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John,
You make some great points. I will add that one thing that every buyer must keep in mind when buying a property is the seller’s motivation. Once you know the seller’s motivation, that gives you a lot of leverage when it comes to negotiating deals. For this reason, when I purchase any property I deal directly with the listing agent. This way I know exactly what the seller is looking for and I can come up with some creative ideas to meet the seller’s expectations and at the same time not pay the highest price for the property.
For instance, I bought a deal couple of months ago, where the asking price was $80k for a 4 plex and I picked it up for $40k, because the listing agent told me that the property is owned by 3 siblings and they are really looking to get around $13-15k each from the sale.
But financing is tough in this market and you gotta be able to adjust your strategy based on the market.
Happy investing!
Hello Nathan,
I am an active investor in US rental properties and I can tell you that there are some markets where you can purchase properties for under $30,000, but these wouldn’t be properties in the best of neighborhood. Mind you, these won’t be bad neighborhoods either, just average. I am not talking Detroit.
But honestly, the thing about US market is that you get the best deals when you purchase a foreclosure that needs some work done to it and then you add value. This way you get the best price and also you have some equity in the property.
For instance, I purchased a property last year for $25,000 and spent $7,000 on the repair cost. After the property was rented out, I went to a bank for appraisal and the property appraised for $44,000. I had equity of $12,000 in the property. That’s the best route to go if you want to get great deals.
Another thing to be careful about is with these companies offering turnkey properties is that they inflate the net return. What they usually do is they calculate net rental return by subtracting taxes, insurance and property management from gross rental to arrive at net rental return. This is not accurate. There are a LOT of other expenses that you need to be aware of.
1) It is safe to assume that you will have at least one month of vacancy for each year of rental income, so include 11 months of rental income in your calculation.
2) Another thing to include in your expenses is that once the property is vacant, there will be expenses to repair some of the damage caused by the previous tenant.
3) There are also other ongoing expenses while the property is rented. Clogged toilet, hot air furance not working, etc.
4) Another expense that a lot of people miss is accounting expense. At the end of the year, you will need to file your tax returns with US government, which is going to cost some money.
5) Also, don’t forget about capital expenses. Capital expenses include a new roof, new heating system, new water heater, etc. These expenses are long term expenses, but it’s always good to have a reserve fund for these expenses.Currently, I am assisting some Australian clients with purchasing investment properties in US and my main goal is to educate them with what the true cost of owning an investment property is.
I want to be clear that this is absolutely a GREAT time to buy investment properties in US. If purchased correctly, you can easily have 15%+ net returns, but you gotta be careful and perform DUE DILIGENCE.
Good luck! Please let me know if there is anything I can help you with.
