How To Profit In A Double Dip Recession

Over the last several months, many of my clients have been asking me if Las Vegas prices are heading for a “double dip” as the recession continues to drag on. I don't know if I would call it a “double dip” since I definitely don't predict that home prices will experience any further drastic declines in the Las Vegas market. I do, however, believe that home prices will continue to trickle downward until the economy as a whole begins to really improve.  This is true not only for Las Vegas, but for most of the rest of the hard hit areas of the as well.So, in light of this prediction, what advice am I giving investors now? BUY, BUY, BUY! I can't say it strongly enough that now is the time to buy investment property in Las Vegas. Why? Three major factors:

  • After losing between 50% and 70% of their peak value, average property values in Las Vegas have continued to decline over the last year at the rate of approximately 1% per month. To put this number in perspective, it means that a home that was worth $115,000 in May of this year will have been lowered in value to about $112,000 as of today. These decreases might scare away the average investor, but it is important to note that the key factor when decided where to invest should be CASH FLOW. If a property has a strong rate of annual return at the price you are currently purchasing it, then it can be a very good investment even if prices dip slightly over time before they inevitably recover. Because home prices have plummeted much lower than rents over the last several years (home prices falling around 70% and rents only 15%), cash flow in Las Vegas is stronger than we have seen it in the last five decades. We are currently achieving 8-10% CAP rates for our cash buyers and over 15% for our financed buyers.
  • Interest rates are currently at lows that we are unlikely to see again in our lifetimes. Once the economy begins to recover, interest rates will be the first things to change…and quickly. Interest rate hikes usually precede the general public's notion that a recession has ended. Purchasing property now with a low interest rate will save the savvy investor thousands of dollars in the long run over trying to pick the exact bottom of the real estate market.
  • Lastly, demand for properties in Las Vegas is even higher than statistics may indicate. June of 2011 saw over 5500 single family homes close in the Las Vegas market, but many more untold numbers of buyers would have purchased a home if not for the continued difficulty in obtaining financing, difficulties getting appraisals that match sales prices, trouble finding homes to purchase that haven't already been snatched up by cash buyers, etc. When credit availability improves, appraisals rise to reasonable levels and distressed properties take up a smaller portion of available inventory, we will likely see an influx of buyers that have been trying to purchase homes but have not yet been able to do so…this influx will inevitably drive prices up.
  • Many potential investors are understandably nervous about the rocky ride we have been experiencing in real estate over the last several years. I encourage you, however, to take a good look at the facts.  The key is thoroughly study the proforma for any property you are planning on purchasing.  Make sure that all reasonable expenses are included.  Cash flow is your guardian and your savior in uncertain economic times.  A property that provides strong, solid cash flow, is likely to remain a good investment even if appreciation slows or ceases temporarily.   I continue to believe, and to tell my investor clients, that  we are currently experiencing a great period of opportunity for purchasing undervalued real estate…probably the best time to invest since the Great Depression. Savvy investors…make your move.

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