair and accurate appraisals for our newly rehabbed properties. This is because some appraisers insist on valuing our completely turn-key, fully renovated properties at the same price per square foot as damaged foreclosures or REOs in the same neighborhood. I have spoken to numerous colleagues around the U.S. who are encountering similar difficulties. As an investor, when you are looking to value a property prior to purchase, it is important to note the condition of your prospective investment in comparison to other properties that might be listed as comparables.

Capitalization Rate

The most popular method used by investors to evaluate a potential purchase is capitalization or CAP rate. CAP rate is determined by dividing the Net Operating Income of a property by it’s acquisition cost. For a more detailed explanation of how to determine a CAP rate CLICK HERE to read my article on this subject.

Several factors go into determining what makes a “good” CAP rate for a particular investment property. Here in Las Vegas, we tell our investors to shoot for CAP rates of 10% or greater. For a more thorough discussion of what makes a good CAP rate please CLICK HERE to ready my article.

Builders’ Replacement Cost

The final method used to determine property value is builders’ replacement costs. This references how much it would cost in the current market to rebuild a particular property in the event of a total loss. To determine this, the total square footage of a structure is multiplied by the current cost per square foot of new construction in the area. This valuation is often used by insurance companies who are underwriting properties for homeowners’ policies.

For investors, builders’ replacement costs can provide a helpful benchmark for giving properties a more tangible valuation then comps alone. Investors who took note of the huge gap between builders’ replacement costs and actual market prices in Las Vegas in 2007 realized that a market correction was imminent and inevitable.

With completely renovated properties selling below builders’ replacement costs and CAP rates higher than we’ve seen in decades, now is the time to invest in real estate in Las Vegas. If you are interested in learning more about what Team Plantone has to offer investors, please contact Glenn.

Driven by Short Sales Las Vegas Resale Real Estate Hits Record Mark in 2011

Wednesday, January 18

Although most analysts agree that we are in for another 3-5 years of “more of the same” in the Las Vegas real estate market, it will be interesting to see how the percentages of sales types will shape up as we move into a new year in 2012.   For example, in 2009, 75% of all sales were bank owned foreclosures while only 7% of total sales were short sales.  In 2011, the number of foreclosures decreased dramatically as short sales picked up.  Banks began to restrict the flow of REO’s and allocate more resources toward getting short sales approved and pushed through.

Glenn Plantone of Vegas International Properties (VIP Realty Group) has become the number one buyers’ agent in all of Las Vegas by dealing with investor buyers almost exclusively.  A large majority of his clients are international investors with the highest concentration coming from Canada and China.  In the last quarter of 2011 Plantone and his team brokered a bulk deal of 15 homes in northwest Las Vegas to a single investor buyer.  The homes were a package of bank owned new construction sitting with Wells Fargo Bank.  Plantone is now working with two clients looking to take down 50-100 homes this year in Las Vegas.  Plantone claims, “The word is out and the savvy investors know that now is the time to buy while we are at the bottom of the market.”  With more that 50% of all sales still being cash deals, investors are securing CAP rates of 9 to 13% on single family home rentals.  

Team Plantone has been able to purchase properties at wholesale prices, well below builders replacement costs in the $45-$65 per square foot range.  (New construction costs start at about $80 per square foot.) Utilizing their full service property management division Team Plantone handles the rehab of the homes purchased, along with the leasing, and managing of the properties.   Glenn works with a variety of clients from individual investors to hedge fund investment managers looking for greater returns for their investors.

Glenn utilizes all available purchasing avenues to insure that his clients get the best possible deal on investment properties at wholesale prices.  Team Plantone finds and buys homes that are distressed, bank owned REOs, short sales, bulk packages, auctions, and properties at the Trustees’ sale.  Glenn is currently working with the FDIC to help secure larger projects for his clients with significant investment capital.

If you are interested in having Team Plantone help you acquire larger groups of properties, please contact Glenn directly.

Glenn Plantone Quoted Again by CNN Money

Thursday, January 05

Once again, Glenn Plantone has been featured as an expert commentator in a recent article from CNN Money.  This piece by Les Christie was featured in CNN Money on Nov. 11, 2011 and is titled "Is Las Vegas' Housing Market Ready to Make a Comeback?"  Excerpts from the article follow: 

"NEW YORK (CNNMoney) -- Las Vegas has suffered through the housing bust like few other places and still has further to fall. But these days many real estate investors and home buyers are betting that it's poised to stage a comeback.

Sin City's metro area led the nation in mortgage defaults for 22 straight months through August and home prices plunged a whopping 60% from their 2006 peak, according to RealtyTrac. And prices still have further to fall. Financial analytics company, Fiserv, projects home prices in Las Vegas could fall another 16% by next June.

But to investors and home builders, there are enough positive signs to start betting on Vegas now.

Home sales, especially of bank repossessions, have picked up signicantly. Nearly 36,000 homes have been sold so far this year through September 30, an 11% increase compared with the same period in 2010, according to Lawrence Yun, chief economist for the National Association of Realtors.

Glenn Plantone, a Vegas-based broker and investor who deals mostly in foreclosed properties these days, said he's seen an influx of foreign buyers, especially from Canada and China. Last year, he brokered 25 sales but this year he's already up to 65.

"I'll triple my business this year," he said.

According to CoreLogic data, 63.3% of homeowners there are underwater on their mortgages. As a group, Las Vegas mortgage borrowers owe about 20% more on their mortgages than the value of their homes. Many will lose their homes to foreclosure.

But for all of those who lose their homes, there are others who see it as an opportunity. More than 50% of all sales in town are foreclosures, said Plantone.

Recently, he had a client who made bids on 40 different bank-owned properties. He was outbid each time. The investor wound up buying four new 1,400 square-foot homes in North Las Vegas for $140,000 each instead. He rents them out for $1,495 a month apiece, which give him immediate returns on his investment.

Once the housing market recovers he could sell the properties for a healthy return, too. It's hard to beat those kinds of odds."

CHASE Bank Offers Las Vegas Foreclosures to Investor Buyers

Monday, November 21

On Friday, November 18th, Chase delivered to Team Plantone a list of 35 foreclosure properties in Las Vegas, NV that need to be liquidated immediately.  Originally these properties were to be listed and sold only to owner occupants, but due to the current credit crunch and the difficulty many primary buyers are having obtaining financing for their purchases, Chase has decided to open up the list to investor buyers as well.  The catch is that potential investors must move very quickly.  All offers must be in place for this package by Wednesday, November 23rd.

There is no bidding on these properties.  The price is the price.  Interested investors simply look over the list and if a property they want is still available...it is theirs.  It is that simple.  This type of REO / foreclosure liquidation is extremely advantageous to the investor buyer because the investor is able to avoid the bidding wars and resulting price increases that plague cash buyers looking to purchase REOs through traditional listings in the extremely popular Las Vegas real estate market.

There are some great spreads in this lists for buy and hold investors.  There is also a 2% commission available to any licensed buyers’ agents.  Chase is only accepting cash offers.

If you are interested in viewing a list of the available properties, please contact Glenn Plantone immediately.

Large Bulk Foreclosure SFR Deal Closes in Northwest Las Vegas

Thursday, November 17

Glenn Plantone of Nevada New Builds LLC in Las Vegas recently completed a bulk sale of 15 new construction homes to a private, out of state investor.  The transaction, which closed on November 1st, 2001, represents one of the largest single transactions of single family homes in the Las Vegas valley this year.  The transaction was an all cash deal that closed in 7 days.

The bulk package consisted exclusively of new construction foreclosures located in the Providence neighborhood of northwest Las Vegas.  Most homes were 4 bedroom and averaged around 2300 square feet.  The entire purchase closed for under $2M.  The buyer plans on holding the homes long term and generating cash flow through renting, lease optioning and (possibly) offering owner carry programs.

This most recent deal is typical of the types of packages that Plantone and his team construct for their clients.  Team Plantone specializes in acquiring distressed properties through short sales, builder closeouts, REO packages, and Trustees’ sales.  The team then renovates the properties, clears any liens on the property, and adds great extras like ceiling fans, landscaping, upgraded fixtures and appliances.  Plantone and his team then place long term tenants in the properties to create a turn-key investment.  Because the properties have been acquired so far below market value, they can be resold to Plantone’s investor clients with CAP rates of 10% or more after all expenses.

Plantone and his team of seven professionals tailor their services to investors looking to purchase income property in Las Vegas.  Team Plantone represents buyers that purchase more homes in Las Vegas than any other group.  This includes teams that employ as many as 30 people or more.  “We focus on our clients needs first,” Glenn said, “I have been a real estate investor for over 10 years, so I understand what investors are looking for...strong cash flow, good appreciation potential and security.  We’ve been seeing a lot of money lately moving from the stock market into real estate.  Buyers realize that we are seeing historically low prices and interest rates and that now is the time to buy.”

Many of Team Plantone’s clients are from Canada and China as the rest of the world rushes to capitalize on this buying opportunity.  Like many other analysts, Glenn agrees that it may take Las Vegas another 5-7 years to recover from the current housing crisis and that investors will probably not realize significant appreciation until that happens.  He still feels, however, that now is an excellent time to buy.  “Cash flow is the key factor to examine when determining whether or not an investment is solid.  We are currently seeing cash flow rates that haven’t existed in Las Vegas in five decades.”

If you would like more information on the Las Vegas real estate market or bulk investment packages, please contact Glenn directly.

Finally...Loans for Canadian Investors Looking to Purchase U.S. Real Estate

Thursday, November 03

Over the last three years I have sold dozens of properties to foreign nationals looking to invest in Las Vegas real estate.  Las Vegas has led the nation in foreclosures for the last three years running and has seen properties lose 50-80% of their value.  Rents, on the other hand, have declined only a fraction of that percentage and, as a result, Las Vegas investment properties are cash flowing at a rate we haven’t seen in decades.  Many foreign nationals, especially Canadians, who are familiar with Las Vegas as a vacation destination, are now looking to Las Vegas as an investment destination as well.

The only downside, for some Canadians, to investing in Las Vegas foreclosures has been the inability to use financing to leverage their investment.  All of my Canadian buyers have had to pay cash for their investments because reliable financing for foreign nationals was simply not available through U.S. financial institutions.  Until now.

I am excited to announce that Team Plantone has recently established a relationship with an established lending institution here in Las Vegas that has developed a loan product for Canadians looking to purchase 2nd homes in the U.S. and a separate loan product for foreign nationals looking to purchase investment property.

The second home purchase program especially for Canadians will fund 65% loan to value on single family residences with a minimum loan amount of $75,000.  A Candadian credit report with a minimum score of 680 is required along with income and asset documentation.  Competitive fixed rates are available on 30 year terms.

The foregin national investment property product will fund up to 60% loan to value on residential properties with 1-4 units.  There is no minimum loan amount and no proof of income or credit score required.  Loans are amortized over 40 years and 3 and 5 year terms are available with rates starting at 8%.  Even more encouraging is that the financial institution is able to order their own appraisal.

If you are a foreign investor interested in learning more about these programs or about investing in Las Vegas real estate, please contact Glenn Plantone for more information.