Forum Replies Created
Jay,
Thanks for your comments. I'm sure you are very close to the mark with your figures – you know much more about it than me. I'm well aware that the rent can quickly get eaten up in fees, taxes, repairs etc. This house purchase was something of a calculated gamble at a low entry price, just to get a feel for the whole US investing experience. Plus, we have a family connection in Jacksonville which may see us travelling there a few times over the next 3 years or so.
As I've said, I have been interested in the US for about 6 years now and with the Aussie dollar now being so high, US house prices being so low, the low purchase price of the house, our Jacksonville connection and of course the medium term outlook for Aus house price increases being very poor it seemed like the perfect thing to do.
We bought the house for $34,900 in May this year. According to Zillow it was sold in Jan 2004 for $24,000, then Sept 2005 for $85,000. It's value peaked in Sept 2006 at $97,000. It was then sold again in October 2010 for $22,000 to the guy we bought it from. When we bought it from him he told us he wanted to make $7,000 on the house. So, he must have spent about $5,000 on the re-hab, which seems fair enough. It's in pretty good condition – polished boards, newish roof, bathroom and kitchen are pretty good and the air conditioner is covered with locked steel bars to prevent theft. We felt pretty comfortable with the purchase and felt that the property manager we are using is someone who wants to do a good job.
I understand what you are saying about all the risks involved and the fact that it will take a while to pay down the loan on it, but as the loan gets gradually paid down it will compound to hopefully be paid off reasonably quickly. Also, of course, as I mentioned, when (if) the Aus dollar returns to a more normal level of around 75 cents to the US there will have been a 25% gain on our money. So, if we have bought a property that is slowly paying itself off and we've bought it at a price that appears to be 58% below the price it was sold for in 2005 and have bought it with a potential 25% gain in currency, surely we can't go too far wrong, can we?
I would love to have bought the property with cash, but, if you don't have the cash, you don't have the cash! At the moment, to me it looked like the best investment I could make with $35,000 from our line of credit. We have a few investment properties in Aus and one in the UK. The prospects for capital growth on those is very limited for the foreseeable future and it doesn't seem like a good time to be buying any more (especially when most Aus properties actually take money out of your pocket each week, not put money in your pocket). I have done a few renovations in the past and recently a dual occupancy subdivision. I'm looking to do something similar again, to make a cash lump sum, but at the moment I can't find anything with enough money in it to make it a worthwhile venture. So, Jay, if you (or anyone else) have a better idea for what I should be using my line of credit to invest in……please, please tell me. I want to know. I'm all ears!
Phil
Steve,
I'm not sure I would call Jacksonville a "nice" place. I would say it's probably functional, with good roads and freeways, but no public transport. From what I could see there is not really anything of interest in the city – it's just a place where some people live! (A lot of them very poorly and some of them very wealthily). There's no culture, no history and no soul. I actually found it to be quite a depressing place, except for the nice spring weather. The beach area is okay, but nothing special at all. Downtown seemed to be permanently empty except for a lot of down and out types hanging around in a park, being closely watched by heaps of cops – such a difference to the vibrancy of Melbourne (Aus) city centre, or Miami Beach. Compared to somewhere like Miami where there is so much life, energy and culture, Jacksonville really feels, like I said, quite depressing. But, people live there and people need houses!
Phil
Thanks Kyler, I'll tell my partner that – it was her idea.
No Ziv, he didn't have a paypal account, but opened one just so that he could send us the money that way. It's a pretty easy process and seems to be working well, with minimal fees from paypal, from what I can make out.
Jay, thanks for your comments. I have read a lot of your posts and you are obviously a US investing guru. I know you seem to advise against investing in "war zones" which is very understandable, as the properties get wrecked, then sold to a wholesaler, then re-habbed, then on sold to another unsuspecting investor and the cycle begins again. I wouldn't consider where we bought a war zone, but is obviously a very low income area. The property manager seems to be very good so far, so hopefully all will be well and the rent will keep coming in – we'll pay down the Line of credit we used to purchase the property and at some stage we'll own the house outright and it will be pure cash income. (That's the plan anyway). And hoping to buy some more if all goes well, but can't use up all of our line of credit as it then leaves no money to play with property over in Australia. So finding a source of loans for US investment would be great.
Prices seem to be on the increase in Jacksonville as well, as they appear to be in many parts of the US, from what I've read, so hopefully we'll get some capital growth as well. The only real problem I can see at the moment is when the property does require repairs, because the rent is only $650 per month, even a small repair can eat into that amount quite significantly. Whereas if it was a higher priced property with higher rent, the repairs would not be as noticeable in the net return. But, then the gross return on a higher priced property may only be 10-12 %, so, maybe it's "six of one and half a dozen of the other?"
Can you explain what you mean by "gross rent multipliers" Jay?
Jeff, it sounds like you have made some very good contacts in finance, accounting and banking. Are you able to share those contacts with us?
Phil
When I was in Jacksonville, Florida, a few months ago I bought a house. Thought I'd better open a bank account. Went to 2 banks and was told I couldn't do it. So I gave up. We bought the house in a land trust, which I never hear anyone talking about. Everyone seems to buy in an LLC. I don't really know all the pros and cons of all that yet. Maybe someone could explain? We were trying to set up the bank account in personal names, which couldn't be done unless we had proof of a US address, a social security number etc. Maybe if we had set up an LLC it could have been done, I don't know.
The banking system in the US is so far behind Australia. It's quite bizarre. Everything still seems to revolve around cheques (checks), with virtually no internet transfers. Tenants have to call around to the property manager's office every week with cash or check to pay their rent.
We weren't quite sure what to do about the rent money, so we now have the manager send it to us via paypal. I'm not sure how the paypal fees stack up against something like OZforex, but it working for us at the moment.
Would love to find a source of loans in the US to finance the house we just bought and finance more purchases. I spoke today with someone from the "US Invest" company, who were trying to get me signed up as a member for $995. Apparently the can offer finance up to 60-70% at about 5.75% on some of the properties they sell. Anyone know much about them?
Hi All,
I just thought I'd give a quick update on what I've been up to. I arrived back from Florida just over 3 months ago and have been trying to find the time to write this update, but haven't managed to find time until now!
I spent about 4 weeks in Florida, most of the time in Jacksonville. A little time in Gaynesville, Miami, Captiva Island and of course Orlando (to keep the kids happy). Unfortunately i didn't get to spend time in Cape Coral / Fort Myers where I was hoping to have a look around and meet Cheeves. Maybe next time?
Anyway, after almost going crazy trying to work out what was the best thing for me to do – what type of property to buy, where to buy, even – should I buy? I decided that I had to take the plunge, otherwise I'd be back in Melbourne and the whole project would just end up in the "too hard" basket, like it did 6 years ago after my trip to Texas.
We eventually bought a property in a lower priced area of Jacksonville – not a war zone, but certainly not the best part of town. It seems to be a lower working class type area. It's on the north western part of town. We came across a bloke who was looking to sell one of his properties, so decided to buy it from him. It's a 2 bedroom weatherboard, built about 1950 I think, that was recently re-habbed. We paid $34,900 for it and has a tenant in there paying $650 per month, so just over 22% gross return. We had a plumbers bill in the first month for $60 for a blocked drain, which seems to be a common problem in the US for older houses – apparently the old drains are smaller than they need to be and are built from some cement fibre type material that is prone to tree roots growing into them. We've been told to update the drain would be about $500, so that's an option if it keeps causing problems. So, at the moment everything seems to be going along okay.
We tried to open a bank account over there and were unable to do it. I'm not sure how other people have done it because we were told by two banks that we needed social security numbers, or evidence of a permanent address in the US, or a work visa, or something similar. So we are now having our property manager pay the rent into our Paypal account, then transferring that to our bank account. It seems to work well. I don't know if there is a better way of doing it, but that's what we've got at the moment.
We bought the property in a Land Trust, which seemed like a much easier and cheaper option than an LLC and seems to offer some asset protection as well. But I think an LLC would be good, then it could be linked to our Australian Family Trust and then the income (and future capital gain, if any) could be offset against other properties in the Trust. Anyway, that all needs looking into a bit more in the future. I'm still not sure how to go about doing all that or what costs are involved.
So, that's about it for the moment. Any comments, help, criticisms are most welcome. A sincere thanks to you all for your earlier replies to my posts and for showing an interest in what I was doing and for the advice that was given.
Thanks everyone for their replies.
I've been in Jax for a few days now and have been having a look around at a few different areas and properties. We're in a condo at the beach, which is a nice laid back area.
Carrying on from my previous visits, this country just continues to strike me as one of total contradictions: –
There are churches everywhere (and I mean, everywhere – huge, monstrous churches), yet the crime rate is so high and murders are so common. Everyone appears to be so friendly and helpful, yet so many people seem willing to rip other people off. It's the most civilised nation in the world, yet so many people are living in poverty. There are so many new ideas and inventions that come from the US, yet the banks still can't seem to get themsleves into the internet age and seem to want to do all their business face to face with cash and checks. I could go on. It's a very, very interesting place, to say the least!Amazingly, after what has happened over here in the housing market, there are still financial institutions advertising housing loans to low income earners at 3% deposit etc. I even saw an ad yesterday stating that re-financing is possible on "upside down loans" (negative equity) of up to 150%! Very interesting. Meanwhile there are foreclosed homes up for sale all over the place! There aslo seems to be more rental properties available than I thought there would be.
Off to the beach for a walk to try to clear my head! Weather is great.
Sounds like a great idea. As you know I'm in Jacksonville at the moment and my head is spinning with everything property related. I know I should have been a bit more prepared for this visit, but……..time just got away from me. I was much more prepared for my visit to San Antonio 6 years ago, but seem to have forgotten everything I learned then. Can someone please tell me the best structure to buy Florida property in: – A "single" or "multiple" LLC, can it be combined with an Australian Family Trust? I've heard that an LLC should be set up in Delaware for some reason? As I said, my head is spinning! And that's not even taking into account the properties and areas I'm trying to get my head around!
Look forward to the conference call
You can put in the contract whatever you want, as long as the vendor agrees to it! You should be able to get inspections done within a couple of days, no problem, or just put in the offer "within 7 business days" or similar. But the longer time you ask for and the more conditions you put in the contract, the less attractive your offer will be. Just putting "subject to finance" won't help much, as it's not specific enough. You need to make it subject to finance that is acceptable to you. Here are a couple of conditions I've used in contracts before. But they are only in my own words – I'm not exactly sure how they would really hold up legally. Your conveyancer should be able to help.
This contract is subject to and conditional upon the purchaser/s obtaining approval for a suitable loan with which to purchase the property, within 21 business days of the vendor accepting the purchaser/s offer to purchase the property. It will be solely for the purchaser/s to determine whether or not the loan is suitable and acceptable to the purchaser/s. All money paid by the purchaser/s by way of deposits for the purchase of the property must be immediately refunded to the purchaser/s if the contract is ended.This contract is subject to and conditional upon a building inspection being undertaken at the property, within 7 business days of the vendor accepting the purchaser/s offer to purchase the property. The inspection will be undertaken by an inspector of the purchaser/s choice and the results of the inspection are to be satisfactory and acceptable to the purchaser. It will be solely for the purchaser/s to determine whether or not the results of the inspection are satisfactory to the purchaser/s. All money paid by the purchaser/s by way of deposits for the purchase of the property must be immediately refunded to the purchaser/s if the contract is ended.
There's no way you'll get the bank valuation done in 5 days – that's all part of the subject to finance clause, giving you 21 days to sort all that out. But the banks seem to be moving very slowly at the moment, so I'd be asking for at least 28 days unless you are absolutely sure your finance application will be approved quickly.
Good luck,
PhilIt is unlikely that we would have an unconditional sale contract on it, as it will just be a renovation – what we have done in the past is simply put it up for sale when the renovation is complete. Is it possible to have a valuer place a "finished" value on the project that would satisfy the lenders?
In answer to your other questions – the sale price would be approximately $1,500,000, working to a formula we have used in the past. By our external income, I presume you mean our income from other sources, if so, then my business partner's and my combined external income would be approximately $150,000 to $200,000 per year. We would probably undertake the project under one, or more of our company names.
What sort of fees, interest rates etc are involved in this type of borrowing Richard and how would it be structured?
Thanks for your reply Richard. That sounds like the type of finance we might be looking for. We are looking at renovating higher priced properties, potentially around the $1,000,000 mark.
If I run through a brief scenario of a potential renovation project, would you be able to guide me as to how it could be financed? Hopefully. Here goes, with some nice round numbers:-
Purchase Price: $1,000,000
Stamp duty & costs @ 6%: $60,000
Renovation costs @ 15%: $150,000
Selling costs @1.6% of sale price of $1,500,000: $26,400TOTAL COSTS $1,236,400
So, the question is; Is it possible to finance all those costs – the whole project, on a gross realisation loan, capitalizing all the interest payments, so that payment is only made on the sale of the renovated property?
Thanks for your help Richard
Hi Lisa,
I’ve just had a look at your website and it’s great – it looks like things are going really well for you and that you’ve achieved heaps in a such a short time. It would be great to set up something similar in San Antonio, which I think is pretty much what Nigel has in mind.
How many of these rehab deals are you currently finding, per week / month? How many doors do you knock on / drop letters for each deal you find? Do you have much competition for the houses and if so, how do you make sure you get the deal – what’s your strategy? How do your rehab and final value estimates work out – are they pretty accurate? Have you had any deals that just didn’t work out, for whatever reason? Do you only buy through pre-foreclosures, or are you finding good deals through other avenues? Do you always re-sell, or are you keeping hold of some properties? What’s happening in Nashville – lots of positive cash-flow properties, good capital growth prospects? Why do you need someone to negotiate with the banks for you, and what does he get out of it?So many questions (and I think I could go on and on). Sorry if I’m asking too much, but you did say “feel free to ask anymore questions”!! [smiling]
Phil.
Thanks for your replies guys.
Nigel,
are you suggesting that foreclosure auctions in San Antonio are no longer a good place to buy? Is there too much competition?
How is the real estate agency going and are you coming across any really good buys just on the general market? Rick and myself are coming over on November 1st.Phil D,
I read Gene Burns and Dolf DeRoos book “52 Homes in 52 weeks”, which was really interesting. I’ll have a look for anything else he’s done on the internet. I had a quick look at your website, which was good. I’ve a similar story to yours – I came over from England in 1988, but didn’t get into property until a few years later. Like yourself I’ve had a marriage break-up, but still waiting to find my “life partner”! I live in Melbourne. Are you still finding good opportunities in Darwin? I’m going to San Antonio in a few weeks to see what we can find. Where are you investing in the U.S? How is it going over there?Phil.
Hi Nigel,
Thanks for your reply. This is the Phil who met you a couple of weeks ago, with Rick, for coffee. I hope you’ve settled in okay in San Antonio and things are going well. What I was after was just some reading material outlining the processes of foreclosures and auctions in Texas, just to have as much info as possible before getting there. I think I’ll just buy a couple of books on the internet and see how I go. Have you been making progress over there with the things you had in mind?
Phil.Thanks to you all for your replies. Bank of America seems to be the best bet. Transferring by internet may be a problem though – I think there’s a $5,000 limit on transfers from my account. I presume that as soon as the account is opened someone in Aus could transfer the money for me through the bank by wire, or telegraphic transfer, or whatever it’s called. I enquired at Westpac and they said it should only take 24 hours for it to clear in the U.S. account. Does anyone know if that is the case?
Phil.I, or should I say, we (a mate and myself) settled on a house last month and have spent a lot of time and money making it into what we hope will be a successful rooming house. Have just put ads in the papers this week for tenants, so we will see how it goes. I’ve met / spoken to people who have done this sort of thing and it works – it obviously takes more time and hands on management than a simple rental, but the returns can be great. Good luck.
