A City for Rent

Owner-occupied homes are becoming the exception instead of the rule. Is it “there goes” or “here comes” the neighborhood?

It’s quiet here, as it probably was on most mornings, even during the real estate boom.

This is South Pointe, a Henderson subdivision near the intersection of Wigwam and Green Valley parkways built in the 1990s. But, like many other quiet places in the Las Vegas Valley these days, the peace can make you nervous. Is this a good quiet or a bad quiet? One in which real estate signs swinging on a gusty day and the occasional car zooming by whisper “vacancy”? Or is this just a nice neighborhood with a few landscape blemishes as a result of the foreclosure crisis?

On this sunny morning, Susan Schyman is eyeballing some tile for a 1,700-square-foot home she just purchased here. The house she bought only a couple weeks ago on Feather Bush Street will fetch about $1,350 or $1,400 a month in rent, and she hopes it’ll be occupied within a couple weeks. It’s the seventh home Schyman, a veteran real estate broker, has purchased in the last few years, all in roughly the same area. She lives in a nearby subdivision and manages the properties herself.

“I’ve had someone walk away from their home on the same street and come and rent mine,” she says. She’s not afraid that too much rental activity will drag down the area’s value, which she says is in a good location with good schools.

“I live in the area. I walk the neighborhoods and drive through them before I buy,” she says. The 20-plus year Valley real estate industry veteran seeks out bank-owned homes in particular, up to $140,000, and has foregone short sale listings, which can takes months to close, if they do at all. “If I sit [in escrow with a short sales], I can miss another one.”

Down the street on Feather Bush, another home with a “for rent” sign out front is the area’s noisy neighbor this morning. A carpet cleaning company is putting the finishing touches on the home that was recently purchased by St. Rose Siena emergency medicine physician, Dr. John McGarry. This is McGarry’s first purchase as a real estate investor, and he put $7,000 in upgrades into the once bank-owned property.

“I’ve had my money in stocks, CDs, but really nothing else gives as good of a return,” he says. “I figure I’ll get the first one and see how that goes.”

Behind this kind of activity in quiet neighborhoods all over the Valley are numbers that point to the fact that Las Vegas’ oversupplied housing stock, once geared toward proud owner occupants, is transitioning to spaces slotted for temporary use.

Property tax counts extracted from the Clark County Assessor’s website and monitored by Applied Analysis, a local economic research firm, indicate that of the 477,676 single-family homes in the Valley, 39.3 percent are subjected to the 8 percent tax cap. These are homes that one can assume to be investor-owned as they are not considered owner-occupied residences by the county; those are subject to a 3 percent cap.

Brian Gordon, an Applied Analysis principal, says there are probably some discrepancies in the numbers because some people may not fill out the paperwork properly and get labeled with the 8 percent cap, while others perhaps bought better priced homes and are renting their old homes, both of which may be seeing a 3 percent tax rate. Nonetheless, a figure indicating that nearly 40 percent of the area’s single-family homes could be investment properties is a strong statement about the market.

And rental demand is strong in Las Vegas. Rentals.com reported a 14 percent increase in its Las Vegas website traffic from early 2010 to the early 2011. On any given day, the MLS has some 5,000 rental listings, and the stories of those losing their homes to foreclosure and becoming renters abound.

Rick Shelton, a broker with Better Homes and Garden Real Estate and former president of the Greater Las Vegas Association of Realtors, says the property management arm of his company fills new rentals quickly.

“The homeowners coming out of the foreclosure market are our new rental market,” he says. “If I pick up 10 rental listings in a month, I’ll fill eight to 10 of those properties that month.”

Gordon points to the GLVAR’s statistics indicating that cash buyers have made up at least 40 percent of the single-family home purchases for more than two years. In January, the GLVAR reported that cash buyers eclipsed the 50 percent mark for the first time. Shelton says the figure should stay in that range for the next couple of years. He estimates about 80 percent of cash buyers are investors looking to return the property to the market as a sale or rental, most likely the latter.

It’s tough to measure the true impact of a shift from homeownership to renting. For years, homebuyers worried which side of that 50 percent renters versus owners mark a neighborhood was on before they bought. But today, Las Vegans seem to be shedding that concern.

“It’s definitely a transitional mentality. Five years ago all the opinion was to push homeownership, not rentals,” Shelton says.

Jim Sholeff, who owns a medical billing company in town and a home in the northwest Valley, has seen his share of transiency in his neighborhood. Like many of us, he can’t tell if a home on his street is vacant or not. But as someone who purchased his home before the real estate boom and is now living among vacant properties, he says renters are a welcome sight.

“The worst people in our neighborhood are the owners that are upside down on their houses and you know they’re just letting things go,” he says. “If someone buys a house with cash, that’s a real asset. They’re going to want to take care of it.”

Nasser Daneshvary, director of the Lied Institute for Real Estate Studies at UNLV, says vacant homes muddling through the foreclosure process are the real problem when it comes to neighborhood preservation.

“I think that neighborhood longevity and stability are more compromised by this scenario than by the alternative of a growing rental community,” he says.

With the growing number of renters in the market, and the increasing openness that comes with so many people dealing with job losses and foreclosure, some say the door may be open now for community building, no matter whether a subdivision is primarily owner-occupied or not.

“I think in Las Vegas, as it was moving toward the peak of the economic expansion, what I kept hearing was the extent to which people kept their heads down and didn’t want to engage,” says Rich Harwood, head of Maryland-based Harwood Institute for Public Innovation, a nonprofit group that studies community-building efforts around the nation. “They didn’t want to know their neighbors and people were often saying it bothered them, but they still didn’t do anything about it.” The civic engagement leader’s most recent Las Vegas visit, last summer, showed a very different sentiment among local business leaders and the general public.

“It’s that old [Albert Collins] song ‘The lights are on, but nobody’s home,’” he says. “But today it’s, ‘I wonder whether the lights are on and I wonder who is home and I probably need to get to know them at some level.’”

Harwood says the nation as a whole is rethinking homeownership and who should have a fair shot at it. Whether someone owns or rents the home where they choose to live may be less of a factor in their ability to build strong long-term bonds in their community.

In other words, many people are happily blowing off the American Dream they really couldn’t afford in the first place, and it may be the best thing that ever happened to them, he says.

“There’s something liberating when you can finally let go of feeling trapped by a fantasy,” he says.