Investing in Residential Real Estate is a great way to build your personal net worth. Investing wisely can help you fund your retirement. But how do you know it's the right time to invest? You can start by looking at whether the market you're buying into is in an "up cycle" or a "down cycle". As this article discusses, that is something you should also keep in mind after you buy. Watching the market cycles is a good step to take when protecting your assets.

1. Is it Time to Invest in Residential Real Estate?
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National headlines have switched from “Foreclosures” and “Short Sales” to “Rising Home Prices”. Las
Vegas was one of the hardest hit with the housing crisis, but even here
prices are up. Rising prices make some investors wonder if they have
missed the boat. Even traditional home buyers wonder if prices will go
down. They ask,
Is it still a good time to buy a home?”
National home prices have been rising for over a year. Most experts
feel the bottom of the market is behind us. The lowest median price
for a home in Las Vegas was $118K in January 2012. In July 2014 it
reached $200K. Still below the June 2006 high of $315K. Many home
owners have asked if the homes they bought at the peak will ever be
worth what they paid. We experienced a smaller market collapse in
early 1990s Southern California. By 2001, home values had returned.
Based on that experience, we believe prices will hit their peak levels
again. It’s only a question of when.
Where is the Housing Market Headed?
Markets do follow cycles. I asked William Holden, CCIM and Broker/Owner of Holden Sotheby’s Realty
how he spots where we are in the Real Estate Cycle. His technique is one that is useful to analyze any
market. He looks at four simple factors to determine if it’s an “Up Cycle” or a “Down Cycle“.
Up Cycle
Interest Rates are Low
Lenders are Lending
Demand is High
Supply is Low
Down Cycle
Interest Rates are High
Money is “tight” and lenders are not lending
Demand is low
Supply is high

2. If you apply this criteria to the current Las Vegas market, we are in the beginning phase of an up cycle.
Interest rates are still at historical low levels. Prices are higher than 2011 but bargains compared to the
peak. Lenders use stricter guidelines than pre-boom days but they are making loans. High demand and
low supply should continue to apply upward pressure on prices.
What cycle is your market in? Your local real estate expert can help you answer this question. They’ll
show you whether it’s an “Up Cycle” or “Down Cycle”. Housing is local. The market in one area may be in
a different cycle than the National market.
Example – Las Vegas is seeing the traits used to identify an “Up Cycle” but that isn’t true everywhere. In
Florida, Joe Manausa recently warned, “Florida Real Estate Investments for Big Boys Only”. His market
is influenced by investors who depend on college students for tenants. UNLV supplies Las Vegas with
similar tenants but the college students are a much smaller part of the rental market in Las Vegas.
Research Local Economic Indicators

3. Start with the un-employment rate. National un-employment has been high over recent years. It’s
beginning to decline in most areas. What’s the trend in your area?
Read the local business press. Do you hear about new shopping malls opening? Are new companies
moving into town? If the town is dependent on one major industry, you want to make sure that industry has
a bright outlook. Billy Joel’s ballad to “Allentown” comes to mind.
Example – We’re seeing positives in Las Vegas that should benefit home prices. The SLS Casino re-opened.
Construction is well underway on the new 20,000 seat UFC Arena next to the Monte Carlo Hotel.
MGM announced plans for City of Rock – Las Vegas on the corner of Sahara and the Strip. The venue
will accommodate up to 80,000 for outdoor music festivals. It opens in May 2015. The Genting Group is
building an Asian themed Casino on the old Stardust site. It opens in 2016 Crown Resorts purchased the
parcel of land where the New Frontier was imploded. It is expected they will replace it with a new resort.
As Wells Fargo reports, the Casinos aren’t the only Las Vegas industry that’s growing. Un-employment
among construction workers is declining. UNLV is opening a 4 year medical school and a drone program.
Zappos has re-located their headquarters to DowntownLV. New restaurants, stores and businesses are
starting up and creating a thriving urban core in an area that was blighted. Suburbs are growing. Growth
continues in Summerlin with the opening of Downtown Summerlin Mall in October.
New home communities are under construction around the valley. They include a new master planned
community, Cadence in Henderson. Prices have appreciated more than 30% from the bottom of the
market. The rate of appreciation is slowing from the 30% high. We should end the year in the high single
digits/low double digits.
Southern Nevada Home Builder’s Association reports that builders don’t expect a “break out” year for
home sales until 2016. That supports our opinion that Las Vegas is in the beginning of an “Up Cycle”.
What are the indicators in your market? Are new businesses moving in? Have new home builders
returned to work? Those are all good questions to consider when buying.
The Market is Good for Investing – Are You in a Position to Invest?
The market may be at the right point in the cycle for investing but that doesn’t mean you are. This
depends on your finances and what you plan to do with the property.
Is this a property you plan to rehab and flip? Do you plan to turn it into
a residential rental? Are you buying your retirement home a few years
before retirement?
All these scenarios can be worthwhile investments. Similar to buying
stocks, the investments only make sense if you are in a position to hold
the investment until it can be sold at a profit. Or in the case of a
retirement home, if you can afford to carry it until retirement. The big
difference between investing in real estate and investing in stocks and
bonds is liquidity.
If you are in a position to invest with a long term goal in mind, real
estate may be a better opportunity than the stock market. An excellent
article that compares the two is “Is it Better to Invest in Real Estate or
The Stock Market?” by Mark Ferguson.
Don’t Put Your Investment on Auto-Pilot

4. Don’t stop following local trends after you’ve made your investment. Keep an eye on whether it’s an “ Up
Cycle” or a “Down Cycle“. Stock advisers will caution that you never know it’s a recession until after it
happens. That isn’t true with real estate investments.
In real estate, there can be warning signs. Loose credit was a key indicator that our latest cycle was
about to crash. Investors bought multiple properties with little if any money down. Lending standards had
been so lax it seemed “anyone who could fog a mirror could get a mortgage.”
Low demand and too much supply is another warning sign . In real estate we look at the “absorption
rate”. Find out how many homes are for sale without accepted offers. Find out how many homes are
selling each month. Divide the number of homes for sale by the number sold each month. This tells you
how many months it would take to sell current listings if no new homes came on the market . Less than 6
months, you’re in a seller’s market. More than 6, you’re entering a buyer’s market.
If you see those signs in combination, you should think about liquidating or planning for a long hold period.
If it’s time to sell, remember a 1031 Exchange Can Defer Taxes. Smart real estate investments can be
the best vehicle to grow your personal wealth.
Reading Material for Investors -
Jacob Grant Property Management recently asked 26 Real Estate Experts to list “ Three Common First
Time Investor Mistakes”. This is a must read article.
“Is it Better to Invest in Real Estate or The Stock Market?” by Mark Ferguson looks at the advantages of
investing in real estate to grow wealth and fund your retirement.
“Real Estate Investing Advice That Should Be Obvious ” by Seth Williams. This is an excellent read for the
beginner and a nice refresher for the seasoned investor.
“4 Real Estate Investment Tips” from Rob Thompson. Some great basics.
Debbie Drummond has over ten years experience in the Las Vegas Real Estate Market. She specializes in
luxury homes and high rise properties. If you’re buying or selling a Las Vegas home, call (702)354-6900 or
email Debbie@LVHomePro.com. We’ll be happy to assist you in your move.