20 US properties in 4 1/2 years

I thought I would take some time to reflect on my US housing Journey. It dawned upon me this last month that I actually achieved the original goal I set for myself and that was to purchase 20 US cashflow positive properties. I had no idea when I set that goal how I was going to do it but it was a number I had in my head that I wanted to strive for. It was an emotional realisation that not only had I got there but that my father that has since passed away somehow predicted the path I was going to take. His words to me some 4 1/2 years ago when I purchased my first US property " Karina, this is that start of something really big for you" how right he was and how much I wish he was here to have seen it evolve. Unfortunatly he passed away shortly after and I never got to share my journey with him but I think in some way his words drive me to make them a reality.

My US housing journey started years ago at a Kiyosaki seminar held at the entertainment centre in Sydney. Many of you reading this may have attended the event. There were thousands of people there. It was a 3 day event where Robert had brought out his team including his US real estate guru and they went on to talk about some of the amazing cashflow deals available in the US housing market after the GFC. I recall Robert saying that we need to think globally and not limit ourselves to the Australian housing market when there are far greater opportunities available in real estate outside this county.

My friend Gayle who attended with me and was sitting next to me at the time said to me "Karina , why don't we buy some US property" and my immediate reaction was " Gayle are you crazy, what do we know about buying houses in America?"

The numbers of these deals were amazing just like in Kiyosaki's board game, cashflow 101. Years ago when I first joined somersoft, would be at least 10 years ago if not more I attended a cashflow 101 board game day in Glebe. I met many of the somersoft crew that I now call my friends on that day and some of the somersoft pioneers taught me how to play the game. The idea of cashflow 101 is that you buy enough passive investments to replace your income to get out of the rat race. I thought back then the concept was brilliant to be able to have passive income support me and not have to exchange time for money but the deals on the board game looked like nothing I had ever seen in Australia. We just did not have the property opportunities and cashflows that the game presented in this country. When Kiyosaki was speaking however the numbers he presented were just like the deals on the cashflow game, was it possible that in the US these deals really existed?....well after the GFC they did. I just needed to work out how to do it. There was a huge transfer of wealth to take place with the GFC.

Weeks went past and I started to do some research online regarding US housing. It was overwhelming to even know where to start. There was not a lot of help around at the time in AUS as it was a relatively new concept to all of us and there was no one I could tap into that had the experience. Also even trying to narrow it down to which city to consider was a huge task. In Australia I had invested in other states but it was a much greater task to invest in another country.

Through research and through some conversations with some US investors on somersoft I learnt the basics, www.zillow.com. This was truly a breakthrough, a website that I could look at sales history for any property in the US, get an estimate of what a property's rental value is and look at what surrounding homes had sold for previously. A valuable resource to get me started.

So with the ability of being able to have an educated guess as to a property's value through Zillow I set about looking for what resources were available to me in Australia to guide me through the US housing journey. What I found was quite disturbing. Most of the companies that were helping Australian's buy in the US were selling overpriced properties. I mean REALLY overpriced. Properties were ten's of thousands of dollars above fair market value. This was the turnkey model, that is buyers agents in AUS were teaming up with wholesalers in the US that buy properties cheap, renovate them and flip them to out of town buyers at overpriced values.

To the average Australian looking at a glossy brochure the deals looked amazing, I mean the cashflow looked great even though the house was being sold for sometimes double what it was worth to a local buyer. I decided early on that this style of investing "turn key through the Aussie buyers agent" was not for me. I wanted the real deal. I wanted those bank foreclosures going for cents in the dollar of their previous sale price. I wanted to buy properties the way I would buy them in Australia that is look for the very best deals out there, mortgagee sales etc, pay the lowest possible price and renovate them to get them to a rent ready standard.

I recall when I was a presenter on US housing at the Sydney and Melbourne Property Expo's the expo had several companies promoting US housing. One company promoting turn key properties had a huge banner, "the 7 deadly sins of buying US properties". I recall one of them was don't buy a vacant property" hint hint buy a turnkey property off us....... What a ridiculous statement I thought to myself. If you buy a property don't you think at some point in time that property will become vacant. What do you do then if that's one of the deadly sins, do you suddenly have a bad investment on your hands? Of course your property will become vacant one day and you need to deal with the issues of rehab and re-renting, that's part of being an investor. So essentially the message was buy turn key or you will get burnt, so far from the truth. The reality is "turn key properties" are generally overpriced so you are getting burnt from day 1. I would go as far as saying as not only are they overpriced many of the one's I have seen promoted that are low value properties are also in the worst possible locations that when they do become vacant then you really do need to be worried. You see in order to make the glossy brochures look good and a nice margin to be pocketed by the wholesaler a very cheap product needed to be sourced to get the yields needed to attract the foreign buyers hence the location suffered as a result with many of these properties being difficult to manage or un-manageable.

I also attended a 2 day event with a well known Australian promoter that sells seminars. The presenter was the first to hold US property seminars in Australia that I am aware of. The seminar gave some really good information and to sign up at the end of the 2 days was about 8k for the course. During the seminar the US team presented on how they could assist in sourcing deals for us. I went home after the first night and researched the US company presenting. I checked out some of their deals in Dallas from their website and found that the turn key properties being offered on their site had been bought months earlier for substantially less than the sold price on Zillow. They ran free bus tours where you could buy these homes. Rang alarm bells for me that I had to pay 8k to get some education to then be put on a bus tour that was actually free if you just booked into it online to buy overpriced properties. I obviously did not sign up.

There is a group that I saw present recently that has a 2 day teaser event followed by a 20k, 30k and 40k education program and people were flocking to the back of the room to sign up. So essentially there are lots of traps out there for the aussie investor wanting to have a go.

My first step into the US housing market was through a buyers agent with mixed success. Looking back that first step led me to the right city but not the right product. Older home in depressed part of town. It was all part of the learning curb and fortunately I made the mistakes early on to ensure my future transactions would be more profitable. I did also get some good properties in the process. I was able to exit the position without too much pain as I had not overpaid for the property. I bought at market price just not the best property my money could buy so it made sense to exit the position and get into better quality area.

I really got going however when I got over to Atlanta to have a go at doing it on my own, just me looking at dozens of properties and forming my own team to rehab, lease and source the properties. What I learnt along the way about the US housing market I could never have learnt without getting on the ground to do the leg work. Along the way through sharing what I was doing with other people I had fellow investors approach me to help them get started in the US housing market hence how my business "Select American Homes" was born. Basically I put a business model around what I was doing for myself for other people, that is providing a solution to purchase, renovate and tenant US homes but tapping into the real deal, those bank foreclosures at cents in the dollar not the overpriced houses where all the profit has already been made by the wholesalers.

The properties I acquired were beyond belief, looking back at what I have purchased I am blown away at the ridiculous opportunities presented by the US housing market. It was like being a kid in a candy store looking at those homes. I just wanted to buy them all. Truly a moment in time a window of opportunity for those that were brave enough to have a go that was life changing for me. I achieved in just under 5 years what possibly 20 years in paid employment would unlikely deliver.

The US housing market is what I call imperfect. There are imperfections that are not generally seen in AUS. That is houses selling for values that just don't make sense. I mean the last deal I just picked up just blew my mind. Although we are past the bottom of the market there are still some truly amazing deals out there. My last deal was so good I actually bid double the list price, yes call me crazy, double the list price. I won the bid but did I need to pay double? Well I am not sure if I needed to pay double but had I offered less and missed out I would have kicked myself. Let me explain myself. This deal was so good my agent had to question the list price. I asked my agent if they could go check it out for me as I really wanted to win this bid and had to determine what I would offer on it. The list price was 16k. The property was a duplex so 2 rents. The returns even at double the list price were off the scale. My agent came back to me and said you sure the list price is not $76k asking price and not 16k? Market imperfections...... in 4 1/2 years I have only ever seen one other deal that even comes close to this one so this is certainly not the norm, just a one off market imperfection but you have to ask yourself how many market imperfections are available in the US housing market across the county.

What I learnt from bidding on hundreds of properties many of which I never won the bids for (I was only after the very best deals) was invaluable. I learnt that there are some properties you need to ignore the list price on and go in with a killer bid to win the property because you will kick yourself if you don?t. I learnt the exact price some sellers (foreclosures ) are willing to accept down to the exact dollar/ percentage. After bidding on so many properties you learn the formulas, you get counter bids sent to you and you think ok I will just record those patterns of what they will accept until you just get it and it makes your future bids more successful. Obviously I learnt the areas to buy in that work well attract tenants etc.

I learnt to take on manageable risk in my own investing. There are some properties advertised in the US with existing occupants in the homes being sold by the banks. They sell them to you as is, no inspections, no information on who is on the home, no lease in place, do not disturb the occupant that is you can't even knock on the door to see who is living there. You buy it and take on the risk of the property in its condition that you cannot assess prior to purchase. You take on the risk of the occupant and evicting them or getting them on a lease. A risk I was willing to take for myself. Not one that I recommend to the first time investor but with my own money I was willing to do it. I probably scored my very best deal doing this. A 4 plex that is 4 townhomes (the whole building) was offered for sale at 58k, older 4 sided brick property in a good part of town with good schools. No inspections allowable, tenant occupied.

Ok so the deal was I couldn't inspect it had no idea of the interior condition and could only have my contractor walk around it who advised it was solid from what he could see and had good bones. Couldn't comment on the inside of the dwelling of course. My dilemma was there were multiple bids, no idea how many bids they had but I had until 5pm the next business day to submit my highest and best bid. This is a deal I just had to win. I had no idea what to bid nor what my rehab would be but I did know I could achieve $2600 a month in rent on this property once I rehabbed it. I bid 75k and won the property. My favourite deal to date.

Turned out 2 of the 4 townhomes were occupied, the other 2 vacant (property had last sold for $320k) . One tenant had been there for 8 years and had just purchased a home so was moving out shortly and the other had been in for 3 years and we signed her up on a lease, she is still there. I rehabbed the other units. Think I spent about 25k across the building to bring it up to a $2600 month rental standard. Not a bad outcome.

I also learnt some of the differences between the US and Australian housing markets. The houses in the US are generally a cheaper construction than we use here and will require more maintenance. Tenants expect houses to be presented well (rehabbed ) or they will not rent them. Due to the higher standard of expectation you will most likely need to spend $1000 (more or less depending on how well the tenant cared for the home) between tenancies to get the home rent ready again, paint touch up, steam cleaning, minor repairs etc, etc). Most items are considered normal wear and tear so if the walls are marked you generally can't claim much of that back from the tenant if any. It depends on how long they have been in the home and how much paint touch up is needed to get the home rent ready again.

The risks of owning US houses, well the main one's we don't see really in Australia are theft of appliances of vacant properties and stealing of copper. Properties like foreclosures that have sat vacant for a long time are prime targets to have appliances go walkabout. It happens from time to time but certainly not a reason that would change my thoughts on buying in the US. Important to understand that it can happen though.

Property management has been a work in progress. US management companies operate differently to Australia and they have various streams of income like management of repairs. Most US companies will charge a fee of some sort to co-ordinate general maintenance and repairs something we are not used to in Australia. Fortunatly through the relationships I have built over the years we now have property management in place "Australian style" where maintenance is not marked up by the management company. We have great management on board that is really allowing us to maximise the cashflow on the US housing opportunity. This has come about through our ability to deliver volume to our manager thus allowing us to tailor the service and pricing to what creates a win/win.

For the most part I have bought stand alone houses. My last purchase was a lovely 2 storey house 4 bedroom with a double garage , newer constructed brick front for $97,500 that will achieve about $1200 month in rent. Although I love multi family properties they are few and far between and its not often that I come across multi family deals in Atlanta that meet my criteria so my portfolio is made up of mainly newer constructed houses. Houses that I target are generally in the 70 - 100k range.

As to the window of opportunity, I think we have about 18 months left in Atlanta to secure homes at prices that I consider good value. I am still picking up homes at between 30 - 50% below the pre GFC prices and close to half the replacement cost. The way I would describe the market now is it is undervalued and below replacement cost where as in 2011/2012 it was grossly overvalued.

I have purchased properties along the way with the currency ranging between 83 to 1.05cents

Obviously the higher currency was icing on the cake with these deals. With the dollar looking to slide further and go back to more historical levels the currency play moving forward is less of a draw card but the deals in the US are still so attractive in my opinion if I compare them to what I can do in AUS with funds that it makes sense to me to keep buying whenever I can.

Its been quite a journey. If I look back on my life 5 years ago I never would have imagined I was to start such a new and exciting chapter in the US housing market. To some extent my previous experience in the Australian housing market probably gave me the foundation to be able to recognise the opportunity and maximise it. There is a transfer of wealth that takes place when markets move significantly such as the GFC, share market crashes etc. Those that can recognise the opportunity and not fear it can exploite the market imperfections that the event creates.

One lesson I take from that Kiyosaki event is to think globally. As an investor I think its important to be able to adapt to changes in the market, what worked for me in Australia (buy and hold) in the early 2000's does not work in today's market. I could not recreate in AUS what I did between 2000 - 2006. Although I am holding the majority of my AUS properties buy and hold in AUS is no longer appealing to me. If I were to look at the AUS market again in the future it would be to develop sites. I think that's that way to make money in this market and there are some somersoft members doing this quite successfully. You need to have deep pockets to be able to do this though along with some skill so may not be for the first time investor.

My plans for now are to maximise the US housing opportunity and increase my holdings whenever I have funds until I see the window has closed and then onto the next opportunity. Hopefully I will be writing another post like this in years to come with my next venture. I truly love real estate, it does not feel like work to me, I enjoy chasing deals and putting them together. I don't think I have ever really been good at anything in my life or excelled in any area other than real estate. They say that when you do what you love you will be successful. For me that's been true and it wasn't really until I broke free from the corporate 9 to 5 job that I was able to experience the full potential that I had within me to pursue my dreams.
 
Good work Karina, great success story, been asking you to post for some time now, but I know you are a very private person, but hey we all like a good story:)

I think I was your second client, 3 years ago when we were buying at $34,000, wow, how things have changed for the better. My only regret is not buying more when I had the opportunity, I think I was way to picky at the time.

Thanks for sharing

MTR:)
 
Congratulations - a very interesting read.

I know that most people use a company entity to purchase (LLC). Who owns this entity? (personal or Aust entity?)
Is there the possibility to leverage against the properties?

I like the US market. I just wish I was in a better financial position a few years ago to better take advantage of the US market when it was at its low.

I think the US has a long way to go in the next few years. Especially when compared to AUS.

Blacky
 
Blacky,

Most people use an LLC to purchase US real estate. The member or owner of the LLC can be any entity really, some people own an LLC as individuals, others use trusts or super funds.

My set up is that I have used a discretionary trust as the member of my LLC. I have also used my self managed super fund to buy in the US. I am not a legal or tax adviser so its best to get advise from your tax agent when making these decisions as everyone's situation is different.

Financing is opening up in the US but I do not have any clients that have secured genuine bank financing. Some have financed around 50% LVR at 7.75% through private lenders.

I can't see banks lending to foreigners at super low interest rates any time soon. Works well for people that are cashed up or have money in super.
 
Karina
can you post some of your properties, no addresses but just so we can view what you are buying

thanks
MTR:)
 
Karina

Thanks very much for sharing.

Would you be able to give us an idea of the costs in owning US props such as council rates, water rates, insurance costs, PM fees etc etc
 
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Stumpie,

The yearly fixed costs are as follows.

Council rates
Known as county taxes are dependant on the county assessed value of the property. These can vary greatly between properties. On average for Atlanta properties we target I would say between $800 - $1500 a year. County taxes can always be verified on the county website. This is public information.

Insurance
Approx $800 a year

Property Management
8% management fee
Letting fee - 1st months rent ( this is standard in the US)
1 weeks renewal fee
Standard lease is for 12 months. They do not offer 6 month leases.

HOA fees (equivelant of our strata fees)
Some properties have home owners assocation fees to maintain common facilities in a subdivsion. Can vary between properties on average I would say around $500 year.

LLC renewal fees - yearly
$50 to Georgia Secretary of State
$100 to registered agent

Rental Estimates
50 - 65k townhomes - around $750 - $900 month
70 - 100k houses - vary from $900 - 1295 month.

Water and Electricity
Paid be tenant in the US
Only time you would pay for utilities is when the property is vacant and you have the utilities on for renovations and showing the home for rent.

Rental market
Most homes rent within 4 - 6 weeks on average. Some go quicker than this. Dec/Jan are slower months for rental.
 
When I read the title I didn't expect to get your life story lol. Luckily I got to the end before I had the noose over my head lol.

But seriously, some good links which look really helpful.
 
I can answer this one, cash, foreign investors can not borrow, so you can use equity, some investors also used funds from SMSF.

The big one is do you buy in USA now that the Australian dollar has slipped back to 81, we were buying at over 1.00 even 1.09, however when bringing the money back its 20% up??
 
Would you consider development sites in USA for land banking? (I assume they took a price hit too in the GFC??) Or still just focus on rental returns?
 
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