Real estate bubble?

What is the real estate bubble?

This is a theory that the value of houses has gone up or inflated too much too fast and that houses are not really worth what people are paying for them. Real estate markets get saturated with buyers when they are hot and house prices go up per supply and demand. These buyers are a mixture of prospective homeowners and investors.

Will the real estate bubble burst?

There are 18,000 houses on the market for sale in Las Vegas right now. So, we have a huge supply of houses and all of the sellers are competing with each other, which is driving prices down. They are not drastic drops, but a big difference from a year ago when a seller would get multiple offers above asking price.

Is there a real estate bubble?

Yes and no. It depends on how you look at it. We look at real estate as being like the stock market. They both have their ups and downs (the stock market daily) and if you buy at the right time you will make money. A smart investor will have a diversified portfolio, whether it be stocks or properties. This allows you to ride out the slow times. Let's say an investor bought a house last summer for 80% of what it was worth back then and rents it out for a profit of $100 a month. If the market slows down and the value drops a little bit, who cares! That property is still sitting there making you $100 a month and eventually the value will go back up and you will have paid down the mortgage.

Do I believe that the bubble will burst? No. Do I believe that markets will slow down and bring down values? Absolutely. Can you make money in either scenario? Yes if you play the game right.

Las Vegas real estate market

The Las Vegas market is cooling off

In 2004-2005 Las Vegas was one of the hottest real estate and investing markets in the country. House values were appreciating through the roof and homes that were for sale were getting multiple offers that were higher than the asking price.

Buyers market

Things have changed. We are now in more of a buyers market that has people speculating that the bubble has burst. Homes are on the market for an average of 59 days and are selling at around 97% of the listed price. There are houses listed on the MLS that have been on there since December and earlier and have gone through a few price reductions. Homebuilders are starting to offer more and more incentives to entice future home owners to buy a house from them.

Has the bubble burst?

This depends on who you ask and what their motives are. In my opinion, no. The Vegas market is correcting itself from the crazy explosion that it had and interest rates are on the climb, which tends to slow down appreciation everywhere. We are getting back to normal. I would not expect to see double digit appreciation anytime in the near future, but we are starting to see a shortage of buildable land. This is causing builders to cram houses together, raise prices and start building up. I believe that this will help single family homes with yards, continue to appreciate at normal 4-5% rates.

The Las Vegas market has received some bad press lately because of the slowdown. Some people are running and some will take advantage of it. The median house price in Las Vegas has dropped down closer to $300k. This is good for buyers, but may be bad for sellers. There are most likely some homeowners that have their houses over financed with helocs and second mortgages.

Buying houses for no money down.

Buy real estate with no money!

You probably have seen the late night infomercials, with a slick salesman talking to you from his mansion about zero down investing. I have seen people spend a ton of money on these programs and courses that promise riches overnight, but the only person that gets rich is the one selling this so called information.

Can you buy real esate without money?

Absolutely, but you have to bring something else to the table. To buy investment property you need money, credit and/or ambition. One or two of these things can overcome a lack of the other. The gurus want you to think that all you need is their course and you will be buying houses in no time without any money. There is a whole lot more to it than that.

Money:

It is very easy to buy a house if you have a fistful of cash. I have seen people lose a lot of their own cash, because they feel that if they have the money they can go buy any house and turn a profit. They get lazy and do not do their due diligence because it is not required.

Credit:

With strong credit you can go get a 100% loan or a 95% loan. There are more and more no money down loan programs out there, but you have to be careful. If you have a house that is 100% financed and the value goes down you will come out of pocket to sell it. With good credit you can also pull out the money to make repairs, this way you can pay other people to make the necessary repairs. With todays bad credit loans there are more loans available.

Ambition and Hard Work:

This is where the real no money down deals come in. If you spend your days looking at houses, calling FSBO's (for sale by owner), watching the MLS and (here's the secret) making a ton of offers, you can find no money down deals. This is hard frustrating work because these deals are few and far between. The jackpot you are looking for is called a motivated seller. This is someone that just wants out of their house. Every investor should be looking for these deals, even if they have millions in the bank and have a credit score of 850.

No money down deals are easy to do, but hard to find.

There are a lot of ways to do zero money down deals:

• Subject To (take over payments)


• Owner financing


• 100% bank financing


• Combination of bank and owner financing (wraps)


• Silent money partner


• Wholesaling


• Borrow from friends and family

This is a short list of the infinite number of ways to buy a house without using your own money. The moral to this story is that you can do these deals, but it is very hard work. It is frustrating looking for these needle in the haystack deals, but they are out there for the few that are willing to work. You might have to start out with no money and spend months looking for that one deal and then use that profit to buy another one. Even the veteran investors look for no money down deals. The less capital you have tied up, the more houses you are able to buy.

The real secret to investing is... hard work, ambition, and creativity.

How to protect yourself against a bad flip.

We all know that there are people out there that are not honest. Flippers and investors are no different. As a potential house buyer, you need to keep an eye out and protect yourself. This is a true statement whether you are looking at a house that is for sale by an investor as well as a non-investor. Here are some tips that we suggest you keep in mind when buying any house.

Get an appraisal :

An appraiser is a professional whose job is to determine the value of real estate. This is a necessity and will be required by most banks before they will give you a loan or mortgage. Make sure that you use your own appraiser, insist on it. This will make sure that you are paying a fair price for the property.

Get the house inspected :

An inspector's job is to inspect the property and discover any major defects and/or code violations. Inspectors will not catch everything, but a good one will catch the big problems that can end up costing you a lot of money. You also want to insist on using your own inspector to ensure that you get an honest inspection. Ask for and check references, you want someone that you can trust.

What you can do yourself :

An honest flipper or investor will not have anything to hide. Ask questions! Find out what work they did, what work they had others do and what permits were pulled. If there was an addition, a room conversion or plumbing and/or electrical work done, they need permits. You can have serious problems selling the house later on if work was done without permits being pulled.

Look closely at everything

If something does not look right, it probably isn't. Look at the cabinets to see if they were re-stained, painted or replaced. See if the flooring is constructed of quality materials. Look for the little details that show quality. You want a flipper that is detail orientated.

Water damage

Inspect all of the areas surrounding sinks, baths and showers. There should be no discoloration. Kind of poke around to make sure that something was not just painted over. The caulking around these areas should also be in good condition. Walk around the house to make sure that there is no water damage on the exterior. Discoloration is not your friend.

Inspect the exterior

Too many people fall in love with the interior and layout of a house and never really look at the outside. Look at the roof the best you can for loose or missing tiles. Is the paint in good condition? Look at areas around windows and doors to make sure everything is there and in good condition. A lot of water leaks start from the outside of the house.

These things are common sense to some people, but to others this might as well been written in Greek. Even if you do not know anything about what I talked about above, you can do a thorough inspection. Walk the house with your inspector and ask questions, these people love to share what they know. Look at the house twice. You will be looking at the layout and overall feel of the house instead of all of those little things that you will notice the second time.

This information is not to scare you, but to inform you. You need to protect yourself. These problems can be passed on to you by the most honest person in the world, but if they do not know about a problem, that problem is now your expensive problem.

Is flipping houses illegal?

In a word, NO! Can you flip houses illegally? Sure, but this can be said of most professions (Enron?). There are people that will do anything to make a quick buck, even if it requires breaking the law. First of all, flipping and rehabbing are actually two different methods of investing in real estate, even though you will hear otherwise.

Rehabbing houses

is the process of buying an ugly house that needs repairs, fixing it up and selling for a profit. Rehabbers want to sell the house as fast as possible to cut down on holding costs, and this is why people refer to them as flippers.

Flipping houses

is the process of buying a house well below market that may or may not need repairs, getting it under contract and assigning the contract to another buyer. This is also known as wholesaling. Buy low and sell high.

Both of these methods are 100% legal, however there are people that cheat the system. The typical illegal scenario involves a minimum of 3 people, an investor, a mortgage broker and an appraiser working together. The scam starts when the investor buys a property for less than what it is worth. They will then find a buyer and have the mortage broker "preapprove them" for an amount that is more than what the house is actually worth. The appraiser will then value the property for more than what is worth and the unsuspecting buyer has now bought a house at an inflated number. This is also known as mortage fraud and is a federal offense.

These would be investors are no more than a common con artist. And of course these people are the only investors that you will ever see in the news. This has given the hardworking honest investors a bad name. This will only be countered with determination and getting the word out there that not all investors are like this. Integrity is doing the right thing even when no one is watching you. We are out there.

How we plan to leverage other people's money

We understand that investing in real estate is a gamble

, so we are going to try and gamble with other people's money as much as possible. This is referred to as leveraging other people's money. An example of this is: you buy a house with 5% down and finance the rest of the purchase price. The 5% down payment is your investment (plus closing and holding costs). This means that you will have to contribute around $5,000 for a $100,000 investment. See where this is going? Good financing is imperative to the success of our company.

We can go a couple of different routes with financing for our investment houses. Most banks offer non owner occupied loan programs, but they take too long to close and make you jump through too many hoops in most cases. When we buy a property that we are going to hold and rent out, then this is one of the programs we will use.

This leaves Home Equity Loans and hard money loans. We are pursuing a heloc on our primary residence, but the lenders require that we have owned it for a minimum of 6 months (this will happen April '06). In Las Vegas the median house price is around $325,000 currently, so our heloc will not cover the purchase of a property.

Our financial plan for the majority of our flips is to buy the property with a hard money loan. We will then use our heloc to cover closing costs, holding costs and repairs. Remember that we are focused on rehabbing or flipping properties, not rentals.

Click here to see FAQ's on how we buy houses.

Home equity line of credit, hard money or investor loan?

In this post we will cover the explanation of the 3 different loans that we are looking at and how we are planning to use them.

Home Equity Lines of Credit

Home Equity Loans are also known as a heloc. You will need to go to a mortgage broker for this type of loan. This is a loan that is secured by the equity in a house that you own. Equity is the difference in how much money you owe on a house and what it is worth. A heloc will typically be a second mortage and will work like a credit card. You only pay interest on the balance and you will have a card or a checkbook to use the money. There is usually not a pre-payment penalty.

Hard Money Loans

The term hard money loan comes from the fact that this is money that a typical bank or mortgage company will not loan you, hence this money is hard to get. If you know how to find a hard money lender or a private money lender it is actually pretty easy. These loans are expensive. 4-8% to start the loan and somewhere around 12-15% per month. Hard money is geared towards the investor. They usually will not loan you more than 70% of the value of the house, but they can usually fund in a week and only care about the value of the property. They do not care if you have no credit or bad credit because they will make their money if you default by selling the property.

Cash out refinance

If you have equity in a property you own, you can do a Cash out Refinance to pull that money out. This is a great loan, because you can refinance to take advantage of better rates and still pull out the equity to use for your investments. Some banks will even lend you more than what your property is worth, an example of this is 125% Home Loans.

Investor Loan Programs

Most banks and mortage companies have some type of an investor loan. These are also called non owner occupied loans ( or NOO loans ). Investor loans are just like a normal mortage, but they are based on stricter guidelines because if it is not the house you are living in, they think it will be easier for you to default on your loan and go in to foreclosure. Banks make money of off you paying your payments not by owning property. You will need pretty good credit, reserve cash in the bank and they are usually not 100% financing, which means you will have to bring a down payment to the table (5-10%). The closing time on this loan will be around 30 days.

These are definitely not the only loans for investors out there, but they are the most common and they are ones that we are planning to use to get started. There are hundreds if not thousands of different loan programs under each of the 3 categories and each company is different, so you really need to do your homework and shop different mortgage companies.

I will explain how we are going to use these loans in our next post.

So, you want to join the We Buy Houses crowd?

This is how it all got started for us....

We were living in a decent house that we had bought for a good price. We had the opportunity to buy a brand new house in a new part of Las vegas. The monthly payment was even the same, but the house would be 10 years newer and 600 square feet bigger! So oviously we jumped on this chance and signed papers in May of 05. Our house would be completed in October. This gave us 5 months to sell our house.

In August we decided that we would remodel the entire house, which would allow us to sell it for more money. Here is a list of what we did during the remodling process:

• built a big media niche for the TV and equipment (the old one was too small to be useful)
• laid tile in all the bathrooms and kitchen (got rid of the linoleum)
• installed laminate wood flooring everywhere else
• updated all of the light fixtures to modern ones
• updated all of the ugly brass doorknobs with satin chrome levers
• installed fancy baseboard
• replaced the crusty chrome faucets and bathroom accesories with updated antique nickel fixtures
• tore out the concrete in the backyard and landscaped
• we also basically repainted the entire house

We fixed up this house in less than a month and had a blast doing it! Running our own business has always been at the top of our goals list. We ended up selling that house for $27,000 more than what we paid 9 months before and have made approx $70,000 off of our new house in equity. We put 2 and 2 together and here we are. We decided that if we could make that much money by buying and selling our primary house, imagine what we could do if we focused on it.

Since then, we have been reading about investing until our eyes pop out of our heads, then we take a break and start reading some more. We have been researching the Las Vegas market, driving around looking at different houses and working on getting some investor loans.

The opportunity for us to buy a house is just around the corner.....

Sell your house fast

Real-Estate

Our quest to buy houses begins.

Welcome to House2HomeLV!

As you can tell we are a new investing company, that is working towards buying and selling houses in Las Vegas. We are going to document here how we are doing it and hopefully help some people out along the way.

We are working on the posts to get everyone caught up to where we are today. Right now we are getting all of our loans and financing in place. Getting investor loans is more difficult than we thought. We are also continuously working on our website. In our spare time we are installing laminate wood flooring for a friend. We will be updating soon.

Until then,

You can check out our site at

www.house2homelv.com