Hello all,
We recently purchased a property in the US (Florida) under the name of our LLC. We paid for this property using cash savings so we own the property outright.
So my question is now, what is the best way for us to increase our portfolio in the US and purchase houses using finance from banks or other financial institutions. Our first house cost us $50,000 and we do not want to have to wait to save up $50,000 each time in order to get another house, we would prefer to be able to just provide a deposit and obtain the rest through finance, and a positively geared property paying down the mortgage for us.
We do not currently have a bank account in the US (our property manager is collecting the rent on our behalf) however we will be setting one up in the near future, just need to find some time to be able to fly over to the US and set one up in person, seems to be too complicated to be able to do it while in Australia.
So I guess the main questions are –
* Does it matter what bank I set up the bank account with? I.e if I set up a bank account with Wells Fargo would it make it more difficult if I wanted to get a loan with a different institution?
* Is there a time period we have to wait between opening up a bank account and applying for a loan? Note we purchased the property in May.
* Does anyone have a recommendation which financial institution is best for acquring a loan, particularly for a foreigner, although our LLC is registered in Florida?
* What is the minimum deposit required? I would assume we would need at least 30% deposit, which we have no problem with doing.
If anyone else has any additional help or can provide some assistance that would be greatly appreciated. Feel free to email myself directly at [email protected]
Cheers
JamesAlso does anyone have any recommendations on how to mitigate the risk of having a loan overseas? I remember when we did have a US bank account, we ran into an issue where we were only told by a letter in the mail that they were closing our account 7 days from the date of the letter. Since the letter took 20 days to arrive, by the time we knew, it was already too late. This is just an example of a risk, but I guess is there a bank which provides email notifications rather than postage?
Search the forum there have been posts regarding the issue of bank finance in US, it is almost impossible to get a loan. There are hard money lenders out there, however you will be paying costly upfront fees, high interest rate as much as 12%. Everything I have looked at I would not touch, additional accounting fees and complicated paper work, insurance requirements which could also be costly. Its a mine field for the foreigner investing in US.
Of course there are also the companies that are selling properties with finance, however the properties are hugely marked up, so you are basically getting ripped off.
As far as setting up bank accounts we have set up a number of bank accounts from Australia and authorised our Lawyer to do this, Wells Fargo, however, this is not the case with all US banks.
Cheers, WI
I echo WI 's post
I doubt in Florida your going to be able to get any financing for non owner occuppied or a home that is not a second home..
I see a lot of talk from off shore investors thinking they will get short term owner financing then refi out when the banking gets better here.
WELL heres a news flash for you its very very unlikly that any Non US citizen is going to get any kind of financing on anything other than owner occ.. or second home period.
And especially the low end..
One little tidbit to think about many lenders will not make loans for less than 100k and certianly not less than 50k…
so when your buying a 60k prop. with 30k down there is no chance in a blue moon for a refi ever… Even in the old market…
I know I got stuck with a bunch as a hardmoney lender… You can basically shame a US bank into a lower than 50k loan if your a US citizen for owner occ… but no way no how for non owner occ…
So for all you folks thinking your going to refi when things get better here… Your going to have a rude awaking,, and i would be getting myself in a positon to pay those balloons off when they come.. due..
Of course you will have the chance to borrow hard money again like WI points out 4 to 5 points 12% plus fees for 12 to 24 months.
From my very very conservative perspective,,, pay cash or be prepared to pay cash… Its a double edge sword everyone is excited to by all this cheap real estate,, but no one in the US is going to mess with such low loan amounts…
For one just think about it rationally,,, What mortage broker that makes 1 or 2% commission ( remember yield spread kick backs are dead by and large) so your asking some mortgage broker to jump through all the paper work time and effort to close your 30k loan that they may make 300 to 600 dollars on… GET REAL no one worth their salt in the mortgage business is going to waste 5 mintues on that kind of loan request..
Then you have the problem that no one can have more than 4 mortgages on their credit… Rules say 10 but 4 is reality…
Its just not going to happen and this is why our market cratered so bad its really is. IF you folks could get credit prices would jump right back up much quicker same with US borrowers.. But no… In the good ole days us US investors could have 20 to 25 loans on our credit reports before we got cut off. its 4 now.
When I give my presentations in front of financial consultants and their clients I leed off with this:"
YOU WANT TO KNOW WHAT HAPPENED TO RE VALUES: here is what happend.
WHAT IF there was NO Fiancing for GM, FORD CHRYSLER< MB< BMW> TOYOTA> Honda Etc.. And all cars had to be paid for in cash…
Well I can tell you what In the US your 70k Cadallac escalade would be worth about 10kk… The whole auto industry would implode.. Well thats whats happened to us in the RE industry..
The financing that is out their is really only set up for owner occs and those that have stellar credit and or down payment or both.
The investor has been shut out by and large now there are still pockets Like Texas Cash cows stuff in his market but by and large no financing for Non owner occs… Take the Mid west and Deep south along with the inner cities of the northwest that have HUGE % of rentals in the SFR space and then provide no fiancing to buy these homes, have countless millions of landlords just rip rents and walk away because of PM problems and tenant problems… And you really had what the US guys advertise"THE PERFECT STORM" for price devaluation..
Now I do not have to be a Harvard trained economist to figure this out,,, And or as smart as the frekle but this is what reality is and has happened.
So for all those like WI and others than have some jingle to make cash purchase we are all benefiting from the cards that were delt us…Now this is also why its important not to buy Hood properties… Because the exit will be retail for the big dollars and you need houses that can sell retail,, if your buying cheapy inner city houses they are just what we affectionally call TRASHFLOW never more never less super high maintenance. If you ever really want your money back you need to look to properties that have retail potential…
Intersted if anyone has any comments about the above pro or con.
The only way I see that you can get finance is through commercial deals.
If you are looking at say apartment complexes you can get about 65% from a commercial bank.
Being able to leverage at 65% makes the deals far more attractive
Nigel Kibel | Property Know How
http://propertyknowhow.com.au
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Nigel,,, commercial deals are apples and oranges to the SFR which si the soup de jour… Anyone in the world if the have the down stroke can get commercial loans in the US..
but we are not talking 100k properties or 50k properties, we are talking 500k to 10 mil and above.
I just close a big one with a Russion investor 8 million and he put 25% down… He could not speak the language, but could prove assets past the 25% down.
All the folks buy SFR's that think things are going to change and they will refi out will as I say have a rude awakening and If I was them I would be paying whatever I need a month to pay those houses off before the balloon even if it means negative gearing.
especially if you have private loans… Private lenders will just as soon take your property back if they think its in good conditon rented and they can get the next rube to pay half down and finance…
I understand that Jay commercial properties make more sense than standard residential properties. Though our development model in Australia is better lol
Nigel Kibel | Property Know How
http://propertyknowhow.com.au
Email Me | Phone MeWe have just launched a new website join our membership today
Ah but i have a new one here in Portland that is even Better
160k cash up front no personal exposure 250k return net in 18 months…
4 miles from Intels new 10 billion dollar 6 thousand new worker fab plant and RD.
the little town I bought the lots in already has 10% of the town works for Intel..
My daughter works for Intel one of the top companies and stable companies in the US and probably the world.
Send your sheckels over and lets get to building some houses and making some money forget about these long term rentals headaches
Of course have to have those 2.Thanks for the information Jay,
I understand not being able to finance properties for under $100k, and we were not looking at doing this, we were going to be looking at more the $150k and higher end of the market. The only reason we bought the first property for $50k was because that was all we had to invest, and we wanted to limit our risk with our first investment so we decided to start small.
We definitely do not want to go near hard money lenders, they seem to have their own rules and it is just too much risk and the return would just not be enough to make the risk worthwhile.
I guess with the difficulties in obtaining finance we may be stuck with continuing to invest in Australia and NZ, nevertheless, when I do go to the US I will try and talk to some banks and see first hand what they are able to help me out with. Most likely they will not be able to do much for us I suppose, but never hurts to ask.
Looks like I should start booking my flights soon.
I second exactly what Jay has mentioned. I don't know of anyone has has finance like what we have to offer our clients….we are one of the rare ones who has access to genuine bank finance for foreign national buyers. Again to mirror what Jay has said….they are not interested in the sub $50K loan amount market. With a 30% down payment required that means the purchase price can't be lower then $72,000-00 but most of the buyers I deal with pay around $120,000+ for SFH so we aren't talking the low end of the market. There are no mortgage brokers involved….buyers deal with the bank direct.
Thank you above for all your help and assitance. I talked to my property manager and she basically echoed what you have said above, that it is impossible to be able to obtain finance for a foreign investor.
The only solution she suggested was to obtain a credit card with the bank account, and by doing so, build a credit rating over a year or so, and then eventually may be able to purchase a property in my personal name. This is not ideal as we would prefer the property to be in the name of our LLC, but that being said, we can always transfer it across to the LLC later.
Being able to get finance is still only a maybe, but she was suggesting that we would need a minimum loan of $200k, but this does not need to be spent all on one property, a couple of properties could be bought and we simply draw down on the finance we have been provided.
So it seems there could be a fairly long waiting period before we are able to obtain finance in the US, in the mean time we may look at obtaining finance in Australia to purchase in the US, however the highest interest rates will make this less appealing. Alternatively we may look at continuing our investings in Australia, or starting to invest in NZ.
Otherwise we can continue to just purchase properties outright with cash in the US and just save up enough in between purchases, would be a slow organically growing portfolio, but at least we would never have to worry about being in debt!
streamlineinvesting wrote:Thank you above for all your help and assitance. I talked to my property manager and she basically echoed what you have said above, that it is impossible to be able to obtain finance for a foreign investor.The only solution she suggested was to obtain a credit card with the bank account, and by doing so, build a credit rating over a year or so, and then eventually may be able to purchase a property in my personal name. This is not ideal as we would prefer the property to be in the name of our LLC, but that being said, we can always transfer it across to the LLC later.
Being able to get finance is still only a maybe, but she was suggesting that we would need a minimum loan of $200k, but this does not need to be spent all on one property, a couple of properties could be bought and we simply draw down on the finance we have been provided.
So it seems there could be a fairly long waiting period before we are able to obtain finance in the US, in the mean time we may look at obtaining finance in Australia to purchase in the US, however the highest interest rates will make this less appealing. Alternatively we may look at continuing our investings in Australia, or starting to invest in NZ.
Otherwise we can continue to just purchase properties outright with cash in the US and just save up enough in between purchases, would be a slow organically growing portfolio, but at least we would never have to worry about being in debt!
Financing is great but building real estate state portfolio one house at time is safe and sure way to succeed. I have been following your Blog .
Good stuff send some of your fellow Aussies the pictures of the renovations.I think this will help every one on why and what cost are here in the states .
streamline
What your realtor is referring to is a blanket line of credit…This is only going to come from a locallly owned commercial bank you will never get one from a big national bank
Credit rating is not the issue… its non foriegn citizen… I have sold properties to foriegn citizens that moved here and got their loans for owner occuppied no problem
And second homes. same way.
but rental properties there is really no way. the reason being the banks would have no one to go after if you stopped paying
and 50% of the foreclosures are from rental properties IE landlords ripping rents and walking away from the property. this happens for mainly one reason… Cash flow is never what was expected and being a landlord is far more difficult than imagined
so they walk and stop paying the mortgage payments, yet stil collecting the rent.Alex,
Thanks for the kind words, the blog is s till in it's early days, hopefully over time we can populate it with more useful information when we have more experiences to share.
Jay,
I see your point. Our agent was saying she was having great difficultly obtaining finance due to not having an SSN. I guess this ties in with your reasoning, she is originally from Australia, and I guess they are concerned that if she decides to default on the loan, she can just leave the US and they will not be able to chase her for the missing money. Looks like we may be building our portfolio one property at a time, buying them outright.
Yes, Florida can be a good state when investing in property. Actually, many lenders in Southern Florida may help you obtain a home loan that will allow you obtain a bigger profit over a period of time.
I was recently approached by someone representing this company – http://loansusa.com.au/
Essentially they specialise in providing finance for Australians to purchase US property. I have not gone into any details with them and have only accessed the information they provide on their webpage.
Looking at their examples they have provided, they seem to be able to offer loans with interest rates between 5.5% and up to 9.5%, with the typical rate around 7.5%. One of the reasons I was hoping to invest in the US was to take advantage of the low interest rates they have over there, but if I had to pay the same rate as an Australian loan it almost looks at becoming not worth it.
Looking at our current property, the gross yield is around 16.25% (paid $44,000 + $4,000 rehab and rents for $650 a month) which is great, but currently we are looking at a net yield of around 5.2% (that being said we had to pay $2,900 for a new air conditioner unit, I assume and hope this would not happen again for a few years at least), which would leave the property negatively geared if we were to obtain a loan. This goes against our desire to get a positively geared property portfolio, unless we were able to obtain US finance with the nice low interest rates.
I wont repeat what everyone else has already said.
Financing a purchase in the US through a traditional lending source is something we have done for Foreign National buyers for over a decade and is not out of the question. Refinancing where you have already paid cash for the property is a different matter.
As a Broker it all comes down to rate of return. We have to charge our clients a fee for arranging their US finance and the fee versus the number of hours spent makes it debateable. As Nigel mentioned you can finance a client into a better returning investment here in Australia and earn 3 x as much.
We are also finding a lot better returns throughout the UK & Germany where we can get genuine FN finance at attractive rates and where property management like here in Australia is treated as a profession.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
Steamline:
I think your experince is what most investors are going through be it foriegn or domestic.
Gross returns are just phantom,,, its net return… then you add in your cost to come and visit excetra and your neg geared right there.
Richard makes a great point… and one I made… there are very FEW if any Mortgage brokers that are professionals in the US that are going to work on 50k mortgage loan… With the new commission rules and full disclosure of Yield spread premiums Mtg brokers in the US have seen their incomes come crashing down… Thats why many either left the business or when to work with a bank for a wage paying job.
jayhinrichs wrote:Steamline:I think your experince is what most investors are going through be it foriegn or domestic.
Gross returns are just phantom,,, its net return… then you add in your cost to come and visit excetra and your neg geared right there.
Richard makes a great point… and one I made… there are very FEW if any Mortgage brokers that are professionals in the US that are going to work on 50k mortgage loan… With the new commission rules and full disclosure of Yield spread premiums Mtg brokers in the US have seen their incomes come crashing down… Thats why many either left the business or when to work with a bank for a wage paying job.
Jay you are correct no one wants $50k and under loans in the USA. We have one guy who does them in Charlotte but he is new and hungry. So motivation is a key for him for now.
Alex,
thats why I contend that those that have bought property with short term Vendor financing say 3 to 5 years.. and where told as soon as things get better they can refi… This is just not the case and is ABSOLUTLY FALSE… These 50k and sub loans have never been easy to get Unless they are owner occ. Or maybe second homes… NOT investment properties and certainly not Foriegners.
So my advice to those that have bought property this way is to either start paying your mortgage off now with higher payments I am sure they do not have pre pay penalties… and or be prepared to pay the balloon in cash..
DO NOT BUY A VENDOR FINANCE on the hopes and representations from any marketing RE salesmen etc that is telling you that lending will get better in a few years just not the case
JLH
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