vpFREE2 Forums

Palms tower of babble: a good investment?? (XVP)

#1

  
I paid my deposit back in November of last year. First shot was

given to the

Maloofs, their friends and family, certain sports professionals

(the

Sacramento Kings?), and selected casino VIPs. The last,

apparently, would be me!

Guess you're not as Exalted as you believe (what a shock!).

"Boy, some people are irony-proof, aren't they? Obviously my intent
was to convey that the "advance status" supposedly conferred by my
Club Palms membership was nothing special, given that (as you say)
the true inner circle had the real first crack at the prime units."

···

_Rockofjello333@yahoo.com_ (mailto:Rockofjello…@…com) wrote:
— In vpFREE@yahoogroups.com, bjaygold@a… wrote:

---------------------------------------------------------

Oops, sorry, forgot the smiley! I "got" your sarcasm. Couldn't resist the
"dig"... :slight_smile:

==============================

"If these units are worth buying (and my previous post indicates that
I don't think they are), then having any kind of preferred selection
WOULD be worth something, given that only half the units (or
thereabouts) will have a fabulous view of the fabulous Strip in
fabulous Las Vegas. Others will have an excellent vista of the
Chinese restaurants on Spring Mountain Blvd."

-------------------------------------------------------------

I chose a one-bedroom unit with a view of the Strip, on the northeast corner
of the building. Please note that units with a Strip view were priced higher
than those with a western view. Also, the higher the floor, the more
expensive the unit.

================================

"Did they say what percentage or amount discount you would be getting
vis-a-vis the public offering price? I would think that if it was
significant, then anyone interested would have simply joined the
slot club to get in the "advance" group...."

----------------------------------------------------------------

Only the first group (the "inner circle" you mentioned) were offered the
discount of 6%, not the second tier as far as I know. Whether this discount is
"significant" is a matter of opinion.
In the case of the unit I picked, it amounted to $50K!

=================================

"Will you also receive interest on your down payment between its
posting and closing of escrow?
Will Maloof (Palms, Inc./whomever) warranty the completion of the
units by a certain date? Do the depositors have any remedies if the
project is not completed on time?
Will you be able to treat your condo as real property, specifically,
do you have to use it as YOUR residence, can you lease or rent it
out, etc,?"

---------------------------------------------------------------------

Probably no interest on the down, but not sure until I'm called in and told
it is due. I'll have lots of questions at that time. Was promised to be
given approx. 30 days to come up with it, will get my deposit+interest back if I
can't/won't.

No guarantee on completion date, but stands to reason that the Maloofs will
accomplish this as quickly as possible. They have no financial (or other)
reason I can see to delay. Most of the profit will be at time of closing, so why
delay? Opinions are encouraged!

The condos are real property. You can live in them, sell them, lease them,
rent them. You will also be able to assign them for use as Palms' hotel rooms,
with compensation to you--an interesting option that might make some/all of
the monthly payments! Details not yet available, it's near the top of my list
of questions.

===================================

"Since the project will be financed by cash flow, what would happen
if some unforeseen event (like 9/11/05) cut that cash flow? It would
seem to me that the Palms will be severely illiquid in any case, and
might very well be overextended if something happens to even
temporarily stem the rising tide of Vegas visitation. Don't forget
that at the same time, they will be building a new hotel tower as
well."

------------------------------------------------------------------------

Anything is possible. The new hotel tower should be completed by the
beginning of next year. There will be little, if any, overlap of the two projects.
The future site of the condo tower (just off of Arville, west of the western
parking garage) is currently being used as a temporary dumping ground for
dirt, and a storage/repair facility for construction equipment--the equipment
being used to build the new hotel tower. The construction company also maintains
a temporary office there. Digging the foundation for the condo tower won't
be possible until the hotel tower is complete, or nearly so, and the condo
site is cleared.

=====================================

"Is Maloof prepared to release financials to those investors (for
that's what they are) who commit to buying a condo?"

---------------------------------------------------------------------------

Don't know. I will ask when called in to make the down. In any case, funds
held in escrow are safe, as far as I know. And the Palms is making money
beyond all expectations, according to everyone I've talked to.

======================================

"But you want to know the absolute KILLER? The HOA dues!! At several
properties, for condos in the $500K selling price range, the HOA
fees ranged from a low of $728/mo (!) to a high of $1745/mo (!!)"

----------------------------------------------------------------------------

This is an excellent point. Another question to be asked at the time the
down payment is due (I have a long list). Both the amount, and a guarantee that
it won't be raised for X months/years, and when it is, to be limited to an
increase of Y%/year.

=====================================

"And you can't go by the apparent success of the existing
Palms property--how many large, seemingly robust companies have
imploded in the space of a week, with no warning and depriving
everyone but the lawyers of all of their investments?"

------------------------------------------------------------------------------
-----

While technically true, in this case I'm not worried. As I indicated, funds
held in escrow are safe (someone please correct me if I'm wrong). And it's the
success of the Palms property that makes these condos so desirable! If that
were not the case, you could just go around the corner to Twain and Arville,
and buy a similarly sized condo for 1/5 the price! The fact is, anything
associated with the Palms (and the Hard Rock) becomes inherently much more
valuable by the association! And if nothing else, George Maloof, et al, know how to
market themselves and their properties!

=========================================

"Obviously you won't consider me "QUALIFIED real estate folks", but I
do know a lot (more than I care to) about the LV real estate market.
Getting into the LV market now is like learning to count cards in
2003, or reading "The Frugal Gambler" and hitting the machines in
2004. The train has left the station s long time ago IMHO. Your
mileage may vary."

------------------------------------------------------------------------------
-------

You almost certainly know more than I do about real estate. My only
"advantage" was in being among the first to be offered these condos, plus knowing
personally several people in the Palms' "upper management." Latest word is that
about 3/4 of the condos are already spoken for (read that as, a deposit is in
the hands of the title company). If the balance sell out in the next month
or two, it might become a sellers' market--I hope! If not, I can always get my
deposit back. Or maybe I will just buy it for myself. Won't much need a car,
think of the savings! :-))

Lots of food for thought here. A cynical approach can be a good thing when
it comes to investing one's hard-earned money! Thanks!

Brian

[Non-text portions of this message have been removed]

#2

The real estate market is in a constant state of flux and it's nearly impossible to predict the way things will go. I sold a house in Las Vegas this past week. I owned it for 5 years and got over a 100% return on my money. My realtor showed me an article from the Review Journal stating that Las Vegas real estate was at a top and that nobody should buy anything. The article was from two years ago. Anyone that followed that advice would have to be pissed about now.

I very nearly bought a condo at Turnberry. My wife and I were in the parking lot with our checkbook in hand and at the last minute before we walked in, she got cold feet and we didn't buy. The unit we were planning to get at that time has more than doubled in value. The monthly fees would have been $1100 a month. That's a steep monthly payment, but considering we could have made over $800k in 4 years it would be in the noise.

The market for a luxury Las Vegas condo is certainly different today than it was 4 years ago, but I had a lot of people tell me at that time what a lousy investment it was. You can always find people to talk you into or out of any investment.

#3

Lots of food for thought here. A cynical approach can be a good

thing when

it comes to investing one's hard-earned money! Thanks!

Brian

Well, certainly I hope it works out for you; you're on the verge of
making a move that I came very close to making myself last year, on
a similar property. The concerns I voiced about the fragility of a
boom market were what stopped me.

My cynical approach to investing is due to battle damage suffered in
the recent past. In fact, in a rather spectacular display of what
NOT to do, I bought $5,000 of Enron stock FOUR DAYS before the
scandal hit the front pages, solely on the advice of a local
investment broker. Fortunately, after selling the stock at a huge
loss, I had just enough money left to have the guy whacked.

It has always seemed to me, in ANY kind of investment, from the
stock market to real estate to Beanie Babies, there's a whole bunch
of information that we (the unsuspecting public) simply AREN'T BEING
TOLD. And if we make money anyway, it's because we are following
after, and licking up the spilled crumbs from, the guys WITH
information who are making a KILLING. (And then we have to puke up
1/4 of what we made to the IRS!)

···

--- In vpFREE@yahoogroups.com, bjaygold@a... wrote:

#4

The real estate market is in a constant state of flux and it's

nearly impossible to predict the way things will go. I sold a house
in Las Vegas this past week. I owned it for 5 years and got over a
100% return on my money.

I did the same thing, making 40% in two years, then doing it again
on a larger house. But that was then. My realtor---who certainly
wouldn't have any incentive to dissuade me--told me that the market
has flattened out, and advised me against listing my current house
until this summer, at least.

  My realtor showed me an article from the Review Journal stating
that Las Vegas real estate was at a top and that nobody should buy
anything. The article was from two years ago. Anyone that followed
that advice would have to be pissed about now.

In would have depended on where you bought. Appreciation curves
juxtaposed over a map show that many very upscale areas barely
perfomed at the national average for appreciation in 2003-2004. This
is in contrast to the REAL boom period of 1996-2002.

I very nearly bought a condo at Turnberry. My wife and I were in

the parking lot with our checkbook in hand and at the last minute
before we walked in, she got cold feet and we didn't buy. The unit
we were planning to get at that time has more than doubled in
value. The monthly fees would have been $1100 a month. That's a
steep monthly payment, but considering we could have made over $800k
in 4 years it would be in the noise.

Well, maybe you shouldn't kick yourself all THAT hard. Consider:

You make 800K, but there's a 6% realtor's commission on the ENTIRE
selling price of 1.3 million (I'm presuming you would have bought at
$500K, so you clear 722K
Capital gains tax at the then-prevailing rate of 25% means you clear
$541.5K after taxes (I presume this wouldn't have been your primary
residence so you wouldn't qualify for the exclusion)
You could have invested the $500K (I'm estimating) in a REIT,
corporate bonds, or the market, all of which would have returned 6%
at least (compounded) over 4 years, or 120K plus compounding--call
it 150K. Now we're down to $391K
And the HOAs would have knocked you down another 48x1100, or about
53K, plus the opportunity cost of not investing that money, as
above: call it 60K

So your ACTUAL gain would have been $331K; not exactly peanuts, but
noticeably, only a 40% realization of the actual appreciation
dollar. If you had "only" made $200K on the sale (which is what the
selling price would have been given a "normal" 10% appreciation
curve), you would actually have LOST money.

The market for a luxury Las Vegas condo is certainly different

today than it was 4 years ago, but I had a lot of people tell me at
that time what a lousy investment it was. You can always find
people to talk you into or out of any investment.

The stupid thing is that it will turn out to BE a good investment,
IF, and for the SOLE reason, that everybody THINKS it's a good
investment. The intrinsic value of a little studio condo in a high-
rise is a tiny fraction of what these puppies will actually be
selling for.

···

--- In vpFREE@yahoogroups.com, BC <bcunning@s...> wrote:

#5

--- In vpFREE@yahoogroups.com, "rockofjello333"
<rockofjello333@y...> wrote:

> The real estate market is in a constant state of flux and it's
nearly impossible to predict the way things will go. I sold a

house

in Las Vegas this past week. I owned it for 5 years and got over

a

100% return on my money.

I did the same thing, making 40% in two years, then doing it again
on a larger house. But that was then. My realtor---who certainly
wouldn't have any incentive to dissuade me--told me that the

market

has flattened out, and advised me against listing my current house
until this summer, at least.

  My realtor showed me an article from the Review Journal stating
that Las Vegas real estate was at a top and that nobody should buy
anything. The article was from two years ago. Anyone that

followed

that advice would have to be pissed about now.

In would have depended on where you bought. Appreciation curves
juxtaposed over a map show that many very upscale areas barely
perfomed at the national average for appreciation in 2003-2004.

This

is in contrast to the REAL boom period of 1996-2002.

This is not true. The real boom period for upscale homes was 2003.
I bought one in May of 2003 and in just a few months, It appreciated
40%.

> I very nearly bought a condo at Turnberry. My wife and I were

in

the parking lot with our checkbook in hand and at the last minute
before we walked in, she got cold feet and we didn't buy. The

unit

we were planning to get at that time has more than doubled in
value. The monthly fees would have been $1100 a month. That's a
steep monthly payment, but considering we could have made over

$800k

in 4 years it would be in the noise.
>
Well, maybe you shouldn't kick yourself all THAT hard. Consider:

You make 800K, but there's a 6% realtor's commission on the ENTIRE
selling price of 1.3 million (I'm presuming you would have bought

at

$500K, so you clear 722K
Capital gains tax at the then-prevailing rate of 25% means you

clear

$541.5K after taxes (I presume this wouldn't have been your

primary

residence so you wouldn't qualify for the exclusion)
You could have invested the $500K (I'm estimating) in a REIT,
corporate bonds, or the market, all of which would have returned

6%

at least (compounded) over 4 years, or 120K plus compounding--call
it 150K. Now we're down to $391K
And the HOAs would have knocked you down another 48x1100, or about
53K, plus the opportunity cost of not investing that money, as
above: call it 60K

So your ACTUAL gain would have been $331K; not exactly peanuts,

but

noticeably, only a 40% realization of the actual appreciation
dollar. If you had "only" made $200K on the sale (which is what

the

selling price would have been given a "normal" 10% appreciation
curve), you would actually have LOST money.

> The market for a luxury Las Vegas condo is certainly different
today than it was 4 years ago, but I had a lot of people tell me

at

that time what a lousy investment it was. You can always find
people to talk you into or out of any investment.

The stupid thing is that it will turn out to BE a good investment,
IF, and for the SOLE reason, that everybody THINKS it's a good
investment. The intrinsic value of a little studio condo in a high-
rise is a tiny fraction of what these puppies will actually be
selling for.

You numbers are way off. They are only correct if you bought the
condo for 500k and put 500k down. What if the purchaser put the
customery 20% (100k)down? So if you use 331k as the actual gain,
you are making 331% on your investment. This is called leverage and
no other investment lets you control so much with so little cash.
You also didn't consider the tax savings that there would be between
the time of purchase and sale. If you don't live in the unit, you
can take depreciation, but there will be recapture upon selling.
The interest on the loan is also deductable as is any expenses such
as the asscoiation dues. Of course, you have to pay taxes on the
rent but a unit like this is sure to show a monthly deficit. If it
is an investment unit, you can roll over the money to another
property to deferr the paying of capital gains.

In the past, condos have not appreciated as much as single family
dwellings, not just in Vegas, but nationwide. I wouldn't touch one
of these high priced condos for anything. Too risky. As far as
buying real estate goes for the average Joe, buy a single family
dwelling in the best location that you can afford. You are better
off buying a dump in a good location that a good house in a bad
location. This is providing you can live in the dump but we're
talking best for investment. The best for investments if you got
some extra cash, is lower middle or middle class rental houses or
small apartment houses. Don't buy nice houses that the tenants can
destroy. Put as little down as you can. Better to buy 2 250k
houses than 1 500k house.

···

--- In vpFREE@yahoogroups.com, BC <bcunning@s...> wrote:

#6

I'm very big on luxury condos-several more are online that haven't
been announced.

Drive on I-15 sometime, either LA-LV or LV-LA. Note how many cars have
NV license plates.

Reno is good right now, too, BTW.

#7

You numbers are way off. They are only correct if you bought the
condo for 500k and put 500k down.

I was using an example wherein the condo was already built and
available for immediate occupancy. Don't get too worked up over the
exactitude of the numbers---the point was, that the gross gain of a
sale of real estate overstates the true profit, especially in this
case.

  What if the purchaser put the

customery 20% (100k)down?

Then the balance of the mortgage would be repaid at the eventual
sale, with interest on the balance having been paid at that point.
The numbers don't actually turn out that much differently.

  So if you use 331k as the actual gain,

you are making 331% on your investment. This is called leverage

and no other investment lets you control so much with so little cash.

This is a common illusion that drives the overheated real estate
market. If you put down $100K on a property and borrow $400K, you
are INVESTING, not $100K, but $500K. The concept called "leverage"
is much used and much misunderstood. the ability to borrow money
doesn't get you something for nothing; you have as much equity as
the amount of out-of-pocket cash you initially expend. The profit
over the long term is long term appreciation, MINUS interest ciosts,
MINUS taxes and upkeep, MINUS realtor commissions, MINUS...etc. etc.
etc. The only reason this has worked in Vegas recently is that the
market conditions have been highly unusual, coupled with historical
lows in the cost of financing. It is highly unlikely that these
conditions will persist (or ever be seen again). Using boom-period
tactics after the boom is over is unprofitable at best and dangerous
at worst.

BTW, if someone to whom you owe money doesn't have "leverage" on
you, then I don't know who does.
  

You also didn't consider the tax savings that there would be

between the time of purchase and sale. If you don't live in the
unit, you can take depreciation, but there will be recapture upon
selling.

Real property isn't sublect to the same rules as, say, a piece of
office equipment. When you sell at the inflated price, the property
has APPRECIATED for tax purposes, and you, as you note, will be
deemed to have "recaptured" any depreiation you took up to that
point.

The interest on the loan is also deductable as is any expenses such

as the asscoiation dues. Of course, you have to pay taxes on the
rent but a unit like this is sure to show a monthly deficit. If

it is an investment unit, you can roll over the money to another

property to deferr the paying of capital gains.

Well, if we looked at this as an "investment", then the idea was to
REALIZE the profit, i.e., cash out. This would only be a viable
strategy if you expected the appreciation curve to continue to rise
as steeply, in which case, why bother selling at all?

In the past, condos have not appreciated as much as single family
dwellings, not just in Vegas, but nationwide. I wouldn't touch one
of these high priced condos for anything. Too risky. As far as
buying real estate goes for the average Joe, buy a single family
dwelling in the best location that you can afford. You are better
off buying a dump in a good location that a good house in a bad
location. This is providing you can live in the dump but we're
talking best for investment. The best for investments if you got
some extra cash, is lower middle or middle class rental houses or
small apartment houses. Don't buy nice houses that the tenants can
destroy. Put as little down as you can. Better to buy 2 250k
houses than 1 500k house.

Exactly.

···

--- In vpFREE@yahoogroups.com, "lsbshsd8" <lsbshsd@e...> wrote:

#8

--- In vpFREE@yahoogroups.com, "rockofjello333"
<rockofjello333@y...> wrote:

>
>
>
> You numbers are way off. They are only correct if you bought

the

> condo for 500k and put 500k down.

I was using an example wherein the condo was already built and
available for immediate occupancy. Don't get too worked up over

the

exactitude of the numbers---the point was, that the gross gain of

a

sale of real estate overstates the true profit, especially in this
case.

  What if the purchaser put the
> customery 20% (100k)down?

Then the balance of the mortgage would be repaid at the eventual
sale, with interest on the balance having been paid at that point.
The numbers don't actually turn out that much differently.

  So if you use 331k as the actual gain,
> you are making 331% on your investment. This is called leverage
and no other investment lets you control so much with so little

cash.

This is a common illusion that drives the overheated real estate
market. If you put down $100K on a property and borrow $400K, you
are INVESTING, not $100K, but $500K. The concept called "leverage"
is much used and much misunderstood. the ability to borrow money
doesn't get you something for nothing; you have as much equity as
the amount of out-of-pocket cash you initially expend. The profit
over the long term is long term appreciation, MINUS interest

ciosts,

MINUS taxes and upkeep, MINUS realtor commissions, MINUS...etc.

etc.

etc. The only reason this has worked in Vegas recently is that the
market conditions have been highly unusual, coupled with

historical

lows in the cost of financing. It is highly unlikely that these
conditions will persist (or ever be seen again). Using boom-period
tactics after the boom is over is unprofitable at best and

dangerous

at worst.

This is completely incorrect. You invest what you put out of
pocket, not what you borrow. A simple example: You buy a property
for 100k and put 10k down. Property appreciates 20% and is you sell
it for 120k. (For this example, don't consider other
income/expenses). You didn't make 20% on 'your' money, you tripled
your investment.

When you say 'MINUS taxes and upkeep, MINUS realtor commissions,
MINUS...etc. etc.' you fogot to mention the pluses. Plus tax
savings, plus having a place to live where part of your 'rent'
payment goes towards reduction (abeit small)of principal (the big
savings is in taxes). etc.

True Vegas has been unreal for the past 2-3 years. Having a home
maybe doubling in such a short period of time is highly unusual.
But all you need is a reasonable appreciation level to make money in
real estate.

BTW, if someone to whom you owe money doesn't have "leverage" on
you, then I don't know who does.

This is a different definition of leverage.

> You also didn't consider the tax savings that there would be
between the time of purchase and sale. If you don't live in the
unit, you can take depreciation, but there will be recapture upon
selling.

Real property isn't sublect to the same rules as, say, a piece of
office equipment. When you sell at the inflated price, the

property

has APPRECIATED for tax purposes, and you, as you note, will be
deemed to have "recaptured" any depreiation you took up to that
point.

The interest on the loan is also deductable as is any expenses

such

> as the asscoiation dues. Of course, you have to pay taxes on

the

> rent but a unit like this is sure to show a monthly deficit. If
it is an investment unit, you can roll over the money to another
> property to deferr the paying of capital gains.
>
Well, if we looked at this as an "investment", then the idea was

to

REALIZE the profit, i.e., cash out. This would only be a viable
strategy if you expected the appreciation curve to continue to

rise

as steeply, in which case, why bother selling at all?

> In the past, condos have not appreciated as much as single

family

> dwellings, not just in Vegas, but nationwide. I wouldn't touch

one

> of these high priced condos for anything. Too risky. As far as
> buying real estate goes for the average Joe, buy a single family
> dwelling in the best location that you can afford. You are

better

> off buying a dump in a good location that a good house in a bad
> location. This is providing you can live in the dump but we're
> talking best for investment. The best for investments if you got
> some extra cash, is lower middle or middle class rental houses

or

> small apartment houses. Don't buy nice houses that the tenants

can

···

--- In vpFREE@yahoogroups.com, "lsbshsd8" <lsbshsd@e...> wrote:
> destroy. Put as little down as you can. Better to buy 2 250k
> houses than 1 500k house.

Exactly.

#9

True Vegas has been unreal for the past 2-3 years. Having a home
maybe doubling in such a short period of time is highly unusual.
But all you need is a reasonable appreciation level to make money

in real estate.

When we first checked out the real estate in LV about 5 years ago we
were shocked at how cheap it was, compared to the Seattle area where
we lived. So, to some degree, the "unreal appreciation" you
mentioned was simply due to LV catching up with the rest of the
country. Right now, LV house prices seem on a par with the Seattle
area ... not overvalued at all, in those terms.

···

--- In vpFREE@yahoogroups.com, "lsbshsd8" <lsbshsd@e...> wrote:

#10

This is completely incorrect. You invest what you put out of

pocket, not what you borrow. A simple example: You buy a

property for 100k and put 10k down. Property appreciates 20% and is
you sell it for 120k. (For this example, don't consider other

income/expenses). You didn't make 20% on 'your' money, you

tripled your investment.

Nope. Sorry. You acquired DEBT of $90,000. The bank sold you $90,000
cash in return for your promise to repay it X months in the future,
plus interest in the meantime at x percent. From the marketplace
standpoint these two things are exactly equal, i.e. the bank was
willing to sell you the money in exchange for the debt coupled with
the interest obligation, and the enforceable promise to repay.

So functionally, there is no real difference between shoving X
dollars into an investment and acquiring a debt instrument of X
dollars. Think of the difference between leasing, renting, and
buying a car for a year. in the first two cases, you don't get the
car for "free" just because you haven't paid for it. People often
discount debt when making major purchases, thinking that owed money
somehow isn't as "real" as out-of-pocket money. Well, that would be
true if banks didn't charge interest, which is simply an expression
of the lesser value of FUTURE money vs. PRESENT money.

To say that you "tripled your investment" is to ignore the
constraints, as well as the costs, of the accompanying debt
instrument. Or to put it in different terms, your actual return on
this transaction was:

Gross proceeds $120,000
Minus: Loan repayment $90,000
Minus: Down payment $10,000
Minus: Loan origination fees (at LEAST $2,000)
Minus: Realtor commissions (6%: approx, $7,000)
Minus: Income not earned by investing downpayment (5%: $500)
Minus: Maintenance of the property, and moving expenses if this is a
primary residence (twice: when you bought and when you sold) I would
budget a modest $200/month for maintenance, and moving a small
family costs at least $1,000 each time: ($4,400)
Property tax: At 1 percent, $1,000

Total expenses/costs: $12,900
Net profit: $7,100
And you will only get to keep all of this if the sale qualifies for
the capital gains exclusion. So you really only made 7% on your
money (yes, the money you borrowed was also "your money"--you
bought, paid for, and most important of all, USED that money; you
couldn't blow it at the track, or buy a BMW with it).

···

--- In vpFREE@yahoogroups.com, "lsbshsd8" <lsbshsd@e...> wrote: