It is strange to me how something so seemingly massive, can turn on a dime so quickly.

That's just what has happened in the Las Vegas Real Estate market.

Over the last several years, Las Vegas has grown and grown and grown - not only the city itself, but the prices of property and along with it, the wealth of its population (those that have controlled their casino time, that is!).

But what of the Real Estate market - that seemingly uncontrollable, self-perpetuating mass of constant building going on for the last 10 years? Why has it all of a sudden stopped growing? And, not only that, it has taken a serious HALT!

What happened, where is it going, and just how does a Real Estate Investor cope with such sudden changes?

Investing in Real Estate is much like anything else - success (or failure) is affected by other sources - usually outside your control and often outside your circle of influence. Smart Investors watch all surrounding 'clues' to see what is happening in other markets, businesses and industries to make sure they don't get 'burned' by bad investment decisions.

Several clues were apparent in the Las Vegas market to indicate that a change was certainly coming. Watch for such 'market indicators' in your everyday investing;

• New home building ("Housing starts") - builders stopped new construction

• Water meter costs rose (new meters made costs too high)
• New laws affecting new construction (in this case, "no grass" lawns, entries to subdivisions, etc. - again a water issue, but its affects are felt all over)
• The price of construction materials rose (steel prices shot up drastically)
• Rental rates not rising - the 'average rent' is still close to what it was two or even three years ago. This causes investors that buy property today to have a negative cash flow - their payments are more than the income (not to mention repair costs and such)
• Low interest rates - anyone with even modest credit can get a loan to buy a house. When this happens, renters are not as plentiful

• House prices escalating out of control - with 'Investors' flocking in to take advantage of the rising prices, a wave of people come to grab their share. 'Frenzy buying' - getting a property at any price, ensues; with a result that appraisers have to 'value' the property higher and higher. The next appraisal is for even more - a self-generating 'appreciation', based solely on emotional buying. This is not "appreciation", it is "inflation".

So, where's all this going?

There is a big question now if the Las Vegas market will sustain such prices or not. With such rampant 'inflation', even with the low interest rates, many families cannot afford the payments to buy a new home. Even older home prices have reached 'critical mass' and payments are higher than rental rates.

All this sets the market up for a drastic HALT!

People don't change as quickly as the market does. In March, 2004 there were around 800 properties in the MLS. Less than 2 months later, there were 18,000 property listings!

I'm not sure where that came from, but it is certainly an eye-opening number! I think many of these came from the ‘wave’ of people – ‘investors’ that caught the ‘buying bug’ after the real deals were gone. They heard of so many people making money for so long and that is when they decided (too late) to take action. They bought on emotion, paying full retail for property that cannot be rented or sold at any sort of profit. Their only investment ‘strategy’ was to get in and get out quickly, making a fast buck from the inflationary market. Because they didn’t pay attention to the market indicators, they are now hurting to get rid of the property – and contributing to the vacancy listings.

Even with the enormous number of properties available, Sellers are slow to adjust their prices to move their property quickly – many of them can’t, simply because they already paid ‘top of the wave’ prices. They will (out of necessity) hold on to their price as long as they can – unfortunately, for many, they will hold on and make payments until it puts them into extreme debt. Many will end in foreclosure.

What is an Investor to do? How do you cope with such changes?

Coping with change quickly is what separates the successful Investor from those ‘wave chasers’. Understanding your market, being ready to get told ‘NO’ when you offer something that is truly reasonable for the conditions that exist, and being ready to move when a deal does come up that you can make a win-win situation from are all talents of the successful Investor.

But, you have to develop those talents before the wave! A true Investor will look to what ‘will be’ in the future – estimating the need for talents in time for them to be learned, internalized and developed.

Investing in a market where house prices have recently been ‘inflated’ (where there is a lot of equity floating around) creates a lot of opportunity for creative financing methods. Making a win-win situation here will certainly pay off more than paying ‘full retail’, while giving you and the Seller a situation you both can live with.

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Steve Majors - The Lazy Investor Active Real Estate Investor, author of ebooks, training courses and seminars, provides one-on-one mentoring and coaching. Articles, news and more at http://www.thelazyinvestor.com
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