Belvedere – Time to Jump In?

The Belvedere might be the most unappreciated investment opportunity in Reno right now.  Yes, the product isn’t up to the standards of the Palladio or Montage.  Yes, the project is in bankruptcy and the recorded mechanic’s leans number in the hundreds (I wouldn’t touch a short sale here with a 10 pole).  But I think there are bargains worth the risks showing up on the REO market and as Trustee’s sales on the courthouse steps.

So far, 29 units have been taken back by the banks or have been sold as Trustee’s Sales.  There are a slew lost in limbo between NOS and TD that keep getting postponed.  One 392 SF unit has been purchased as an REO for $19,200 in January. Terras Altas LLC  bought 2 units as TDs last November, 367 SF for $10,100 and 535 SF for $14,000.  2 more TD sales went down this week, though they haven’t recorded yet – a 168 (?   7-464-11) SF unit for $7500 and a 352 SF unit for $12,000.  Both were bid up a bit from the opening bid at the sale.  Floor plans are on the Belvedere’s web site, as well as "pricing".  A quick perusal of Craig’s List has the management office offering a 1 bedroom at $1000, a furnished 1 bedroom at $1250, and a 2 bedroom at $1050.

I’m not 100% sure what the HOA dues cover, currently at about $.43/SF/MO, but I think it is all common are expenses, garbage, and maybe heat/H20.

So for a 1 bedroom purchased for $14,000, taxes are $120 per month (and declining), HOA is about $230, insurance is about $20 for a total of $380.  This should generate $400 cash flow at $800 per month rent, not unreasonable downtown.  Your initial investment would be paid off in less than 3 years if things remain stable in a worst case scenario, faster if you can get rents closer to what the management office is asking.

And what if the Belvedere situation goes to hell, which is certainly possible.  It takes a LONG time for the county to react on tax liens, and a HOA in BK is also notoriously slow to react.  All the time  the rent rolls in.  So I see a situation that for a minimal purchase price, rents would pay off your investment rather quickly.  If the project rights itself and values increase, you can ride the appreciation trail to fame and fortune.  If it blows up, it will take a while and you will have recouped most of your initial investment and probably at least break even.  If not, how much have you really lost on the investment?

Risk / Reward.  The investment opportunities defy conventional wisdom right now.  Call me crazy, and I know you will.

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About Mike McGonagle

An architect, business owner, and compulsive public records hacker, Mike reads the tea leaves of the local real estate market from a unique perspective.. A former Chicagoan, Mike earned his MArch from Harvard University. Mike can be reached at mike@macassociates.com or 775-345-7435. His continued musings can be found on the REreno.com blog.
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22 Responses to Belvedere – Time to Jump In?

  1. Avatar Really? says:

    Really? A 400sqft apartment downtown will pull in $800? Really?

    I have to wonder about that…

  2. Avatar Mr Frisky says:

    The real question when pondering an investment like this is:

    Do you really want to be a slumlord in this particular bankrupt dump?

    If that is truly what you aspire to as an investor, then go get it.

  3. Avatar MikeZ says:

    So for a 1 bedroom … at $800 per month rent…
    Really? A 400sqft apartment downtown will pull in $800? Really?

    Hunh? The 1br is not 400 sqft.

    Really.

  4. Avatar Rubiconer says:

    Did the Rapture happen?

    Did I get left behind?

    Was I deemd to sinful for spending too much time reading the RRB and not the Bible?

    Any other left behinders out there?

  5. Avatar Steve Watts says:

    Slumlord is right. I took a tour 2 months ago and was alarmed at what the place has turned into. Apartment doors with various stickers on them, threadbare common areas, a 1-person support staff. It certainly doesn’t look like your HOA $ goes into upkeep or even any kind of rule enforcement.

  6. Avatar Reno Dino says:

    You mucho loco, but in a good way. Still no deal.

  7. Avatar lb_Reno says:

    Since these would be comparable in livability to a weekly motel in the same area, I would expect that you would do well to realize $600 rent including utilities.

  8. Avatar Carlo says:

    Mike, have you actually been on the premises at the Belvedere? The place looks like a 30 year old never updated college dorm.
    There is another cost that will be associated with becoming a landlord at the Belvedere. The cost of an umbrella personal liability insurance policy. So when your tenant gets beaten up, raped, mugged, assaulted, and you get sued for maintaining an unsafe property, you will have sufficient liability coverage.

  9. Avatar Nomad says:

    Yor initial Investment would not be paid off in 3 years. Why you ask? When determing cap rates on rental property you NEVER assume 12 months of rental income. You will ALWAYA have a tenant turnover rate.

    Never mind the fact that when you do decide to sell you have to recapture all the depreciation during the time you rented it out. Assuming you claimed $4,000/year for 3 years ($12,000)in carrying cost for the rental you would have a pretty ugly tax bill on your so called small investment of $14,000

    I’m not saying you can’t make a decent return on these units as rentals. I just saying the math isn’t as simple as mike notes..

  10. Avatar Nomad says:

    Tax implications and vacancy rates alone could very well put your return on investment at 4 years +

  11. Avatar MikeZ says:

    Tax implications and vacancy rates alone could very well put your return on investment at 4 years +

    ROI of 4, 5 or even 6 years is not that bad! If I hadn’t soured on the whole idea of being a landlord (again), I’d consider it.

  12. Avatar Southernent says:

    Nomad, depreciation recapture is 25% of total depreciation deductions. Also you would have to depreciate it over 27.5 years which would be 509 per year.

  13. Avatar Donald Robak says:

    One other thing to consider is that 92 units were sold by the county for delinquent taxes and that all of the units at the tax sale were purchased by the original owner.
    See more tax sale information.

  14. Avatar Jo Amick says:

    I also think “Tax implications and vacancy rates alone could very well put your return on investment at 4 years + ” to agree with “Nomad”. Guess I got beat to the punch!

  15. Avatar Renter says:

    I have been a resident at the Belvedere for several months now. I personally do not understand the negative comments about the place. I never had any issue. The couple living onsite and in charge of the building maintenance is doing a great job, always available and are always around. The leasing office staff is always helpful and very nice (2 or 3 ladies alternating there I believe).

    Back to the discussion on being an investment opportunities, what seems to kill the deal is the “mechanic’s liens number in the hundreds”. I believe there are over $80K of liens on each apartment there.

    Even if things move slow and the ROI is achieved before things turn to hell, as the owner, you are still obligated to pay these liens, aren’t you? If not, then definitely, nobody should be renting there, but buying a condo right away. With rents around $800, I would own my condo by now.

  16. Avatar Conrad says:

    The little problem with “over 80K worth of liens on each apartment” is that the seller cannot convey and the buyer cannot obtain clear title. Something of a problem.

  17. Avatar GreenNV says:

    OK, this is my understanding. In a foreclosure situation, all the junior lien holders have the right to bid to try to maintain their interests in the property. If they don’t and the Trutees Sale is completed, their claim on the property it expunged.

    So for the Belvedere, short sale properties still have the mechanic’s liens in place and should be avoided. Properties that have gone TD should be free and clear of the mechanic’s liens. I think buying a unit from the bank is pretty safe legally (given the other risks), but there are NOT any of the foreclosed units on the market right now. That smells fishy to me, so there may be more to the story.

  18. Avatar inclinejj says:

    Walk into a Reno Title company and ask them if you can get title insurance on a property here with this many liens.

    Being that the current owners and or people selling this are not working on trying to get these released to convey clear marketable title is a bit strange.

    As long as the mechanic liens are open it effects title thus you not receive clear and markeable title.

  19. Avatar Reno Ignoramus says:

    Mike/Green,

    You are almost right. However, if a contractor timely files a mechanics lien (within the statutory time frame) and timely commences to foreclose on its lien (within the statutory time frame) , AND if that contractor had commenced work BEFORE the deed of trust was recorded, then the mechanics lien stands in first position even ahead of the deed of trust. NRS 108.225.

    So, for example, if a contractor begins moving dirt around the day before the bank records its trust deed, and the contractor later follows through and timely files its mechanics lien and timely commences foreclosure of its lien, it will beat out the bank in priority.

    I am aware of a couple of cases where a construction lender learned this lesson the hard way.

  20. Avatar inclinejj says:

    RI

    That is why the lender does a quick drive by before funding. I had a construction TD delayed due to some construction materials dropped off before funding of the loan.

    Lender control (The independant company who releases funds) upon mostly 1/8th to 1/10 of completion.

  21. Avatar Renter says:

    GreenNV, it is most likely why there are NOT any of the foreclosed units on the market right now: http://www.therenorealestateguide.com/reno-real-estate/washoe-county-tax-sale-and-the-belvedere

  22. Avatar Donald Robak says:

    Renter:

    Back to the discussion on being an investment opportunities, what seems to kill the deal is the “mechanic’s liens number in the hundreds”. I believe there are over $80K of liens on each apartment there.

    The Belvedere units were sold by Washoe County in a tax foreclosure sale. A tax sale (different from a Trustee foreclosure sale) takes priority over ALL debts and liens except for IRS liens. Therefore, the mechanics liens were all wiped out.

    Please correct me if I am in error.

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