Oct132015

Contrarian investing in cashflow real estate a strategy for success

Contrarian investing requires a good analysis and the faith to act on it.

Las_VegasI avoided buying a house during the housing bubble because my analysis of the monthly cashflow showed it was more advantageous to rent than to own. With prices rising rapidly, I was told I was a fool, a cowardly fool who didn’t have the balls to cash in on the can’t-miss investment opportunity of a lifetime. I recognized an impending disaster.

In 2010, when house prices were depressed, nobody wanted to own real estate. The government offered huge tax breaks to anyone willing to buy a home, and because prices were still on a downward trajectory, few people were willing to buy. I recognized a great opportunity.

After earning a reputation as a housing bear during my first three years of writing, many assumed I was a permabear with an entertaining style. Many were shocked when I wrote that everyone should Buy Las Vegas real estate — as much of it as they could. Most people thought I was crazy:

Well, I’ve been to one world fair, a picnic, and a rodeo, and that’s the stupidest thing I ever heard come from the IHB. – lowrydr310

Las Vegas? Come on – absolutely no point to owning anything out there. No intrinsic value to the occasional tourist at all. – AZDavidPhx

AZDavidPhx was so unimpressed with my idea that he created a parody cartoon I still use today — as an affirmation.

SecretsToLasVegasLandBaron

I would be very careful. There is still excess supply, so renters may not be readily available, and that will also put downward pressure on rents. Plus with buying so attractive, why would people rent? The recently foreclosed? Is that the best group to count on? – winstongator

I’ll echo the concerns on gaming coming back – I have to think that alot of the HELOC withdrawals profiled here daily fueled splurges at the Bellagio and those just aren’t going to come back. I can see some stabilization and maybe modest recovery from where we are now, but don’t think we will get back to say 2007 peak levels anytime soon. – scottinnjvegas

Is the rental market strong enough in Las Vegas to ensure enough positive cashflow to make the investment worth it? If it’s better to own than rent, why would people rent your property? Seems a bit self-defeating to me because the cheap prices will either:

a. Dry up the rental pool.
b. Drive rental prices low enough so that cash flow isn’t too much of a benefit.

I would buy out there as a “vacation” home but I don’t know if I would want to be a Desert Land Baron / Overlord. – irvine_home_owner

Did someone hack into your account again? – ?

As you can see, I was not greeted with resounding cheers and affirmation for my idea.

I persevered.

Why was I so confident? For the same reason I was confident there was a housing bubble: my analysis of monthly cashflow demonstrated that prices had gotten so low that despite the negative sentiment, it was a great time to buy real estate. I believed so strongly in the opportunity that I raised money from readers to go out to Las Vegas and buy houses — lots of them.

Download (PDF, 4.88MB)

I believed houses in Las Vegas were undervalued. How else can you interpret this chart?

clark_county_median_home_price_1991-2011

Further, I believed when the economy recovered, so would the Las Vegas housing market.

Las Vegas median home prices 1988-2011 projected to 2022

Due to government and lender manipulations of the housing market, the recovery happened ahead of schedule. (See: Las Vegas: a case study in successful housing market manipulation) However, I never doubted it would happen. I believed in it so strongly that I convinced my retired parents to purchase 8 homes in Las Vegas, and in the process, I secured my son’s inheritance — a success I consider one of the biggest of my life.

new_real_estate_religionContrarian investing

Contrarian investing requires two things:

  1. A simple yet solid financial analysis you can believe in.
  2. Faith in your analysis that carries you through when everyone tells you you’re crazy.

If either aspect is missing, the results can be disastrous. For example, gold bugs have complete faith in their investment, but they lack a simple yet solid financial analysis that warrants that faith. Further, I wasn’t the only one who noticed house prices were low and cashflow investment penciled out, but many of those who made the proper analysis lacked the faith in their analysis that provides the courage to act. Those investors missed their opportunity.

My analysis is simple enough that I was able to code this analysis into the MLS listing displayed on this site. Every property in the counties of Orange, Los Angeles, Riverside, and San Bernardino are analyzed here using the same methods. While cashflow properties aren’t as abundant as they once were, deals can still be found.

Sin City sees high-rolling home prices again

Diana Olick, Thursday, 8 Oct 2015

Strong demand and tight supply has one of the nation’s hardest hit housing markets of the recession getting back on its feet again. Las Vegas home sales surged 14 percent in September from a year ago …

The median price of a home sold in September was $220,000, up 8.6 percent from one year ago, according to GLVAR. Condominium prices were up about 5 percent. …

The Las Vegas housing market is improving, but it is still has a ways to go.

House prices are still 30% below the peak in Las Vegas, which means cloud inventory restrictions will keep listings off the market for many more years there. Personally, I probably won’t cash out of these investments as I plan to rely on this cashflow for my retirement and my son’s lifetime of income, but as some point my investors will want out — perhaps about 30% from now.

I love Las Vegas!

selling-las-vegas-how-macau-gamblers-are-lured-to-sin-city

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