Lose money to hopefully make some money in the future – negative gear in Australia
Make money to hopefully make more money in the future – positive gear in AmericaYet Aussies are still loading up on Australian property……….
A lot of people, I either speak to on here or in person are just scared to take the leap of faith in the U.S.
They look at the numbers, do the research, everything suggests US property investment would be a good investment, but that first leap of faith holds so many people back from proceeding. That same leap of faith keeps only 5% of the worlds population in the affluent category.
Most people will point out why an investment can’t work, rather than looking for how it can work while also minimizing their risk as much as they can.
What made me take the leap of faith was the following:
My superannuation was humming along at a measely 10% return for the past 10 years
My property in Australia had increased in value since 2002, but the negative gearing had eaten away most of those profits
Aussie shares over the past ten years…….Meh! Thank god for dividends!I wasn’t satisfied with the above as you can probably tell
I was never going to build wealth this way………Just because it felt a little safer investing in the country I lived in didn’t mean I was going to see the positive results. How naive could I be!
It was a massive reality check for me and it was time to change my mindset
I was looking for something that i knew would perform from day one, without worrying about the capital upside and the day to day turbulent volatility
CASHFLOW!!!!!!
It was time to start looking for an investment that produced good cash-flow and was a distressed market where the most people were fearful and bargains and high cash-flow were plenty. Warren Buffet is obviously most active in these markets….it is well documented!
After doing my research, I filtered in to three main markets: Phoenix, KC and Atlanta, I actually began to realize…………….
………..I now know more about these American markets than I do of the Aussie market When i invested in back in 2002
So I Started small. Wanted to build confidence first. The guys at the company I purchased through said to me, after I found the house I wanted to purchase, “we will give you your money back if after 3 months you decide this isn’t the investment for you”
It was an amazing leap of faith from a company that was so confident that I wouldnt look back after receiving my first three months of cash-flow.
I am happy to say, the leap of faith I took, as well the company took with their money back guarantee back then, has now built myself a nice little portfolio that has produced more cash flow for me than any investment I have ever owned. I am still buying through this company today and have a great relationship with them
So point is, if you are sitting on the fence, here’s some advice from another Aussie who was scared to convert my first AUD into USD and commit:
– Start small. 30k for example. This is stamp duty in Australia for gods sake. You lose your stamp duty straight to the government anyway. It is dead money. You might as well put the 30k somewhere else and have it start working for you
– You want to be in a market where the jobs are, and will be for some time. Without jobs, we won’t have rental demand and the investment won’t work. Wonder why Detroit returns are so high……..
– The higher the rental return you chase, the higher your risk will be. Detroit is a great example, one industry town, jobs are in decline, and this is similar to mining towns in QLD. Once the mines dry up (which shouldn’t be for a while) property values will decline and there won’t be any rental demand. JOBS JOBS JOBS are the key to your real estate investment!!!!!! Did I already say JOBS?
– You can minimize this risk through choosing a market with diverse industries, minimum 5-10 big fortune 500 companies should be present, being close to good schools, highways, shopping malls, and general infrastructure, buying well with a company you trust and who has proven testimonials of people who have owned properry for more than 12 months, not just some salesman who doesn’t own any property, and lastly, making sure your property manager has a diligent tenant process as well as day to day management service.
MINIMISE YOUR RISK:
Try and finance out your property as soon as you can so you have none of your own money in the deal.
If you start with a 30k home, try and re-finance out as much as you can.
My guys can do between 50-65% Loan to Value. So now after refinancing, you only have 10-15k of your own money still committed in the deal.
Let your tenant pay off the remainder of this loan balance, and in Kansas City, with a good 18% return, your tenants should pay the remainder of this loan within 5 years.
So what started out being a scary 30k investment in the US, Soon only became a 15k investment after the refinance. Then as my tenant continued to pay off the balance of my loan, I began to smile with content…………..
Great post Property Scout, but I have to disagree with you on Detroit. What sent Detroit down the tubes 5 years ago is the exact reason Detroit will rebound so heavily in the future.
The auto industry in the US certainly hit a major setback in 2008 and there were massive job losses in Detroit. This coupled with the foreclosure crisis caused property values to decline nearly 50% and two of the 3 US automakers went into bankruptcy. But again, that was in 2008.
Fast forward to today…all three of the US automakers are profitable making Billions of dollars, and they have been for almost a year now. The unemployment rate has come down to 10.1% from its peak of 14.6% in 2009. Home prices have been stable since mid 2009, and they are actually up 11.1% since January of this year.
Couple this with the recent report from Bloomberg indicating that Michigan is the 2nd fastest growing economy in the US behind only North Dakota which is benefiting from an oil boom. (http://www.businessweek.com/news/2011-11-02/michigan-surpassing-48-states-shows-autos-drive-u-s-recovery.html)
When you look at the full picture, there is a very compelling case for investing in Michigan…you may plan to stay away, but I think you’re missing a huge opportunity.
I’m certainly buying all that I can here in Michigan before this opportunity goes by the wayside.
Property scout can you please pm me the company you ended up investing through?
Cheers,
Ashleyhad to chime in just a bit here answers in bold…
property_scout wrote:Lose money to hopefully make some money in the future – negative gear in Australia Make money to hopefully make more money in the future – positive gear in America Yet Aussies are still loading up on Australian property………. A lot of people, I either speak to on here or in person are just scared to take the leap of faith in the U.S. As they should be, there are loads of crappy deals be sold as great rentals here in the USA. This could be avoided if every single person who wants to invest in there financial future. Did there own due diligence and takes the time to go and view the properties. When we are speaking about financial futures, and some one tells me they don't have the time to go see the deals.( really ) Mistake number one . Well enough said thereThey look at the numbers, do the research, everything suggests US property investment would be a good investment, but that first leap of faith holds so many people back from proceeding. That same leap of faith keeps only 5% of the worlds population in the affluent category. Most people will point out why an investment can't work, rather than looking for how it can work while also minimizing their risk as much as they can . As in life we have alot of people who sit on the fence and never jump in the game.Real estate is not for every one. I choose the latter and love the excitement of real estate and know the long term financial future. That I am building for my family and future generations of my family.As well as the employees and there families our companies support. Real estate started for me as a challenge 15 years ago. For sure lots of ups and downs but man what a journey. Started out in a little town called Rock hill South Carolina 20 minute below Charlotte NC and just got back from a trip to Singapore ( clients who are buying in the USA ) . Still pretty awesome just thinking about it…
. What made me take the leap of faith was the following: My superannuation was humming along at a measely 10% return for the past 10 years My property in Australia had increased in value since 2002, but the negative gearing had eaten away most of those profits Aussie shares over the past ten years…….Meh! Thank god for dividends! I wasn't satisfied with the above as you can probably tell I was never going to build wealth this way………Just because it felt a little safer investing in the country I lived in didn't mean I was going to see the positive results. How naive could I be! It was a massive reality check for me and it was time to change my mindset I was looking for something that i knew would perform from day one, without worrying about the capital upside and the day to day turbulent volatility CASHFLOW!!!!!! When the retail and sub prime market fell apart in the states. We switched gears and realized real wealth is long term buy and hold ( CASH FLOW) Since then we have been aggressive buying and building our own portfolio. Yes I still get excited when I get a slam dunk deal and add it to my own real estate portfolio. Just FYI we are averaging buying between 20 – 50 properties a month .When properties are available in both our main markets. What the investors don't buy from us we just add those homes to our own company real estate portfolio. I have since ventured out and now I am trying to learn and tackle the next monster commercial deals. Small apartments just like single family homes we are venturing into a new area.Sure there is fear but the excitement of buying my first 20 – 40 – 60 or larger unit overwhelms any fear. Again it is getting out there and doing not just saying….
It was time to start looking for an investment that produced good cash-flow and was a distressed market where the most people were fearful and bargains and high cash-flow were plenty. Warren Buffet is obviously most active in these markets….it is well documented! After doing my research, I filtered in to three main markets: Phoenix, KC and Atlanta,( Love Atlanta been to phoenix. No interest but good market nothing against it. Kansas city have some partners there that provide short term financing for foreign investors but again no interest in investing there.Some good teams in both markets. So I know all 3 markets but prefer the south east >>>>> for my investing areas.
I actually began to realize……………. ………..I now know more about these American markets than I do of the Aussie market When i invested in back in 2002 So I Started small. Wanted to build confidence first. The guys at the company I purchased through said to me, after I found the house I wanted to purchase, "we will give you your money back if after 3 months you decide this isn't the investment for you" It was an amazing leap of faith from a company that was so confident that I wouldnt look back after receiving my first three months of cash-flow. I am happy to say, the leap of faith I took, as well the company took with their money back guarantee back then, has now built myself a nice little portfolio that has produced more cash flow for me than any investment I have ever owned. I am still buying through this company today and have a great relationship with them So point is, if you are sitting on the fence, here's some advice from another Aussie who was scared to convert my first AUD into USD and commit: – Start small. 30k for example.
30k is low entry and wont get you much in the USA ( or will be in rougher areas) .Lower income properties tend to be more of the headache deals but on the other hand I still deal with those. We have some properties that we just sold priced between 40k to $50k range. So be-careful what you buy and please do not buy with out seeing the areas. Yes I am sorry for some who will get pissed by this next comment. NO a video and pictures do not work. I want you to actually fly to the area you are going to choose to work.That is a small part of taking the steps to changing and creating you financial future.
This is stamp duty in Australia for gods sake. You lose your stamp duty straight to the government anyway. It is dead money. You might as well put the 30k somewhere else and have it start working for you – You want to be in a market where the jobs are, and will be for some time. Without jobs, we won't have rental demand and the investment won't work. Wonder why Detroit returns are so high…….. – The higher the rental return you chase, the higher your risk will be. Detroit is a great example, one industry town, jobs are in decline, and this is similar to mining towns in QLD. Once the mines dry up (which shouldn't be for a while) property values will decline and there won't be any rental demand. JOBS JOBS JOBS are the key to your real estate investment!!!!!! Did I already say JOBS? Very true no work no job no renters = empty homes..No more needed to be said there.
– You can minimize this risk through choosing a market with diverse industries, minimum 5-10 big fortune 500 companies should be present, being close to good schools, highways, shopping malls, and general infrastructure, buying well with a company you trust and who has proven testimonials of people who have owned properry for more than 12 months, not just some salesman who doesn't own any property, and lastly, making sure your property manager has a diligent tenant process as well as day to day management service. MINIMISE YOUR RISK: Simplified below 1: Meet the team
2: Fly out and check out the team ( I make sure any one who comes to see us in Either Atlanta or Charlotte NC must do it monday _ friday.3: referrals ( find out who you are dealing with )
4: Real estate Goals in mind what you want to achieve…
5: Most important property Management …
Try and finance out your property as soon as you can so you have none of your own money in the deal. If you start with a 30k home, try and re-finance out as much as you can. My guys can do between 50-65% Loan to Value. So now after refinancing, you only have 10-15k of your own money still committed in the deal. Let your tenant pay off the remainder of this loan balance, and in Kansas City, with a good 18% return, your tenants should pay the remainder of this loan within 5 years. So what started out being a scary 30k investment in the US, Soon only became a 15k investment after the refinance. Then as my tenant continued to pay off the balance of my loan, I began to smile with content…………..
true leverage and paying off the property as soon as possible….
just my two cents
Alex
Buy a Trump Tower 5th Ave apt with a sub4% return and you have no risk with significant upside in CG. Manhattan prices are on the rise in big way.
If you look at the prices listed below you will need to pinch yourself to understand these are BAD market prices – lifting from a low base, but BAD.
http://nycvertical.com/building-sale-bid-523Buy a foreclosure and choose your risk. Some are amazing. 90% I can promise you will be a disaster.
Gentlemen and Ladies, Place your bets..!!..
Lawsjs: I agree with Manhattan real estate. Problem is its too pricey for 99% of investors on this board. They are looking for affordable entry level homes for cash flow and upside.
I have a brokerage in Hoboken, NJ and my blog is http://www.NewJerseyRealEstateGuys.com. We are booming right now with luxury condo market in NY Metro area and NYC referrals. Buy and hold at 4% and sell for double in 5 years. Ok ok, maybe not double, but I bet it would be close!
CheevesFinancial | Cushman & Wakefield - Commercial Property SW FL
http://www.CommercialRealEstateVoice.com
Email Me | Phone MeCF,
The funny thing is when people say ‘too pricey for 99% of investors’. What is pricey about an investment that you KNOW will make money as opposed to one that looks cheap but will likely not go far and probably cost a bomb to operate.Boats are extremely cheap in the US as well, and you can bring them to you and look after them yourself. Most people buying low end RE through any one of the spruikers would almost certainly be better off buying a boat!
And then there is the dollar. The easy to forget elephant in the room.
It is possible to do foreclosures, but my last 10-15 years in the US has been made very profitable and very easy buying ‘quality’ stuff. Most of my purchases were made around 65c in the dollar.
Right off the bat, someone like CF seems genuine to me. You can neg gear in the US just the same way you can in AUS. Why not buy a 4% property in a booming area in NJ or NY at $1.05 or .95. Say you spend $200k. And it doubles – I think CF is right, you may not, but it makes for easy numbers. $200k thus becometh $400k USD. Not a stretch of the imagination to see the AUD at .80. That makes $500k AUD. Your return is therefore 250% for 5 years of ‘parking’ your money in a rolled gold RE market.
Foreclosures work too, but you either need someone REALLY working for you or you will fail.
Great post lawsys and CF
Like CF says most of the audiance on this site has one thing in mind and that is monthly cash flow and that cash flow better darn well be 15 to 20% a month or its not a deal.
Since financing is so hard for out of country buyers they have to default to what they can pay cash for.
Foreclosure business is highly competitive in the bigger markets, with wholesale prices being established by the local buyers.
I know here in Oregon and southern Wa. there is about 20 of us that have controlled the court house step activity for as long as I have been buying them which is circa 1995. One thing it is not is a free market auction deals are made and cut daily. Is it legal hell no and some have been caught by the FBI… But does it happen Hell yes every day in every market in the US.
Cheeves and I were talking about Ft. Meyers. where wholesale first gen prices bottomed at 30 to 35k per house. From what I know now and its second hand those numbers have risen 10k. to 40 to 50k wholesale. And some with the Chinese dry wall have been for far lower. ( love those Chinese craftsmen)…
Time will tell on appreciation over the next 5 to 10 years… however in my 35 years of doing this, one thing stands the test of time Supply and Demand.
I think that is why CF and Laweys can talk about Manhatten going up in value with 4% cap rates. Not alot of new construction there…. Same with other markets that are confined BAy Area ( SF West side) although prices never got to 200k and never even got to 400k on the penensulia they are still 700k to who knows what a google billionare will pay.
LA is more wide scattered Not an expert there but I think closer to the beach and Orange county the better, Inland empire Temecula Palmdale got hammered.
Same with most of Florida like CF and I have been talking about in another thread.
I personally think the big money in the next 5 to 10 years will be path of progress plays. Big developable land holdings in West coasts and upper east coast. At least I hope so I have a few that are poised and if they hit off life will be good.
Jay I am betting on my southern states for our gold mine. We are small time guys compared to most but we do want to own 100 in Atlanta and 100 in Charlotte in next 5 years. That,s homes in each area…free and clear or little to no debt…
Alex
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