Finance for US IP?

[The Happy Hippy]

Note: I'm re-posting this question from my other post in "Accounting and Tax".

Hi all -

I'm a US citizen, but have been living in Oz for about 15 years now, and am employed by an Australian company.

There are a lot of cashflow positive properties available in the US, and I'm interested in taking advantage of the strong Aus$, as well as the bargain basement prices there at the moment. By the way, I'm 45, and am happy holding an IP for as long as it's CF+.

I have about $100K cash (Line of Credit equity available), but trying to find (reasonable) financing is proving to be quite challenging. I have heard of "hard cash" deals with 50% LVR and 10-15% interest, but I haven't yet found a property that would be CF+ at those rates!

Does anyone know how I could get financing for IPs in the US?

Thanks,

HH

 

[LoanFinder]

US properties need to be funded by a US lender.

Australian lenders are unable to take an enforceable mortgage against a US property, so any arrangement from here would be either unsecured ( unlikely ) or need to be secured against Australian property.

 

[Spectre]

HH I am in the same process at present.

Finding that if you google "foreign national" for the state/area you are looking in then a series of brokers/funders should pop up.

Otherwise its a case of emailing each lender and the loan officer separately and asking them if they do foreign national loans. So far I've found nodocs at around 70% lvr but yes the rate is a bit much.

"I think" Richard Taylor - Qlds007 has a bit of experience in this but seems they're cutting back significantly in the US.

 

[Qlds007]

Still in the UK on holiday but to be honest i think you will find 70% for a Non Resident hard these days.

We still finance deals in Florida but the US lenders we use do not lend outside FL.

 

[Perp]

Finding that if you google "foreign national" for the state/area you are looking in then a series of brokers/funders should pop up.

Otherwise its a case of emailing each lender and the loan officer separately and asking them if they do foreign national loans.

As Spectre and Qlds007 have suggested with their responses, lending is much more localised and fragmented in the USA than here; there are a huge number of lenders, but they seem to lend in only one or a few states each. So the process of identifying finance can be time-consuming, and a broker is even more necessary/helpful than they are here in Australia.

There is a section of the Bigger Pockets forum where you can post what it is that you're trying to finance, and see if any brokers know of lenders who can help you.

 

[grossreal]

hi
most lender here need a conduit bank to fund into the us and thats no easy
what you need to do is to find a bank that does work on side of the water and thats hard unless the numbers work for funder and the problem is they don't
now the reason that you find funders don't go even across there own boarders is simle
they need a legal that works in that areas legal system and there land systems are all over the place
and the way in which you get title or can get tilte is very different for each state
so to try to get a lender here to fund into an area thatt you don't know who title is gain is not going to happen
the best way is to find the property( which is a job in itself) and then use local funders
but as for tax and etc you need to repatriate paid tax dollars and do tax here as normal incomming income.
for me it better to have the two very separate and us property stand alone
you can join a syndicate that invests in the us but that a very different question

 

[cedase]

Is there any reason you wouldn't consider purchasing a freehold property, renovating it and then renting it. I agree it's a little more of a project, however it would be CF + ve from the first rent cheque and in the current US market you should have 50 or 60% equity once the contractor has finished and you get it valued. Just a thought.

 

[Perp]

Is there any reason you wouldn't consider purchasing a freehold property, renovating it and then renting it. I agree it's a little more of a project, however it would be CF + ve from the first rent cheque and in the current US market you should have 50 or 60% equity once the contractor has finished and you get it valued. Just a thought.

I've considered it, and decided against it. The primary reasons are: 1) finding a good property manager for single-family residences is exceedingly difficult (they're far thinner on the ground in the USA than here in Oz), and 2) the rewards aren't big enough in absolute terms. Yes, you can get a reasonable % return, but the $ are so small that IMHO, it's not worth taking on the complexities and risk of investing in a foreign country. Most houses are going to be about $2K cashflow positive each year. By the time you pay for tax returns to be done in both countries etc, you're not going to come away with much. As an "extra" to your portfolio, it may be worthwhile, but it's going to take an awful long time before that cashflow is of any significance to you.

Buy a complex of apartments, however, and the management problems become easier (you employ an on-site manager), and the positive cashflow becomes significant.

 

[JamesGG]

... the rewards aren't big enough in absolute terms. Yes, you can get a reasonable % return, but the $ are so small that IMHO, it's not worth taking on

I just wanted to highlight this part. Excellent post.

I think too often, investors can get caught up in percentages when looking at returns. Problem is, 30% of not much is still, really, not much. So often, I think that the absolute cashflow, in dollar terms, is a much better overall indicator.

 

[Rob Williams]

Great post Ozperp. I've looked into it as well and taken advice from various people. Even in % terms, after you factor in a lot of overhead that we don't have here in Oz, the percentage return isn't worth the risk, IMO.
I went to one of Xenia's seminars a while ago. Her Managing Director showed a video interview with a US property manager. As you say, they do PM different over there. Lots of backyard and private operators. This particular guy was a pro. He proudly displayed the gun he carries when he does his inspections. Not for me, thanks.
Not sure how true it is, but I read somewhere that tenants don't replace their own light globes. They expect that to be done for them. But not by a PM handyman. The PM gets an electrician to do it at US$80 so the PM is protected from lawsuits if something goes wrong.
Give me the Aussie way. Anyday.

 

[Perp]

I think too often, investors can get caught up in percentages when looking at returns.

I've fallen into this trap myself.

As you say, they do PM different over there. Lots of backyard and private operators. This particular guy was a pro. He proudly displayed the gun he carries when he does his inspections.

Oh yes, their Somersoft equivalent forum has many threads on the most appropriate firearm for rent collection - which is nearly always done by going to the property and picking up cash.

Not sure how true it is, but I read somewhere that tenants don't replace their own light globes. They expect that to be done for them. But not by a PM handyman. The PM gets an electrician to do it at US$80 so the PM is protected from lawsuits if something goes wrong.

Property management is done differently and is problematic, but I think this one's a furphy. Tenants have to replace their own light globes, same as here. And actually, in the USA, they're much more likely to get handymen to do trade-specific duties. They have far fewer restrictions on who can do electrical and plumbing work; similar to the UK.

Litigation-wise, being a landlord is no more or less litigious than here. Overall, the laws are much more landlord-friendly in the USA.

There are problems, but my experience is that people who are inclined not to want to invest in the USA overstate them, and those who are "gung ho" about it tend to ignore or understate them. I'm trying to tread the middle ground of being aware of the risks, and developing feasible plans to address them.