making first home purchase in las vegas, advice requested

[bonanz]

I'm looking to buy a condo in vegas. I'm 23 and this is my first real estate purchase. The condo is for me to live in, can any of you brilliant real estate / investing types offer any general advice before i go on with this.

I know las vegas real estate is crazy right now, but basically i don't want to rent anymore, and don't think can't really afford a house (don't think i need one either, single guy) and i'm relatively young and just want to start a trend of owning rather than renting. also rent keeps going up and up due to the real estate boom and investors buying out apartment complexes to convert them to condos to sell.

I'm just kind of nervous thinking about it and it's kinda stressing me out for some reason, but really, i think it's a positive thing.

anyways, any advice for a first time buyer (especially in vegas) would be appreciated.

thanks

[DesertCat]

I don't live in Vegas, so I can only give general advice. First, let I commend you on thinking ahead and trying to improve your financial situation. I'm going to focus my advice on risk management. You need to also know that I started off my life by buying a condo instead of a house, and ended up doing pretty poorly with it. The reason was that condos, unlike homes, are easy to bring onto the market, so when you start to see some appreciation in your unit, your at risk at from high end apartment conversions. My condo was also in a trendy area, that became passe when another area become much more trendy.

Your first risk is of course the vegas market. It doesn't seem like the best time to buy as recent price increases are unsustainable over time. I think the housing prices will be driven by availability of BLM land, and I don't know if there is any way to predict that. You mentioned a trend of conversions being dumped on the market by investors, is it leading to soft prices? If you can be patient you might wait for that.

Secondly, before you buy a unit, there is one simple test you should do. You should estimate your montly condo costs, not just mortgage, but association fees and other expenses, including the monthly interest you would have earned on your down payment had you kept it in the bank, and finally subtract your tax saving to estimate your net monthly costs. If your net monthly costs are higher than renting a similar place, you should think twice about buying.

Essentially, if your tax savings aren't making your condo as cheap or cheaper than renting, you are counting solely upon price appreciation to make your condo a good investment. That's a bit risky, esp. in the market you are in. Rents also should drive prices in the long run, so cheap rent often means prices are headed for a fall. But purchasing might be okay if you are going to commit to staying there for a substantally long time (at least 5-7 years). By then, even if the bubble bursts, you have time for normal price appreciation to help restore prices back to what you paid.

Finally, you need to consider your bankroll, and monthly earn vs. expenses before purchasing. If purchasing would substantially shrink your bankroll, and/or raise your monthly expenses, you need to figure out if you have enough margin of error for a big losing streak. If a bad losing streak would force you to miss mortgage payments, it would really suck to lose your condo at the same time.

Hope this helps. Sorry if there I don't have any easy answers, but vegas's market is a bit scary right now.

[bonanz]

Thank you for the response,

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vegas's market is a bit scary right now.

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tell me about it

In the last paragraph you seem to have gotten the impression that I play poker as my primary means of income, which is not the case. I work as an engineer and enjoy the soft games around town (and online) as a nice supplement to my salary. So any downswings or bad runs i may encounter would not affect my ability to pay bills as I keep a roll exclusively for poker that I basically don't even touch, just try to build it (okay, occasional splurge).

all the condo conversions are driving rent up, because whole apartmetn complexes are being bought out and individual units being sold, cutting down the number of nice places to rent. I've done some figuring and I estimate that buying would be slightly cheaper than renting, but i think its pretty close.

also any opinions on purchasing a condo conversion? they are flying around all over the place here and it seems to me they are a decent value for a first time buyer (but what do i know) and how does being a conversion affect "investment value" if at all.

I'm not even sure I want to buy necessarily, but I have a little nut put together, and i have the opportunity, and I'm young with no wife or kids or anything of that nature and would like to get a head start, i just feel like I'm throwing money away with rent, which was fine when i was "younger" (lol), but i feel like i need to be putting my money to use as early as possible. Is this a foolish line?

that's what I meant when I said I get nervous about it, trying to make the right decision. Don't want to regret buying early, but don't want to regret not buying early when life catches up with me.

I don't know, now i'm rambling lol. Thank you for the thoughtful response, it's appreciated.

[SossMan]

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including the monthly interest you would have earned on your down payment had you kept it in the bank

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you mean people still put money down to buy a house? Who knew...

[DesertCat]

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Don't want to regret buying early, but don't want to regret not buying early when life catches up with me.

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I always regretted not buying earlier, when I was a young engineer (no really!) in Silicon Valley. The market had been flat for some years after a big run up in the 80's, and I probably would have done very well. So I always advise people to buy as soon as it is feasible. But your situation is quite a bit different.

I don't know of any way of determining when or if the Vegas market will ever retract. It's essentially supply/demand, and if you think they are running out of condo conversions, maybe supply will get short? Or maybe it will get soft because a bunch more are hitting the market soon? Are developers building a ton more? Can they get the land cheaply enough to build at the conversion prices or do they now need higher prices to build? I think if you can get a little data on those issues it might help make you feel more comfortable.

If it helps, once you move in, as long as you are happy and content staying there, you'll cease to worry about real estate prices until years later when you're ready to buy a house. Like I said before, if you will be happy there for five years plus, and the math works like you say it does, you should be okay.

[eggzz]

Bonanz, since you are young, it is very likely that you wont be in this house/condo 5-7 years from now. You will have amassed more wealth (hopefully) and it will be time to buy something bigger and nicer.

I strongly urge you consider a five or seven year adjustable rate mortgage. I bought my second home 1.5 years ago and have a 4% interest rate.

This will enable you to either have a much lower mortgage payment, or will allow you to pay down more principal over time. You are locked in at that rate for the 5 or 7 years. That is my only regret from the first home I bought, when I did a conventional 30 year fixed. There was no way I was going to stay in my first home for more than 5-7 years, it was a starter, but I was naive to the other types of lending that was available.

I think you need pretty good credit, because this type of loan usually doesn't get sold and resold.

Plus, we are gamblers, and its a good way to take even more advantage of low interest rates. Even if rates are like 10% five years from now (which I highly doubt), you may want to purchase something else irregardless, so you are better off going this way.

Good luck whatever you decide (I would not go the condo route, you get eaten up by maintenance fees, and are at the liberty of management rules just like apartment living) I never really got into the thought process of "owning" a condo.

[laserboy]

What do you have against renting? How does throwing money away on rent differ from throwing money away on "interest payments/property tax/association fees/maintenance/transaction fees?

Have you compared all the cashflows involved? I highly suspect that rent would end up being cheaper than interest/property tax/association fees/maintenance/transaction fees/(-tax deductions)... And that's without taking into account a crash in housing values, which I believe to be imminent.

I respect your desire to start accumulating assets. However, my advice would be to rent and pocket the difference, investing it in a more undervalued asset class.

FWIW, here is an article that you might find interesting:

http://www.lasvegassun.com/sunbin/st...517768223.html

[zaxx19]

Laerboy has all them big words....but suprisingly little in the way of facts...The fact is the most undervalued asset class for the last 25 yrs has BY FAR BEEN QUALITY REAL ESTATE. If you buy in areas not susceptible too white flight and butressed by excellent schools real estate has-will outperform-ed almost every other venture capital mode(just ask WARREN BUFFET WHO HAS LIKE 76% OF HIS MONEY IN REAL ESTATE CONGLOMERATES AND INSURANCE). Plus the tax advantages...plus it provides shelter...plus low interest lendiong opportunities plus rent is a complete waste....should i keep rambling??

[midas]

Couple of real estate investing points:

1. I know LV has been growing fast - but why the recent run-up? Why havn't the prices been growing steadily? Are passive investors not homeowners driving the market?

2. If you are a buyer and buy an entry level condo for $200K - you need to know who your potential buyers are if you're thinking that you will sell at $400K. Retirees can always afford this type of rise but recent grads can't swing this type of coin. How much of the population in Vegas actually makes over $150K per year - I assume its much less than in New York, LA, San Fran or Boston where high income drives high RE prices.

3. Beware of investing in places like LV that don't have shortages of land or a commuting friendly zone around a city - the developers can just keep increasing supply. Buy in a high end-neighborhood, a golf course or near a lake for more stable values.

4. Finally - be patient - this definely looks like a bubble - wait for a price adjustment - then jump in.

[lu_hawk]

bonanz,

There is nothing wrong with renting. When you rent a place you can pretty much stop paying that rent and move out whenever you want. When you buy a place you have hundreds of thousands of debt on your shoulders and need to make those payments every month for the next 30 years. Most people just think in terms of the monthly mortgage payment and compare it to their rent but this is wrong.

And if the real estate market turns down then that just means you will get cheaper rent if you are renting, but if you own you still have the same amount of debt and if you need to sell you can end up owing the bank a whole lot of money.

Not that I'm saying buying a place is a bad decision but it really is a huge commitment, much bigger than the monthly payments, and if it really is stressing you out then maybe you should think twice about it.