USA investment properties for an Aussie

[locksmithuk]

thanks for your opinions lawsie...

When I'm done buying a few of these properties they will represent 3.5% of my total investment portfolio. I really couldn't care less about the yield. If I can double my money in 5 to 10 years I'm happy. The speculative portion of anyone's portfolio should be played with money they can afford to lose.

cheers,

Apologies if the issue of the US$ has been tackled/debated elsewhere in other threads, but I haven't 'thread-searched' it.

Like Oscar I'd been considering a US investment property, and while the foreclosed and wholesale options present fantastic value my biggest concern is the long term devaluation of the US$. By most accounts QE3 is on the way either as an officially-announced measure or quietly over a long time period... and why not? It's an easy (but dangerous) way to deal with that $16tn debt: the US will never be able to pay its huge debt and will try to inflate its way out of trouble.

In real terms Oscar's 5-10 year doubling of capital may be seriously eroded when the time comes to cash in and repatriate the funds to Australia (assuming of course that the AUD independently maintains reasonable strength). We've assumed for so long that once the US$ regains its strength then the power of the AUD will revert to a weaker position, but I doubt this will happen: the US$ appears to be in long term terminal decline.

 

[long88]

I had a property last week (Vegas) we closed and rented, needed everything - carpet, paint, roof work, sheetrock damage etc... within 7 days (actually we came in just over $500 under budget). The one before that the cleaners had to back out as they were moving in - only 4k of work also OCCUPIED within 5 days… it normally comes down to the time of month you close on a property as most tenants move in on the 1st . Why I hate end of month closings – the rush is crazy. This isn’t rocket science – see below for BIG SECRET to renting a property…..


Hi emma, was this mine ? as it sounds like it.

so finally after 1 year 3 month of looking around google map and study vegas, and lots of email back and forth (and countless rejected offer + wasted paper print out), finally got one !!

And yes, emma is the one, without her, any of these would not be possible.

So i would like to thank her (and the crew) for making all of this work.

Rough figure is:

Purchase: $69900
Repair (quoted): $8872
Rented: $1295 (big thanks to andrew)

and all of the other standard figure apply here (closing fee, emma fee etc).

Now other family member are lining up to get their hands on this. however have to wait for the right one to pop up.

Thx again emma (and the team).

 

[Oscar]

Well done long88. Good luck with your purchase

 

[Oscar]

In real terms Oscar's 5-10 year doubling of capital may be seriously eroded when the time comes to cash in and repatriate the funds to Australia (assuming of course that the AUD independently maintains reasonable strength). We've assumed for so long that once the US$ regains its strength then the power of the AUD will revert to a weaker position, but I doubt this will happen: the US$ appears to be in long term terminal decline.

I still remember the first time I bought an IP in 1999 and people telling me what a bad idea that was. I guess if you're right and the US achieves long term terminal decline, then my US investments will be pretty stuffed. Thanks for the warning.

 

[locksmithuk]

I still remember the first time I bought an IP in 1999 and people telling me what a bad idea that was. I guess if you're right and the US achieves long term terminal decline, then my US investments will be pretty stuffed. Thanks for the warning.

Oscar, I sincerely hope your purchase works out - like most people on here I'm a huge fan of property investment, and have been for years. The global economic fundamentals are very different now vs your first IP in 1999, which (potentially) undermines any otherwise intrinsically sound investment - which I believe US property is. It's difficult to know if your 'thanks for the warning' comment was a wry/sarcastic one, but if it wasn't then I hope you're able to hedge against future US$ devaluation.

 

[Emma171]

Long88 - why yes, I do believe it was - HUGE CONGRATS....

Lock & Oscar - I think the big thing is that property has a place in any balanced portfolio - but everyone is entitled to disagree. But those that DO feel it has a place enters the world of this.... the big debate within asset class as to what and where and I think more to the point, once you are way down to the "I have decided to pursue US property taking all variables into consideration", it is critical that you DO make your own personal decision as to whether you are yield focused or capital growth, or both or where on the scale between both.

When I was slaving and running a company, I would have erred cap growth. As I live off passive income now, yield is critical but I don't buy slums to attain it. I manage my own properties so I like "unshared" walls and veer away from multiplexes, I like safe suburbia and families. Doesn't mean S@#$ doesn't happen but dear heavens, that is ... but that is literally just my personal gig. I have helped people look at everything

In conclusion - each person to their own strategy which makes it so fun.

At the moment the only thing you will be able to guarantee is capital "growth" will occur within US dollars - if only because those who buy cash are buying below CURRENT market value. You can see that everywhere. Median house prices and average house sales price are double in every zip to the amount I have purchased my properties for. We see it all the time 4 houses sold in the past 6 months on the same street- 2 are sold for $50 - 70k, 2 are sold for $90k+ ..... why? difference between cash and financed.

Whether that 50k would be better spent elsewhere is open for debate. I have always made my AUD work in AUD and my USD work in USD - I am not a currency trader but have loved the little bonuses over the past 20 years I have picked up by NOT merging currencies until even I see the logic of shifting it.

 

[v770]

Hi all,

Spent the last 6 hours reading this thread and checking links posted here. Been looking to invest in the states. Lots of questions for me to clarify. At the moment, Emma and Karina seem to be the two people everyone recommends.

Emma and karina, will you guys be able to email me or perhaps even ring me?
I have set a budget, have a bit of cash (not a lot) and want to look into financing a property. I havent decided which city yet. Vegas or Atlanta.

Also, want to clarify this, How is rent distributed to you? A nominated U.S account? If not, then where?

Lastly, it was mentioned here that I would incur taxes for profits made in the U.S and therefore I am exempted for taxes here. Am I also entitled for some credit? Perhaps I may have read it wrong.

Sorry for such a long post.

Thanks!

 

[karina]

V77O,

Regarding your comment on being exempt from tax here, I would like to clarify as I understand it as I do not believe you are exempt from paying taxes here. I am not an accountant or financial adviser so please seek legal and taxation advise from professionals for your situation.

This is how I understand it works.

You pay tax in the USA on net profit made. Regardless of which entity owns the property tax will be payable.
You also declare any foreign earned income to the ATO in your tax return.
There is a tax treaty between the 2 countries so that you are not taxed twice (hence you get a tax credit back for tax paid in the USA).
HOWEVER if you are on a high marginal tax rate in Aust and the earnings are distributed to yourself it is possible that you may need to pay the ATO tax on the difference between the tax rate paid in the US and your marginal tax rate here.

If you own the property via an Australian discretionary trust the trustee has the discretion to distribute income amongst the beneficiaries of the trust thus being able to perhaps avoid a situation of having to distribute to the individual on the highest tax bracket. (and incur a tax bill from the ATO)

Th information above may be different depending on which structure you decide to set up in the USA. As I understand it with a C-Corp structure you do not get a tax credit back in Aust for the tax paid to the IRS by the C-Corp. The information above would relate to using an LLC as a pass through entity (not acting as a C-corp)

The information above may not be correct or may not apply to your individual situation. It is of a general nature only. This is not tax advice, no liability will be accepted, please refer to your taxation professionals for advice. USA/Aust taxation law is very complex and best to consult the professionals.

 

[v770]

Hey Karina,

Here, we can get a tax reduction from all the expenses incurred at your investment property such as strata, electrical, management fees and etc.
Does this apply to investment properties over there? Can we claim the outgoing costs in the states to reduce the tax charged on the investment property? I mean, tax reductions with the IRS not ATO.

 

[karina]

yes I believe expenses related to utilities, strata (known as HOA in the states), property management fees etc would be tax deductable against rental income in the USA.

Please seek advise from a taxation professional. The information above may not be applicable to your personal situation. No liability is accepted.

 

[Heatseekers]

Hi all

For some reason I wasn't getting updates from this thread so I have missed about a months worth and just read it all. Karina and Emma I just want to say thanks for all of your input.
I'm still interested in buying an IP there, can't decide which city or where to start now, the more I read the more I change my mind! Do you guys just work in certain areas eg Karina in Atlanta and Emma in Las Vegas and Atlanta?
I would be interested in using one of you or even both of you and have emailed once or twice, but very busy with my business atm so this has taken a bit of a backseat. But in the next month I will be back into it and hopefully around July travel to the USA.

Are there any tips on how to get started or what to look for first?
What services do you provide as a facilitator and is there a "maximum" amount of work you do for that price. Can you help setup and check off everything a first time investor needs to do eg. setting up LLC, letting you know what insurances you need, how it all runs over there etc.
How much after service do you provide if any?
The one thing I'm worried about is a PM. How can I find a good one and do you guys have any that you use regularly (I think perhaps that might be the first thing to look for before you find the house???).

When I go over there would it even be possible to meet up with one of you and spend some time going around a few neighbourhoods you recommend?
Cheers
Candice

 

[Emma171]

I am not a flipper or a wholesaler - I don't buy bulk. I help YOU buy YOUR property. I work with the individual versus the property - but that also means I say "no" more than yes to any property because the vast bulk of this market ISN'T worth buying. I am not looking for 30 properties for 30 people at a time - I am looking at up to 30 properties for YOU to find YOUR ONE property for YOU.

There are 3 phases you could be ripped off over here and it is why when I set this up I included them all because really how else could you do it? Just check with whomever you are using PRECISELY what the costs are and that you are happy with that - it is toughest in phase 2 - the repairs because that is where people rip most off the most. The facilitation you are only really getting ripped off if the person you are buying from hasn't actually been into the property. ALWAYS know how much your property was purchased for and by whom. ALWAYS ask for a line item by line item breakdown of repairs.

The three areas that you need to concern your self - the buy, the repairs and tenanting.

For me this is about

1) getting the right buy for you (bank accounts etc of course included)
2) Repairs... all items purchased the day before closing and overseeing the repairs and getting them done as quickly as humanly possible without shirking on quality (yep award winning Aussie project manager included)
3) tenanting your property with the right tenant as quickly as humanly possible

One fee = $4500.

Broken up as $3,000 upon closing and $1500 upon tenancy.




Let's say you have 60k to spend - that means that with EVERYTHING included, you need to work backwards from that....

4.5k for Facilitation, repair oversight and tenanting the property
1.5k for closing costs and inspection fees

THEN THE FUN BEGINS....
You now have 54k to spend... the choice then is limitless - 54k move in ready property that will rent for 25% gross but has an acre of lawn to mow and a $400 a year HOA etc, a 50k with 4k to spend on it, or a 35k with change left over to visit the property..... there are pros and cons to each of these ..maybe even 2 townhomes at 25k because your daughter needs to inherit one... I don't know but YOU do.

These things are YOUR decision...there will be 20 properties that you could choose from in this range - I can tell you the pros and cons of each, I can tell you what I love, I can tell you yield, I can instantly tell you repair costs but ultimately THIS IS YOUR PROPERTY - THIS IS YOUR BUY.... go with your gut

So, included is everything - especially what you want out of the property (yield, capital growth, balance etc)...- but I go through at least 10 properties every day and take photos and videos, give comps etc. It may well take a client only 1 property to buy something or 20. I don't sleep if your property isn't rented in 2 weeks.. and any facilitator worth their salt shouldn't either. You are paying this person more per transaction than ANY real estate agent would make and ANY real estate agent could hook you up with a flipping contractor and a property manager..... EXPECT MORE.


What I do, anyone could do if they had a month to twiddle their thumbs here - and I will happily step you through it... - it is if they choose not to, then they can contact me.

"Client Above Self" - actually is real estate law as well. This isn't hard but I just hope I arm you with enough that you will never get ripped off, you will deal with genuine people and move on to all the glamourous refinancing and deal structuring that will be the next phase of this market without any bitter taste in your mouth.

I happened into this with a background in rehab, urban planning and running businesses....so this is the best fun any human could have

WHILE WE USE LICENSED TRADESMEN FOR ALL SYSTEMS I am going to digress for those who love rehab....(NOTE THE BELOW IS ONLY POSSIBLE IF YOU ARE OWNER BUILDER AND I AM WRITING THIS IN THAT CONTEXT)

Do you know it took me EXACTLY 20 minutes to swap out an electric water heater this morning in Atlanta......? I FLIPPING LOVE THIS STATE....A 50 gallon tank is $289 (Retail at Home Depot), hoses $30 and a new shut off valve just for giggles is $10. If you own a home here and have any inclination, I will happily give you the "how to do plumbing in 30 seconds"...

NOTE - YOU COULD NOT DO THIS IN VEGAS (not to code sadly and I suspect because of the hard water) - BUT DEAR HEAVENS IT IS HERE.... why, because, and I have raved about this before... because PUSH CONNECT PLUMBING SYSTEM CALLED SHARKBITE IS ALLOWED IN ATLANTA. CPVC, PVC, Copper, Polybutylene all effortlessly and legally connected behind closed walls... you HAVE to love it..easier than Lego.

SERIOUSLY, buy a property, take a month holiday, I will give you my tour of Home Depot (everyone HAS to fall in love with it - Bunnings on Steroids) and you will just want to do this full time yourself!

Digression over.

You get my knowledge of this market, my personal opinion of every property and why you should buy it (then you get to disagree if you wish) and I handhold until you buy what you wanted to buy, have a tenant you are happy with, repairs that haven't been hiked and ongoing help for as long as you want and need (3 years in the contract). First month property management and finding a tenant is included but after that you get 7% property management fees with no reletting or renewal.

I only take clients on who are by referral or somersofters as I only really ever post here and "blame" the many members of this site for me finding my absolute passion in life.....

Just don't get ripped off. I will do anything and everything I can to prove that the real estate market here, while it has different nuances to Australia, is navigable, fun and should be understood by anyone investing....

 

[Heatseekers]

Thanks Emma for your response and thanks Karina for your email I will ring you once it settles down a bit here in about 2 weeks.
So Emma what areas do you find the properties in? Also do you help with informing me what I need to setup like LLC, tax numbers or anything else I might need to be able to invest in the USA?

 

[Emma171]

Yes, have fabulous accountants and insurance brokers and inspectors and put it all in place so you dont have to worry about it and of course hand holding goes with the territory but to be honest anyone will do that.....They have to if they want to sell in this country to foreigners....which everyone wants to do because foreigners have money and are gullible and ripe for every rort in the book..

Just be VERY aware of companies that sell LLC's and not properties.... Ie make sure that you get title in either your name or the name of an LLC of your choosing.... I can not emphasize enough and this is just general but people are selling LLC's that in THEORY own properties..

If you are using LLC's as your method of asset protection PLEASE choose your own name and have title (with title deed in your hot little hand) in the name of that LLC. Many companies use shell LLC's to circumvent title transfer laws ie buy property before knowing who will own it in the name of an LLC ... "Widget Street LLC" then transfer title of that LLC to you.... And the LLC owns the property.... But what if it DOESN'T own the property? I know I have mentioned it before but dear heavens be very careful. WORSE... What if that LLC actually has debts to it??

For the record.... If you think Australia has big storms? Atlanta beats them... Just cleaned my gutters before one hit again and had to come inside because I was so scared...ha! Figured electricity will go any second so if I am on the computer I will have light!!!!! Big scaredy cat

I drive about 200 miles a day and happily give the tours to anyone...buying is absolutely not required through me but this is SO addictive you will be like a kid in a smartie store...

 

[Emma171]

Here is the BIG thing... How many of these facilitators do you SERIOUSLY think are going to be around in 3- 5 years time when the market changes and you are needing to be going on to phase 2 or 3 of this cycle? If you have someone who is only focused on front end sales, what happens in 3 years time when you have "issues"... You NEED to learn this market... If you are pawned off to a property manager, in 3 years time you are just a tiny investor with maybe 5 properties who lives overseas and how much attention are you going to be receiving....?? I have been here 13 years now and can tell you right now they pay zero attention. The only way I could structure this for my guys was to hold an overriding contract and control with the property management side of life (ie screw one of us and we will all walk type threat.....united we stand, safety in numbers and I will come and hunt you down if you mess with us type thing because I WILL be here to hound you!)

LEARN THIS MARKET... You will be in it for at least 5 years.....your facilitator is meant to be the expert .. Whoever you use... Use their knowledge to at least know what to do when or if they ever "go"....

don't buy secrets or methods.... Buy knowledge so you can do it yourself.


TAXES... The huge difference that most notice is that you can claim the bulk of your Renovation costs upfront... In Oz you can't until tenanted but in the US you can... Usual disclaimer of not being an accountant... Also, if you are retired or work part time, you may very well want to discuss with your accountant whether you could be declared a real estate professional...something I am told can be applied to non residents as well by someone who has done this (disclaimer, disclaimer).... Ie you spend more time doing real estate than anything else (one of my best friends is a real estate professional and an attorney in his "part time")... It stops the limit of deductions which is otherwise only 25k (or thereabouts from memory)... Plus some lovely carry forwarding etc... Again, I am NOT an accountant but things are fun here..

 

[Graemsay]

What Goes Up...

From the EconomPic Data blog.

 

[Emma171]

I LOVE THIS GRAPH. Really shows different markets and responses to the property crash.

JUST using my two primary markets.... EVERYTHING and i mean EVERYTHING in Vegas was valued at over 200k....even the most dire, crappy mobile homes ... people were literally buying OPTIONS on the purchase of properties... especially new developments and a lot got VERY burnt. In Atlanta... not so much as it wasn't and never was a speculative real estate market... One thing I took very much to consideration when i bought in Vegas.. It is a boom bust town - the troughs are lower, the peaks are higher...

This is about finding the gems wherever you are and IGNORE what the peak of the market was....

Here are precise examples... Randomly chosen...

LAS VEGAS

Here is an unmistakable mobile that sold for 41k.....(someone got screwed but could probably flip it now for 55k) Decimated from it's peak "value" of 200k... In 2004, this baby blue mobile sold for $180k...! Probably deemed cheap....
http://www.zillow.com/homedetails/4789-Fairfax-Ave-Las-Vegas-NV-89120/7070090_zpid/

OR, RANDOM FROM TODAY....

http://las.mlxchange.com/DotNet/Pub/EmailView.aspx?r=655275741&s=LAS&t=LAS

Go to the 3rd on this list... Oh it is just so so dire it barely rates a mention...16 isn't much better..it is big though. MMMMM. HOME! Lol.

Address= 4918 E Van Buren.... it is not a foreclosure and list is 84,900. It says lot is large enough for a horse!!!! It is just under 1/2 an acre. Yes it is large enough for a horse if you have miniature ponies and want to keep them in a dust bowl. Fluffing is legal.

In 2006 this property was "valued" at over 300k (switch to 10 year graph)
http://www.zillow.com/homedetails/7033245_zpid


Again, pick ANY house in Vegas and it was "valued" at over 200k in the peak

Look at Atlanta and you see a graph that plateaus and then just drops on some of these properties....and will probably bounce quickly back to market values but after that we merely have the joys of CPI to increase values if historical price rises are anything to go by...(just personal opinion)... To demonstrate, look at a house there worth 89k and it has, probably only dropped as the graph says by 30-40% on average ... But some??? Oh some are WAY more....and THEY are the gems we hunt down!

Okay, I can't find quickly one at the same price so this one will have to do...

853 Hawthorn Lane Grayson - Foreclosure list price 79,900
This is a "live" property for sale today ...

http://www.zillow.com/homedetails/853-Hawthorn-Ln-Grayson-GA-30017/80156808_zpid/

This demonstrates that a foreclosure, a lovely young 4 bedder even in a perceived good area like Grayson was only at the PEAK of the market $166-$180k....the drop self evidently has "only" been 50% on this one BUT IT HAS BEEN over 50% and for an area that has maintained good pricing, this might be the type of thing you take a closer look at and then decide from there what you

PLEASE NOTE THESE ARE EXAMPLES ONLY FOR DEMONSTRATION AND NOT RECOMMENDATIONS - I HAVE NOT LOOKED FURTHER AT EITHER PROPERTY (although the Grayson one shows the whole enclave around 50 -80k... a bit all over the place and it is a little "clustered" to the neighbour houses etc)...

My personal opinion - FORGET 2006 prices.. I aim more moderately to 2001-2002 prices for where this market will readjust to and I am still thinking we only have until the end of the year


Great graph.


Ignore 2006 prices

 

[Making The Jump]

Hope this helps for Vegas buyers

Hi! Just finished up from a trip to see the Vegas house in its finished format - very exciting! Just a heads up if you are looking at buying in Vegas right now, the property manager said there is not a lot on the market at the moment, from memory because of the legalities going on with banks and foreclosed homes (I was a bit too overwhelmed to remember the specifics and Emma or Karina will probably be able to clarify the reason if I am wrong) and that people are putting lots of offers on sub-$100k properties right now, like really stupid offers on not so great houses. Trulia shows there's only about 1700 properties for sale in Vegas right now.
But the property manager said there will be a flood of properties coming on the market from June/July once its all cleared up and hence, prices will go down. Take the info as you will, it was something I heard on the ground. From my own research, there does seem to be somewhat of a dry up on properties. When I was looking at buying virtually the whole neighbourhood was up for sale and now not so much.

 

[somersoftfan]

Guys what you think about investing in US based REITs instead of directly investing in properties. If there is a property boom in US, the REIT also should boom?

I did some research and the below ones seems good.
A good REIT eft based in US is:
1. REM (pays out 11.18% dividend). http://finance.yahoo.com/q?s=rem&ql=1

There are bunch of REITS in US(slightly higher risk since they are individual companies):
1. American Capital Agency(AGNC): 16.3% yield
2. Annaly Capital Management(NLY): 13.7%
3. Cypress Sharpridge Investments(CYS): 14.7%
4. Capstead Mortgage(CMO): 12.8%
5. Hatteras Financial Corp(HTS): 12.7%

 

[buzzlightyear]

No bottom yet - although falls have reduced

Seems like US house prices haven't bottomed yet, with the release of January's S&P/Case-Shiller Home Price Index

For those thinking or who have already invested in Atlanta & Las Vegas, these cities have experienced annualised falls of 14.8% & 9.0% respectively.

Link is here