There are a lot of depressed markets in the US right now, and when you look at the numbers it can seem very appealing. We’ve all seen the sharks advertising:
22% ROI, TENANT IN PLACE! $11,000 US. TURN KEY!
What they leave out so often is that the tenant has been in place for a week, hasn’t paid a dime in rent, and will probably be gone before the paperwork is signed (with all the appliances, and copper). They leave out plenty of other grizzly details as well. The thing you’ve got to remember is “If it sounds too good to be true, it probably is” Give it the smell test. These ‘deals’ are back-loaded with costs. Of those costs you have vandalism and vacancy leading the assault on your returns with maintenance hot on their trail.
DO’S:
The truth is there are great turn key opportunities in the States, but you have to go about it the right way. The first best practice is to do your DD. If you see something that passes the smell test find out who the management company is and TALK TO THEM DIRECTLY. get a copy of the lease and READ IT. Then ask for a few references that are not local, you’ll have a better chance of getting some honest answers that way.
Talk to a local professional about property values in the area you are considering. You might have to make a few attempts to get in touch with someone you can trust, but keep at it. Any real estate pro will get to your email quickly and be available, so that is a good place to start if you are trying to weed out the weekend warriors. Don’t be afraid to ask tough questions either. “How long have you lived in the area?”, “Do you focus on representing buyers of investment property?”, “Do you own investment property?”, the answers to these questions will let you know right away who you are dealing with. Someone who knows the market well will be able to keep the conversation going because they have that much knowledge to share. If the line goes quiet, or you are getting more than your share of one word answers, that is a good indication you need to contact a few more people. It’s always a good idea to Google them too, visit their site.
DONT’S:
If a property was really returning that type of return, why would anyone in their right mind ever want to sell it? That question will tell the story almost every time.
Don’t buy ANYTHING off CL-leave that to the locals.
Unless you have an established relationship with an RE Pro in the area, it’s probably best not to use the Listing Agent to represent you. In that situation, they have a tendency to represent the deal instead of the buyer or the seller, and you’ll want someone you trust to represent you, not the deal. If whoever you are talking to never tells you ‘this isn’t a good deal Mr./Mrs. Investor’, you should be watching your back-and the converse is also true. A salesperson who will advise you NOT to buy is a commodity, and you should keep that contact.
With property values where they are now turn they investments are moving towards commodity status, with big players on Wall Street trying to figure out how they can be publicly traded as such, and at no time in history has there been such an overwhelming supply of really inexpensive real-estate to even consider it. Moving along that same line, there is a severe shortage of buyers in these markets. The population is still going up however, and all those people need housing, so what do they do? You’ve got it, they rent, and that rent check is getting mailed somewhere. It doesn’t take too many of those rent checks to replace a full time job, and with the right partners discussed above in place it can truly be ‘hands free’
Here is a link to what Inman news says about the US markets and which one’s they see as the best:
http://www.inman.com/reports/10-markets-invest/indianapolis.html
And here is what the Wall Street Journal Had to say about it:
http://online.wsj.com/article/SB10001424052748703791804575439871207245044.html
This article is interesting because it also lists the 10 worst markets to invest in right now in the States, which lists several in Florida. The potential for upside is there in appreciation as some prices are down over 80% from peak pricing in 2006, but it could be a waiting game, and rental returns are low-generally well below 8% in most markets there which barely covers the cost of financing.
Any property that you would buy that is habitable for 11k. is exactly as you describe.
Property mangement in the US will always be a challenge in these asset class's.
Us USA property owners classify them as
A tenants 700 plus stable jobs just do not want to own at this time. and will pay for better housing.
B 625 to 700 fico stable jobs but more transiante than the above. you can get great tenants and bad ones as well.
C tenants 580 to 625… crap shoot
D Tenants 580 and under.
Ghetto tenants no credit score and will rent to who ever they. can con into renting to them
generely when you look at the upper mid west rust belt dieing towns, Detroit , Buffallo, Syracuse, cleveland, pittsburg, even chicago and indy. You buy in the lowest price ranges because you think your buying a hosue for the price O f FREAKING CAR
your going to get exactly what you bought and will more than likely loose all your moeny plus the money you poor into it when you have all sorts of stolen properties , tenant damage , non payment of rent, property managers ripping you off etc et.Folks there is a reason this whole asset class exisit it feeds on itsself. Its been this way for 50 years.
Enter the aussie turn key guy going over to Aussie land promoting these they now virtually nothing of what they are talking about and low and behold a bunch of folks get totally screwed.
In my humble opinion, if your going to invest in the US you need to be in better neighborhoods. You invest in these areas that claim these huge returns your going to loose all your money and flat guarantee that. get real get a decent property for 35k min to 80k plus and you will have half a chance.
I really think our program is the safest in the Whole US but of course Aussies are no keen on it because they do not want to buy and large share any percieved equity and they also still beleive what they are told by all the fix and flip turn key good guys.
So it will take a few years for these investors to settle in, some will do OK others are going to have a VERY BAD experince comapred to what they were represented.
Real estate agents are good and I have been one for 35 years in CA OR WA and MS. All we do is sell you a property, its still up to you to do your own DD and prop management and that is were my friend this all falls down. Most agents especially now are starving for deals and if your a willing fish your going to be sold something no matter what the consequence down the road.
If you have time to come here and spend a few months then I think you can get it worked out. If you don't the you have to be very careful,
Our program is the only one of its kind basically in the world and it takes the investors intersest above all else, We have not done any bizz with Aussies but we do a heck of a lot with US citizens who are much more experinced as to what it takes to own these than Aussies and we greatly mitigate there down side and risk,. just depends on if you want to throw your money down the rat hole or you want ot keep our property and actually make capital growth., our company basically assures that. you do it on your own and its buyer beware with a50% mortality rate that after 35 years of doing this I can just guarantee.
Jay Hinrichs
http://www.truewholesalehouses.comAnd of course you will not see anyone engage me that I am wrong becaue they know they cannot back up the product, IE buying 10k houses in the freaking Hood
Hi all, firstly I must advise that I have a vested interest in posting on this forum as US Property Invest sources and consults on properties for Australian investors looking to invest in the US market.
YES, the chances of buying a true cash flow positive property for $11,000 is extremely unlikely, and I would urge all but the very astute investors, that are on the ground in the US at the time and have been there for months on end and know the city intimately, to stay away from them ( for all the reasons that Jay has given and then some).
So "WHAT IS THE RIGHT BUY in the USA" There is so much information out there about this that it can make your head spin, so I will try and keep it simple. Firstly you need to look at the purchase price to net returns ratio, or simply ROI. Then look at the potential markets and narrow it down to only those cities that have good core economic fundamentals. A key indicator of this is the unemployment rate, has it been steady over the last year or two, or has it increased or decreased? What are the main and supplementary industries of the city and what is the potential for improvement or decline of that economy.
Okay so let get down to specifics. Basically look for properties with a cap ex for a tenanted, fully rehabbed property, with defect free warranties etc for the $40k to $55k, this will maximize your return and should give you a nett return north of 16%.
WHERE, it also very important. There has been talk in other forums of Kansas City, and I would have to agree that it is a reasonably place to invest in, providing you stay in the Burbs. Why, because Kansas City is the urban hub of the rural or bread basket area of America, an economic segment that is somewhat insulated from the economic woe of Greater USA. Indianapolis has also been mentioned as a hot spot for investment, but there are also other cities that provide good ROIs and economic stability. For example Columbus Ohio. Now, I would not put my client's money in many, if not most other cities in Ohio, but Columbus is one that I would. Apart from being the Capital of Ohio, and therefore providing a lot of Government employment it also has the largest University in America – Ohio State University, which directly employs 52,000 people, and indirectly many 100,000s more, and in essence this has kept the unemployment rate stable and significantly below the US average, and will continue to do so.
However, how we wish it was as easy as just picking a price and city, because of course in each city there are good neighbourhoods and bad neighbourhoods, good streets and bad streets. So how does one know unless they have themselves spent several weeks in that city doing nothing but researching the property market and the neighbourhood in question? Well, if anyone on this forum has used a US buying consultancy firm in Australia or NZ that they are comfortable with and which has provided them with good results and service then stick with them. For all others unable to put in that sort of time for a $45k investment and considering using a consultancy firm for the first time or switching firms then I would suggest as a minimum that the firm have there own employees on the ground in that US city checking out every property and neighbourhood that is offered, and backing up their findings with a report, not just a report on the building in question but also on the socio economic factors surrounding your investment. Not an agents report or word for it, not a wholesalers recommendation, not something from a client manager in another US city, but their own employee, preferably with a qualified building certificate, physically checking out the property and the neighbourhood and vouching for it. Furthermore, insist that all purchases have a separate independent building and termite inspection done and that anything found during the inspections is fixed at the Seller's expense, and then that they give as a minimum (written into the purchase contract) a 3 month warranty from any defect or maintenance issue. Yes it can be done!
However, having said all this, and whilst knowing the RIO and where to buy in the US is extremely important, critical even, the buying decision however is so much greater than just knowing these two things. There is for example the type of property, the property management arrangements, the legal checks, the US accountancy compliance and so much, much more. Yes, investing in US property can be rewarding, I have more than a dozen US properties myself, but it can also be a minefield. <moderator: delete advertising>
Wishing you the best in your investments
I liked columbus on the ground made oh 12 loans 8 went bad 6 sold for loses.
Genreally I do not like Ohio period. the auto industry has moved south.
At least in the price range these turn key guys are operating.
Maybe some higher end. however never lower end you will be better off going to vegas at least you will have a good meal and room and Show. and if you gamble a little you could maybe some how come out on top
I live in Indianapolis and have been helping investors here for years, and have several here myself.
One of the biggest costs you have to look at in any town is taxes, and this is one of the reasons Indianapolis has remained on top of many people’s best cities to invest in, but you have to be careful-many parts of town vary greatly in the property tax category-mostly due to the township or school system where it is located. In fact legislation was recently passed that limits property taxes at 2% of the homes assessed value, which is relatively easily disputed, and I would recommend everyone with property anywhere look into having their assets reassessed as soon as they take ownership. In indianapolis this can even be done online through a private company that specializes in this.
You can do it yourself by following the instructions on the assessors site:
http://www.indy.gov/eGov/County/Assessor/Marion/Appeals/Pages/HowtoAppeal.aspx
A couple of the best townships with low entry pricing, low taxes, and low tenant turnover are Lawrence TWP, Warren TWP, Wayne TWP, and Decatur TWP. I would highly recommend staying out of center TWP as the homes are much older, tenants are much more transient, and vandalism rates are higher.
Many of these areas have a few other good points worth touching on:
Most of these homes were built in the 1950’s or later, and are one story on a crawl or slab. This significantly lowers the cost of rehab when it needs to be done between tenants, or when larger maintenance issues need to be addressed such as plumbing, HVAC, or wiring repairs must be made. Nearly all of these homes are walled with drywall vs. many older homes walled with plaster-again making repairs easier.
Another great point about these areas is the newer construction generally has a larger lot, private drive, newer connections to municipal sewer systems, and many have attached garages. All these thins add up to savings on rehab AND higher rental rates which equals higher rates of return.
I think anyone who is advertising 16% returns on buy to let properties is hiding some very key information that will negatively effect ROI. While local investors may be able to achieve these rates with some success, there are costs associated with absentee ownership of rentals that must be factored in, not to mention vacancy rates, management fees, cost for repairs between tenants, etc. If you set your expected ROI this high you run the risk of getting taken for a ride–it doesn’t pass the smell test and I would expect there are unaccounted for costs backloaded into the deal. You want all those costs to be incurred in the acquisition to get to a true ROI.
joshuabangert wrote:I live in Indianapolis and have been helping investors here for years, and have several here myself. One of the biggest costs you have to look at in any town is taxes, and this is one of the reasons Indianapolis has remained on top of many people's best cities to invest in, but you have to be careful-many parts of town vary greatly in the property tax category-mostly due to the township or school system where it is located. In fact legislation was recently passed that limits property taxes at 2% of the homes assessed value, which is relatively easily disputed, and I would recommend everyone with property anywhere look into having their assets reassessed as soon as they take ownership. In indianapolis this can even be done online through a private company that specializes in this. You can do it yourself by following the instructions on the assessors site: http://www.indy.gov/eGov/County/Assessor/Marion/Appeals/Pages/HowtoAppeal.aspx A couple of the best townships with low entry pricing, low taxes, and low tenant turnover are Lawrence TWP, Warren TWP, Wayne TWP, and Decatur TWP. I would highly recommend staying out of center TWP as the homes are much older, tenants are much more transient, and vandalism rates are higher. Many of these areas have a few other good points worth touching on: Most of these homes were built in the 1950's or later, and are one story on a crawl or slab. This significantly lowers the cost of rehab when it needs to be done between tenants, or when larger maintenance issues need to be addressed such as plumbing, HVAC, or wiring repairs must be made. Nearly all of these homes are walled with drywall vs. many older homes walled with plaster-again making repairs easier. Another great point about these areas is the newer construction generally has a larger lot, private drive, newer connections to municipal sewer systems, and many have attached garages. All these thins add up to savings on rehab AND higher rental rates which equals higher rates of return. I think anyone who is advertising 16% returns on buy to let properties is hiding some very key information that will negatively effect ROI. While local investors may be able to achieve these rates with some success, there are costs associated with absentee ownership of rentals that must be factored in, not to mention vacancy rates, management fees, cost for repairs between tenants, etc. If you set your expected ROI this high you run the risk of getting taken for a ride–it doesn't pass the smell test and I would expect there are unaccounted for costs backloaded into the deal. You want all those costs to be incurred in the acquisition to get to a true ROI.thanks for pointing out the ROI % returns I have been telling anyone who will listen to me on this forum that these numbers are not sustainable and are just pro forma numbers not actual. I have conversed with a few AUssies on this site that explained that they look at ROI differently than we do and they look at gross numbers and compare to what they can buy at home.
Were us USA citizens look at Net and gross its just that a number, good to know but means nothing to the bottom line.
Time will tell with all of these investments. And there will be some steep learning curves for those buying the cheapest properteis that tout the highest returns.
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