It was the best of times. It was the worst of times.
By the end of 2004 I was totally frustrated with the Las Vegas real estate market. As a rehabber my business model is to find distressed property to purchase at a large discount. The goal is to repair and renovate the house in order to bring its’ condition up to the area standard after which the property is sold for a profit. However the market was so hot that even a house in terrible condition would receive multiple offers very quickly, often at an amount higher than the listing price. Houses in poor condition were selling at prices that were as high as homes that needed very little work. It made no sense to buy at retail prices and add money for renovations only to hope that the appreciation continued.
Las Vegas is the kind of city that television stations would send rookie weathermen to in summertime, it’s hard to mess up a forecast that is always the same – sunny and hot! It seems that the city was attracting amateur house flippers as well. People from California and other states were cashing in their home equity in order to jump on the soaring real estate market. In a classic case of a rising time floating all boats, even a property that was totally trashed would command a high price. It was definitely the best of times for a seller but the worst of times for an investor looking for a good value.
Amateur Night at the Apollo
I was having a cup of coffee at a Starbucks when I overheard the conversation at the next table. A blue-collar pool maintenance guy was talking to his yellow pages rep about placing an ad when his phone rang. From what I could hear he was talking about a house that he had listed and my ears perked up. Apparently a pending deal was falling through. He got very animated and started saying to the agent “the heck with ‘em, cancel the deal! The house will be worth $50,000 more in another two months anyway and we’ll sell it to someone else”. This was a revelation to me in that I realized what was going on, the amateurs were jumping into the market and running amok. For me it was time to sit on the sidelines or look to other markets.
Inmates Were Running the Asylum.
Las Vegas had become another example of the inmates running the asylum. People who had never invested in real estate before saw this as easy money, after all their home had gone up significantly in the last couple of years. Hairdressers, bartenders, parking lot attendants and a slew of others were getting their real estate license to sell houses on the side. Many were jumping into the mortgage lending business because there was a fortune to be made. These people had never experienced a down market and thought that real estate will always go up. The true professionals in the business found themselves competing with all of these newcomers. There were always cases of pros losing deals because a prospective client had an aunt, brother, cousin or uncle in the business but now it was getting ridiculous.
Fast forward to 2007 and the picture is totally different. The Las Vegas market is back to a pre-boom sales pace. In September there were only about 985 single-family homes sold from MLS listings yet there are over 7,000 agents in the area. Listings of houses and condos are at all time high with more than 25,000 currently available on the MLS with 40% of those vacant. Las Vegas is one of the largest foreclosure markets in the country and many of these wanna-be investors have lost their investment properties and the nest eggs that were used to buy them. Real estate agents and mortgage brokers are leaving the business in droves, layoffs in real estate related businesses have been occurring with great frequency and the media is having a field day with all of the bad news.
It is now the worst of times for someone trying to sell a home. For an investor there are bargains galore, it is definitely the best of times. The average person is talking about how bad the market is and how it will take many years to rebound. The savvy investor is jumping on opportunities while the amateur waits for fear of making another mistake. When the market rebounds and begins to peak the savvy investor will cash in his profits by selling to the amateurs who will get in at the tail end of the market cycle once again. As usual, history will repeat itself.
Failure is simply the opportunity to begin again, this time more intelligently.