Terry D. Barone

  Las Vegas: The New Foreclosure Capital   

Somehow Las Vegas Is Always Number One At Something.  This time it is nothing to be proud of. Las Vegas is number one is foreclosures in the Untied States. That is real bad news is you own a home and want to sell it. But this could be good news for smart investors that want to swoop up some fantastic bargains. The bargain chase is on! The most successful investors are all cash investors. If you are going to try to buy with a loan you will have to get in line behind all of the investors with fists full of cash. Investors with cash have an advantage in that their offers aren't conditional on obtaining a loan so banks often prefer selling to them than taking the risk that another offer will fall through. They are also often quick to react when bargains appear.

Foreclosures Are Still Happening  Although the percentage of borrowers behind on payments continues to grow, the number of homes lost to foreclosure in Nevada—and thus available for resale—fell in 2009 from a year earlier and continues to fall. The number of foreclosed homes owned by banks or mortgage investors and available for sale nationwide dwindled to 617,000 in December from a peak of 845,000 in November 2008, estimates Barclays Capital. December was the DataQuick reported 5,068 sales of single-family homes, condos and new homes in October. That’s a 22 percent increase over October 2008 and the highest October since October 2006 when 5,693 homes were sold. It marked the 14th consecutive month that sales have risen on a year-over-year basis, LePage said. The demand for homes remains strong because of the increased affordability and low mortgage rates, LePage said in an article in the Las Vegas Sun.

Housing Prices Are Bottoming Out.  Marta Borsanyi, principal of Newport Beach, Calif.-based Concord Group, said housing prices are bottoming out in Las Vegas, but a full recovery in the housing market won't occur until first quarter 2012. She defines full recovery as three to four new-home sales a month in each new subdivision and low single-digit home price appreciation. Instead of foreclosing, banks will be doing more short sales, or deals in which homes are sold for less than the mortgage balance. With the recession slowly winding down and CD rates at record lows, this seems like the right time to make a smart real estate investment.

Case Made For Investing In Residential Real Estate.  You’ll probably earn more on your rental house than you can earn from the record low returns on CDs or money market accounts. Why put $150,000 into a CD at 1.5% when you could buy a house rent it out and earn 6% or more. The best money market out there only pay 2.5% This simple investment strategy does not take into account tax savings or the possibility of property appreciation. Property appreciation? What is that, you say! Well folks, it is already starting to happen in other parts of the county. We are not building right now much, yet babies are still being born, kids coming of age and our population and work force still expanding. The world has not stood still for this recession and neither will it during the recovery. As an investor, don't be reactive, be proactive. Many of the people who lost money in real estate bought too late and now are selling too early.

Supply and Demand:  The real estate market, like the stock market, always comes back due to supply and demand. Business, the stock market and real estate run in cycles. Remember when tech stocks were dead? Now they are hot again. If you have grey hair like me, you have been through many of these cycles. What makes you money is timing. Buy when people are selling, hold then sell when people are buying! Lets see: $150,000 at 2.5% long term money market = $3,750 annual yield. Buy a $150,000 home for cash and rent it at $1,000 a month = $12,000 or $8,250 more ar! This doesn’t take into account the depreciation (another $4,000 a year on a $150k rental) which can boost your overall yield to 10% or better. Good Business Is Based On Supply And Demand.Sell when people are buying and buy when people are selling. Those who invest in real estate also expect to generate capital gains as property values increase over time. The paper loss for depreciation helps provide a tax shelter for your income most real estate is purchased, at least in part, because of the tax benefits that accrue for the owner. Ownership of real estate can produce substantial tax savings that can transform a fair investment into a very good one. The goal is to protect large amounts of income – accruing from the property itself or from other sources – from taxation. Investment real estate can be very effective at doing this.

Deductions That Are Available For Most Real Estate Investments Include the Following: Mortgage loan interest can be deducted to offset an equal amount of income. ~ Property taxes levied against investment real estate and paid to state or local governments can also be deducted from taxable income. Insurance premiums for coverage of real estate investments are deductible from taxable income. ~ Property Management is another hassle free expense deduction to consider. ~ Maintenance expenses are fully deductible in calculating the tax liability for a real estate investment. Expenses you incur for repairs can be deducted from your other income, thus arriving at a lower tax bill. Being able to deduct those expenses is a very important benefit of owning investment real estate, one which is not available to homeowners. ~ Depreciation accounts for the decline in value of an asset over time, including most real estate. Depreciation decreases the accounting value (the value of the property as shown on financial statements) of real estate and at the same time offsets an equal amount of income from taxation, yet does not affect the market value of the property. Investors generally obtain maximum tax benefits by depreciating real estate as quickly as possible. Rapid depreciation offsets income and saves taxes sooner. Residential rental property currently must be depreciated equally over twenty-seven and one-half years, while commercial investment property must be depreciated over thirty-nine years.

Build Your Net Worth Up Quickly Create a Flexible Investment Portfolio: An investment portfolio that includes several free and clear residential investment properties is great leverage in negotiating and acquiring larger investment properties in the future. Lenders know there is always a market for residential real estate. Not so with other types of commercial investments. There might be a glut of office buildings like you own on the market at a time when you are trying to get a loan on a great opportunity. A commercial retail center you are touting as a cornerstone of your real estate empire may be coming up for loan renewal and rents have dropped. A small group of investment houses can be moved around, gifted easily as part of a family trust, used for collateral, cross collateralization, traded, exchanged or used as part of a down payment on a larger investment.

Savvy investors should have at least 5 or 10 small rentals, free & clear in their portfolio.

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