Parents bought a foreclosure in Vegas- good idea?? [Archive] - Beyond.ca - Car Forums

rinny

03-12-2011, 12:03 PM

My parents put an offer in on a foreclosure condo in Las Vegas. The area is Henderson- one of the few recommended areas of Las Vegas. I suppose its similar to an Airdrie for Vegas.

The condo is in a gated complex, two story buildings but ground level condo. 2 bedroom, 2 bath, granite counters and reasonably nice inside. Complex has a pool, games room, and volleyball court.

Their offer was 41k from a list of 44.9k. The bank countered yesterday with 44k, they were okay with that price and countered with a slightly longer closing date. Essentially the deal is accepted.

They're aiming to rent it out. They took out a HELOC to buy it, paying $100/mo for interest payments.

Here's an idea of the complex, another company rents out a few apartments/condos in the complex:
http://www.apartmentguide.com/apartments/Nevada/Henderson/Solevita/4967/

Im no expert at American real estate, but could anyone realistically look to these condos to drop in price, further from what they are? I was hesitant to be enthused about this as I can see Vegas tourism numbers are slipping, and their whole economy is tourism-based. However the price is small, and if their plan works, I cant see a bad side to it?

Best part is: Its located on Ramrod Avenue!

broken_legs

03-12-2011, 12:20 PM

Originally posted by rinny

Im no expert at American real estate, but could anyone realistically look to these condos to drop in price, further from what they are?

Yes. Case Shiller index is clearly showing a second dip in housing. Local markets of course have their own drivers, but in general housing should be weak to negative in the US for many years to come.

ALSO

They need to hire a lawyer immediately

The main problem now is that many of the evictions and forclosures perpetrated by banks were ILLEGAL.

They didn't transfer the mortgage note properly, and the new owners of homes may face legal action by the original owner.

Hire a lawyers immediately and get that sorted out. This is a big deal. If the note wasn't transferred properly, your parents could lose the house.

http://investmentwatchblog.com/millions-ex-owners-of-fraudclosure-all-claim-their-home-via-the-locksmith-by-locking-out-the-banks/

bitteeinbit

03-12-2011, 01:09 PM

I would be interested in hearing more about these foreclosure stories. It's a tempting idea but the distance factor makes it somewhat difficult...

My main issues are:

1-Did they physically check the place out? Or did they buy 'online", just by looking at pictures? Where exactly are the specs of this place? How many square feet? All I see are pictures form outside "common" areas. Do you have pictures of the actual condo?

2-Who will watch the place for them, collect $ when they are renting out? I'm guessing they'll hire a private company for that, but how much will they charge? Is it going to take a big chunk of their profits? [EDIT] Just noticed they list some rental prices at the bottom. Are people actually renting those places out for those prices? Sounds a bit weird to rent a place out if it costs 40k...

3-How much can they expect to rent it out for?

Very interesting indeed. I've known of groups of people that pool together to buy some places, but I feel like you really need to know the area and local real estate market. I mean they had great deals outisde of Detroit but I don't think many people will be moving back there for a while, so people who bought essentially purchased a house in a ghost town outside of Detroit. I'd be interested in investing into that myself, so I find this somewhat interesting. Keep us posted on how things unfold.

broken_legs

03-12-2011, 01:23 PM

They pay 100$/interest a month right now that interest rates are effectively zero. Did they factor what higher interest rates will do to their cashflow?

What are the condo fees? What are the expected rents for the area? How many people actually live in that condo building? Is it full of owner/tenants or is it deserted? What do other units rent out for?

Does this property cashflow? Does it need any work before it can be rented out?

bitteeinbit

03-12-2011, 01:42 PM

They look fairly new, so I'm guessing they don't need work. Another big concern would be the fact that tenets know the owners live in another country. Wouldn't they potentially take advantage of that by delaying paying rent all the time, punching holes in the walls and doing other stuff of the sort? Not sure what laws are like in Nevada, but in Quebec kicking a tenet out is apparently extremely difficult. They can essentially destroy your house or not pay rent for 6 months before they can legally be kicked out.

Kloubek

03-12-2011, 01:59 PM

Don't make that assumption; I've seen many newer foreclosures where entire staircases were ripped out for some unknown reason.

As far as paying rent goes - that is why they are best off using a management company to take care of anything for them. It will eat into their profits - but should save a lot of headaches.

As far as whether the value of these goes up or down - I don't think that should be much of a primary concern. Firstly, how much lower *can* they truly go? Second, over time, they will eventually gain value. And finally, the idea here is to make a monthly profit from the rent. As property value is difficult to predict, making money on the property itself should be secondary.

rinny

03-12-2011, 02:21 PM

Originally posted by broken_legs
They pay 100$/interest a month right now that interest rates are effectively zero. Did they factor what higher interest rates will do to their cashflow?

What are the condo fees? What are the expected rents for the area? How many people actually live in that condo building? Is it full of owner/tenants or is it deserted? What do other units rent out for?

Does this property cashflow? Does it need any work before it can be rented out?

Interest rate isnt a huge deal. If it jumps 5 percent in the next year thats what, an additional, at most, 200 bucks a month? Thats an extreme...

Expect to rent it out at no less than $600, probably $700.

Its a ~950sq ft place.

Condo fees at $160.

Im not able to post the pics as the ones she sent were through email, but from what i've seen of the general place it is very nice- good color granite/color schemes good, good appliances.

No work to be done prior to renting. Other units of similar size are advertised 700-900.

The largest immediate issue I think they face is simply how to manage renters while they are out of town. If they dont go with a maintenance/management company, it could be a headache here and there down the road. Nothing a few phone calls or a flight and trip to Vegas couldnt fix.

From what they have been tracking lately, many FC properties have been selling at or above list price. I think if they cover their ass with rental income and even swing $100-$300 dollar profit/mo at minimum for the next couple years then hopefully the market will have picked up enough to sell it and make some profit.

Certainly interesting about the lawyer bit that was posted. I'll pass this on to them.

broken_legs

03-12-2011, 02:34 PM

Originally posted by rinny

Interest rate isnt a huge deal. If it jumps 5 percent in the next year thats what, an additional, at most, 200 bucks a month? Thats an extreme...

Expect to rent it out at no less than $600, probably $700.

Its a ~950sq ft place.

Condo fees at $160.

Im not able to post the pics as the ones she sent were through email, but from what i've seen of the general place it is very nice- good color granite/color schemes good, good appliances.

No work to be done prior to renting. Other units of similar size are advertised 700-900.

The largest immediate issue I think they face is simply how to manage renters while they are out of town. If they dont go with a maintenance/management company, it could be a headache here and there down the road. Nothing a few phone calls or a flight and trip to Vegas couldnt fix.

From what they have been tracking lately, many FC properties have been selling at or above list price. I think if they cover their ass with rental income and even swing $100-$300 dollar profit/mo at minimum for the next couple years then hopefully the market will have picked up enough to sell it and make some profit.

Certainly interesting about the lawyer bit that was posted. I'll pass this on to them.

OK so currently, interest rates are ZERO. Your parents are likely paying 2.5% = (prime + 2%). On 44k, thats 91$ interest per month.

So say it rents out for 600/month.

Now give 10% or more to a management company - most wont look after a property for less than 100/month.

So we'll say it's 100/mth for mgmt.
100/month for interest. (zero tax write off as its on a HELOC and your parents probably have other stuff on there too)
160/month for condo fees.
Property taxes?? Lets say 50/mth 600/year / by 12 months
What about insurance? 400/year / 12 = 35/month

100 + 100 + 160 + 50 + 35 = 445

600 - 445 = 155/month cash flow.

Thats pretty good.

Now lets pretend that interest rates go up to 2% (which is still almost zero and historically very very very very low)

Now your parents are paying closer to 200/month on interest.

cash flow is now negligible...

So in conclusion - if it rents out for 600-700, and interest rates stay low forever, this is an awesome investment.

If Banks tighten up lending requirements, and raise rates to prime + 3-% or Prime actually moves up from ZERO, this will likely lose money quick - Especially if there are any one time costs factored in. Like move outs, repairs, walk throughs etc...

rinny

03-12-2011, 03:29 PM

This is a good breakdown.

We'll see how it goes here. I know they're counting on an upwards swing in RE prices which may not be realized for a few years, but its worth a shot.

I mean, nobody ever got rich sitting on their money, and to buy anything up here would mean many times what they are paying.

At worst, they are within a few years from retirement so they could definately be using it themselves in some time.

I'll keep it posted. Good to have insight about the issues with the foreclosures there.

ZenOps

03-12-2011, 04:57 PM

Depends a lot on appraised value and taxes.

IE: California has been going nuts on taxes (especially cars) and water as well. Make sure the tenant pays for their own water and electricity, never include that as a free lunch.

Other than that, 90% of the battle will be finding a renter that will not trash the place.

In general though, the Case shiller is showing strong dip (again) but its not too bad for cheap rentals because a 10% drop isn't really as important as still having some people who are willing to pay rent.

BTW: Don't assume that you can get renters. Assume that you will have to fight off freeloading squatters to get renters.

rinny

03-12-2011, 06:12 PM

Yep, they realize the hardest part of this is living so far away and having to deal with renters.

That being said, they were planning to go to vegas anyways in early April so they'll see what they have to work with then.

C_Dave45

03-12-2011, 07:18 PM

That's awesome. Good for them. The nice thing now is, every trip to Vegas is a write-off!!

mazdavirgin

03-13-2011, 12:16 AM

Keep in mind now your parents get to have fun with the whole legal quagmire of foreign land ownership. They are going to have to pay taxes to the US government etc... If they are doing this without a lawyer specialized in this type of stuff they might be in for a whole world of hurt. They might find themselves in the fun position of having to pay taxes to the IRS and the CRA.

Rental income from real property located in the United States and the gain from its sale will always be U.S. source income subject to tax in the United States regardless of the foreign investor's personal tax status and regardless of whether the United States has an income treaty with the foreign investor's home country.

http://www.irs.gov/businesses/small/international/article/0,,id=129631,00.html

bjstare

03-13-2011, 04:15 AM

Originally posted by mazdavirgin
Keep in mind now your parents get to have fun with the whole legal quagmire of foreign land ownership. They are going to have to pay taxes to the US government etc... If they are doing this without a lawyer specialized in this type of stuff they might be in for a whole world of hurt. They might find themselves in the fun position of having to pay taxes to the IRS and the CRA.

Yep. My parents were looking at buying a house in Hawaii a little while back and the tax implications of having a vacation property in the US while still residing in Canada are retarded.

If OP's family didn't look into this beforehand, they could be in for some ugly surprises.

whodiman

03-13-2011, 09:26 AM

Definitely use a property manager. It costs more but it is worth it. I don't know about Vegas but in other parts of the USA there are several managers that will charge less than the $100/mth and go by the 8-10%. Prop Managers also screen out tenants so you take out much less rent. It doesn't guarantee you won't get a bad tenant but it sure helps.

SFH are renting out really fast as believe it or not there is a rental shortage for this. As you all know tons of homes are foreclosed and banks don't rent these out. As for condos I think there will be some spillover from houses. They won't rent out as fast but should still rent out if competitively priced.

Good analysis by Broken legs on cashflow, however if your parents start paying off the HELOC dilligently that should not be a big issue. They are banking on appreciation but if you can cashflow in the meantime I think it's a good idea. If it doesn't rent out immediately i don't think paying the extra $400/mth is going to bankrupt them.

Rent vs Price Ratio. Nevada is one of the 5 states that you currently can buy homes at 1996 pricing and still get 2006 rent....unlike anywhere in Canada. IF you want to invest in real estate this is one of the places to do it. I personally hate condo fees so I would invest in SFH instead but nobody ever got rich by sitting there and not doing anything.

Taxes: Whatever taxes they pay on rental income and the sale of their home will be taxed in the US first and the taxed in Canada. However they will receive a foreign tax credit on what they paid in the US that they can use in Canada eliminating double taxation.

bitteeinbit

03-13-2011, 09:51 AM

Yeah I've been wondering about taxation. Say you get 150$ cash from renting it out. Keep in mind having people in 12 months per year is hard to get. If they hold it for a long time though (say 10 years), some renovations might be needed (along with occasional small repairs which I'm sure will be needed). All in all might not be much cashflow.

Taxes sound like they would be the biggest deterrent for me. Such a pain in the ass. I still do my taxes by myself, but the more accounts I have (several bank accounts open and other accounts with investment advisors which all have small investments in each) the more complicated it becomes. I also started trading last year so I think that's going to add a new level of difficulty. I haven't received any tax slips from my brokers though, so I'm wondering if I should call them. I heard that half the gains are taxable but I'm really not sure. It seems like owning a house in a foreign place would just add a new level of complexity and headaches. On the bright side I doubt they'll be paying that much to the IRS since they won't be making much on rental. It will mostly just be a small drain because they'll have to hire a tax professional.

Also, one issue with broken_legs's analysis: prop taxes of 600$?!?! Do you actually know what the taxes are there? 600$ sounds very low. Over here it's around 2000$+ depending on where one lives.

Either way I think it's a good investment. I think I'll look more into this as I could probably empty my accounts and have enough to pay for a place like that cash. If I don't pay any interest, would it be a wise investment? Say rent out @ 600$-100$ (management)- 160$ (condo fee's)- 70$ (prop taxes)=270$/month. Not bad, though the tax man might take more out of that.

@KLOUBEK: Nice car! 944 for the win!

Toma

03-13-2011, 10:28 AM

98% of Vegas market is foreclosure.....

Expenses.... Condo fees ~$200 a month
Home warranty $30 a month
Insurance $30 a month
Water reclamation (cant remember)
Property Taxes ~$125 a quarter).

With condo prices 30 to 60k, it's hard to go wrong.

US taxes are not easy.

30% flat tax with no deduction on any rental income as a foreigner.

OR, you can get a US Tax Number, if you are a foreigner, it's called an ITIN.

Then taxes are paid AFTER all expenses, but you MUST file yearly, just like here.

They also have pretty gross capital gains taxes, inheritence and property taxes are higher than ours (percentage wise)

whodiman

03-13-2011, 10:46 AM

Originally posted by Toma
98% of Vegas market is foreclosure.....

Expenses.... Condo fees ~$200 a month
Home warranty $30 a month
Insurance $30 a month
Water reclamation (cant remember)
Property Taxes ~$125 a quarter).

With condo prices 30 to 60k, it's hard to go wrong.

US taxes are not easy.

30% flat tax with no deduction on any rental income as a foreigner.

OR, you can get a US Tax Number, if you are a foreigner, it's called an ITIN.

Then taxes are paid AFTER all expenses, but you MUST file yearly, just like here.

They also have pretty gross capital gains taxes, inheritence and property taxes are higher than ours (percentage wise)

Is home warranty mandatory in Vegas? It's optional in most places.

30% flat tax with no deductions. If you file a W8BEN or W8CEI I this is not the case but that's only if you file this. You also need the ITIN as mentioned above to file this.

Toma

03-13-2011, 12:31 PM

Nnnnn
Originally posted by whodiman

Is home warranty mandatory in Vegas? It's optional in most places.

30% flat tax with no deductions. If you file a W8BEN or W8CEI I this is not the case but that's only if you file this. You also need the ITIN as mentionnoned above to file this. no...home warranty is not mandatory. But everyone renting under 700 in vegas is a broke ass. The climate is brutal on the ac n heating units. The hot water tanks are usually outsied in a unheated ,closet, tenants seem to suck there etc. Would be silly imo to go with no warranty.

Yeah like I said... u have 2 choices for tax 30 percent flat right off the top or get the itin etc and save some $. Then u still may have to pay cdn taxes on top...depending on ur situation.

And if u go the itin route....u can't seem to write of the canadian loan or interest...

broken_legs

03-13-2011, 02:44 PM

Originally posted by bitteeinbit

Also, one issue with broken_legs's analysis: prop taxes of 600$?!?! Do you actually know what the taxes are there? 600$ sounds very low. Over here it's around 2000$+ depending on where one lives.

You're right, i was doing a best case scenario - Here are actual Property Tax Rates...
http://www.bartaustin.com/lasvegas/property-taxes-index.html

Note that your assessed value will likely be higher than what you actually paid for the property. Country needs its tax.

So we'll go low again and pick 2.1% x 44,000 = 924/yr = 77$/month.

If the condo is assessed at 100,000, then thats a different story...

Also you may be at risk of the county increasing property tax rates to cover budget shortfalls etc...

anyways, more to think about for sure.

bitteeinbit

03-13-2011, 05:35 PM

This is turning out to be simply a "hope for price increases" case as I doubt positive cashflow can be generated. Then again, as others said: no one ever got rich doing nothing.

Toma, you seem to know something about Us taxes. What if I have US citizenship? My father is American, I have an American SIN but I've never lived there. Would there be a big difference or would it be similar since I would be considered an expat or something similar (born and raised in Canada).

Toma

03-14-2011, 10:23 AM

S
Originally posted by bitteeinbit
This is turning out to be simply a "hope for price increases" case as I doubt positive cashflow can be generated. Then again, as others said: no one ever got rich doing nothing.

Toma, you seem to know something about Us taxes. What if I have US citizenship? My father is American, I have an American SIN but I've never lived there. Would there be a big difference or would it be similar since I would be considered an expat or something similar (born and raised in Canada). sorry.... not sure. I only looked into it as a caandian. But I imagine with a us ss number... its easier. I spoke with the irs a lot and they are very very helpful n easy to get a hold of.....

variable_x

03-16-2011, 02:26 PM

Perhaps someone can correct me, but I just can't figured out why someone would pay $600-700 a month in rent if they can purchase the place for 50k.

If they can't qualify for a 50k mortgage, with say 5 - 10k down, you probably won't want to rent to them either because chances are they probably can't afford the $600 rent anyways.

Or am I missing something...

whodiman

03-16-2011, 03:43 PM

Very good question but it's a phenenom that we do not have in Canada. Obviously it would be stupid to rent for that amount when you can buy for way less (if you planned on staying longer term). Most Americans got devastated by the downturn and do not have the big downpayment needed on a home. Most banks are asking for 20% down. On a 50k purchase that is 10k or a SFH house that might be 20k. You might think that is only 10k but think about some of your friends who don't have 10-20k just laying around (only applies to friend who do not have a HELOC). You would be surprised at how many people don't have this just sitting around. I know couples in Calgary who make 200k and would not be able to be able to shell out 10k without the aid of their HELOC. Salaries are much lower in the service industry which is a big part of your economy in Vegas.

You have lots of people who also didn't lose their jobs but kept pulling equity from their homes and when the values fell they lost everything. They still have their jobs providing income but either no downpayment and/or a destroyed credit rating.

I wanted to address something said earlier too. Someone mentioned not being able to write off LOC interest. That is only partly true. You cannot write off HELOC interest for you US tax return but you can for your purchase on the Cad tax return. So you ultimately get the write off in the end.

Redlyne_mr2

03-16-2011, 03:48 PM

I hope it works for them. I've heard that buying a foreclosed home in the US is one of the riskiest things you can do.

Xtrema

03-16-2011, 03:49 PM

I'm sure there will be renters. But with Vegas unemployment rate @ 15%, I don't know how many renters you're going to get, let alone good ones.

Taxes are another issue. Looks like counties are started to leverage extra taxes on foreign owned properties to pay for the deficit.

But hell, @ $45K, it may work well as a vacation home.

vtec4life

03-16-2011, 03:53 PM

You guys were talking about the risk of interest rates going up. if that were to happen, historically does that not mean the home value is generally on the increase?

autosm

03-16-2011, 05:16 PM

Originally posted by variable_x
Perhaps someone can correct me, but I just can't figured out why someone would pay $600-700 a month in rent if they can purchase the place for 50k.

If they can't qualify for a 50k mortgage, with say 5 - 10k down, you probably won't want to rent to them either because chances are they probably can't afford the $600 rent anyways.

Or am I missing something...

I asked same question

I was told most cannot even come up with a medium credit score and 3% down. Many have lost jobs or have hours cut back to 1/2.

They just don't have the money, rental is only option for most.

I think the tax problems for Canadians make it not worth it to do as an investment. The only return you will get is if the property goes up. Many states are considering raising taxes for non resident owners. Florida has higher tax rates for out of state owners.

Like Toma said, remit 30% of the rent or file a tax return that will cost you money. I was quoted 2k for the accounting by a Calgary firm.

autosm

03-16-2011, 05:19 PM

Originally posted by vtec4life
You guys were talking about the risk of interest rates going up. if that were to happen, historically does that not mean the home value is generally on the increase?

As rates went down prices went up because cost of financing was less.

If rates go up costs will be higher and most think prices will drop.....?

whodiman

03-16-2011, 06:05 PM

Originally posted by autosm

I

I think the tax problems for Canadians make it not worth it to do as an investment. The only return you will get is if the property goes up. Many states are considering raising taxes for non resident owners. Florida has higher tax rates for out of state owners.

Like Toma said, remit 30% of the rent or file a tax return that will cost you money. I was quoted 2k for the accounting by a Calgary firm.

tax is the #1 reason Canadians don't want to do this. In Florida they have talked about raising property taxes for non-Americans because they will not to be able to vote against it so it will probably pass. I don't know if there are any strange things happening in Nevada.

My accountant in Phoenix is charging my wife and I both $400 total to file our US taxes.

CapnCrunch

03-17-2011, 10:26 AM

If they rent it out and it covers all of their expenses including interest, thats a no brainer. They're losing nothing.

If Vegas ever see's any upward pressure on population growth, the market will rebound.

I have a hard time believing that you can even build a new condo for $45,000 these days.

autosm

03-17-2011, 11:01 PM

Originally posted by whodiman

tax is the #1 reason Canadians don't want to do this. In Florida they have talked about raising property taxes for non-Americans because they will not to be able to vote against it so it will probably pass. I don't know if there are any strange things happening in Nevada.

My accountant in Phoenix is charging my wife and I both $400 total to file our US taxes.

The 2k was for US and Canadian tax filing with a Phoenix rental. On a 45k condo I was thinking it would be less $$ to just submit the 30%.

I still have not purchased as prices continue to go down.

Someone told me Arizona is thinking about higher taxes for non residents? Like you said you can't vote so you would have to live with what ever they figure we can pay. I do know that they think all Canadians are all rich.

Can you PM me your accountants info, might have to have a chat with him.

ee2k

03-30-2011, 12:01 AM

The video below reminded me of this post. Read the caption which tells you about home valuation for Henderson.

http://www.bloomberg.com/video/67068654/

Toma

03-31-2011, 05:36 PM

Vegas condo market is basically a cash market.its a foreclosure...most bvanks woint even accept a subject to financing offer. Once u start gettin to 100k...then financing is more normal. Tons of foreigners buying cause they can stiil get loans, lines of credit etc

That's why rents r so high. They can't afford to own. Betya 20 plus percent are vacant cause the bank took em so people have fewer places out there available.

The scam before thebanks cought on was if u were upside down on. Ur mortgage, u bought a second place at the new freshly crashed price then walked away from the first oni bought a condo that was 335k during boom time 2006 for 42k. Its fucked.