US Property thread - Are there lessons to be learnt?

Carrying on from Karina's thread - 20 US properties in 4 1/2 years.

Fantastic achievement Karina. You took the brave decision and worked hard and made excellent investments.

Not wanting to derail that thread I decided to start new one. I am aware this topic has been discussed many times here. But looking at some of the deals mentioned in that thread and on her website forced me to think is there anything we can learn from the US property market collapse. Can the market become so irrational. We have heard so many times stock market is notorious for being irrational and think property market is much more stable in general and therefore it is ok to leverage high.

To give some eg. from Karina's website.

1) Purchase price $45K
Last sold in 2004: $157K

2) Purchase price $48.7K
Last sold in 2003: $166K

3) Purchase price $40K
Last sold in 2003: $141.5K

4) Purchase price $43K
Last sold in 2000: $134K

5) Purchase price $50K
Last sold in 2003: $173K

Etc.

See her website for more examples - here

You get the idea. I am sure most purchases were done between 2009-2014. So almost 10 years later you can buy property for 1/3rd it's last sold price. That is incredible.

Can this really be true? Are the US people not aware of replacement costs? Are they not entrepreneurial? US is as capitalistic society as you can ever get. Still they ended up in such a bad situation.

People talk about something like this can never happen in Australia due to the supply/demand, non-recourse loans, Australian's love for property, Replacement costs is much higher so property can never fall below certain value etc.

Would the above factors stand up if Australia went through a bad recession like the US did? When unemployment rate goes above 8%, banks are losing money because people are unable to meet their mortgage repayments. Government don't have $20billion surplus to hand out to the general public and stimulate the housing market. Can we ever end up building too many houses?

Can a $500K property bought today be sold for $170K in 2022?

Thoughts?

Cheers,
Oracle.
 
The answer is obviously "yes" - if someone looks hard enough.

Think the moral of the thread is that there are deals out there to be found - not that its a statement of general macroeconomic trend.
 
I know absolutely nothing about US property, have not paid much attention, but have a question.

How did pricing fluctuate within the bigger cities such as New York?
Was it anything like areas all these cheap properties are being sourced?
 
Hi Oracle

It was a double whammy in US because the US Subprime mortgage crisis coincided with the US recession.

So increase of high risk mortgages that went into default beginning 2007 contributing to severe recession. Lenders offering dodgy home loans to individuals with poor credit.

I am no expert in this area however I believe in Australia we have much tighter bank regulations.

Ultimately you can blame greed in part for what happened in US, could this happen in Australia?? Recession of course, reduction of 70% in housing stock, no one can answer this?? During the GFC/Mining crash we have seen certain pockets fall as much as 40% and still has not fully recovered, but this impacts in certain pockets only, not Australia wide. During GFC most markets in Australia fell back, however many did not realise that Melb was booming, started with inner city. Whereas in USA property market crashed in every State some hit harder than others, nonetheless everywhere.

Perhaps Australia's economy is slowing down but I don't see a double a whammy at the moment, certainly not on the scale we have witnessed in USA... thankfully:)
 
I know absolutely nothing about US property, have not paid much attention, but have a question.

How did pricing fluctuate within the bigger cities such as New York?
Was it anything like areas all these cheap properties are being sourced?

I would think New York is a very different market.
Location, location, location.

Big drop in property prices also happened in SE Asia during the Asian Financial Crisis in the late 90s.
Hong Kong commercial properties were selling below replacement cost.
Singapore residentials also had a huge drop ~ 40%. I think took ~ 10 years to recover.
 
I would imagine that when everything in the US was going down the gurglur at its worst, warren buffet was licking his lips, and having the time of his life going shopping!!! like a kid in a candystore
 
The other main difference which affected their pricing greatly is that people could just walk away from their mortgages in the USA.

The default rate in Australia is a lot less because of our different banking policies.

But yes there are places in Australia that suffered greatly and have not come back to their peak prices. In Perth places that come to mind are Mandurah and Mindarie. I purchased a block this year for $480k which had previously been on the market during the suburbs peak at over $800k
 
Of course it is not just the US where this has happened. Ireland's housing market collapse has been well documented. They had a whole other set of different circumstances but still the effects were similar to the US if not more severe.
And it?s still playing out over there??I know of a 3 storey property that was bought in 2004 for the equivalent of $500k, another $500k was spent on renovations and splitting it into a couple of apartments and a shop front. The property was repossessed this year and the whole building was sold a few months ago at auction for the equivalent of $250k. This is a fairly extreme example but it?s a 75% loss 10 years later.
When I was over there a few years ago, I also remember seeing a housing estate of 16 half built houses that were selling off the plan for about $250k each just prior to the GFC. They were now trying to sell the whole estate for something like $300k. The developer went bankrupt and there were fire sales like this all over the country.
It would have taken a brave person to jump in and buy these but the issue was there was so much supply and no demand, they would have sat empty for years.
It will take a couple of decades or longer for things to get back to anywhere close to where they were over there.
 
It will be dependent on structure, tax in US can be higher than Oz, that is why you need a good accountant that can work this (thanks Skip:))
 
the US market was a no brainer, I'm just really annoyed I was fighting fires in this country to even consider heading over there.
 
US Property Market

It was the most fabulous example of all examples and is gone - those of us who bought back in the 2009 era bought when US investors were buying on the way down, those Australian investors who bought in the 2010 - 2011 example bought when it was absolute rock bottom...- currency exchange rate, US recession ad incapacity for US property buyers to step in.

That phase is over.. what can you learn from it?

Outside of the Australian market are a million markets that move a million times faster that the OZ market - and if you can factor in exchange rates, factor in stability of governments and factor in "rip off" factor of long term holding by a foreign entity (ie - you will never remember your first property purchase price but you will always remember the last property management rip off), you can do brilliantly beyond brilliantly - but know someone on the ground not motivated by greed. I can show 40 examples of those who bought and doubled/TRIPLED their purchase in 4 years and I can tell you of 40 that had that yield reduced by the rip off property manager they were dealing with, HOA fees/fines, taxes, insurance rip offs etc because they weren't on top of it. This is a job, a very very lucrative job but be very very aware that you need to be on top of it... those who are on top of it walked away with a bint, those who didn't stay on top of it, merely doubled their money in 3 years....

NOW??? I have invested in the US economy almost exclusively for 20 years... but personally I just bought Bahamas for example - 85k purchase price - overlooking sunset Caribbean,Atlantic Sunrise - rehab is 100k, will hold for 1500 a week rental etc... first time in my life time THAT makes sense - holy flip .. unbelievable - that would have been 250k plus 3 years ago even in present conditions... UNBELIEVABLE.

My advice - go find the next place! Or, buy commercial US (MFR or Comm)... All eggs in one basket over a 9% ROI in the US stops even US investors... heed well... I buy big when it makes sense..but I just cashed out some SFR properties for example to buy big commercial and then Caribbean (last to regain after the US crash was/is commercial and then holiday homes!!).

Use common sense.

Market has moved on - SFR made HUGE sense for a small period of time - Please please note all eggs in one house at 150k is the same as buying cash OUTRIGHT 500k SFR in Oz... ??? What, not leveraging to buy an SFR at 500k here in Oz... would you do it? Would you put 500,000 into a single family property in Oz? If a family trashed that place you have a lot of eggs in one basket - that IS the equivlent. Investors in the US exist at 140k+ but they have only put 28k into the place... their loan is FIXED at MAX 4% for 30 years P&I.....

I HAPPILY buy up to 150k SFR if my repayments are only ??400 a month over here and I am making CG and $600 on top per month... who cares if I have 3 months vacancy...

Be aware, very very aware, US lending at SubPrime is back on - bargains are no more unles you are US capable of borrowing and FNAP programs SUCK (Foreign National)

US JUST made sense to investors at 70 - 80k...unless you are ABSOLUTELY certain of dirt cheap taxes/insurance/PM and repairs you are running a fairly large risk.


Please please... as before - don't buy in the US unless you have truly considered whether you can sell tomorrow for more than you bought today and, unless a flip, that you TRULY consider what you are buying it for - including markups, repairs etc... The US market needs a "purchase power" comp for you to truly realise what you are buying. Great purchases - just know - what you are buying, what you could have bought and what the opportunity cost was for that.

Please.
 
NOW??? I have invested in the US economy almost exclusively for 20 years... but personally I just bought Bahamas for example - 85k purchase price - overlooking sunset Caribbean,Atlantic Sunrise - rehab is 100k, will hold for 1500 a week rental etc... first time in my life time THAT makes sense - holy flip .. unbelievable - that would have been 250k plus 3 years ago even in present conditions... UNBELIEVABLE.

My advice - go find the next place! Or, buy commercial US (MFR or Comm)... All eggs in one basket over a 9% ROI in the US stops even US investors... heed well... I buy big when it makes sense..but I just cashed out some SFR properties for example to buy big commercial and then Caribbean (last to regain after the US crash was/is commercial and then holiday homes!!).

This sounds like fun - $1500 a week rental sounds like short term holiday accommodation - and a lot of property management? I'm presuming Nassau/New Providence? I love to know more if you can share?
 
New opportunities

Absolutely on sharing.... I bought Long Island Bahamas... an 80 mile long island that literally only had electricity put in in the 1990's (but Christopher Columbus deemed in 1493 the most beautiful island in the world).

http://www.bahamas.com/beaches-in-long

House Size: 1750 sq ft - 3br/2.5 bath, 1 car attached garage.
Block: 3/4 acre
Purchase Price: 85k - they had it listed at 160k, then 140k when I offered 80k and was countered at 85K (LOL).
Rehab - including complete gut and all new furniture, windows, doors, balconies decks, bedding, cutlery etc = $107,500 (we have gone ALL out)
Closing time - worse than a US short sale - took 10 months but I was a 'special case' in theory.
Return - after cleaning, maintenance and holding costs with 50% occupancy (conservative) = 12%
Title Type: Torrens Fee Simple

You do have to go through a reference system with the Bahamian Investment Board (2 credit references, 2 personal references etc)

Be aware of title issues - they are rampant so only deal with Bahamian lawyers and estate agents.

On the plus of this - which is indeed correctly guessed at short term rental, it is an island with zero crime. I wouldn't buy Nassau if you paid me to buy unfortunately due to the crime. I also have, over the years, eliminated every other location almost in the Caribbean either by cost, government or crime. Long Island on my first visit saw my rental car at the airport with the keys in it, I let myself into the open door accommodation and beer was in the fridge... by zero crime, I mean literally zero. Everyone knows everyone - you wouldn't survive on the island without.

Property itself is in the Stella Maris Resort complex.

www.stellamarisresort.com/beaching

Think 1970's outer island Fiji (awful decor) but for the $250 a year that my HOA fees are, I have access to the 3 pools, rock pool, gym, and private beach. This island is predominantly unoccupied which appeals a LOT to the European market that spend vast sums to "escape it all".

Appeal to Oz investors is that it is a tax free haven (income is tax free)! Real estate tax per annum is literally 1%. Sadly they are literally implementing a 7.5% VAT effective Jan 1 so I just put a 60k Home Depot (Bunnings on Steroids) order in to beat that. Customs and import duties is another thing they hike but with the proximity to the US market prices, HIGHLY affordable investment.

Bahamas is literally 1 hour from the US (or 90 minutes by boat to the first island) so the feeder market of 300 million people is EXCEEDINGLY tempting. Long Island is a puddle jumper 10 minutes from Georgetown International Airport in Exuma. Or a pleasant 30 minute speed boat journey.

INVESTMENT STRATEGY SINCE CRASH
Here is what I noticed and have banked on personally with my investment strategy - the FIRST thing people got rid of in the recession were the holiday homes, next went people's businesses (commercial property) and last went their homes - homes have bounced back, commercial properties are delusionally bouncing back (I think we will see another dip in the US here and am holding out for that... we did a few "double your money in 3 months" type deals) and the LAST will be the holiday homes. Those bargains are out there.

I went on a scouting trip that was just ridiculously fun. I went looking for land to build on down the line (beach front, as in ABSOLUTE beach front on one of the top 10 beaches of the world was 100-150k for 1/2 acre type thing)... but then this little gem leaped out and heck, those who have read know I just LOVE bargains... and flips and heck, just the adventure. THEN the real buying fun leapt out.

What REALLY got me was the number of people willing to vendor finance. THAT is a VERY appealing thing.

There were properties (ARE properties) that I was looking at that they were willing to accept 50k down, knock off 50k - 75k off the list price and finance the remainder... HELLLOOOooooooo... forget trying to get FNAP loans US - I literally just was fishing - but every property in the Bahamas (EVERY) is bought cash outright by foreigners - which means that every property that is desperate (50% of foreign owned properties) are willing to deal - and by deal I mean desperately. Some of these houses I have watched stay on the market over 18 months.

Disclaimer is that I only looked at Eleuthera and Long Island - I have an issue with islands that may not survive rising oceans - as unlikely as it is in my lifetime for that to happen.

Okay - obviously my new favourite topic.... but to still find properties you can get accepted at 50% list price anywhere on the planet? Love it. But this is a holiday rental market so you need to make sure you are factoring EVERYTHING in when you are buying - including hurricanes (mind you FL is the same).

It is a rehab - please note. As in, think REO US properties. I will try to put piccies up but anyone interested should look hard at this - but carefully and with normal DD etc. Get a great agent - mine literally is awesome. I have a great one in Eleuthera as well. Shirt off their back type people.
 
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Thanks for sharing Emma, interesting stuff. Long island looks lovely. Appears to be a tiny market with only 47 properties listed on the MLS so not something one could take advantage of in any scale.
12per cent net is not to be sniffed at with a conservative occupancy rate. Is the property managed by the resort and are the fees reasonable?

What did you think of the beachside blocks, in terms of medium term cap appreciation?
Are building costs reasonable or extortionate?

Sounds like an exciting lifestyle travelling around seeking under-priced markets, but hard work also with all the rehabbing and renting. Full time job I suspect. LV, Atlanta, commercial and now Caribbean -never a dull moment. Keep us dated with the next destination-I for one enjoy the read.
 

Thats a real example of why aussies have been investing in the states for years, that is blinded by the price tag and saying hey. thats cheap! I can buy 10 of those for one in Melbourne. Nothing against you, just using the price tag as an example, aussies are blinded by the price tag - quality over quantity prevails......not the reverse.

Im not a promoter or a selling just a person who sees people make mistakes in the states. When we think US we need to compare Frankston to Camberwell and please take that the right way. Promoters sell this type of property to aussies all the time - cheap as chips real estate.

Frankston VIC is an area which we see as bogans, low demographic but i think it does present great opportunities just a stereotype, well the same applies to most US cities, whether its Atlanta or the north (ohio/ michigan) or south. When you look at Ohio you can find a place for $25k and flip it in no time, problem is you need a team on the ground to ensure you sustain the investment over time. There are no Barry Plant etc like her to take care of the PM its bloody manual - they need to collect the rent, and thats what you get for the price. Its hard to collect rent from a meth lab at times :)

Continually we have seen aussies invest in bulk without understanding the slumlord principle, that is low demographic areas. These property gurus continue to pry on aussies - i must say less today than a year ago which is good, perhaps due to good folk getting the message out there plus lack of understanding with the exchange rate impact.

In the end, I ask Aussies to think about the big picture as to what is involved in US real estate before investing .... i.e costs of LLC, buyers fees? Closing fees? PM costs, SMSF fees etc, which hit your net yield..... before you decide to invest - that is the same principle of due diligence before you invest....

Cheers, Ivan
 
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US Lessons Learnt

Will post on Bahamas specific on a new thread but it was more that time is your most precious resource - spend it doing things you WANT to do - while you still can health/age wise etc - money isn't everything but can go very very nicely hand in hand. Property investing is the one addiction that you literally can manage with a laptop from anywhere in the world and that luxury has come from investing in the US sooooo?..

SO - US Lessons? Everything is an opportunity cost

1) Think for yourself/Don't get stuck in yesterday's news. If I had stuck to traditional "what everyone did last year", I would have missed the entire SFR market as even my commercial broker and guru here in Vegas did - a guy who I worship in his knowledge - he missed it - completely! In Jan 2009, I was literally deemed crazy and I was living in the US.I had access to US loans even - it was STILL deemed crazy. Many of us can boast a million times about yesterday's buys but the question you have to ask - what are you going to buy today and go find it. I know people who only buy SFR, only Commercial and only flip. I do each because it is passionately fun for me. I am project specific for the gem, not genre. The US can afford you that. Markets move, move with.

Don't look backwards - don't regret - just learn. It could be soul destroying. Ha, less than what? 1% even have a second home? Look at today. Example: I can't tell you how many people are still asking me about buying US SFR properties hoping for huge gains or yields. There are GOOD buys and steady, steady, SFR yields possible if you are looking for that and to build your passive income - absolutely do it. 6 properties here and living here 6 months of the year and you could barely figure out what to spend the $$ on if you live in a reasonably cheap state. (I personally wouldn't buy East coast SFR to achieve it. Taxes, maintenance etc are just off the Richter scale. Buy anywhere desert with low taxes and low insurance (exceptions to every rule). In Atlanta even your insurance deductible is triple that of Vegas. Labor costs are higher, weather is tougher).. just don't make this harder than it has to be.

3) Your US investing experience STARTS with the buy so STUDY YOUR MARKET. Pick and choose CAREFULLY - it is fun. Tenants, properties, managers, repair people - location. After a while they seriously do mostly run themselves if you have done that. Then you can head off to somewhere sunny for a few months ;)

4) Opportunities abound The US is a place you CAN find properties that leap - long long before the boom, we were all investing and having fun over here...(and opportunities abound in destinations you don't hate visiting). But be patient and spend 10 hours a day for 5 days straight pulling even a single family house to shreds in due diligence if needs be ? if you miss one "deal", you will be better prepared for the next but it will save you years of angst if you are going to hold (flips are much less painful).

5) Manage the manager Go with gut - if you think something is wrong, it probably is. Get photos from a property manager date stamped. If you haven't rented a house in a month, get date stamped photos of condition etc. In fact ASSUME you are going to get ripped off.. just ASSUME and then be pleasantly surprised.

Buy well - the rest you have to oversee. if you can't literally sell a property for more than you bought it yesterday? Think twice. Once bought as has been noted - that is when the work starts. DO NOT TRUST PROPERTY MANAGERS? CHECK THEIR WORK/PRICES.

First rule of real estate - you make your money ALWAYS on the buy. Always.


6) NEVER look at what the prices were in 2003 and 2004?. that was on the rise of the bubble in most markets. In Vegas people were selling OPTIONS on houses in those years.
Example - bought 46k in 2003 was valued at 330k ?. LOL.
Yep, the house I am sitting in right now that everyone knows was 330k by 2004 (even I laugh at that - although in Vegas it is back to 160-180k right now - but Vegas is a boom bust town). The lesson is that if you want to look back, use a good figure and use it as a tool to reasonably guess MARKET CORRECTION - for that go back to the prices BEFORE the bubble - that is, go back to 2001, adjust by CPI and you have a good yardstick for why the market probably would have been/will be.

7) Find the anomaly - the good anomaly If you find that property that is below 2001 prices and factor in rehab costs and STILL are below that, then you probably are buying a GOOD buy still waiting for market correction (not necessarily a good property) but a GOOD buy. I have seen pockets here in Vegas that defy logic as to why they haven't risen yet - they make solid buys still.

Never buy anything you can't sell tomorrow for more or come out at least cash neutral. If you hate it, you can get out.

I don't look to cap growth but ALWAYS look at:

1) What can I pay for it (is it a GOOD buy below current market?)
2) What are the repairs (get 3 bids)
3) What can I rent it for
4) Could I live/work/play here? if I wouldn't - why on earth would you want to (- one of my best yields is a townhome in Atlanta that I doubt anyone else would have thought was a good buy but it is brilliant. 20k purchase, 3k reno and renting same tenant 3 years for $729 a month Section 8..no HOA, no repairs - why, because I spent time there living there myself. It is a GREAT little subdivision for as long as it lasts).

8)Conserve costs and keep it simple Example for me personally is asset protection. I have precisely 9 properties in LLC's and they are ones I am in partnerships/syndications on - commercial/JV's etc. The rest? If I had to pay for individual LLC's for all my properties AND maintain the corporate veil and pay the separate taxes?? My yield would be significantly eaten. Asset protection for me personally is simple - I keep the highest insurance I can and I have high umbrella insurance beyond that. In Vegas I have a Series LLC (one of the BEST things about Nevada - VERY VERY LOW TAXES, booming economy and laughably friendly business taxes? try evicting a tenant anywhere else?!)

BEST asset protection - preventative maintenance, great tenants and response. Respond - and quickly to anything. Over fix, send chocolates. Keep them.

Pick wisely, enjoy investing and remember what your personal goals are - outside of this and mine firmly involves rehabbing/developing/building etc.

Again, I will post on Bahamas elsewhere as much as the US might want to annex it, Bahamas is still proudly part of the Commonwealth!
 
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Thats a real example of why aussies have been investing in the states for years, that is blinded by the price tag and saying hey. thats cheap! I can buy 10 of those for one in Melbourne. Nothing against you, just using the price tag as an example, aussies are blinded by the price tag - quality over quantity prevails......not the reverse.

Im not a promoter or a selling just a person who sees people make mistakes in the states. When we think US we need to compare Frankston to Camberwell and please take that the right way. Promoters sell this type of property to aussies all the time - cheap as chips real estate.




Cheers, Ivan

I've always said, you should always buy in your own back yard.
As a Canadian, I would never buy any of the American properties, unless I lived there.
No one is ever going to look after your property better, than YOU.

Those houses are cheap, and for the residents living there, it could be a great opportunity.

Many Australians have made a boatload of money from buying in USA.
That's great, but a lot of things could have gone terribly wrong.
 
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