Australians have been buying properties in record numbers, if some of the figures are to be believed there has been around $650 million spent in the last 12 months. My concern is that much of that money has been badly spent.
So what things can you do to protect yourself in the United States?
Firstly whether you succeed or fail depends on who you are dealing with!
America is full of so called wholesalers who in many cases are not even based in the cities that they are sourcing properties. So if they are not on the ground how will you know what you are buying? The answer is you cannot. Also in many cases you could be paying far more than the properties are worth.
Beware of operators offering to buy and renovate for a price. It has been my experience that many Australians pay through the nose for some of these properties. Most of the Australians that have been buying overpriced properties will only realize this when the try to sell them.
It’s also true that a number of Australian companies are also selling American property. Be very careful, many of these operators have not only never been to America many have never met the supplies they are dealing with. How can you trust someone’s judgment when they have not met the suppliers they are dealing with?
First meet or speak with a US accountant that can assist you to establish the right structures
.
Secondly make sure that you plan on either buying an apartment complexes or a number of houses. If you are only planning to buy one you could be wasting your money, because by the time you look at the cost of structures and your tax returns you need to have enough property to make it worth your while.
Get to know the person you are dealing with. Ideally before you buy for the first time, take the trouble to fly to America and look at the market, meet the suppliers and make sure that you are comfortable with the service being offered.
Make sure that there is Property Management being offered. Believe me there is no greater nightmare than being on the other side of the world and finding out your property manager has disappeared.
Open up a bank account, I have an account with Chase but there are many others.
Pick one market and get to understand it.
Obtain pre approval for finance where possible. Make sure that the finance is bank finance and not supplied by wholesalers that can offer funds that are short term and also be at a high rate.
Finally never buy a property just from the internet you are playing Russian Roulette with your money unless you are dealing with a partner you trust on the ground.
Buying property in America can be very rewarding providing that you research not only property and location but most importantly that person you are going to work with on the ground. You want to deal with someone who has a long term view on investing in America and is not just looking at the next commission check.
One of my favorite sayings is measure twice cut once; if you apply due diligence with what you are doing you will have far more chance of success.
Finally I know that a lot of people have considered flying to America to buy directly. I would suggest extreme caution. I ran a real estate firm in Texas and if I did not today have a partner that I could trust, there is no way I would deal in this market.
So with the US economy starting to improve it will create great opportunities in the United States however do your due diligence carefully. Remember a fool is easily parted with their money.
Nigel Kibel
http://www.propertyknowhow.com.au
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Nigel Kibel | Property Know How
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What is due diligence?
Due diligence is the process of “doing your homework” on the investment property. It is the process of checking, double-checking, and confirming any important information that was used as a basis on determining if the particular property is a good, average, or bad deal. This process takes you on an information-gathering and fact-finding mission. Proper due diligence takes persistence and weeks to accomplish. Due diligence is not used as an excuse to back out of a deal, but it is primarily a means to protect you financially and legally.
Why due diligence?
Proper due diligence will enable you to uncover potential problems with the property or as we call them, “elephants underneath the carpet” before the deal is closed. These potential problems can be very costly (time, money, legal) and can turn a good deal into a bad one very quickly. An educated real estate investor knows and understands the importance of completing their due diligence tasks.
4 Main Parts to Due Diligence:
• Inspections
• Financials
• Legal
• Modeling
Inspection Checklist •Walk-thru inspection of units by yourself, realtor, and property manager first (before you hire and pay for an inspector)
•Then, hire a professional inspection company that includes walk-thru of ALL units, structural, mechanical, electrical, pest (termites)
•Get detailed written report from inspectors
•Get estimates of repairs needed
•Get 5-yr history of capital improvements made
Financial Checklist •Income and expense statements for last 3 years
•Rent rolls for current month
•Lease agreements of all tenants
•Utility bills for last 12 months
•Property income tax returns for last 3 years (link figures to I/E above)
•Property real estate tax receipts for confirmation
•Do your own market rent survey of the local competition to know if your currents are under market and can be increased or if your rents are at the market maximum
•Get list of sales comparables from realtor and convince yourself that you are not over-paying. Hint: make sure the comparables are actually comparable are similar properties (age, class, amenities, and location)
Legal Checklist •Title report (you want clear title)
•Check for building code violations and zoning
•Get insurance policy and claims – a treasure trove of info
•Get service and vendor contracts and review
•Get copies of all surviving guarantees and warranties
•Personal property inventory list (furniture, computer, fixtures, etc.)
•Police reports – research the reputation of the property
Modeling Checklist •Spreadsheet/model the income, expense, debt, returns, and investor pay outs (if any). See our spreadsheet for this.
•Forecast the income and expense model for the next 3 to 5 years
•Have someone (more knowledgeable than you) review your model and come into agreement with you
•After all of this is complete, does this deal still meet your investment objectives?
Critical Tips to Follow During Due Diligence
The mindset we must have: “The seller is guilty until proven innocent”
• Know how many days of due diligence you have to perform. Know the exact start and end dates. You may have the following contingencies in your purchase contract: inspection, title, financing, and appraisal. Each one has its own due date and typically they are tied to your earnest money deposit. If you fail to pay attention to those due dates, you may have waived your rights to getting your earnest money returned to you if you decide to back out of the deal.
• Always follow around the professional inspector and ask plenty of questions – this is a great source of wisdom. Plus, you’re paying for it, right?
• Never believe what the Realtor tells you verbally in terms of any financials such as income and expenses. Get everything IN WRITING. It is absolutely your responsibility to double-check.
• If you are getting close to running out of time on any of your contingency periods – ask your realtor for an extension. Usually, they will give you a 5 to 10 day extension.
• Be Present. What is the opposite of being present? Answer: absent! And what are the possible consequences of being absent during due diligence? NOT GOOD!
John-USA-CommercialRE
Email MeNo doubt about it if you are going to invest in he United States it is important that you plan your trip carefully. Lack of preparation can leed to mistakes or the very least wasting your money
Nigel Kibel | Property Know How
http://propertyknowhow.com.au
Email Me | Phone MeWe have just launched a new website join our membership today
Hi,
I would think that we will still need the local property management firm to take good care of the property. Though they charge a nominal fee, but i guess it is still worth while to save our precious time as property investors.
I agree Property Management is essential if you are going to invest in the United States. Unless Property Management is included do not proceed further.
Nigel Kibel | Property Know How
http://propertyknowhow.com.au
Email Me | Phone MeWe have just launched a new website join our membership today
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