Looking for investment real estate in northern Nevada? Be prepared to move fast, be prepared to pay a price that will cut into your return and, most of all, be prepared to be elbowed by any number of potential buyers who have exactly the same thought.
"Whether it's a duplex or a 200-unit apartment complex, there are buyers lined up," said Todd Blonsley of the Reno office of Marcus & Millichap, a commercial real estate company.
In fact, Blonsley said, it's not uncommon for brokers to maintain a list of potential buyers ready to move in if an existing deal falls apart in escrow.
The exceptionally tight market results largely from unusually high demand.
"We have lots of money chasing very few deals," said Dewey Struble, a vice president at Colliers International in Reno.
And in large measure, the cash chasing the rare deals in investment real estate in northern Nevada is money that's flowing out of other investments.
The implosion of the stock market sent many investors looking for safe havens ones which combined cash returns with protection of principal and low interest rates on savings further fueled the trend.
"Cash isn't worth anything any more," said Magi Bird, president and broker of Remcor Real Estate in Reno.
"We have a ton of capital that is looking for a happy home."
Much of that capital is coming from California.
Blonsley said his firm has calculated that about three-quarters of the investment property in the Reno area is owned by California interests.
Investors from the Golden State may be concerned about state taxes and political instability, but Blonsley said a bigger factor is California investors' belief that they can get better returns on real estate in northern Nevada.
But Bird noted that the hot local market isn't entirely the result of California capital.
"There is a bundle of local money out there, too," she said.
Her company, along First American Title, runs a series of seminars for newcomers to real estate investing, and demand for the 60 seats has been strong for the series that begins this week.
Residential properties ranging from single-family homes to big apartment complexes top the wish list for many investors in northern Nevada real estate.
The fundamentals of that market have held up well, Struble said.
Population growth has kept apartment units filled even as low mortgage interest rates allow other tenants to buy their own homes and move out.
Higher purchase prices for complexes have been offset by rent increases.
"They are in super-high demand," Struble said.
"Nobody even bothers to list apartments."
Many of those properties have a buyer in place within three to 10 days of hitting the market.
Retail properties also present good fundamentals, Struble said, while industrial real estate has been somewhat weaker because of slow demand.
As demand for investment properties has skyrocketed, the supply has declined.
Owners of property look around and don't see anyplace they could invest the proceeds if they decided to sell.
Instead, they hold on.
"The people who have always bought real estate are competing with the people who never have bought real estate," said Blonsley.
Limited supplies and hot demand combine to push prices upward.
Bird cited one example, a small investment property appraised at $216,000 six months ago sold a few days ago for $230,000.
And investors are forced to take lower returns as prices rise.
The cap rate on some investment properties a figure that's calculated as the net income generated by a property divided by its purchase price has dipped below 8 percent on some recent transactions.
That's down from 8.5 to 10 percent on most transactions as recently as late 2002.
More pressure on prices comes from the popularity of so-called "1031 exchanges." In those transactions, sellers can sharply reduce the tax liability on a sale of real estate by swapping it for a similar property.
The seller who uses the exchange mechanism must identify three properties that he's interested in buying within 45 days of starting the process, and he needs to close on at least one of them within 180 days.
That means, Struble said, that a buyer facing a 1031 exchange deadline may be willing to pay an above-market price for investment property.
That's less expensive in some instances than paying capital gains taxes or recaptured depreciation on a missed deadline.
