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-   -   Thoughts on LV real estate at this time? (http://archives1.twoplustwo.com/showthread.php?t=488059)

Micturition Man 08-28-2007 06:16 AM

Thoughts on LV real estate at this time?
 
Note: I made this post too long, please just skip down to the bolded part if you don't want to read the preamble.

The LV high-end real estate market has been overheated for a while now, with lots of high-rise condo projects in the works that will probably never get completed.

So I've been thinking that it would probably be a good time to buy and hold some LV real estate. If not now then sometime soon... like next 1-2 years maybe? (That's just a guess, I'm not really familiar with real estate cycles.)

But anyway just the other day I was told of a purchase opportunity in a mid-rise development that is 90% complete but has not sold any units yet (not unusual as it sounds actually).

Basically the developer wants to sell the first unit soon, and he wants to sell it at original appraised price from like 12 months ago or something. The reason he wants to get a good price is so he can use the unit as a "comparable" to persuade other people to buy at that price.

However the market is definitely softer now than it was a year ago, so his current asking price is too high.

As compensation for this he is offering the following: he will pay all mortgage, tax, and HOA fees for 2 years, AND he will rent the unit for two years to use as a model unit.

Less significantly he will let the purchaser keep the model unit furnishings and he will also give away some shell commercial space on the ground floor.

Now without giving out specifics there is no way one can appraise this deal.

What I am interested in though is people's opinions on how close the LV high-end condo market is to a bottom.

For example if the market were to steadily decline for several more years, this would not be a great investment (though it still might be slightly profitable because of the incentives, if I could sell the unit at just a small loss in two years).

On the other hand if the market will only drop like 10% more over the next year and then hold or rebound, this becomes quite a strong 2-year investment.

So anyway opinons?

AbreuTime 08-28-2007 09:38 AM

Re: Thoughts on LV real estate at this time?
 
[ QUOTE ]

Now without giving out specifics there is no way one can appraise this deal.

What I am interested in though is people's opinions on how close the LV high-end condo market is to a bottom.
...

On the other hand if the market will only drop like 10% more over the next year and then hold or rebound, this becomes quite a strong 2-year investment.


[/ QUOTE ]
3 thoughts:
1) you should calculate the value of the incentives he is giving you, and see what the equivalent sales price would be. This is the first step in weighing the value of the purchase. It seems like you have done this.
2) I dont have an opinion on the short term LV real estate market, and I would be wary about relying too heavily on someone else's opinion. The seller is putting you in a seemingly favorable position, but only from the point of reference of an inflated baseline price.
3) Calculate the value of the deal, speak to someone familiar with the local real estate market, and find out if you can do better. I suspect, even with all of the incentives, that you it won't be worth it to you to flip in 2 years.

Basically, I'm saying that you should never assume the market is at the bottom when calculating assumptions that affect a deal. You should be able to calculate a breakeven price drop, and see how sensitive the profitability is to slight changes in price.

SteveOMS 08-28-2007 09:42 AM

Re: Thoughts on LV real estate at this time?
 
The appraised value from 12 months ago is probably alot higher then a current appraisal would be. Does all the incentives really make up for that? I would doubt it.

Steve

Micturition Man 08-28-2007 10:52 AM

Re: Thoughts on LV real estate at this time?
 
[ QUOTE ]
The appraised value from 12 months ago is probably alot higher then a current appraisal would be. Does all the incentives really make up for that? I would doubt it.

Steve

[/ QUOTE ]


This is the question.

The incentives are quite valuable. The rent he is going to pay for the first 2 years amounts to very roughly 20% of the purchase price (!).

I don't have exact numbers on that so I am not sure yet, but the rent he is willing to pay frankly seems excessively high to me. Not really sure what the story is there.

Also he would be covering all mortgage, tax, etc. payments for those two years.

So even I have to sell at a somewhat reduced price in 2 years this could still be a decent deal. If can sell for my original purchase price it because quite a nice deal.

Thanks to both of you for responding. I may update when I get more information if I'm still considering it.

(BTW I checked out the location this morning and thought it was pretty weak for 1m type condos. But then again sane people have that reaction to plenty of condos in hot markets that do in fact have that kind of market value.)

NajdorfDefense 08-28-2007 11:07 AM

Re: Thoughts on LV real estate at this time?
 
not even remotely close to the bottom.

maxtower 08-28-2007 01:37 PM

Re: Thoughts on LV real estate at this time?
 
Check out this link.

If you draw a line with the same slope as years '97-'02, and continue it across the chart, you'll get the approximate value of homes today. That looks like the prices need to fall to about the "150" mark on the chart. Thats still a long way down, 30-40% from today's prices.

Fishhead24 08-28-2007 03:40 PM

Re: Thoughts on LV real estate at this time?
 
[ QUOTE ]
Check out this link.

If you draw a line with the same slope as years '97-'02, and continue it across the chart, you'll get the approximate value of homes today. That looks like the prices need to fall to about the "150" mark on the chart. Thats still a long way down, 30-40% from today's prices.

[/ QUOTE ]

......my guess is more like 15-20% over the next 18 months.


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