Thought I might give those of you who are interested an update. I continue pursuing this with great enthusiasm and am learning a lot. I'm planning on heading to the US within the next few months, and the more I learn about my chosen area, the more confident that I am that it's going to be a great place to invest.
A summary of the major differences, as I see it:
1) Cash flow expectations
Cash flow positive properties are far more common, to the extent that they're the norm; they consider investing in a negatively geared property in anticipation of appreciation as really quite extreme, risky behaviour.
Appreciation is just the icing on the cake, but most investors aim to replace their jobs from rental income, rather than generate sufficient equity to retire on.
There are only a few markets where cash flow negative properties are widespread, eg Arizona, California, Florida, Nevada - all the ones that had the biggest booms, and there's a widespread view amongst investors that the reason those markets have crashed so badly is because yields below, say, 10-15% gross are simply unsustainably low.
2) Attitude to property management
Because rental income rather than equity growth is the primary focus of investing, US investors place a much heavier emphasis on landlording. The vast majority of them seem to self-manage; "investor" seems to be synonymous with "landlord/property manager" over there. They assume that all investors collect rents in cash, take phone calls from tenants, write up paperwork, place ads for tenants, etc.
3) Local focus
Because so many self-manage, they also tend to stick to their own areas much more than we do. Managing from a distance is considered quite extreme behaviour. If there aren't good investment opportunities within 30 minutes' drive, the consensus seems to be that one should move!
4) Professional property management
As a result of all of the above, property management companies - which generally
aren't associated with real estate agencies in the USA - are more scarce, and good ones seem even harder to find than they are here.
5) Rules of thumb
Some of their rules of thumb make for interesting comparison to our property investing scene, and highlight the differences quite well:
* "2% rule" - a property will probably be cash flow positive if the rental (which in the US is specified per month) is 2% of purchase price - note that's a
24% gross yield - and these are widespread, incidentally!
* "50% rule" - expenses (property taxes, repairs, PM fees, utilities, insurances etc) tend to be approximately 50% of the gross rent - so if you're getting your 24% gross yield, you'd be anticipating an approximately 12% net yield ("cap rate")
* "$100 per door" - Many investors consider that a deal is not worthwhile unless your monthly net positive cash flow is $100 per "door" (ie per house, or per unit - ie per tenancy, basically)
6) Finance
Whoa, finance is entirely different. Here's a ripper - commercial finance goes to higher LTVs than resi! As a "foreign alien" without a FICO score, my primary financing options initially will be:
i. An asset-based commercial loan (for blocks of units for example; or interestingly can also be used for a portfolio of houses) - can get 80% LTV (LVR) on the basis of the asset's value alone (but only 70% for houses)
ii. "Hard money" - the USA has lots of hard money lenders (HMLs) that are essentially private financiers. They have higher interest rates than traditional mortgages and are generally for short-term loans. They also tend to be very localised, specialising in a county, for example, and because of their extensive knowledge of real estate in that county, they'll look at deals that traditional lenders might not. They seem to be particularly useful for borrowing against GRV (gross realisation value).
I've somewhat changed my mind from my earlier thoughts regarding single-family residences (SFR, or houses), and am now focused on multi-family properties. In particular, I'm now looking only at properties with > 15 doors, with on-site management, where I can own the entire complex. My reasons revolve around reducing management overhead, focusing on an area and getting to know it well, the relative ease of obtaining commercial finance for these deals, and having to find only one good PM who can manage all my properties.
