Hi SNAPPYTOM

I'm interested to hear what interest rate you've been offered.

And what will the property taxes be like on the west coast of Florida?

Please let us know how things work out.

Best of luck
Steve

Today is a tense day for me, waiting to see if my offer on the REO is the highest.  You all may be wondering why I'm so obsessed by this one property.  The answer is: water frontage.

It is about a 2 minute walk from Miami Beach (which is on the east side of the island) but it sits on a waterway on the west side.  The home faces south (which is good if you're in the northern hemisphere), and the property sits sideways against a waterway.  The waterway is about 100 metres wide, so you have a great open view of water.  Furthermore, you can moor a yacht on your own front lawn.  The property is long and thin (as is the house) with the longest side (of both the property and the house) facing the water.  The entire living room is just windows on one side, with incredible water views.

The price asked by the bank is $225K.  Normally, with an REO, you should offer anywhere from 30% less up to asking price, you normally don't need to go over asking (unless you really want it).

But this property is special.  All the comps (similar sized sold homes in the area over the past 6 months) went for between 230K and 350K, but none of them faced the water.  Water frontage is practically impossible to get, since every other waterfront property in the area is a triple or quadruple plot, owned by a multimillionaire, with a luxury yacht moored in front, and (if for sale) going for anything from 2 mill to 10 mill. 

So you can see why I offered 25% more than asking price.  In addition, the house in question sold in 2007 for 965K.  The owner put it straight back on the market for 1.45 mill.  He didn't get it, and went bankrupt waiting (he'd paid a deposit of 96.5K, which he lost when he walked away).

I want this property so badly that it gives me butterflies in my stomach thinking about it.  If I get it, I've just doubled my money. 

But every time I've been to see it, there were other buyers sniffing around.

It came on the market on 30 Oct (6 days ago).  The bank received 10 offers by yesterday (the 5th day on the market), so they closed the bidding.  We're expecting to hear back today or tomorrow if I got it or not.

But one can't put all one's eggs in one basket, so today I'm going out to see 9 more REOs, in areas just south of downtown Miami.  Not near the beach, but solid areas, and I've told my agent to select single family homes in the 100K to 300K range.

I'll let you know what I find.

WHAT IS THE CAPITAL GAINS TAX FOR FOREIGNERS BUYING PROPERTY IN THE US?

I believe capital gains made on property in the US are taxed exactly the same as gains on any other form of investment (eg. stocks).   Currently the CGT is 15% on property held for more than a year (that doesn't mean that you'll pay 15% of your profit, since you can make lots of deductions for costs.  In addition, I have been told over and over about a law they have here called 1030 Exchange, whereby you don't pay CGT if you use the money you made from a sale to buy one or more new properties.

Here is what Wikipedia says about capital gains taxes in the USA:

Short-term capital gains are taxed at the investor's ordinary income tax rate, and are defined as investments held for a year or less before being sold. Long-term capital gains, which apply to assets held for more than one year, are taxed at a lower rate than short-term gains. In 2003, this rate was reduced to 15%, and to 5% for individuals in the lowest two income tax brackets. These reduced tax rates were passed with a sunset provision and are effective through 2010; if they are not extended before that time, they will expire and revert to the rates in effect before 2003, which were generally 20%.

What a stressful day. 

Early this morning my agent called me to say that the agent representing the bank (the owner of the REO I made a bid on last night) had e-mailed her to say that today 5pm was the closing deadline for any updates you may want to make on your offer (ie. do you want to make a higher offer).  I told her I would stick with my original offer.

I happened to be at the real estate agency around 4:30pm today.  My agent showed me the e-mail she'd received, which had a link to a page showing my offer, plus my personal details etc.  Everything seemed in order, except there was some very ambiguous wording that mentioned that your offer would be rejected if you hadn't signed and submitted the attached form by 5pm today. 

Since there was no attached form visible to us, we assumed that the message was referring to the 30 pages of documents we'd filled out yesterday and submitted, and which were now attached to the page reflecting my offer.

One other confusing factor was that the system showed the amount I'd offered, divided by 1000 (ie. without the 3 zeros).  We tried to call the listing agent, but she never answers.  So we SMSed her, and got a reply saying if we hadn't changed our offer, just sign the form and attach it to my page in the system.

Now it was 4:58.  I called over my agent's boss, and he looked everything over, and he too couldn't find any form attached.  Luckily, another agent sitting nearby got attracted to the commotion, and she came over and played around, and found the attached form!

Now it was 5:10

By the time we'd printed, signed, scanned and attached, it was 5:15.

The message in the system clearly states that offers that haven't been confirmed by signing and submitting the form before 5pm would be null and void.

It remains to be seen whether my offer will be considered.  Very annoying!

The problem is that different banks use different listing agents to sell their REOs, and each listing agent has it's own sytem to accept and verify offers.  It just so happens that this agent's system is far from clear, and then since her home language is Spanish her e-mail left us even more confused.

As if buying REOs wasn't complicated enough, the agents make it even worse.

Someone asked whether they should borrow in Aus $ or US$.

Assuming you were offered the same rates (eg. 30 year fixed at 6%) in both countries, then you should definitely borrow in Aus.

I say that because the current commodity cycle will end at some point (let's say 8 years from now), since:

1. China will slow down it's infrastructure investment and residential property development

2. African and South American countries will get their acts together and bring on line more and more mines and farms, resulting in a glut.

When commodity prices crash, the US $ will go down to 0.65.  That's when you get a cash-out refininance on your US property, and use the cash to pay off your Aus loan.

But if you are offered an Aus loan at 9% but a US loan at 5.5 for 30 year fixed, perhaps go for the US loan.  At least you're dealing with certainty, and a 5.5 fixed is going to look very cheap one day when the US economy is humming and everyone else who didn't lock in their rates now are all paying 10%.

Hi Tassie

Thanks for the encouraging words.  Now that I'm here it doesn't seem so difficult as it did from afar.  Just last week I felt unsettled, but this week I already feel completely at home (except for the absence of family).  I've rented a great spot near the beach (for a month), I've got my own parking place for my rental car, I'm loving my morning and evening swims, plus all the amazing restaurants (not expensive ones, just the incredible variety of fast food like Taco Bell and Subways plus the little local South American restaurants).

I'm not finding the shops expensive (eg. Publix) and sometimes I cook up some great steaks at home, with a nice bottle of cheap Californian red wine.

I think it's important to first be comfortable and settled, so as to have the peace of mind to do some serious bidding.  Also, you need a realtor you trust and like.  I have such a person, and what she lacks in experience she makes up for with enthusiasm.  I have not used her at all to hunt for properties, but did it all myself on Trulia, or by sitting at her computer and going through MLS listings.  There's just no way she's going to understand "value" like I can.  Sounds arrogant, but when it's your own money, and you've being buying properties for yourself for years, you will develop your own instincts, which are bound to be sharper than someone who's just in the market to earn a salary.

Two days ago I found the property I want, and have been absolutely focused on it ever since.  I've posted on Trulia and Zillow to get ideas for what to offer, I've phoned up and bugged people knowledgeable in the Miami market (people I met on the internet) until I got their opinion, I've spoken to every agent, plus the senior partners, in the agency where my realtor works, and I've visited the house in question several times, and have even spied on other buyers who've come to view it (by pretending I'm a dumb tourist who happens to be passing by, and then engaging them in a conversation, and asking them how much they intend to bid).  I have built up in my mind the range that I believe others are going to bid within, and today I put in an offer that hopefully will be a touch higher than I feel the second highest offer will be.  Yet I'm absolutely convinced that if my offer is accepted, I'll have got it at about half of its real value.

Since it's an REO, I know have to wait a few days (6 at the most) to find out if the bank accepts or rejects my offer.  When I placed the offer (which you do via the MLS website) I saw that 5 offers had already been submitted in just the past 3 days. 

So now all there is to do is wait, and hold thumbs.

In the meantime, I'm gonna start looking at small investment properties.

I forgot to mention: the number of people going to view my "dream property" is quite astounding.  Every time I've visited it, I've bumped into at least one other buyer.  And I've visited it often, since it's near where I'm staying.  Today there was a company viewing it, doing all the measurements and checking out the walls and foundations.  I got talking to the manager, and he told me their business is buying up REO's, fixing them up for a month, and then putting them straight back on the market.

So, although prices have come down by at least half since 2006, don't think this isn't a competitive market.  If you want to buy something that has intrinsic value, there'll be plenty of other vultures circling.

Hi JD

HSBC definitely lends to foreigners, but only as part of their Premier account program.  So first open a Premier account (for which you are supposed to keep an average balance of $100K or above) and then they will give you a loan.  However, they prefer to loan on bigger purchases (perhaps $200K and above).

Here's an interesting event that took place yesterday when I visited HSBC here in Miami.

I have not yet made a Premier account.  I just took all my documents (letters of reference plus bank statements) to one of the loan officers dealing primarily with foreigners.

He let me know he'd be happy to give me a mortgage, and then ON THE SPOT, without me even having a single HSBC account anywhere in the world, he typed me a pre-approval letter, stating that HSBC will be happy to lend me up to $200K for a purchase of a Miami property that fits with their criteria.  This means I can purchase up to$300K.  I think he wrote that figure simply because I told him that was the range I was looking at.

Basically, here are their criteria:

1. Do not state it will be an investment home.  Just state that it will either be your residence if you move to the US, or that it will be your vacation home if you don't move to the US

2. After you find the home you want to buy, you pay HSBC a sum (I forgot to ask how much, but other banks are charging about $250) and they will have the property appraised (meaning they just get a realtor who works with them to go and estimate the price).  Whatever the appraised price, that is how much they will loan you.

Here's an example:  Say you like a house costing $320K.  You put in an offer of $300K, and it is accepted.  Then you go to HSBC, but their independent realtor only appraises it at $200K (at this point you should get a bit worried that you've overpaid, and you still have the chance to pull out of the deal).  But let's just imagine that you love this place, and the owner won't go lower.  So then HSBC will just give you a 70% loan of the $200K, in other words they will loan you $140K, so you'll have to come up with the rest in cash.

One more thing about HSBC.  Their interest rate is phenomenal compared to all the other banks here that have Foreign National Mortgage Programs.  HSBC yesterday was offering 4.623% on a 30-year fixed loan!!!!!!!!!!!!!  The rate changes every day, but only slightly.

So now I've got a pre-approval from HSBC, but in fact it's probably worthless to me, as is their great interest rate.  I'll make a subsequent post to explain why.

Hi JacM

I have found that Trulia really is an amazing website.  It is almost a mirror image of the MLS listings (that's the site that agents use to find properties for you), and in fact all the properties I have viewed so far I found myself on Trulia, and then e-mailed to my agent here in Miami, and she set up appointments for viewing.

What I'm trying to say is that you could conceivably  buy a property simply by checking out its listing on Trulia and then contacting an agent here and putting in an offer. 

Thus far, the only advantage that I've gained by spending so much time and money coming to Miami is just getting a feel of this city, and growing comfortable with the idea of investing lots of money here (ie. peace of mind).

So here's some advice: if you know a city you like (and preferably a suburb in that city) then just buy from a distance.  You can do all the closing just using FedEx (or so I've been told).  Of course, having a friend or relative here would make you feel much more comfortable, since they'd give you third-person advice on the area you've chosen.

But one good reason to come is to organize financing.  It's actually pretty easy for foreigners to get loans here.  Of course, you can't buy REO's with a loan (or it's hard to anyway) but there are lots of houses being sold by the owner, which can be bargained down a lot (about 15%), and they are easy to get loans on.

Hope that helps

My current opinion of the Miami market:

I have not heard anyone say there are any signs of a turnaround yet.

I have heard some people (not agents, just average folk) mention that if you want to buy near the sea it's best to buy before the Snowbirds fly in from Canada and Europe, since they tend to buy up all the best properties with water views or within walking distance of the beach.

I cannot give any opinions on the buy-to-rent market, since the first property that I'll buy is just for personal use.  I may rent it out from time to time, but primarily I want a spot to enjoy with my family.

I'll start looking into rental properties later, so please be patient.  Even the realtors I've been dealing with (all situated on Miami Beach) are clueless about the rental market since they deal only with foreign cash buyers of island properties.

Today I saw a property I really want, so although it won't be the kind of property most readers are interested in, read below to find out my first experience of REOs.

The property I want is a single-family home, and it's an REO.  It was listed only 2 days ago.  The listing price is just over $220K.  It's within walking distance of the beach (about 100 metres). 

All the other similar size houses nearby are selling for $500K plus.  

So why on earth is the realtor who represents the bank listing the house for only $220K?

It appears that they list too low simply to attract lots of viewers.  A whole bunch of novice investors (like myself) will look at the property, think it's lovely, and bid $210K.  These kinds of bids won't even be in the running when the bank makes its decision.

Experienced investors will realise that the house is worth at least $400K, so they'll bid anywhere from $250K to $400K, and one of them will be the lucky winner.  Of course, if you bid 400K and you get the property, you might not be a winner if prices go down further.  And if you bid 350K and get the property, you may always wonder if perhaps you wouldn't have won the bidding if you'd only offered 300K.  And if you offered 280K and then didn't win the bid, and later you find out the property sold for $290K you'll always be kicking yourself.

So as you can see, REOs are just another form of auction.  They are the auction that takes place after the action at the court house steps that returned the property to the ownership of the bank.

I'm gonna be up all night figuring out whether I should bid $250K, 300K, or more.