Why NOT to buy in the USA?
- Thread starter Perp
- Start date
My mortgage broker over there also thinks that given the attractiveness of the deal, he may be able to get me a loan for the down payment via a "second lien loan" (like second mortgage, I assume) - I'm just waiting to see how painful the interest rate is. But there's so much profit/fat in this deal, I'd be happy to pay a pretty high interest rate.
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Since I'm in the US as I type this (I havent read thru the thread)...
I've been meeting with REAs over the last week as well as bankers, lawyers, etc etc
I went out on a few property showings with a REA yesterday - had one guy cashed up buying and renovating 10 properties. All cash deals. Hes got about 1.5M to spend.
average buy price 70k then a small reno and then hes holding for 5 years
3 years ago the 70k was 125k.
Even the REA said to me (after the contract was signed) he'll lose money with the next 1-2 rounds of forclosures coming but in 5 years he'll make it up again.
I've seen stuff here list at 850k and sell for 300k on short sales (which is basically where the bank is selling for less than mortgage value) - which are everywhere.
We'll drive down streets - if you have 10 houses - at least 4 will be vacant or getting forclosed on
IMO getting into the US might be great but theres more headaches to go with it than you could believe
I've been meeting with REAs over the last week as well as bankers, lawyers, etc etc
I went out on a few property showings with a REA yesterday - had one guy cashed up buying and renovating 10 properties. All cash deals. Hes got about 1.5M to spend.
average buy price 70k then a small reno and then hes holding for 5 years
3 years ago the 70k was 125k.
Even the REA said to me (after the contract was signed) he'll lose money with the next 1-2 rounds of forclosures coming but in 5 years he'll make it up again.
I've seen stuff here list at 850k and sell for 300k on short sales (which is basically where the bank is selling for less than mortgage value) - which are everywhere.
We'll drive down streets - if you have 10 houses - at least 4 will be vacant or getting forclosed on
IMO getting into the US might be great but theres more headaches to go with it than you could believe
Yes, this is not at all uncommon for SFR (single family residences, ie houses) in Florida, California, Nevada, Arizona, and other bubble areas.
The same isn't true of MFR (multi-family residences, ie apartment blocks), nor is it true in many other areas. As I'm looking at MFR in a non-bubble location, the market I'm looking at is very different.
Having said that, if I were cashed up (SFRs are much harder for us to finance as foreigners than MFRs), I'd think about picking up some of those SFR bargains. Prime real estate in Florida/California has to come back in fashion, and if it's CF+ anyway, you can afford to wait.
As several people have asked me about this thread, I've asked Sim to resurrect it in an edited form. Thanks, Sim.
I missed out on the deal I was talking about; they took a cash offer of about $750K I think, and it settled the day after offer. Try settling that quickly here!
When I visited the USA last April, I went and checked out this complex, and it was definitely at least as good as I hoped, and one I wish I could have purchased. The location was great, the immediate vicinity was fine, there was loads of potential... I haven't seen a deal quite as good as this one since, but I'm still looking... I now have a few investing buddies with access to cash, so if a deal like this came up again today, hopefully our syndicate would be the ones handing over $750K tomorrow.
Thanks, Sim.I missed out on the deal I was talking about; they took a cash offer of about $750K I think, and it settled the day after offer.
Try settling that quickly here!When I visited the USA last April, I went and checked out this complex, and it was definitely at least as good as I hoped, and one I wish I could have purchased. The location was great, the immediate vicinity was fine, there was loads of potential... I haven't seen a deal quite as good as this one since, but I'm still looking... I now have a few investing buddies with access to cash, so if a deal like this came up again today, hopefully our syndicate would be the ones handing over $750K tomorrow.
The more I think about it the more I feel I would only like to buy there with borrowed USD and I don't know if I could do that. It's not too smart to convert Oz$ to US$. I could give some share certificates as security but that might not be enough. The shares are denominated in C$ so I don't want to sell them to buy US$ either.
But CNN Money is saying that property will fall further through 2011.
But CNN Money is saying that property will fall further through 2011.
So is 362 a good price ?????
I've contemplated the pros and cons of the US off and on for yonks....nearly fell out of my chair when several years ago one SSer bought in Buffalo.....cos I've been there.
Then it was Mr McKnight and Dymhna's turn....
When GFC hit, I was in contact with a mate in Los Wages who has a few properties to get an idea of what's happening on the ground.
For the last few weeks, the view I am adopting is that buying cash flow positive US property, with reasonably secure rental prospects, is probably not a bad play on the global economy.
My reasoning is thus:
- if the global economy is bullish, commodity currencies and economies will benefit....ergo Aussie property will perform.
- if the global economy is bearish, the USD and bonds are preferred defensive position.....and USD will go up, and Aussies holding leveraged +CF US property will benefit from fx.....
So Aussie property is a global bull proxy, and US property a global bear proxy.......maybe a reasonable negatively correlated pair in uncertain times?
I'm leaning towards US investment too. My first thought was towards gold/silver miners in the lower 48 but property is so cheap how could you knock it back? I have not got to the point where I know how much you can rent them out for yet, and maybe they aren't as cf +ve as we imagine. Still looking.
CLEANERS Ana and Miguel Canepa never imagined when they fled to Australia as refugees they would one day be landlords of four rental homes.
But the residents of St Albans in Melbourne's outer north west are living the Australian dream, having last week signed contracts to buy their latest investment property. And it only cost them $A44,117.
That is because the three-bedroom house is in the US city of Phoenix in Arizona.
The couple, originally from El Salvador, have never been to Phoenix. But they already own two other homes purchased there this year for $A41,000 and $A52,100, as well as a fourth rental asset in Melbourne.
They are part of a small wave of Australian investors picking over the ruins of the US property market crash, many of whom have been frustrated by Australia's surging house prices.
However, experts have warned that US property prices are depressed for sound economic reasons and international bargain-hunters risk losing all in a market they do not understand .....
http://www.theage.com.au/victoria/a...s-taste-the-american-dream-20100305-powo.html
But the residents of St Albans in Melbourne's outer north west are living the Australian dream, having last week signed contracts to buy their latest investment property. And it only cost them $A44,117.
That is because the three-bedroom house is in the US city of Phoenix in Arizona.
The couple, originally from El Salvador, have never been to Phoenix. But they already own two other homes purchased there this year for $A41,000 and $A52,100, as well as a fourth rental asset in Melbourne.
They are part of a small wave of Australian investors picking over the ruins of the US property market crash, many of whom have been frustrated by Australia's surging house prices.
However, experts have warned that US property prices are depressed for sound economic reasons and international bargain-hunters risk losing all in a market they do not understand .....
http://www.theage.com.au/victoria/a...s-taste-the-american-dream-20100305-powo.html
Moody's: US Home Price Rise Won't Match Inflation Until 2012
Monday, August 30, 2010 - 11:05
WASHINGTON (MN) - Supply and balance imbalances will likely continue to drive U.S. home prices down through early 2011, but Moody's doesn't expect price appreciation to match the pace of inflation until 2012. "Indeed, it will not be until 2012 that demand and supply conditions are balanced enough to drive price appreciation that matches the pace of inflation," Moody's said in its Weekly Credit Outlook Monday.
The rating agency stresses that the rise in excess supply indicates the "house price correction is not over yet."
It estimates the excess supply to be 1.8 million in the second quarter, "well above the norm" and up from 1.7 million vacant homes in the first quarter.
cont'd
Monday, August 30, 2010 - 11:05
WASHINGTON (MN) - Supply and balance imbalances will likely continue to drive U.S. home prices down through early 2011, but Moody's doesn't expect price appreciation to match the pace of inflation until 2012. "Indeed, it will not be until 2012 that demand and supply conditions are balanced enough to drive price appreciation that matches the pace of inflation," Moody's said in its Weekly Credit Outlook Monday.
The rating agency stresses that the rise in excess supply indicates the "house price correction is not over yet."
It estimates the excess supply to be 1.8 million in the second quarter, "well above the norm" and up from 1.7 million vacant homes in the first quarter.
cont'd
hi prep
can you come back with the following as you have spoken to a heap of people there
1 your broker does he do into cleveland ohio
2 whats his rate if you are a aussie investor
3 what the tax that side if you are an aussie iinvestor and the deal is cashflow positive
did you organise an accountant there and does he work in ohio just getting organised so need to fill in the holes
4 do they have smsf over there and do the understand them they will havesuperfund but not sure about smsf'f and if they understand how they invest
5.company titles is that a thing in the market so if a whole building is bought can we do as the old system here was a company title and sell shares not unit in the development
6. yes this is a live deal so I need to get the info from someone thats there or been there
Spectre if you have the answers pm email or post.
I will post the numbers when the deal is done and not before.
this is like minded investors so will ask the others
and ...//''' where needed
can you come back with the following as you have spoken to a heap of people there
1 your broker does he do into cleveland ohio
2 whats his rate if you are a aussie investor
3 what the tax that side if you are an aussie iinvestor and the deal is cashflow positive
did you organise an accountant there and does he work in ohio just getting organised so need to fill in the holes
4 do they have smsf over there and do the understand them they will havesuperfund but not sure about smsf'f and if they understand how they invest
5.company titles is that a thing in the market so if a whole building is bought can we do as the old system here was a company title and sell shares not unit in the development
6. yes this is a live deal so I need to get the info from someone thats there or been there
Spectre if you have the answers pm email or post.
I will post the numbers when the deal is done and not before.
this is like minded investors so will ask the others
and ...//''' where needed
No, they tend to be very localised. May be able to get you some contacts there, though, through my networks.
Last time I checked on commercial mortgage rates, you could get about 5.8% fixed for 30 years if your LVR is low enough (ie below 70%, maybe 80%). If you want higher LVR, you'll probably have to pay higher interest on some/all of the funds until you manufacture equity to get yourself down to sub-80%.grossreal said:
You see mention all over the place of being able to get a loan against appraisal (ie market value) rather than purchase price, but in reality, it seems to be nigh-on impossible, particularly at purchase. Maybe for refinancing, or if you're selling from one entity to another, but if you're buying in an arms-length transaction, I've found it's highly unlikely you'll get finance where LVR is calculated on a value higher than purchase price.
Your US entity pays US taxes, and if it's distributed to you personally, you then have to calculate what tax you'd pay on the gross profit/dividend, and then you get a credit for tax paid in USA and pay the diff in Australia. So if you get $100K profit and pay, say, $30K tax in USA, you then have to declare $100K income in Australia, and if you would have to pay $40K tax on it, you get credit for the $30K paid in USA, and pay Australian government $10K.grossreal said:
Yes, have an accountant there, not sure if they work in Ohio. Possibly not because there are so many state-based taxes over there.grossreal said:
Don't know anything about this, sorry. If I went down the SMSF road, I'd probably use an Australian SMSF to own shares, or be members of, the US entity that owns the property.grossreal said:
If you're asking whether you can own the entire building in something analogous to a unit trust, yes, you can. You probably want an LLC which allows for members to own specific percentages. This table is a reasonable summary of their corporate entities. Note that Aussie individuals and Aussie entities can't create an S-Corp (they're US-only entities), so the only relevant options to us are a C-Corp (analogous to a company) or an LLC (analogous to a Trust). [nb I'm not saying they're the same as a company and Trust, but broadly speaking they're similar in concept, ie the former is a stand-alone entity whereas the latter is a flow-through vehicle.]grossreal said:
Good luck, and keep us posted.
hi prep
thanks
if you have a chat in your group would be good
structure will be this
llc company with us director
share or what we see as a trust under neither this will have 5 units us holding 1
and each of the four( two spots have already been taken) smsf holding one share each
the us is the sold director so he takes the loan
the smsf put up 50k each and that is held in a cash bank bond
each smsf put 5k per annum into the group via there smsf contributions
normal 9% of income
this combined with the income from the bond is over the repayments on the bank loan
the income from the tennants is then used as cashflow to buy other resi property and refi those and the the structure grows.
the smsf are investing and will have to look at the tax issues with the smsf
but this is the structure
won't post the numbersas yet but this is the structure looking at using
thanks
if you have a chat in your group would be good
structure will be this
llc company with us director
share or what we see as a trust under neither this will have 5 units us holding 1
and each of the four( two spots have already been taken) smsf holding one share each
the us is the sold director so he takes the loan
the smsf put up 50k each and that is held in a cash bank bond
each smsf put 5k per annum into the group via there smsf contributions
normal 9% of income
this combined with the income from the bond is over the repayments on the bank loan
the income from the tennants is then used as cashflow to buy other resi property and refi those and the the structure grows.
the smsf are investing and will have to look at the tax issues with the smsf
but this is the structure
won't post the numbersas yet but this is the structure looking at using
Don't know anything about it. Would prefer to invest in HK as completely familiar with pricing there and can take advantage of AUD/HKD just like AUD/USD.
good luck - and the job
Interesting read.
One thing to 'reality check' would be the ease with which your husband could get a job. If employment's suffering that could be harder than it looks and/or not as well paid. Their tax rates are also just as high as ours once you take into account all the little bites from state, feds, gst, tips etc etc. (I was in California.)
When I lived in the US, social security cards and numbers did take a while to come through so yes apply ASAP. My hub didn't have any trouble getting credit cards but that was through his employer's credit union so might not be so with everyone. I got debit cards.
You could try posting some fake vacancy ads on craigslist to get a feel for demand in your chosen areas, also for availability and quality of PMs. I got the feeling a lot of PMs were people who did it in order to get free rent for themselves. If it's a lower socio economic area then high quality PMs might not wish to live there and or might move on and up frequently.
Wish I had enough guts to follow your example...
One reason the locals might not be doing this is because the existing investors are probably shellshocked from just having lost a bucketload.
Oh, and rental properties there often seemed to come with fridge and washing machine and dryer included... as well as gardening service in the case of a family style home.
Interesting read.
One thing to 'reality check' would be the ease with which your husband could get a job. If employment's suffering that could be harder than it looks and/or not as well paid. Their tax rates are also just as high as ours once you take into account all the little bites from state, feds, gst, tips etc etc. (I was in California.)
When I lived in the US, social security cards and numbers did take a while to come through so yes apply ASAP. My hub didn't have any trouble getting credit cards but that was through his employer's credit union so might not be so with everyone. I got debit cards.
You could try posting some fake vacancy ads on craigslist to get a feel for demand in your chosen areas, also for availability and quality of PMs. I got the feeling a lot of PMs were people who did it in order to get free rent for themselves. If it's a lower socio economic area then high quality PMs might not wish to live there and or might move on and up frequently.
Wish I had enough guts to follow your example...
One reason the locals might not be doing this is because the existing investors are probably shellshocked from just having lost a bucketload.
Oh, and rental properties there often seemed to come with fridge and washing machine and dryer included... as well as gardening service in the case of a family style home.
Thanks for the message perp, and the post.
A bit annoying typing as my laptop misses letters sometimes, but I will try.
I bought commercial stuff in LA, because my personal credit there was sub-sub prime, so it was easier for me to buy larger buildings (5+ units) which qualify as commercial.
Th last place I bought was just before quiggles got stuck in and I too would be delighted to hear how he went. I spoke to him on the phone and have often wondered wha happened.
I can give you a specific example of US issues with that last property I bought.
It was an 8 plex for $715k, studio units renting for $795 a month. Allow about 30% for expenses and that is what these things were selling for at the top of the boom. Good solid returns.
Problem was with that place - I wasn't there to 'watch' it.
What I term the 'vibrant LA youth culture' (bloods in LB) took a fancy to my laundry machines.
Now Laundry machines are a great untapped source of income for Australian property. My 8 plx should have generated about $3-400+ a month in cash from the 3 machines. Nice if you can get it. My property manager didnt pick it up in time as it isnt a 'normal' PM duty to deal with cash so initially the machines were vandalised because the coin boxes were full. My answer - make them free, save the damage. I wasnt getting the money anyway so who cares? Cant do that because then everyone in LA will help themselves to my power and water and the gangs will possibly end up 'managing' the machines themselves. Which does not appeal to my real tenants, which causes vacancies etc. Eventually I got a company to collect the cash for 50%. However this didn't stop them getting damaged, despite proper security. One tenant gets 'leaned' on and 10x 12-14 year olds with red bandanna's and firearms our military aren't allowed will get access immediately.
This property was a couple of houses from a nice park which created a cul de sac in the road. For LA, it was actually attractive. A feature I thought. My property manager was none too impressed however, and realised after a month or so the real significance of this feature.
Gangs love cul de sacs because the 'cruisers' (police) can't drive up the road and catch them. It allows a very easy escape for these M16 carrying, drug dealing little bounders, and basically that was the major problem.
Upshot was that this building cost me about $40,000 per year in damage and vacancies. I have been trying to sell it for nearly 3 years and gave up. However my broker last month got a call out of the blue from my next door neighbour at that building who had been trying to get in touch with me for years, because my bulding's tenants and their 'friends' were ruining his building's performance. Marriage made in heaven! I gave him VERY flexible terms (financed all but 15% - he assumed my bank loan and I financed him the rest at 6%i/o for 5 years) but have just sold it for $710. A massive relief, and I will be MUCH more choosey when I buy anythng else.
It is just simple, simple things that are so easy to fix if you can drive past the place and tenants know that the owner cares. My PM is good, but you cannot expect anyone to look after something like you would yourself. If I had been there to collect the cash in the first place, none of this would have happened.
The good news on this is that I got a VERY nasty letter from the ATO which I have since found out was a standard Wickenby letter. Basically 'You are going to gaol' for a page, with one sentence at the bottom saying 'although as we do appreciate that sometimes there are legitimate reasons for overseas transactions, we look forward to hearing from you'.
I have always paid US taxes and Aust taxes, but as my US stuff has basically just covered itself (if it hadn't I would have just bought more to solve the problem I gave up paying the accountant $5000 a year to mix the two sets of taxes up for no gain, and along with my other business disasters I had brilliantly got myself into, it just wasnt worth the time. If I had been making money obviously I would have had to have been more diligent, but I hate paperwork for no reason! Anyway the day came and I had to declare the 10 years or so that had been seperated, so according to my lawyer who has two of his clients locked up right now due wickenby, I am one of a very few people in Aus who actually sent the ATO a large bill for my 'foreign income'.
'I'll get you back you *******s - I don't owe you a cent, so there HA! - Sucked in!! I lost a fortune!!!...'
BTW: don't think from this I am anti the US property market. I am hopefully switching this place for better quality property and getting some more. Rents haven't moved up in 7-8 years, and I cannot see how they can fail to bounce up when things go back to normal. Nor can I realisitically see the $AUD staying at $1. A nice gain on top of anything else you manage to get out of a property.
A bit annoying typing as my laptop misses letters sometimes, but I will try.
I bought commercial stuff in LA, because my personal credit there was sub-sub prime, so it was easier for me to buy larger buildings (5+ units) which qualify as commercial.
Th last place I bought was just before quiggles got stuck in and I too would be delighted to hear how he went. I spoke to him on the phone and have often wondered wha happened.
I can give you a specific example of US issues with that last property I bought.
It was an 8 plex for $715k, studio units renting for $795 a month. Allow about 30% for expenses and that is what these things were selling for at the top of the boom. Good solid returns.
Problem was with that place - I wasn't there to 'watch' it.
What I term the 'vibrant LA youth culture' (bloods in LB) took a fancy to my laundry machines.
Now Laundry machines are a great untapped source of income for Australian property. My 8 plx should have generated about $3-400+ a month in cash from the 3 machines. Nice if you can get it. My property manager didnt pick it up in time as it isnt a 'normal' PM duty to deal with cash so initially the machines were vandalised because the coin boxes were full. My answer - make them free, save the damage. I wasnt getting the money anyway so who cares? Cant do that because then everyone in LA will help themselves to my power and water and the gangs will possibly end up 'managing' the machines themselves. Which does not appeal to my real tenants, which causes vacancies etc. Eventually I got a company to collect the cash for 50%. However this didn't stop them getting damaged, despite proper security. One tenant gets 'leaned' on and 10x 12-14 year olds with red bandanna's and firearms our military aren't allowed will get access immediately.
This property was a couple of houses from a nice park which created a cul de sac in the road. For LA, it was actually attractive. A feature I thought. My property manager was none too impressed however, and realised after a month or so the real significance of this feature.
Gangs love cul de sacs because the 'cruisers' (police) can't drive up the road and catch them. It allows a very easy escape for these M16 carrying, drug dealing little bounders, and basically that was the major problem.
Upshot was that this building cost me about $40,000 per year in damage and vacancies. I have been trying to sell it for nearly 3 years and gave up. However my broker last month got a call out of the blue from my next door neighbour at that building who had been trying to get in touch with me for years, because my bulding's tenants and their 'friends' were ruining his building's performance. Marriage made in heaven! I gave him VERY flexible terms (financed all but 15% - he assumed my bank loan and I financed him the rest at 6%i/o for 5 years) but have just sold it for $710. A massive relief, and I will be MUCH more choosey when I buy anythng else.
It is just simple, simple things that are so easy to fix if you can drive past the place and tenants know that the owner cares. My PM is good, but you cannot expect anyone to look after something like you would yourself. If I had been there to collect the cash in the first place, none of this would have happened.
The good news on this is that I got a VERY nasty letter from the ATO which I have since found out was a standard Wickenby letter. Basically 'You are going to gaol' for a page, with one sentence at the bottom saying 'although as we do appreciate that sometimes there are legitimate reasons for overseas transactions, we look forward to hearing from you'.
I have always paid US taxes and Aust taxes, but as my US stuff has basically just covered itself (if it hadn't I would have just bought more to solve the problem
I gave up paying the accountant $5000 a year to mix the two sets of taxes up for no gain, and along with my other business disasters I had brilliantly got myself into, it just wasnt worth the time. If I had been making money obviously I would have had to have been more diligent, but I hate paperwork for no reason! Anyway the day came and I had to declare the 10 years or so that had been seperated, so according to my lawyer who has two of his clients locked up right now due wickenby, I am one of a very few people in Aus who actually sent the ATO a large bill for my 'foreign income'. 'I'll get you back you *******s - I don't owe you a cent, so there HA! - Sucked in!! I lost a fortune!!!...'
BTW: don't think from this I am anti the US property market. I am hopefully switching this place for better quality property and getting some more. Rents haven't moved up in 7-8 years, and I cannot see how they can fail to bounce up when things go back to normal. Nor can I realisitically see the $AUD staying at $1. A nice gain on top of anything else you manage to get out of a property.
Need some feedback on "myusaproperty"
Interesting story from lawsjs about his LA investing experience.
Has anyone had anything to do with the property brokers from "myusaproperty"?
Tracey, have you heard anything?
Their US office is in Orlando, Florida where we have identified as being one of our next locations so the thinking is that they should have local contacts.
Hope to hear from someone about whether they are legitimate or not or maybe someone on the forum has used them in the past.
Interesting story from lawsjs about his LA investing experience.
Has anyone had anything to do with the property brokers from "myusaproperty"?
Tracey, have you heard anything?
Their US office is in Orlando, Florida where we have identified as being one of our next locations so the thinking is that they should have local contacts.
Hope to hear from someone about whether they are legitimate or not or maybe someone on the forum has used them in the past.
