Investors shake up residential neighborhood mix

Donna Webster has an unabashed description of many distressed properties she finds in Las Vegas for her investor clients, typically homes that have been thoroughly trashed out of anger and despair before owners surrendered them to the bank.

It starts with an "s" and ends with "box."

That's why she doesn't want to hear people complaining about renters who moved into the house next door that was sitting vacant and deteriorating, dragging down values of surrounding homes, until it was purchased and renovated by an investor.

"Homeowners sound distraught that they're sharing their neighborhood with the likes of a tenant," said Webster, a Realtor with Re/Max Central and licensed property manager. "There goes the neighborhood."

More than half of Las Vegas homes purchased in January were all-cash transactions, possibly the highest percentage in the country and a good indication of heavy investor activity.

That's not such a bad thing. Investors are taking vacant homes off the market, cleaning them up and getting them occupied by renters who simply can't afford house payments, said Doug Miller, Webster's partner at Re/Max Central.

"Investors are more likely to keep a property up than a homeowner who's behind on payments and doesn't care," Miller said.

Webster said she has clients coming from other states, Australia, Hong Kong and just about every province of Canada.

"They have two things on their minds -- a good deal and rate of return in a buy-and-hold market," she said.

She found a duplex in east Las Vegas for one client -- an ex-patriated Australian now living in Hong Kong -- who paid $150,000 for the property. Each unit is 1,900 square feet with four bedrooms, a large living room and two-car garage.

It's going to make a fine Section 8 rental for $1,000 to $1,250 a month per unit, she figures.

One unit is about ready and the other is "challenged." The tenants were evicted for not paying rent and left behind a trashy trail of unwanted belongings. The first thing Webster did was call a pest control company to blast the place.

Then she brought in her handyman, Derek Hood of DH Construction, to make general repairs.

What does it need? New carpet, paint, drywall replacement, new doors, appliances -- about $7,000 worth of renovations.

"They're all pretty generally the same thing," Hood said of distressed home conditions. "A lot of drywall, cosmetic stuff, blinds broken."

Webster said the residential tier has changed, but everyone still needs a place to live.

"You have people living up here, people living in a condo they can't afford, maybe they did a short sale and now they're living here," she motioned with a lowering of her hand. "Which means people living on the edge are now (Section 8) voucher holders and they need a place, too."

About 31 percent of Southern Nevada renters live in single-family homes, according to the 2010 Las Vegas Perspective research publication.

Tom Climo, economist for Dr. Climo Consulting in Las Vegas, counters that investor houses are no longer homes. When homes are not owner-occupied, people living in those homes have little incentive to communalize, support local schools, maintain property to code or even buy Girl Scout cookies from the neighbor girl, he said.

"We live in a capitalist world in America, so the idea of a subset of people calling themselves investors and acquiring the capital stock of homes originally designed to fulfill the American dream of homeownership is not alarming," the economist said. "At 51 percent, the size of the subset is."

Housing analyst Dennis Smith of Home Builders Research said investors are taking a load off a bloated inventory of more than 22,000 homes for sale in Las Vegas, including 12,000 without offers.

Nevada Title showed a supply of 2,742 real estate-owned, or bank-owned homes, 6,206 short sales and 3,569 standard listings in its January market condition report.

"We can't expect every one of these homes to be purchased by an owner (occupant) because we don't have lenders available to make them a mortgage loan," Smith said. "If they've been evicted or left on their own choosing, chances are their credit's been trashed anyway. We have to have investors. It's a necessary part of the recovery."

Common consensus is that homeowners take better care of their property than tenants, but that model doesn't necessarily apply in today's market, Smith said. People who were once responsible homeowners are now renting, and people who own homes are letting them go.

"A lot of neighborhoods, if you drive through and try to find homes that are owned and homes that are rented, you'd be hard-pressed to do that. You have some homeowners destroying their home, letting the grass die," he said. "It's impossible to make a general statement to cover the market."

Investors who aren't familiar with the Las Vegas market need to be educated on short sales, REOs, traditional nondistressed sales and trustee sales, Webster said. The trustee sale is a hard-core house hunt that relies on a ton of data provided by holding companies, she said.

"Some investors like it, some do not. Just know that anything under about $200,000 is a competitive market and many amateurs can find themselves overbidding as they get caught up in that game," the Realtor said. "In that price range, the REO has the better numbers for buying, holding and even flipping."

As property manager, Webster screens tenants for credit, income and rental history. A majority of them have gone through a foreclosure or short sale, but they still have a job and a family and they want to stay in Las Vegas, she said.

The good thing about investors who buy with cash is that they're solvent, which offers a sense of stability to renters, she said.

Economist Climo said the high percentage of cash buyers shows how the Great Recession did not hit squarely on all parties.

"Some people made money, a lot of people kept money, and those living one paycheck at a time -- the true salt of the earth of America -- have been reduced to becoming renters instead of owners, forced to shuffle from one rental accommodation to another in search of a piece of economic tranquility that has been torn away from them," he said.

"Possibly the investors feel good about their leverage in this situation. I have enough humanity left in me to question the longterm legitimacy where most of our homes in Las Vegas become second or third or fourth homes of well-off investors feasting on the abject poverty rendered to renters by the same circumstances that made the investors rich."

The Hong Kong investor, who asked to remain anonymous, said returns on cash in the bank are "pretty grim at the moment," around 1 percent or 2 percent, while returns on select rental properties might be as high as 10 percent net. Of course, they require more work and carry some risk.

"We are looking for houses that might suit tenant demands," the investor said. "Donna (Webster) reckons that three-bedroom, two-car garage, single-family homes are what the tenant market is looking for right now so we narrow down our focus on these."

His target price is $90,000 to $130,000 in Las Vegas. He also owns investment homes in Shenzhen, China, and the Gold Coast of Australia. Both of those markets are "bubbly" and rental returns are lower at 3 percent to 4 percent, he said.

Matt Brimhall, vice president of sales and marketing at Allure, said investors are finding value at 60 percent of replacement cost for high-rise condos, with nearly 10 sales a month at Allure since July. Two Southern California doctors purchased about a dozen units last year and leased them for $1,750 to $2,500 a month, he said.

Contact reporter Hubble Smith at hsmith@reviewjournal.com or 702-383-0491.