Buying Overseas IPs

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From: Dean Stevens


Evening All,

I'm currently looking for inspiration, advice, & the opportunity to pick anyone's brains.

I can't recall this being discussed before on the forum, so apologies in advance if it has.

The situation:

1. We would like to buy an IP overseas(o/s). A good opportunity.

2. We currently have equity of approx. $200,000 in our own home in Melbourne. We presently do not have any IPs. Our current mortgage is with the Bank of Melbourne.

3. We have been reliably informed by one of the top mortgage brokers that we can't use the equity in our property to buy o/s. Subsequently we haven't contacted any Australian lenders.

4. We do not have any IPs at the moment but wish to buy here in Australia as well as o/s (achieve a balanced & diversified portfolio).

Do Australian lenders really care where the IP is located?

What do you think are our options?

Does anyone know of any Australian lenders who look favourably on o/s IPs?

Any suggestions on how to do the deal (the numbers stack up, we just need to get our hands on the finance)?

All options are welcome and will be considered. Simple or creative answers appreciated.

Thanks for listening.

Keep up the excellent debate.

Regards

Dean
 
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Reply: 1
From: Robert Forward


Hi Dean

A way around this would be to take a LOC out to access your current equity. You then transfer this to the foreign currency that you require to purchase the property. As when you take out a LOC against an equity the banks care where you spend the money. You could blow it all on the horses, or drink it away. As long as you can service the debt associated with the LOC.

So yes I believe you could borrow on your Aussie property and use it for an investment OS.

Actually talking about properties O/S Ms Flip (my partner) has been investigating properties in areas of London that we know really well. Though prices have risen considerably since I left (over 120% cap gains), for GBP135 000 you can buy a good 3 bed house close to transport, but what isn't near transport in London. And it will rent for GBP350pw. Although you pay up to 15% for management fees it is still positively geared. Plus you can also have your tenants pay all council rates and bills etc.


Cheers
Robert

The Sydney "Freestylers" Group Leader.
 
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Reply: 2
From: Rolf Latham


Hi Dean

Get a Line of Credit over your local property to release and pull the equity.

Approach a bank in the OS country you want to buy in for a loan.

Few lenders will lend here with security OS.

Ta

Rolf
 
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Reply: 2.1
From: Sergey Golovin


"Insider view point" as they say. Or put the other way Confession of Real Estate Sales Person.
FSBO stands for “For Sale by Owner”.

I do not know if it helps but anyway have look at the article below.
May be you can find someone who wants to sell privately?

Serge.



Deterime what Fair Market Value (FMV) is. I am a real estate agent who worked with FSBO's for several years. This is one of the biggest mistakes. They either sold way too low are where priced wat to high. Statistically I found that about 10% of FSBO's actually sold. Here is why.

1) The buyer looking to purchase a FSBO is wanting to save the commission also. See a buyer doesn't directly pay the commission, so for them, the use of a Realtor is technically free. So, in this case, who gets to save the commission?

2) The buyer is one of high motivation, little ability. This is the buyer who has been told that they need to wait because of credit issues, job history, etc... But thier desire to own a property exceeds this rationalization and they are out there trying to force something to happen.

3) Who is the buyer for your home. A base 3 bedroom home in Seattle costs $200,000 or more these days. That buyer is earnong $55K to $75k a year. That buyer, usually, does not want to go from house to house seeing everything that is available, unless they are type A. It is substantially more efficient to have a Realtor look at homes, then show them what the best ones are available. Whereas a Realtor has access to 100's of homes, you just have yours. Its hard to compete that way.

Now, off my sales pitch. Price is the sole factor in selling a home. You have heard location, location, location and to an extent that is true. But we are in a price sensitive economy. How do we know this? WalMart is the largest retailer. KMart was not the largest retailer when location was the factor. So when you look at price, you are looking for 2 things. Active/available homes, these are your competition. These are the same homes that a buyer will have the OPTION to make a selection from. They are NOT a determinate of price so to speak. Just because the neighbor is asking $150,000 does not mean someone will buy it. They are a determinate in that are you the best home for the money. Drop all emotional attachments because the buyer does not care that you have raised 2 wonderful children in the home. You see if the morket show sales comps at $150,000 but there are 3 homes available at $125,000, you will never sell. The next factor to look at is Pending sales, not solds. Pending sales will show you what the current buyer profile is willing to pay for a similar home. Just bvecause someone sold thier home for $150,000 6 months ago, does not mean that the current market will support that. Pendings will show you what someone is willing to pay for a home within the last 60 days. This, in my opinion, is the key area in determining price.

Now the hard thing. My company spend a load of money to find out why homes sell. What we found was that it was NOT advertising, much to the misconception of the public. Advertising and open houses have but 1 purpose. To find additional clients. Less then 1% of the buyers that come through an open house will buy that home. The main reasons why homes sell...agent networking. It is the reason why the MLS is so oh so powerful. Now I will aslo say this, the new construction community reaserched where buyers come from (area) and found that most buyers moved within 10 miles, i believe thats it, of thier current residence. That is why the second best tool for an agent is thier sign and flyers. All the rest, in my book, is unnecessary. Agents just do it because thats what the Sellers demand. Its just too bad agents prepetuate the lie.
 
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Reply: 2.1.1
From: Sergey Golovin


MLS stands for Multiple Listing Service.

Serge.
 
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Reply: 2.1.1.1
From: Sergey Golovin


Wait there is more to consider.

Serge.




Paperwork for the sale of your home: If your home was built before 1978, I believe that it is now Federal law mandating Lead-Based Paint Disclosures. The other one is, does your state have some form of disclosure checklist that must be completed by the seller and passed to the buyer. This checklist is usually a requirement that the seller disclose "all known and hidden material defects" associated with the property. Known = you have knowledge that a defect exists, not think that it may exist. Hidden = that which is not readily assecertainable in a custumary walk through. This also means that if the defect is in plain sight, it is not required to be disclosed. Material = the defect is pertanite to the property and that it effects the value of the property for the reasonable purchaser. This means that if someone died in the house, it does not require disclosure. Yes, a few people would have problems with that, but the majority would not. If drugs where delt in the property, the majority probably would have a problem with that (conamination issues) and therefore requires disclosure. Talk to your attorney about this, as each state difers. And make sure your attorney is a RE attorney. You would have a heart doctor doing brain surgery on you, would you?

Get 2 to 3 CMA's from agents in the area. There is usually 1 or 2 dominate agents in a neighborhood. Call them. You can also request a CMA from HouseValues.com, but the quality of the CMA is dependant upon the agent and those agents can range from the brand new to the 30 veteran. My brother use to work for them until he moved to Az.

A Purchase and Sales Agreement (aka Earnest Money Agreement) would be handy to have. Although, not a necessity. the reason why they are hand is the last thing you want a buyer to do is walk out of the house if they want to buy it and then talk themselves out of it. DO NOT use the agreements that you buy in stationary stores. I have been brought into one to many deals to try and fix them. It sucks and usually its the seller that ends up taking it in the shorts.

Think about working with agents that actually have buyers for half the commission. You will get calls asking this. Some will be real, some will be BS. Usually they will want you to sign a FSBO Listing Agreement. It will say something along the lines that if they (the agent only) bring you a buyer you will pay a commission. Some will try that with a full blown Listing Agreement, they are just looking for the listing.
 
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Reply: 3
From: Anonymous


Hello Dean,

Where do you want to buy OS? It makes a big difference.
Why do you want to buy OS? It too make a difference.

Read some of Lance Spicer's books they will give you a clue or three.

Funding through an LOC is possible but do you want it to disappear and the income it generates not be taxable? Legally?

As a TV station says "the world is an amazing place" and you can make great returns with as good security as in OZ.
 
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Reply: 3.1
From: Jeremy Laws


Lance Spicers books are a guide, but they are not the grail. They will in no way help you get around the 'have you any foreign income' question on your tax return. That is the doozy and unless you can answer that truthfully you are setting yourself up. The IRS/Tax office/Inland Revenue have VERY VERY long and powerful tentacles. Be very sure before you cross that line.

Use an LOC, Credit card, personal loan etc etc to come up with a deposit OS. It is worth doing, but please be aware that every property market I have seen in the world is in the same state as Sydney and Melbourne. Rob thinks you can get cash+ hovels in London - I havent seen that(on anything close to 15-20% down) but cap growth is good (as I said same as SYD/MEL) but there are some great cash+ properties in the north. If talking UK buy to let mortgages are exy and the deposits are high. Esp for foreignors. HAve a look too at the big bad US.
 
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Reply: 3.1.1
From: Anonymous


Agreed that Lance's books are a guide or starting point. However, the ATO's arms aren't that long. There are perfectly legal ways to pay little or no tax, just look at Packer and Co.

To get around the Q 'have you any foreign income?' is relatively easy if you don't but your OS trust/company does.
 
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Reply: 3.1.1.1
From: Michael G


Hi

"just look at Packer and Co."

They also spend $$$s on getting advice, the cost of which is probably more than what most here could probably generate in profits.

"To get around the Q 'have you any foreign income?' is relatively easy if you don't but your OS trust/company does."

But you have to be mindful those entities are not classed as CFCs (controlled foreign companies) which would be taxed as if they were registered in Australia.

<evil grin> millions of wildlife die on roads each year by things they didn't see coming.

"Is that a light at the end of the tunnel or an on-coming train?"

Michael G.
 
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Reply: 3.1.1.1.2
From: Jeremy Laws


But once you spend 1$ of that money, you have effectively lied. If you have a Corp anywhere that is in part or wholly controlled by you, or you can be proved to have benefitted from such an arrangement they have you. Any regular overseas payment is subject to tax analysis, and in any case any payment above $10,000AUD is registered. As with NZ (NZ$) and US$. I am fairly confident that with the small sums you are playing with it isn't worth it. Make money out of cap growth/currency hedging, not trying to play the Tax Office Lottery. The losing card is a big one.
 
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Reply: 3.1.1.1.2.1
From: Anonymous


Advice so far has cost less than A$20,000, structures in place A$3,000 (both tax deduct. at the time this was offset against taxable income earned in OZ ). Tax LEGALLY saved/minimized = $42,000 p.a. and growing. N.B. This is NOT tax avoidance!

This might have something to do with PT status but even if that were not the case, the structure is 100%legit.

It's not for everyone so you are right to be negative and sound the alarms. If not set up correctly you end up fined big time and possibly in jail!
 
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Reply: 3.1.1.1.2.1.1
From: Sergey Golovin


Agreed with Jeremy, only one correction –

I think it is now if more then $50,000 it has to be reported automatically to all parties concerned (used to be $10K). I think – better check or try first and then check.

Serge.
 
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Reply: 3.1.1.1.2.1.1.1
From: Anonymous


Sergey,

You are correct!
 
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Reply: 3.1.1.1.2.1.1.1.1
From: Jeremy Laws


Customs forms still have $10,000 in 'monetary instruments' listed. May be that they have a lot of old forms to get through, I hadn't heard of the $50k limit, but in any case in US it is a jailable offence for a bank (or casino for that matter) not to notify the authorities, of not only any $10kUS payment _anywhere_ but also of anything they may deem to be either suspicious (drugs) or worthy of IRS note.
 
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