USA investment properties for an Aussie

[twh]

400 doors...

Welcome to the forum twh. Great first post. Appreciate your insights about liens and umbrella policies. I haven't invested in the US yet, so all of this is news to me. Still reading and absorbing information from those who are doing it.

Four hundred doors, eh?

I, for one, would be keen to hear of what these entail and, I'm sure others here also.

Are they a mix of SFH, multi's (MFH) and what locations are you exposed to? How do you superintend the management of such a portfolio? If you are inclined, please share.

Again, welcome to SS forum

Mobile Home parks (2) 100 plus SFR and growing at 10 a month in 4 markets.
We have a very unique model that we use for our US investors. so we have a combo of PPM funds individual ownership and partnership ownerships... Depending on Asset. Back ground is hard money lending and will be firing that back up in 2012 we are actually working with OZ FP plannners on a ASIC registered fund... goal will be to pay 10 to 12% to investors in the fund. These monies will come from Aussies and Superfunds. Ozzie company will be co manager along with my Mortgage company in the states. We will focus on lending money to the first Generation wholesaler and Bulk buyer, short term loans 6 months or less all first position. It will be a nice alternative US investment without all the trouble of owning real estate and the undcertainties more of a fix income managed fund based on US first Mortgages. Just like buying the underlying asset. There has never in basic memory or history, been a better time to enter the lending arena in the US. Prices have been smashed capital is tight. And there are good operators that have pipelines of buyers they just need reasonbly priced and accessable capital to aquire rehab and sell their product.

Prior to moving to the Equity side in 08 and loading up on these properties, I was only a lender averaging 40 to 50 private money loans a month to the fix and flip crowd. So now that values have basically bottomed its time to jump back in. And the Ossie True Arm chair investor that is risk adverse is going to get an opportunity to invest with a company that is managed by Aussies at home and Extremely seasoned management team in the US.

Could be a nice alternative to going it on your own. Certainly cheaper just walkin to your OZ FP and write a check

since I am new not sure how much I can really talk about our investment strategies and not be labeled a spruiker. I just find the Aussie investor interesting, completly different than my US clients. US clients think Capital preservation first and foremost and return is nice but does not need to be sky high, Its seems the Aussie fixates on % returns first then takes the attitude hey these houses are so cheap I will try a couple and see how it goes but I want my 16%

 

[lawsjs]

twh

US clients think Capital preservation first and foremost and return is nice but does not need to be sky high, Its seems the Aussie fixates on % returns first then takes the attitude hey these houses are so cheap I will try a couple and see how it goes but I want my 16%

I agree. I don't think Australians really understand risk/reward very much. We live in a nice cosseted world where nothing really goes wrong. You buy a house and it sits there and doesn't _really_ need looking after. Buying a US house is really very easy. Looking after it certainly is not. I wrote this to someone a couple of days ago.

The thing is Australians just do not understand is risk/reward (even Steve McKnight is very guilty of this with some of the 'property' HE recommends in his USA power pack thingy) US Tbill yields are 2ish%. These are bought by very seasoned investors with multi millions to spend. Why do they accept such a low return? Because they are SAFE and you KNOW you will get your money back. If it was so easy (and these guys live IN the US) does anyone not think that these property yields would be 5% like New York or Nth Hollywood and not 20-30%? The answer as you now know is 15-20% returns come with extraordinary risk. And that is why Madoff was so successful - 7–10% returns year in year out are extremely attractive to big investors. In Australia we get that from the bank right now, which is in part why the AU$ is so high. The risk on that front for a big investor over a US Tbill is of course the currency risk. You are not always better off getting $AUS 6% in the bank. If China or India stop buying our dirt and the dollar instantly falls to say .95 or slides to .80. Which is why the US money market is seen as a 'safe' haven. It is the biggest economy in the world by far and people with big money like what they know. And they know buying Tbills is very safe, so that is what they do. They certainly do NOT buy 20-30% returning property as it is ludicrously difficult to manage long term (more than a year) and dependent on many factors to work. It is just way too risky. And the more money you have the less you risk, or the 'smarter' you are – generally because you have made more mistakes than anyone else.

And I would add that we haven't lived through subprime. We know property never goes down The guys buying their 20% properties generally haven't ever seen anything go wrong, and don't get the long term issues with that type of property. Which is also why most guys who 'do' get it, look at a three part problem:

1) buying the property (easy)
2) repairing the property efficiently (hard)
3) managing the property (very hard)

A failure in part 3 leads to many returns to part 2

It is very rare in hi-cap stuff to get the 3 parts of the magic formula correct.

 

[Sunfish]

IF I were to consider the US, I'd start my search in those states which are financially sound and/or the oil states. But Texas never had the boom, nor did they bust.

What would be the returns there?

 

[twh]

IF I were to consider the US, I'd start my search in those states which are financially sound and/or the oil states. But Texas never had the boom, nor did they bust.

What would be the returns there?

No boom or bust in the last 15 years plenty before that.

That leads to a good question.

which is better?

Invest where prices have been hammered to all time lows, with the idea that even a modest up tic will bring nice capital growth Or,

Invest in a Texas market that has bascially been stagnet for 10 years or so.
Only capital growth would be appreciation and there has not been any apprecation in Texas in forever so why would anyone think there will be in the future they already got the best economy in the states basically what that did was kept prices from crashing to a certain extent. You talk to anyone who has had to sell Texas and they have certainly lost money. The only one in Texas that has made money would be a property flipper, not anyone who is a passive investor buying at market rates.

Interested to hear other thoughts on whats better.

buy in a crushed market or buy in a stagnet one.

JLH

 

[lawsjs]

You mentioned super fund (401k) money. In that case, with very long term expectations and a natural bias towards safety I would suggest central major cities with around 5cap. Otherwise you are likely to be buying properties that your fund has already lost money on (AAA aaa MBS's) just buying them directly.

The longer term your strategy the more you can 'afford' to sacrifice for security.

 

[Sunfish]

Interested to hear other thoughts on whats better.

buy in a crushed market or buy in a stagnet one.

JLH

Having been an active share market investor for many years I have become distrustful of buying something simply because it's price has been beaten up lately.

Do you read Gerald Celente's Trends Research Institute writings? He (and others) are concerned about a breakdown of law and order in some states which are already severely cutting "essential" public services. There is no way I would choose to own property in states where the law of the jungle rules. Keep your eye on CNNMoney too. They regularly grade the states/cities on livability etc.

 

[twh]

beaten down markets

Let me clairfy,

Certain beaten down markets.

I agree with you and I think your alluding to cities like Detroit. Where there are areas that the police will not patrol. And in fact if they have a Inicent they will pay to move them to another neighborhood.

I was talking about the markets I like which are the suberbs south of atlanta, Henry county specific... No Ghettos nice family neighborhoods nice shopping etc etc a place I would live ( of course it would have to be at the country club subdivision ) Houses that sold 5 years ago for 150 that we are picking up for 50 to 70 all in after extensive reno. I personally think they can pop back up to 100 to 125k in the next 5 years. B/C new construciton will start at 125k for the same house and go up.

My ingrained bias for Texas is as follows and why I bring it up. and its my personal experiences were I get this bias.

1. Every larger investor I know that went from CA cap rates of 3 to 5% to chase texas 10 caps plus lots their *** and their entire investment. these were 3 t0 10 million dollar deals. then the banks are very agressive going after deficiancies which of course there were. So had associates not only lose millions but got sued for millions and lost those suits.

2. We get a lot of transplants here in Oregon ( Intel) from Texas. Everyone I ever talk to says to actually sell the house it has to be discounted and they lost money selling.

3. Another of my clients that is in our Note investment program had 30 rentals there and has sold them and rolled into our program. His ***** was property tax's foundation issues and costs just ate him alive properties never made any money.

now I do know one investor from San Jose who has 200 homes there he has been buying since the early 90's and he loves it.

With the real lax land use laws' basically the easiest in the country It is how texas grows NO RED TAPE and of course inexaushstible land new construction competes very well with exsisitng rental stock... No big price difference so the new stuff gets sold the old stuff just lingers and investors come in and buy up whole neighborhoods and change the demographics over the matter of a few years.

 

[viank]

I have heard from http://www.21stcenturyeducation.com.au/ and a real estate agent www.slvrstream.com in the USA that Kansas City, Atlanta, Indianapolis are good areas to buy a $30-$75K home because of low unemployment, taxes, infrastructure etc with deals giving you 13-20% net return, most I'm looking at are 18%. I thought this was great and then have been told and looking on the net that there are some people that flip you a property and they are the ones that make the money. So I don't know if these companies are reliable or not? 21st Century is a group that you have to buy a membership into also. Has anyone dealt with either of these and heard any good/bad stories?

So I have had a few properties one of them have sent me and I looked it up and they wanted $75k and when I had a look on trulia.com all the surrounding houses were going for around 20-40k and a suburb over they were around $80k. Then I saw that this particular property had a house next to it with a boarded up door and smashed windows and parts falling off it. Now Im thinking this RE agent isn't really helping me. Although I did read comments underneath the property that the neighbourhood is quiet and that the boarded up homes are done nicely etc.

I really would like to get 1 or 2 or 3 properties with this sort of return but I don't want to get ripped off and buy into an area with lots of abandoned houses or too much supply where no one will want to rent it. Anyone got any thoughts on this or any good sites to do more research from? What do you think about these cities? They seem to be quite "cheap" and I'm wondering how "bad" they might be.
I'm looking for cash flow not really capital gains
Thanks

Hi, I heard it's best to buy from the Banks directly rather than through an Agent. Also for Aussies needing finance, don't forget we have a CommBank in New York City http://www.commbank.com.au/about-us/our-company/international-branches/north-america/ . My husband and I are looking into New York State properties or California as we have been there before.

 

[buzzlightyear]

What about the exchange rate risk? You could do all the DD, purchase correctly and have a well managed property, but the exchange rate goes against you and your gains are significantly impacted.

How are people assessing or deal with this risk?

 

[Sunfish]

What about the exchange rate risk? You could do all the DD, purchase correctly and have a well managed property, but the exchange rate goes against you and your gains are significantly impacted.

How are people assessing or deal with this risk?

That risk is too great for me. I know how it feels, I have an investment denominated in the loonie which has depreciated 25% against the A$ (no longer the Pacific Peso) while I have held it. If I couldn't borrow 80% of the price in US$, I wouldn't do it.

Besides, some States are likely to become chaotic when they go bankrupt, with the social fabric breaking down. The safer states are known to the locals and property isn't being given away there. All too much for me.

 

[Heatseekers]

All our properties are owned by LLC's.

Each LLC owns up to 3 properties. All the LLC's that hold the properties were established by the original buyers agent (cost $200). This was simply because it was the most cost effective way of establishing the LLC (compared to other shelf company businesses ($300) or heaven forbid an Attorney($900+) The LLC ownership is then transferred to my head LLC. This is no different than the transfer of a shelf company entity in NSW. My Attorney overlooks all this transfer paperwork.

In all cases the properties are purchased in the buyer agents name and then transfered to my LLC, whether newly established or already running.

Thus far my Attorney has also organised title insurance for every one of my properties, again in the name of the holding LLC.

We have also taken a further step and lodged a lean against each property backed by a loan agreement between ourselves and each LLC.

We have already seen the results of this process where an acquaintance was selling a US property and the whole sales process stopped dead due to the register lien. No different to a registered mortgage or caveat stopping settlement in Aust.

I believe that the registration of a lien against each US property you purchase is essential to safeguard your interests. This could be a step easily overlooked by a lot of Aust investors as normally we don't need to worry about this at home. The banks make sure they register their mortgage.

Cheers

Sorry this may be a dumb question but I am bvery new to this, how do you register a lien, who do you need to contact?

Ok, a plug coming in for Emma...

....who helped me find a place in Vegas almost a year ago now.

I broke her rules, and bought a more expensive foreclosure (with HOA).... we did debate the pros and cons...but I'm happy!

House was rehabbed and tenanted (via section 8) within weeks (Thanks Emma)

Most serious issue so far is pine needles falling on the front lawn (front pebbles?)

Rent has been paid every month, investment is cash positive, I tranfer funds back to Aus via XeTrade whenever rate drops below parity...(Ozforex not so good in reverse)

It seems the lack of maintenance issues in the dry climate, and the pro landlord rules are positives vs some other areas.

So, I'll be looking forward to my next (tax deductible) trip back there in April and (if the dollar is up) perhaps adding to the portfolio.

No hesitation in recommending Emma and her services folks!

How do you find the section 8 tenants? Have you had many problems?

The federal minimum that I got back in March from my CPA is 1.63% for a loan passed through from owner to LLC. I am not a CPA but will pass that on with the grain of salt. Note that a loan from a foreign entity to an LLC may differ.

NOTE - "title insurance" includes every con in the book - if you have another really valid reason for putting a lien on your property and are certain that the scams of the 80's that were so rife will come back and bite.... then yes, go ahead... it is free to do (well a $5 notary stamp) but I do just err on common sense.

Ultimately the levels of asset protection- apply all as thought of
simplified and paraphrased for brevity - consult with appropriate entities etc

Keep your property to Code (- buy in dry climates?)
My first property I bought in Alaska was because the tenant had abandoned the property unbeknownst to the previous owner and the pipes froze, the furnace froze and 20k in damage was done. My second I bought was because the previous owner didn't remove the snow and ice (in theory a tenant's responsibility) but they ended up slipping and suing the landlord for 50k and won - yes, absentee landlord just not caring enough.... (interestingly I still own the property and have the same tenant who sued who has been there for 10 years now...)

Best means of avoiding being sued - keep your property up to code, conduct quarterly friendly inspections and never, ever ever shirk on this.... get tenant and landlord to sign off and deal with any issues (trust me, they will happen, they will cost something but definitely save you in the long run).... you are buying a property with people involved. Do NOT think that problems won't pop up - they will - who you have dealing with it, how it is dealt with and the delicate diplomacy is critical. Start as you mean to go on, be consistent and be friendly! We all talk about being sued but how about trying not to be sued in the first place.

Imagine for one second a place where health insurance doesn't exist and you have a child who broke their arm on your premises even if it isn't your fault and just a childhood mishap.....often these people just don't have any perceived option but to sue or face 10k in a hospital! If you are an absentee and unknown entity, they may consider it... if you are someone who gives a Christmas present, knows their names, have documentation to CYA (cover your a@#$), you have just avoided 90% of all issues...!

Title Insurance
Beyond mandatory - don't leave home without it - don't even THINK of buying a property that doesn't have the max in title insurance.... that means title insurance that also covers mechanical liens.... this covers every fraudulent transaction known to the industry ... and again, mechanical - not included in standard title insurance but let's say I went and put an a/c on the roof of your property before it was foreclosed on (5k)... the lien for that work can be filed at any point up to statute of limitations - so I pop around to the property, discover it is foreclosed and say, well I will just wait for a new owner to come buy and bill them - they will be able to pay the bill! Unbeknownst, you buy that foreclosed property and lo and behold, 2 weeks later, you are presented with a $5k bill for an a/c unit that has probably been stolen in the interim...!

Standard title insurance doesn't cover that, those that include a mechanics lien do.

Landlord's Insurance - mandatory and I always, always recommend that you get a minimum of 500k in personal liability insurance - if you own only 1 or 2 properties, this "should" amply cover you (a brain tumour operation is about 250k...)

LLC Formation - if you wish - the theory is that they will sue your LLC and not you... the practice is that if they really sue you beyond the 500k, they are completely going to try to and pierce the corporate veil to attack you personally - so follow your LLC guidelines, don't unless necessary file an operating agreement and do do do renew each year - of course if your LLC is owned by a trust, they don't pierce the corporate veil, you will probably be fine... HOWEVER, do NOT attempt to think that refinancing an LLC through the states is easy. I have only just managed to get 8% hard cash financing for my clients with 50% LVR and they are baulking at LLC's......

Umbrella Insurance - what I love - if they pierce your corporate veil they can come after your personal assets - so, in other words, they pierce one LLC and get to your other US based assets.... EXCEPT... you own umbrella insurance up to 3 million so you are covered by that.... For what it is worth I was once told by a very very good friend of mine who is an attorney that the first thing any attorney suing you does is look at the total value of the asset they are suing against because that is what a judge will look at- if you have a 60k property, chances are the max they will get is that property... right now with umbrella insurance they have to go through

Lien on Property
Aaaaah, the scams of the 80's and 90's.... forge a document and sell your property - ooops, you didn't even notice..... but if you place a lien on the property, title will "pull" the lien up when they handle the "sale" transaction so they would then contact the lien holder and thus prevent it from happening.

Ultimately - if you feel this may happen - whack the whole lot on.....it is definitely true, a property with a lien on it is far less capable of being submitted to this fraud...

Thanks Emma, what else do you think needs to be on the checklist that you need to do before/whilst buying a property?
Is it easy to find out rough estimates of how much this all costs without actually having a particular property in mind? I don't want to go through all the work find something great and then realise that all the insurance and fees eat up my returns....

Hi, I heard it's best to buy from the Banks directly rather than through an Agent. Also for Aussies needing finance, don't forget we have a CommBank in New York City http://www.commbank.com.au/about-us/our-company/international-branches/north-america/ . My husband and I are looking into New York State properties or California as we have been there before.

Thanks, i will look into that, however I thought it was very difficult to get a loan in the USA if you are not a resident? The reason I was thinking of an agent for my first property is because I have no idea on exactly what all the things are that I need to protect myself and how to buy a property and communicate and organise everything from over here. I thought it would be good to get some help with the first one so it all runs smoothly and I know what to look for in the future and what needs to be done.

I haven't been updated on new posts so am surprised with all the comments. Thanks guys keep your opinions coming, there is so much to learn!!!!

 

[Player]

The more I learn, the less I know...........

What about the exchange rate risk? You could do all the DD, purchase correctly and have a well managed property, but the exchange rate goes against you and your gains are significantly impacted.

How are people assessing or deal with this risk?

This is also a concern for me and still seeking info to refine my intent and strategy with all of this.

Obviously it would be best to borrow their ponzi dollars. As a foreign alien this has challenges. Locking in USD from here on AUD strength is best IMO. Anything circa 1.05 and above would be good whether using cash or lending from Offsets/LOC.

Personally I have no urgent need to bring the rental cashflow back home, so can quarantine there for a while. Certainly would do this if buying in SMSF also in addition to family trust as member for the LLC's over there.

I may be wrong however tax rates there are around 15 % for this (and maybe <50 K income ?? per LLC entity). Bringing back the income after a year or two or three when we are possibly at 70 to 80 cents also adds to the currency play.

I am not sure whether (if we quarantine the rental income there) we actually need to lodge Oz tax returns each and every year or only when the money comes back (physically transfered) here. If it's the latter I am uncertain how the ATO measures the net pre-tax rental income, viz do they use the closing currency price of the exhange rate of the day (say 30 June) or the exhange rate for EOFY for each of the years it was left over in the US?

Obviously tax will be paid not only on the income but also the currency gain. Nothing wrong with this as the currency play adds to the sweetness of this endeavour.

The other issue with currency is for those who are actually charging interest on the money they are loaning to the LLC's over there. Even in the event that the purchase capital is locked in at a nice (parity or greater) price from here, when you are bringing back interest payments here (whether monthly or periodically say every quarter or so), you are still at the mercy of the exhange rate. Obviously best when the USD strengthens (AUD drops) and is in a mini bull run.

There has been some incredible input to this thread and other threads on the topic of US investing both from those in the US and also some of our SS pioneers, who have been very generous with their own experiences whilst they are out there doing it right now. I, for one, will be keen to hear of how their first tax returns go with the IRS and ATO as relevant.

Thanks for the input everyone.

 

[MTR]

The key is purchsing US property when the Aus $ is on parity or above, bringing it back to Australia is another ball game and you would only do this when it is in your favour.

Of late the Aus $ has been swinging around 94 - 1.05, just gotta keep an eye on it. When it is in your favour jump in and bring it to Oz.

That is the way I am playing it, Steve McK mentioned this issue at one of his seminars and that he was using this strategy when buying/transferring funds.

 

[Heatseekers]

yes i too would be interested in knowing about their tax refunds. As far as I know and after a very brief discussion with my accountant you can only be taxed once or if you do get taxed there then you should get credits for here.

 

[Emma171]

Section 8 tenants are simple to find.... And this is an EXCELLENT resource...

EXCELLENT... For checking rent returns, finding tenants, seeing what the Comp rents are for your area etc...

GOSection8.com. Obviously if you are listing a property you need an account and definitely go for one that allows pictures. I use the premium at about $395 a year but otherwise use the bronze.

If you are just curious on rents, it is far far better than realtor.com

Plug in the zip or street name pretending to be a tenant and enjoy... The best listing website I know of (craigslist is hopeless)...I have a lot of non Section 8 tenants from this site.

 

[Heatseekers]

Thanks Emma, have bookmarked it

 

[Heatseekers]

So now I have found some people/companies that sell properties. Most charge around $4000 fee for "finding" the property but they also help you with the setup of everything. I would prefer to get lending in the USA in case the dollar drops but only the first company offered non recourse balloon loans for 50% of the property price, problem is a lot of their houses are quite old 30-100yrs and still the same price as the other companies 2007 properties!
I'm not sure how easy it would be for me to get a loan here. I do have equity in my house but am self employed only profitting a small amount, my partner has a good job with a good wage but he has just swapped so has only been at this particular one for 3 months. We could try and refinance the house to get a loan but Im not sure how that would go. Might have to wait another 3 months until he has been there longer. I know it is very hard to get finance in the USA but does anyone know if it is possible? I have between a 5%-10% deposit that I could use. Any suggestions on which loan might be best for us?

 

[Rixter]

I would prefer to get lending in the USA in case the dollar drops

That's even better and you want the $US to drop after you are holding the dollars offshore - it increases your returns.

 

[Nth Brisbanite]

I understand it takes time to establish trust. At some point if you are planning on investing in another country you are going to have to trust someone, a realtor , a property manager a buyers agent, whoever you choose to work with. I would encourage you to do your own research and take your time to learn about the US market. You need to follow the same due diligence as if you were buying a property in Australia.

I am not out to take advantage of anyone, there are certainly enough players in the market doing that. I believe in the product I am offering and am investing my own money in the same types of properties I am offering to my investors.

I am currently working on my website so its not available just yet but if you like I can email you some examples of properties we have sourced with cashflow reports and comparable sales data. I like to provide my clients with this information so they can make an informed decision. Just send me an email if you are interested and I can mail you some example properties.

I'm seriously thinking of investing in USA so am interested in the product that you are offering. Any chance that you may be able to come to Brisbane as there are a number of others that I know who may be interested.

I'll send you a private message as well.

 

[karina]

North Brisbanite,

I will be in Brisbane mid February for a short trip, would be happy to meet up with you then.

If anyone else in Brisbane would like to catch up for a chat feel free to send me a PM or email me at [email protected]

Same goes for anyone in Sydney, I am currently in Sydney and happy to meet up for an informal chat.

To view video footage of properties we recently sourced in Atlanta you can view these at the link below

http://www.youtube.com/watch?v=ZaDK2wwgBeg

I have also had a lot of questions about how our rental properties are going and is it hard to find tenants. We have had really good success in placing tenants and all the properties that have already completed renovations have had tenants secured within less than 30 days.

You can view some examples at these links of the renovated properties.

Property Example 1, rented for $1295 (I had quoted $1100)
http://s1178.photobucket.com/albums.../Belmont Ridge renovated/?albumview=slideshow


Property Example 2, rented for $1195 (I had quoted $1100)
http://s1178.photobucket.com/albums/x374/selectamericanhomes/Course Side/?albumview=slideshow


Property Example 3 , rented for $1095 (I had quoted $1000)
http://s1178.photobucket.com/albums/x374/selectamericanhomes/Manor Creek/?albumview=slideshow