The Financial Analysis Guy

VEGAS REAL ESTATE GUY

This just in…all new blogging from Kevin Bushbaker will now be located at two different blog sites.  All professional blogging from me will now be located at the wonderful www.VegasRealEstateGuy.com blog.  This new site will be dedicated to every Las Vegas Real Estate and other fun Las Vegas things.  Since I am an investor and specialize all my real estate work as a professional with the investment community, it will definitely have this slant.

Also, since I am a financial analyst by trade and education, you will see tons of this type of analysis as it relates to not only Las Vegas real estate investments, but all real estate in general.  Yes, real estate is indeed local, but investing in real estate is universal, global or whatever you want to call it.  But how your look at an investment is the same in real estate, as is the stock market, as is bonds or debt instruments, as is a business investment.  It comes down to how much return you want on your capital invested for the amount of risk you are willing to take.  It is that simple.

Since I am a real estate professional in Las Vegas and know as much about land and investing in real estate as anyone, I thought it was important to focus my blogging efforts on this niche.  It will not be as “nichy” as some of the other local real estate blogs out there, but it will definitely focus the efforts more than the Financial Analysis Guy blog towards my true profession at the moment – Las Vegas real estate investments.

This new site will also possess a bunch of fun loving tiff’s and musings on Las Vegas in general.  Look, if you have ever been here to visit, which I am sure almost everyone has, you know how crazy it can get here if you simply let your guard down for a few days.  Not only how crazy it can get, but just the shear amount to do in Vegas while traveling here or actually living here, can send most people of the “over-stimulated” edge.  Not that there is anything wrong with in Vegas – matter of fact, if that doesn’t happen to you at least once while you are here, you are not trying hard enough.

BUSHBAKER

From a more personal perspective on life, visit my namesake blog site www.bushbaker.com.  This one is really going to be fun.  My wife, Gail, will do her best to post when she can, but it will mostly be my own drivel and musings.  This site will be a personal blog that focuses in on the Bushbaker household here in Las Vegas. 

Some of the main areas of blogging focus will be:

1.      Our amazing new little boy, Jackson Daniel Bushbaker – recently adopted April 2, 2008

2.      Our thriving craigslist business and ebay business

3.      What is happening around the household

4.      Personal finance and increasing our net worth

5.      Kevin’s undying efforts to de-clutter his life

6.      What it is like to live in Las Vegas

7.      Hopefully visiting with as many of you as we can while you are in town

8.      Running, biking and hiking around the southwest

9.      Roadtrips to Southern California to visit the beach (I am water and wind – Gail is Earth and Fire and I need, not want, but NEED to visit the ocean several times a year)

10. What it was like growing up, living, loving, having all my friends and family, back in my hometown, Detroit, Michigan - I love Detroit, but what a mess right now!!!

11.   Whatever else comes to mind

The Bushbaker blog site is selfish…no doubt.  I want to learn as much as I can about myself and where I am going in life by reflecting on my observations and writings.  I want to learn to write better and get feedback on it.  If I can get readers to read and comment, I will learn and hopefully provide better content.  It is all about having an open discussion on topics.  I WANT everyone’s feedback and comments on things.  If I am all wet on a topic and you need to correct me…do it.  If you completely agree and want to comment…do that too.  If you want a chance to be a guest writer, then send me an email…I want you there.  I need to learn and be educated so I can teach the prodigy, Jackson, all about what to do in life and what not to do.

GOODBYE FAG

No…No…No…this is not a bigoted comment or fun British slur.   The Financial Analysis Guy (FAG) is going away because it did not capture a few very important things in my writing.  The first is the fact that I am indeed a real estate professional first (for now at least) and financial analyst second.  I use financial analysis in everything I do and will continue to do so for my real estate investing clients.  This is my competitive edge and will continue to exploit this to my advantage.  However, being real estate professional means talking about anything and everything real estate.  Since I am here in Vegas, and investing in other southwestern states as well, I need to focus those efforts in real estate first……analysis second. 

Also, and this is very important, I want readers and others to see the personal side of me and our journey of being parents with our new adopted son, Jackson Daniel.  I wanted to write about both, but completely not confuse readers that may have interest one, but not the other.   I love getting feedback and this is some I got from the most important person I could think of, my wife, Gail.  She is my heart and soul.  I am the analytical guy and she is the emotional rock in our lives.

So, feel free to visit our two new blogs, read away, comment, criticize me (but not others on the site) and just have fun with it.  I know I will.

Kevin

On Wednesday, Home Builders Research President Dennis Smith gave his annual presentation on the “state of the Las Vegas housing market” to hundreds of Las Vegas real estate professionals.  I was not able to attend this year, but I did speak with several folks that were able to attend. 

Our leading housing prognosticator here in town made some good comments and some not so good.  Again, many look to this guy to give them guidance as to how to “feel” about the coming months.  Dennis pointed out that new-home sales in Las Vegas are down 49 percent for the first two months of the year, existing-home sales are off 37 percent and home building permits have plunged 70 percent

He said, “Obviously we’ve got tight credit and qualifying requirements.  Those are factors, too. I could go on and on. I think we’re close to the bottom, but it’s going to be an extended bottom.”

Any recovery won’t be in the shape of a “V” but a flat-bottom “U,” Smith told about 700 builders, developers, mortgage brokers and real estate agents at the Las Vegas Convention Center.

He predicted that median new-home prices will finish the year at $274,000, about $1,000 more than February’s median, though it will dip further between now and then. He thinks 2009 will show a 2.2 percent increase to $280,000 and 2010 will be about the same, with prices conservatively climbing to $286,000.

“We had many years of 1.5 percent to 2 percent increases and that’s what we’re going back to,” Smith said.  Resale prices, which are down 5.2 percent so far this year, will rise again by about 1.3 percent in 2009 to $240,000, he predicted.

This information is fine, but if you are working in this market, you simply want to hear something different.  We have all been wallowing in this purgatory for quite some time now and we want to believe something different.  I take a different viewpoint than from what Dennis and others who are way too negative at the moment. 

NO ONE and I do mean absolutely nobody predicted in 2003 that we would get to 38,000 new housing units in 2005 and 2006.  Nobody could foresee such a run-up and bubble like what we saw in those years.  Why would we simply blindly buy into this near doomsday scenario for new home-builders. 

Look, there are TONS of new jobs coming in the coming year or so.  Interest rates will end up falling SHARPLY very soon due to the Uncle Ben and Fed’s action on the Fed Target Rate.  There are still 6000 folks moving in every month. 

Please folks, try to stay positive and look at the physicals.  It is very easy to see where we are today and predict that more of the same is coming.  It is very difficult to take the position of change.  Therefore, many in the business take this position like Dennis has taken. 

The following information came from that presentation and was published in the local newspaper as well.  This is just for historical perspective, but please see where the bubble occurred and where we are today.  If you were put this on a chart, you will see where we have to go to make up for the false demand in those high-tide years. 

This past weekend there was a huge house foreclosure auction here in Las Vegas.  There were roughly 300 bank owned homes on the block and the turnout was impressive.  It was standing room only when you first got there.  Wall to wall people trying to get a read on where the market is sitting right now.

As I suspected, the Las Vegas real estate market is still in VERY strong demand.  The pricing across the board started at about $50/SQFT (with some outliers of course).  The bidding was fierce early on and people seemed like they really knew what they were doing.  In some of the past auctions, there were tons of lookers and not much experts.  It seems with foreclosures coming mainstream, a lot of people are jumping on the bandwagon.

Where most of the homes ended up is in the $100/SQFT range.  Again, some exceptions to this rule, but this was the norm.  This number is very important.  Since one of the businesses I help manage is a new homebuilder, I know what replacement costs are for building a new home.  This number is the proverbial “Mendoza” line of homes in Vegas.

Here is the breakdown for a new production home

• Vertical costs (lumber; concrete; labor; framing; etc) is roughly $50/SQFT
• Land Development costs (the lot; undergrounds; utilities, etc) is roughly $30/SQFT
• Marketing, Sales, General Expenses, carry costs, etc are roughly $20/SQFT

I know this is very simplistic and not always true, but this is generally correct.  When you get below replacement costs of that magical $100/SQFT, then there is quite a bit of rehab work to complete or you are looking at one seriously motivated seller.  In either case, this is a completely different business.

Why am I telling you all of this?  I am a huge fan of the Las Vegas real estate market, but we have been getting murdered out here over the last 18 months.  Some people simply believe pricing will continue to fall.  This is not possible in this type of market because of the physicals.  Vegas has 6,000 people moving here every month and that has not dropped during this downturn.  We have $50 billion being spent on The Strip in new hotels. There are 500,000 new jobs coming in the next 20 years.  I can go on and on. 

If we were in back in my hometown of Detroit, then I would agree that you can go way below replacement costs because of the supply demand dynamic.  (BTW, houses there are actually trading for half of replacement costs in a lot of cases.)  But here in Vegas, all the physicals point to not dropping below this fabled number.  That is good news for those of us in this market - new homes or not.  This means there is a bottom in place and we should be seeing the light at the end of the tunnel. 

Living in Las Vegas and being part of the Vegas real estate market has been quite an experience.  I came here in 2005, right at the freaking top of the market.  We bought a house the right way, though.  We bought a house that needed tons of work and are just fine with our mortgage.

However, I work for a group that has a company that is a local homebuilder.  Much of the company’s income over the last decade came from closing new houses in the vibrant Vegas real estate market. 

If anyone wanted to see what the bottom of a real estate market looks like, they should have been with me on Saturday.  We are doing what a lot of homebuilder’s are doing and are “mothballing” a community.  Essentially, putting it on hold until the market comes back.  Why are we doing this? 

Well, we purchased the land and improved the lots and our basis is WAY too high where house prices are right now.  The math doesn’t work anymore.  It will someday, hence, we are pressing the pause button on one of our communities here in the Vegas real estate market.  Like so many other homebuilding companies.

So, there we were on Saturday selling model home furniture for pennies on the dollar to whoever was lucky enough to see our bandit signs or see our wonderful Craigslist ad.  Our top of the line furniture and home furnishings were being thrifted away since we are losing the models to the bank and everything has to go in order to press the pause button on the community. 

One after another, folks were coming in and buying our stuff super cheap.  They then would ask the question what is going on with the community.  Could the Vegas real estate market be that bad?  Could you really be doing this?  The people loved the houses and several folks asked how they could buy one.  If only it were real…

The Vegas real estate market, like pretty much all other local markets, is in shambles.  My wife who is a professional organizer by trade and resells on eBay and Craigslist (check out all her posts on the Vegas Craigslist - general; furniture; and books) helped out that day.  She came home, fell to the floor and started crying.  I assured her it would be OK and that what we were doing was absolutely essential to staying alive to see the other side of this horrible mess.

There she was, the love of my life, now experiencing first hand what I have been dealing with for over two years now as a Vegas real estate participant.  I am a land investor and financial analyst for our company and simply don’t know where all this will end. 

In any event, if you want to know what it is like to see the bottom of the real estate market, go visit a new home community in your area.  If they are still open and selling houses, they are the few.  If they are like us, they are doing things that will make most of us cry.  They are doing things that never crossed the mind just a few years earlier.  My how times change…