Why the Foreclosure Crisis Didn’t Crush the Las Vegas Apartment Market
Sperry Van Ness Director David Baird commented to us on the affects of the subprime foreclosure crisis on income properties, especially in Las Vegas.
Has the foreclosure crisis impacted rents and occupancy rates?
“Some markets are clearly affected by the economy right now,” David says. “Particularly San Diego, Florida, Phoenix, and Las Vegas. These are areas where commercial prices peaked and then crashed. Financing, even 90% loans, were widely available, and buyers took advantage of that. But once the values fell, these properties were largely overencumbered, forcing sellers to consolidate.”
A shadow market is created when single family homes and condos foreclose and then become available as rentals. This tends to drive down rents and occupancy rates in the traditional apartment market. It can be a problem for the A-class properties in particular. “Why rent a three bedroom apartment for $1,200 a month when you can rent a single-family house for $1,200?” David explains.
But that shadow market trend wasn’t as bad in Las Vegas as some thought it would be. “Many of the properties in foreclosure were bought with the intention of flipping. They were never occupied, therefore never competed with apartments.”
David predicts the foreclosure trend is near bottom in Las Vegas. “There will likely be one more adjustment in April to June, then we’ll be seeing the bottom by third quarter.” Even though the A properties can be hurt the hardest in a downturn, they are still holding their own. “There is a ‘flight to quality’ mentality right now, driven largely by lenders’ preferences for high-performers. The A properties are still in demand. C properties are a mix – either they sell right away to someone who sees the deal, or they sit for awhile because of things like age or location–some factor that makes them less appealing to lenders.”
See more of our interview with David Baird, including What You Need to Know to Evaluate an Income Property, and Why is the Las Vegas Market is Poised to Skyrocket?
For more on evaluating income properties, see our feature Secrets of Evaluating and Selecting Undervalued Properties.
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