HOA Fees can Kill Your Yield

If you are looking at purchasing in a gated community, or guard gated community then you should carefully examine the rule of the Home Owners Association, and the fees it charges. These are defined in the Covenants, Conditions & Restrictions (CC&Rs). For example, the Lake Las Vegas HOA fees are some of the most expensive around at approximately $1 per square foot of your home’s area. Your get immaculately landscaped grounds for this, but on the other hand it puts downward pressure on net rental yield if you are purchasing as an investment.

Another thing to watch out for is any HOA fees that are outstanding at the time of purchase, particularly if you are venturing into the Las Vegas foreclosure market. Not only do you need to look out for the fees themselves, but also the charges from the agencies that collect delinquent payments. With no cap on these collection charges they can accumulate to a significant percentage of acquisition cost on low value properties – i.e. they can be a yield killer for the foreclosure investor.

On 24th March 2010 a home owner regulatory commission approved the first draft of rules that limit the amount of fees that collection agencies can charge for chasing delinquent payments. The Nevada Commission for Common-Interest Communities is made up of seven members, and they voted to set the limit as $1,950 as the amount that collection agencies can charge homeowners for collecting fees. The limit of $1,950 was suggested by Red Rock Financial Services, a collection agency, and accepted by the commission. The regulation also defined limits on specific services such as $400 for default notices, and $150 for demand letters.

If the regulation is eventually passed then it will not include the HOA fees that are due, late fees, or interest payments. Beyond the amounts due you should also look into the contents of the Covenants, Conditions & Restrictions and their implications. They include the policies that HOA Boards adhere to, such as the collections policy. Following on from these policies are the procedures that are used to enforce them. Once of the most important procedures to investigate is assessment collection. The rules and regulations of the CC&Rs are often geared towards uniformity of properties, and control of pets and parking. Finally, the HOA Board will make resolutions, which are a way to introduce any new policies, procedures, rules and regulations. If you are investigating a community such as the Lake Las Vegas HOA, that is showing some signs of stress, then it is worth asking about any resolutions that are currently tabled for possible inclusion in the CC&Rs.

Homes for Sale in Henderson

When you look for homes for sale in Henderson today it is difficult to imagine that in the 1940s this was an industrial, polluted town. However, it has thrown off its grimy past and grown to a population of nearly a quarter of a million, some of whom live in Nevada’s most attractive neighborhoods: Lake Las Vegas, Seven Hills, MacDonald Ranch, Anthem, and Green Valley. Residents do not need to travel to the strip for casinos as there is the Green Valley Ranch Station and Sunset Station. When it comes to shopping the Galleria at Sunset is on a par with any major mall in the country.

Henderson started out a lot smaller that it is today, and it has grown from 13 square miles to 105 square miles. This growth has not been at the expense of the environment, and there are extensive green parks throughout the area. It all started back in 1910 when James Miller became the first person to live in the area when he homesteaded Jericho Ranch. By the 1920s the ranch was subdivided into Jericho Heights, and it later grew to become a community known as Midway City.  A temporary boost in Henderson’s development came with the 1931 building of the Hoover Dam. Constructions workers who could not afford Boulder City settled in Midway, however, as soon as the dam was completed in 1936 they left a ghost town behind them.

Midway City is what we know today as the Pittman area, and it was the first area to be settled. The second area, known as the Basic Townsite, was on a much larger scale. Magnesium was a very important metal in the manufacture of military equipment and in 1941 Basic Magnesium Incorporated (BMI) opened a factory at Basic Townsite. The construction of homes soon followed in the area that has since become downtown Henderson (the temporary housing that was built to house the workers in the early BMI days went to be used as low income housing into the 1970s). Charles B. Henderson, an Elko senator, was instrumental in providing a loan to BMI, and the town took his name.

With the end of the war, the demand for magnesium dropped out, and Henderson’s population shrank in the same way that it had after the completion of the Hoover Dam. The BMI plant shut, and, along with Basic Townsite, was eventually purchased by the state in 1948. With half of Henderson’s homes empty and a closed factory on the state’s books, something had to be done. Another war was around the corner, and with the start of the Korean War magnesium came back into demand. This meant the reopening on the old BMI factory, and in 1952 it was sold by the state along with the Townsite. With an instant increase in the number of private houses, Henderson incorporated as a city in 1953.

Henderson’s expansion came via acquisitions of land from the Bureau of Land Management, and most of the homes for sale in Henderson today are on what was previously BLM land. As the city acquired land from BLM it would sell it onto developers, and as the BMI plant grew so did the surrounding area. From 1960 to 1970 the population doubled to just under 24,000 and throughout the 1970s the city continued its expansion. This growth was led by industrial facilities such as the Levis Strauss warehouse that opened in 1978. As a result the city was functional rather than pretty, and it suffered from the effects of pollution. All this changed in the 1980s, when Henderson underwent an amazing transformation.

One of Las Vegas’s most prominent figures, Hank Greenspun, started the master-planned community of Green Valley, and this set the standard for all future developments thereafter. Greenspun assembled 3,500 acres over a 20 year period and then increased that holding when the city of Henderson sold him 4,720 acres. At the same time the 3,500 acres now officially became part of Henderson. The development did not get off to a flying start though as the first Green Valley developer built twenty houses, and then promptly went bust. Things picked up when Pardee Homes came in, and built 500 homes on 100 acres it acquired in 1977. Pardee was followed by the Collins Brothers, US Home, and Metropolitan Homes. The most significant development was the Green Valley Athletic Club in 1988, which added some much needed facilities. High end developments such as the Fountains and Ridges followed and Green Valley started to shape up as a rich master-planned community. Many people looking for homes for sale in Henderson restrict themselves to Green Valley, but other developments such as Seven Hills and Anthem, took the lessons of Green Valley and provide their own unique twist on living in Henderson.

Nevada State Budget

Legislators finally filled the $887 million Nevada state budget shortfall today, but this is just a temporary measure to see the state through to 2011. What needs to be addressed before 2011 rolls around is the fact that taxes either need to be raised on gaming on mining, or tax revenue sources are going to have to be diversified.

Given the state of the casino industry, which is in the throes of major financial restructuring, it seems any increases in the sector could be counter-productive. The mining industry is likely to resist pressure to take on a disproportionate burden, and the other major contributor of sales tax will only start picking up once the broader economy does.

In short Nevada needs to broaden its tax base or face a financial crisis.  Without changing the tax structure future deficits are likely to exceed $887 million, and further budget cuts could lead to serious social issues. One of the simplest solutions would be the introduction of corporate taxes on all businesses, but this would not go down well with the businesses that located in the state because of its tax-advantaged status.

One way to look at the situation is to say that Nevada does not have a problem, it is the rest of the economy that does. However, until the broader economy picks up, and the tourist dollars start flowing back in, the casinos will struggle, and the state needs to diversify its tax base. How successfully it does this could have a long-term impact on property values. Developments like Lake Las Vegas are already fragile, so the politicians must make changes in the Nevada state budget that boost rather than depress the real estate market.

Lake Las Vegas Real Estate

Lake Las Vegas is a 3,600 acre master-planned community set around a 320 acre man-made lake. The development is located 20 miles from the Strip and of 9,000 planned homes, 1,700 units are currently built. If you are considering purchasing Lake Las Vegas real estate, then it is important to look behind the headlines of crisis and bankruptcy, and make an informed decision.

The development has always been heavily dependant on second home owners, and the luxury of a second home has been one of the first things to go during the recession. This, along with the fact that the development has always been high-end, has seen it being particularly hard hit.

The history of Lake Las Vegas is one of turmoil that continues to this day. Back in 1966 J. Carlton Adair bought the land, but went bankrupt in 1972. He was followed the Pacific Malibu Corporation, who failed to get things going and sold the land to Transcontinental Corporation. It was Transcontinental owner Ron Boedekker whose imagination is credited with the Lake Como-themed concept, and it really is like nothing else in Las Vegas. It is on a far larger scale than the Venetian or Caesars, and more tasteful. When you are looking out over the lake it is easy to forget the legal and financial wrangling going on behind the scenes.

Before we discuss the current situation it is worth highlighting some of the key points in Lake Las Vegas’s development:

1966

2,243 acres of land was acquired by the actor J. Carlton Adair. In addition to the land he acquired water rights for a lake.

1972
The Lake Adair Corporation filed for bankruptcy, and auction the land in parcels.

1982
Pacific Malibu Corporation, a company out of Pasadena, acquired the land.

1990
Transcontinental Corporation, a company out of Santa Monica, acquires the land from Pacific Malibu Corporation.

1991
The land parcel formally becomes known as Lake Las Vegas and a resort with six hotels, five golf courses, and 3,000 homes is proposed. At the time the estimated cost of the development is $3.8bn.

1993
The first residential lots are sold.

1995
The first nine holes of SouthShore golf club are opened.

1996
The back nine holes of SouthShore golf club are opened.

1999
The first of the hotels, the 493-room Hyatt Regency Lake Las Vegas, opens.

2002
Celine Dion builds a home at Lake Las Vegas.

2003

  • The second hotel, the Ritz-Carlton Lake Las Vegas opened;
  • Montellago Village Resort opened;
  • Casino Montelago opened by an Alaskan Indian tribe. Cook Inlet Region Inc. was the landlord, and CIRI Lakeside Gaming Investors LLC was the operator. Cook Inlet Region Inc. owned stakes in the Ritz-Carlton Lake Las Vegas, Hyatt Regency Lake Las Vegas and CIRI Lakeside Gaming Investors LLC.

2005
A concert featuring Andrea Bocello was held, and broadcast nationwide.

2006

  • Lowes Corporation acquires the Hyatt Regency Lake Las Vegas and it is renamed Lowes Lake Las Vegas;
  • Cook Inlet Region Inc. sold its stakes in the Ritz-Carlton Lake Las Vegas, Hyatt Regency Lake Las Vegas and CIRI Lakeside Gaming Investors LLC.

2007
Nevada casino regulators hold an emergency hearing to keep Casino Montelago open. Cook Inlet Region Inc. sold CIRI Lakeside Gaming Investors LLC to a group of private investors, including Johan Finley, in September 2007.

2008

  • January: Transcontinental Corporation defaults on $540 million in loans and Lake Las Vegas is acquired by the Atalon Group;
  • April: Village Hotel Investors LLC, owners of the Ritz-Carlton Lake Las Vegas file for Chapter 11 bankruptcy as it was unable to service its $103 million mortgage;
  • July: The Atalon Group subsidiary, LLV Holdco LLC, files for Chapter 11 bankruptcy protection with $700 million in liabilities.

2009

  • January: the Falls golf course shuts down;
  • February:  Deutsche Bank, via its Village Hospitality LLC entity, acquires Ritz-Carlton Lake Las Vegas;
  • June: Reflection Bay golf course shuts down;
  • June: Wells Fargo takes ownership of Lowes Lake Las Vegas.

2010

  • 249-room Ritz-Carlton Lake Las Vegas announces that it will close May 2nd;
  • Casino Montelago announces that it will close in March 14th.