USA investment properties for an Aussie

[Emma171]

Not fair

I have just seen a post that was deleted that stated that my attainment of a green card through a relationship and marriage that occurred over 10 years ago and lasted 9 years in 2 countries (Bahrain and the US) was a "strategy". I don't know the person who wrote that but am guessing others saw it. I can only say that if I was that clever as to have predicted the GFC in 2000 and specifically was married for that purpose, I will now give you the lottery numbers for the next 6 weeks. I obviously will need to charge for these numbers as they are certain winners.

I spoke at my fathers funeral in 2008 and said how he was one of the very very few people I know who truly did for a job what he loved.. It was flying. I am thrilled that I too found something by sheer accident that I love so much that I feel guilty charging anyone anything for this. I hope you all get to enjoy that passion...

Happy house hunting. Please no more personal comments about my marriage on line. I will happily answer any questions privately...I am very transparent.

 

[Sunfish]

I get Whiskey and Gunpowder dropped into my mail box. Often controversial and sometimes interesting, today it went into the obligations of expatriate US citizens to the IRS.

One lady born of US citizens in Canada, who has never crossed the border or done business with US companies is obliged to pay back taxes in the US. People who are unaware that they ARE US citizens and/or their legal responsibilities are in danger.

Anyone here with US parent/s better take advice about their obligations.

I have not followed this thread much and tax liabilities may have been discussed but the US is broke and are now ruthless about tax.

 

[Emma171]

Sunfish.. excellent point and yes, I am sure all those with US properties are in the flurry of sending out their 1099's with their respective accountants... Just another of the nuances.. W9's, 1099's and your good old W8-ECI's... Jan 31 being the only date I dread more than April 15. Lol.

It is a great point as my accountant (he deems us his "special" children.. We have somone dedicated just to doing our 1099's!) also said....in the past people wouldn't worry and they wouldn't necessarily do anything but now... Ha, the IRS will be out with a vengeance.

So to all of us issuing our 1099's and 1096'ers... Um, cheers?

 

[Lynchy]

Has anyone thought about sourcing apartment blocks? It seems everyone is staying away from. What are the reasons for this?

 

[RightValue]

In Atlanta, Housing Woes Reflect Nation’s Pain


In Atlanta, Housing Woes Reflect Nation’s Pain

Housing prices continue to fall nationwide, despite a few modest signs of improvement. But not all markets are equal.

Places like Miami and Phoenix — symbols of boom-time excesses and later the sites of fierce crashes — were not the weakest performers last year. That distinction goes to Atlanta.

A sprawling Southern metropolis, Atlanta has become one of the biggest laggards in the economic recovery. In November, prices of single-family homes were down close to 12 percent compared with a year earlier, the largest decline among major metropolitan areas, according to data released on Tuesday in the Standard & Poor’s/Case-Shiller Home Price Index. Home prices regionally are now below their levels of 2000, making Atlanta one of only four metro areas to have experienced such a slide. The price of entry-level housing in the area — the lowest tier of the market, valued at just under $96,600 — fell by close to a third last year.

...................

On CNBC, this is actually a NYT article it says.

Quite interesting to those considering Atlanta for investment.


http://www.cnbc.com/id/46222717

 

[twh]

This article is just soup de jour... last year it was AZ the year before Vegas.

as these houses bottom out at 30 to 50k they are smokin hot deals for long term holds..

Only risk really is over supply of rentals,,, right now there is balance and as long as you still have some in migration like the article talks about 20k people a year is still substantial and you have virtually no new construction going on. This glut of foreclosure should continue to be rented,,

Although it could very well follow AZ and Vegas were rents crashed as well because of over supply..

time will tell...

I would just be cautious if your investment strategy only works if the rents stay this high and or they rise... they could fall 10 to 20% in heartbeat if the pendulum swings.

Especially for the Aussies.. US investors are not as nearly focused on Net rental returns... This type of market a lot of US investors would be happy to cover costs with the idea that they will make it on capital growth...

Were Aussies from what I see are really fixated on gross and net returns to be the basis of their investment critera...

US investors should be more attuned to that as well,,, We would never have had the huge run up if it was not for the fact that milliions of US investors were happy buying negative Geared properties over the last 20 years.

Though you can go to other Foreclosure hot beds like Central California Stockton area and the unemployment rate is over 15% and the affordability factor is over 45.. meaning the average wage earner spends 45% or more of gross income on housing and Fuel ( for the car) were in Atlanta that number is 30% and thats a good number nationwide it does bo well for stability.

 

[the pope]

Buying US Properties

I'm curious to hear from people that have bought and lost money..why?

Also,
if anyone could explain the Tax implications between the two countries..seems to me that there is an opportunity over there for sure..but, are all costs - after initial purchase, Tax deductible?..including travelling there once/twice a year..

Also, if one were to use LOC here (in AUS)..one has to keep making payments
here... can the rental a/c of a US property be linked in to that LOC a/c..

Otherwise if not, all the rental stays in the US..do these facilitators (who, I believe to be genuine)..know about tax and deductibles and linked accounts?

Sorry for being a bit long winded.

 

[karina]

In most cases where the preferred method of investing in the USA property market is through the establishment of a Limited Liability Company (LLC), the member (s) (owners) of the LLC would have to lodge tax returns with the IRS in the USA and the IRS would tax any profits made. This would be the case irrespective of whether the member (s) is an individual trust or any other entity.

The Australian taxation office would also require the resident individual, trust or other entity to lodge a tax return in Australia, but as a consequence of double tax treaty agreements between USA and Australia, a credit would be given for any taxes paid in the USA in order to avoid double taxation.
As I understand it all expenses such as county taxes, home owners association fees, insurance, travel etc are tax deductable.

In order to claim a deduction for the interest cost from your LOC you can do so by personally lending the money to the LLC and drafting the appropriate loan documents. My attorney in the USA has organised this for my purchases.

There has been a discussion on the forum about whether it is best to buy in your own name or in an LLC. I have personally purchased all of my properties via an LLC with the “owner” of the LLC being my Australian Discretionary Trust. One thing international buyers need to be aware of are death taxes in the USA. I am not an expert on this subject but from my limited research of death taxes in the USA it appears that the threshold for non-residents can be as low as $60,000. What this means is that any assets above $60,000 may be subject to death taxes.

People die, discretionary trusts do not so for this reason I believe this is a structure worthy of consideration for the Australian investor, particularly for investors planning on buying multiple properties that would push them above the threshold.

I also believe it is possible to assign the ownership of an LLC to a new member (e.g a trust) so for people that have purchased 1 property and then decide they want to buy several more and can see the benefits of ownership via a trust the LLC can be assigned to the trust. I don't know what tax implications if any there may be in doing this.

Again I am not a tax or legal expert so please seek your own advice from taxation and legal professionals for your personal situation. The information above is not advice and no liability will be accepted.

 

[DEC]

Those 10% to 14% vacancy rates in Atlanta and Las Vegas are a massive stumbling block as far as I am concerned.
No one in there right mind would consider a purchase in Australia with vacancy rates like that so why would you do it in the US?

 

[karina]

DEC,

I really believe it depends on what you buy. There is a lot of rubbish out there that will sit vacant forever and alter the statistics.

Well presented homes in nice subdivisions rent well. We have had good success with all our rentals so far. In fact they have been renting faster than my house in QLD that sat vacant for 2 1/2 months.

 

[MTR]

Those 10% to 14% vacancy rates in Atlanta and Las Vegas are a massive stumbling block as far as I am concerned.
No one in there right mind would consider a purchase in Australia with vacancy rates like that so why would you do it in the US?

I understand why this is a concern. When I was in Atlanta I saw houses in areas which were boarded up and scruffy. Walk away....

However from my personal experience the properties I purchased with Karina have rented out straight away after the renovation and for as much as $200 more per month above estimated rental quote.

I put this down to tenants wanting to live in nice well maintained subdivisions and also another important factor is the renovation/rehab which I believe need to be completed to a certain standard. Complete paint job, new carpets, new kitchen appliances if necessary.

Perhaps it has more to do with what you are purchasing, the subdivisions and facilities in the subdivision.

MTR

 

[the pope]

Karina,
Thanks for your response...much to consider.

 

[james_w]

Those 10% to 14% vacancy rates in Atlanta and Las Vegas are a massive stumbling block as far as I am concerned.
No one in there right mind would consider a purchase in Australia with vacancy rates like that so why would you do it in the US?

I would be concerned with vacancy rates like that to.

 

[twh]

could not agree more on the last statement about Rubbish..

One thing I am curious about though.. If the Aussie investor is traveling to see their properties 1 to 2 times a year... that has to cost at least 2k or more per trip.. And unless you own quite a few homes. that's half or so of your gross rental income each and every year.

And in most cases most of your net income...I can't think that Aussies want to go to the same place 2 times a year on vacation and especially a town like Atlanta, which is kind of a been there done that city....

curious to hear what the aussies perspective is on this...

And would be interested to hear what Aussies think about a truly turn key program [...] that does not require one to come to the states more than just once..

[removed self promotion]

 

[handyandy]

could not agree more on the last statement about Rubbish..

One thing I am curious about though.. If the Aussie investor is traveling to see their properties 1 to 2 times a year... that has to cost at least 2k or more per trip.. And unless you own quite a few homes. that's half or so of your gross rental income each and every year.

And in most cases most of your net income...I can't think that Aussies want to go to the same place 2 times a year on vacation and especially a town like Atlanta, which is kind of a been there done that city....

curious to hear what the aussies perspective is on this...

You might want to check the following link

http://www.asic.gov.au/asic/ASIC.NSF/byHeadline/Do you need an AFS licence?

For you product you need to be licensed to offer it in Australia. Without an appropriate license and PDS you can only offer the product to a maximum of 20? (odd) people without breaking Aust federal law.

Cheers

 

[Lynchy]

Hi Karina,

Could you please verify some quick numbers. I am on your mailing list and am interested in investing in the US but the numbers just dont look that fantastic.

Once question I do have is do you do an update on the house at the end of every lease? If you are having to find new tenants after every 2 years, thats a $10,000 (?) expense every 2 years. That would be more than 1/3rd of your gross rent for the year. If you have to do a small update/renovation to be able to lease it out at the beginning I dont see why you wouldnt have to do it at the end of every lease.

$60,000 house with a $10,000 reno would rent for about $1100 going by the mailing lists from you guys.

$1100pm / $13,200pa

Combine that $5,000 ($10,000 reno spread over 2 years) with
2 weeks vancy @ $1,100pm - $550pa
HOA Taxes - $1,000pa
Property Taxes - $1,000pa
Maintenance - $1,000pa
Property Management @ 10% - $1,320pa
Property Insurance - $500pa

= $2,830

Income Tax
Take 30% of $2,830
= $1,980 net profit

Am I looking at it wrong?

Say you have to do a $5,000 touchup ever 2 years rather than a $10,000 one thats still only a $4,480 net profit pa on a $70,000 purchase. You could get a similar return from a bank while being much safer.

I think what a lot of people are forgetting is that you have to spend $10,000 to get the property up to scratch as tenants are pretty much looking for a "new" house. Whats stopping you from having to spend the exact same amount when that lease runs out.

I can see people being happy with the profit coming in during the 1st lease but when that ends after say 2 years and you need to update the house again to be able to bring in new tenants, thats when you get the real idea of that your net profit will be.

Dont get me wrong I am very interested in investing in US real estate, I just think there re a lot of hidden costs that some of the, buyers agents, I suppose you'd call them dont convery to prospective buyers.

 

[karina]

Lynchy,

I think $10,000 every 2 years would be overkill.

The reason we spend around 10k on renovations upfront is because many of the homes are foreclosures, have no carpets, need paint, have no blinds, are missing kitchen appliances and there are usually some repairs that need to be done. (some may require new HVAC units)

I am yet to replace new carpets or do a full repaint on any of my properties between tenancies. You may do a paint touch of the walls that require it in the same colour and steam clean the carpets. Thats what I would expect to be the norm.

You do have a 4 week bond like in Australia and a good property manager that documents the entry and exit condition should be able to use the bond to cover some of these costs.

I don't think 10k between tenancies would be the norm, definitly the exception. It can happen I suppose if you end up with a really bad tenant. Thats just one of the risks of investing in realestate.

Even in Australia landlord insurance will not cover you for grubby carpets or dirty walls. I guess the difference is that Australian tenants are happy to live in homes that have 10 year old carpets and US tenants are not.

Just some of the differences between the 2 property markets.

US investing is not for everyone. For what I am looking for as an investor its perfect but we all perceive risk differently. To me the upside of super low prices, high rents and a high aussie dollar is too great to pass up.

I may need to buy some carpet and do some repairs along the way but thats a risk I am willing to take.

 

[karina]

Lynchy,

Just one more point you made

"You could get a similar return from a bank while being much safer."

To me the attraction of buying US housing is not just in the cashflow, I think being able to buy newer constructed homes for 1/3 rd of the cost to build them has huge upside for capital growth. Thats just my opinion of course and why I am investing my own money in this market.

I like to look at opportunity cost, If I leave the money in the bank, whats the potential upside? If I put it in a US asset that is 1/3rd of replacement cost what is my possible upside?

I have done very well in the Australian housing market by timing the market, having purchased in Brisbane before the brisbane boom and WA before the WA boom. Although I was targeting cashflow nuetral / cashflow positive in those markets my greatest upside came through the capital growth.

I look at one of my first purchases in QLD for 107k renting for $150 a week back in 2000. Now the US market is allowing me to buy at half that price and achieve almost 50% more rent.

Having invested in realestate now for close to 12 years I have to say I have never seen an opportunity like the one available in the US right now.

Again its not for everyone , and the uneducated will get burnt. I think those that invest wisely will do very well.

 

[Lynchy]

Thanks for the reply Karina, I just re-read ove rmy post and i'm sorry if it came across as a bit of a rant, it definitely wasnt intended to, I was just trying to type it up quickly as I'm at work.

Apartment complexs have certainly caught my interest. I dont see them mentioned very often on here though? Are there any negatives to investing in them that jump out to you?

 

[karina]

Lynchy,

I had considered apartment complexes early on when I was looking at investing in the US. They certainly look like an attractive proposition. I then decided that if I was going to invest abroad I needed to get my toes wet first and not dive in head first into a big investment so I opted for the single family home.

Here is a good website if you are considering apartment blocks.
www.loopnet.com