Hi there, I just had a thought that I currently have around the 28k mark and wanted to invest in the US. Would it be wise to consider getting a personal loan at around the 20-25k mark to purchase a property in that $50k range? Then pay the principle off fairly aggressive?
Regards Brendon
Hi Brendon,
You could do this, but just be aware of the following issues:
a) I'm assuming that you would be borrowing in AUS and AUD?
b) I'm also assuming you would be using the rent in the US to repay your AUD loan?If that's the case I'm a little worried you may be hit with transaction fees bringing the money back every month, plus maybe at the mercy of changes in the exchange rate.
You'd also want to make a decent margin on the personal loan interest rate vs. net rent return to make it worth your while.
Still, it's the sort of thing I would have done to get started. Just keep your head and don't bite off more than you can chew.
Cheers,
– Steve
Steve McKnight | PropertyInvesting.com Pty Ltd | CEO
https://www.propertyinvesting.comSuccess comes from doing things differently
Hi Steve, Thanks for the reply I really appreciate it!
I would be aiming to pay the personal loan down with my standard weekly savings that I have been putting aside for the past year or so. Rather than bringing money overseas from the US, I would let the money pool as a reserve for a rainy day and then when I get a larger sum I would consider bringing it over in larger sums rather than monthly rents.
You hit the nail on the head Steve, I want to get into the property game and I know that some people may frown upon this but if it’s going to get me into the market and begin my portfolio I’m happy to sacrifice a loss in interest repayments. Considering the higher return on rent that I will have an extremely hard time finding here in Melbourne or even Australia I guess that kind of a loss would be feasible in relation to an Australian investment.
I really want to get a hold of your US Property Power Pack and go through it a few times, unfortunately the money I’m spending on Xmas presents and general bills all landing at one time I have to miss! Grrr
Anyway thank you for your concerns Steve!
Brendon
Personally I would suspect you would get a better return at the Casino. The US is not under any circumstances a place to ‘invest’ in real property with $28k when you live 7-8,000 miles away. Airfares alone will chew up a large percentage of that and if you aren’t spending time there I can promise you it will not work out – unless you have very close ties to the locality you are buying in.
If you want high returns maybe look at currency trading, or even a share portfolio. At least with local investment you can turn off the losses when you want. The last thing anyone wants is for you to lose precious capital when you begin investing.
FWIW I saw Steve as way more conservative when he started than buying as far away as he possibly could. I was buying in the US when he started out – he certainly didn’t poo poo the US, but did suggest to me I was being ‘very risky’ buying so far away. Maybe he just wanted me to go to more wrap seminars:)
Steve’s advice above of not biting off more than you can chew is very sound. All of us wanted to run before we could walk in the investing world. If it wasn’t Steve that said this himself it was someone similar – you achieve success with lots of little deals, not hoping for big ones. Big ones can send you broke faster than you can ever know until you have been through it.
I would be very surprised if 90% of the guys you see buying in the US don’t lose out badly. I am confident that I know more or less how to deal with the US, but I have been there 15 ish years and can now afford to lose a couple of hundred k without too much trouble. I have always bought investment grade property and even then if I lost the very close circle of experts I have I will sell up immediately, pay the vast tax on the capital growth (my properties INCREASED in value in sub prime) and get out. Gearing in with $28k if you can’t afford to lose it tomorrow is a very good way to turn yourself off ever investing again.
Unsecured personal loan is not cheap. unless you can bring in NET return of 14% as a Min i can’t see how your going to make money from this. Just my personal thought/
Better way would be to borrow from one of your family and friend; if they have “equity” in their property- they could borrow and draw on the equity from the bank a rate of 6.5% and you could repay them back at a rate of 8.5% for example.
Regards
MichaelMick C | Shape Home Loans
http://www.shapehomeloans.com.au/
Email Me | Phone MeSame Banks. Better Rates. Served With a Passion.
Or alternatively borrow in a State where you can get Finance as a Foreign National.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
From what your saying I would think your far to under capitolized to even think of investing in the US. Unless you did it with a managed program that assures that you will never have a capitol call for vacancy maintenance repairs etc.
One the biggest issues I see with the selling of our investment properties is the gross understating of actual operating expenses or running expenses and the completely unrealistic expectations about vacancy rates.
Its much like mutual fund investing and picking your own stock… Most novice stock pickers do poorly trying to pick that one stock.
Same with trying to pick that just so right US rental.Not to mention the trip and set up cost will cost you at least 20% of your capitol on hand and money you need to borrow.
One benefit coming out of the US real estate bust is the majority of properties that are non owner occ. being sold to investors are being sold for cash. So our nation the US is going to look completely different in 5 years time.
All these foreclsoures will have flushed out a new breed of cash investor will not have any debt on the property and foreclosures will be a fraction of what they are today.
Now Tax sales will sky rocket in the cheapy war zone crappy neighborhoods that a lot of the turn key guys work in because the cash investor will get tired of pouring money down the drain on the cash cow us rental that became a cash pitt. And will let these houses go for tax's instead of whats happening to day where they are being let go for failure to pay the mortgage payments.
The idea of borrowing on your personal residence in AUssie to leverage up and buy US properties especially cheapy homes that are really hard to manage and DO NOT perform as advertised anywhere close, in my mind is highly risky, I think you will see article in your local papers of Aussies losing their homes and or having really bad financial problems because the CASH FLOW rentals they thought they were buying do not cash flow and actually cost money each month.
so there you go you borrow 100k against your personal residence get caught up with some cheapie properties that have no real value unless sold by a high powered marketing company your bleeding every month, this scenario I guarantee has played out and will continue for the trusting Aussie who really does not understand the difference between " investment grade" and Truly Fully Managed" and buy a rental from some turn key company that at best has marked up the property so much that they can give you a one year "guarantee on rent and repairs" once that guarantee is over is when you will see the real world, and the higher the return the greater the risk and the almost certainty that your going to take a major loss over time.
I mean seriously do you think any major players or wall street companies are buying 30k houses in Detroit because they return 20 to 25% net returns as advertised or any other super cheap house in some rust belt town.
INVESTMENT GRADE US properties trade at 3 to 7 caps max… These are properties that insurance companies loan on Hedge funds buy REITS buy… You can get into some higher returns if you have a great management team that has an equity interest in the property but no way can you get these kind of returns as advertised if your doing it on your own and counting on a property manager in the single family space… You may do it 1 year but not going to happen over long haul.
So since if you agree with me that 15% plus returns are not sustainable over the long haul then you had better have bought a quality property that has a chance of apprecaiting, and I think we all know that most of the cheapy properties are just cash flow based and have no up side..
then once you factor in your TRUE cost what it cost you to fly to the states and other set up costs…
So bottom line in my mind someone with the scenario you pose is making a very very risky move borrowing high interest money to enter the US market to buy one cheap house. very risky
Brendan,
I just reread your second post and if you have to scrimp and can't afford steve's course not sure what it cost but most book hawkers charge 500 bucks or so. You have absolutly no business buying a rental property in the US… You are risking your families financial future.
Only buy a US property once you can pay cash and you have at least an additional 15 to 20k liquid ( not borrowed money) set aside to handle the unforseen.
If you go down the path your talking about and do it yourself and are going to trust a property sourcing company and then some 3rd party vendor property manager your going to put yourself in some financial distress of that I can virtually guarantee.
The property investment business in the US is not a Game its a business and its a tough one. We have well over 400 doors in our portfolio and to run them right and not be slum lords and we do not pay any management fees and we maintain them ourselves and even with these new price points ( much lower than 7 years ago) 14 to 15% is what we can expect.
So how are you going to get the same return. I get better deals on my houses by probably 20 % or better, as I am going direct No middle men taking fee's no paying up front to Some property provider. I pay no management fee's no upcharge on maintenance no letting fees. You are going to pay all of those. Limited travel, no big attornies fee's we do our own LLC's etc etc.
Do not get caught up in the Hype…
Save more money get better capitolized so you do not endanger your family you always want to be able to buy those Christmas presents.
I hear what your saying there jayhinrichs, I am only posing the question in order to gain some opinions from people who are doing it over there. I am continually hearing that these systems are not working as initially planned over there. I know it’s a hard rocky road although some people around these forums make it sound so easy and misleading I guess.
The more due diligence I put into this venture the more I am seeing the pitfalls and hidden obstacles which are never really spoken about. Don’t get me wrong, I definitely know my situation and the elevated risk I hold going into a higher debt level in a foreign country. I am an avid researcher and everyday I find myself continually looking into every possible avenue and until I find the right system or method I’ll be asking questions and absorbing other people’s experiences either good or bad.
Hence the reason I put a question like this forward on an open opinion forum. I have got quite a few personal views and I guess I’ll be putting this idea off for a 6 or so month period until I have enough cash to fund a deal like this. In the meantime I will study, research and ask questions!Thank you for your concerns guys if there is more to add be my guest I’d love to hear other people’s thoughts on the topic.
It’s not that I can’t afford the toolbox, I just have a big family and I have crap loads of presents I have to buy! (I have a feeling no one is going to buy me the US Property Power Pack!)
Merry Christmas
I would think Steve would just send you one for free since you gave him a good plug.
I know I take the contrarian view, however as a country it does us no good to have investors come here with these completly unrealistic expectations, and remember house flipppers do one thing, they flip for profit and as much as the market will bare.
Not all but most of the Aussie based ones will want money on both sides of the deal . they will want money from the US wholesaler and then want money from the Aussie buyer for the privlage. And of course everyone is entitle to a profit, its just when I see some of the deals come through my desk the profits are just gouging, and I am talking about US wholesalers selling to US folks. so I know it happens to foreigners as well.
Problem is those that made the leap bought the dogs they just kind of go away as they are embarrassed and they do not share their problem investments.
The few US guys on this site we all get private emails from folks asking for some sort of assistance. And of course we try but you cannot do anything for someone that has bought a war zone slumlord peice of crap property that was suppose to return them 20% because the nice Aussie company that may or may not have ever seen the property told them so.
Now there are good Aussie companies, but there are far to many that have no quams about sticking you with a lemon and laughing all the way to the bank of that I am certain
There are numbers of lenders and companies that provides personal loan facilities in U.S.A. So first of all you should choose the best finance company that fulfills your requirements. Most of the finance companies provide you two types of personal loans one is secured and other is unsecured. Generally an unsecured bank loan carries a higher loan interest. And for unsecured loan you don’t need any collateral. But in secured bank loan you would require sort of collateral to obtain the loan. So now it’s up to you which will best for you.
Yeah I'd be mostly concerned about the transaction fees and the exchange rates. If you're still getting ahead even with these fees and rate fluctuations, then it can be worth it. It also helps to have cash reserves, just in case exchange rates get hairy on you all of a sudden.
15 months ago, I did contemplated doing this but my mortgage broker warned me that the interest in personal loal is between 12-14 percent. Therefore, your US IP should be netting at least 14% to break even. Now, the killer joy here are the US bank transaction fee, international transfer fee, and the fluctuation on the interest rate….certainly doable but those are the main factors to consider.
What about trying to purchase a 50k home with U.S. private money lending at 50% LVR and an 8.5% interest rate?
Eliminates currency risk, bank fees etc. Better interest rate than personal loans in AUS, you can get into a nicer neighbourhood as you wont need to be chasing minimum of 14% Net Return and gives you a little buffer to pay down loan quicker as well as plan for unexpected maintenance issues.
Put all your cashflow back into the loan and get rid of the debt as quickly as possible and you will be on your way to building wealth that little bit quicker.
From a Macro point of view:
We are starting to creep into a slight deflationary period in the global economy. This is the Federal Reserves worst nightmare and as soon as larger deflationary signs appear, Ben Bernanke will start warming up the money printing presses and inject even more fiat dollars into the global money supply, this will then lead to inflation and possible hyper-inflation in years to come
Now is the time to not have all of your cash tied up into U.S. property. Spread the risk and let a bank or private money lender take on some of that risk. Let your tenants pay off your loan debt in cheaper inflated future U.S. dollars.
Here is a related idea that i'd like to see those in the know to comment on as it is directly relevant.
i figure you do not neccesarily need to get the loan from a USA bank or a lender in the USA , but that other countries may have a more favourable interest rate or tax conditions for individuals, businesses or a corporation if you have registered one (look up the term double Irish and Tax)If you could then transfer the cash to either an American holding account or transport it through other means (havent looked into them much but are Bearer Bonds any good?) you should be set.
– any hints, tips, warnings, comments or "how to's" welcome
far to complicated and James bond ish for a simple US property investment
far to complicated and James bond ish for a simple US property investment
jayhinrichs wrote:far to complicated and James bond ish for a simple US property investmentComplicated does not put me off, after all being the first investment it carries alot of risk and hopes, if it fails some people will be a long time in recovering sufficient capital to try again if ever.
Main thing im looking at is – if it would ultimately cut costs and help ensure profitability in the long run for the all important first purchase.
the other half of this is of course the property selection itself and there is a wealth of advice on that around the place… but not a lot on international lending and cost cutting regarding money transfer /purchases / foreign currency.
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