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BritishBuyer, what are your opinions on Chanos’s doom and gloom over the Chinese property market? http://finance.fortune.cnn.com/2010/11/17/chanos-vs-china
Quote:“He said they were building 5 billion square meters of new residential and office space — 2.6 billion square meters in new office space alone. I said to him, ‘You must have the decimal point in the wrong place.’ He said no, the numbers are right. So do the math: That’s almost 30 billion square feet of new construction. There are 1.3 billion people in China. [In terms of new office space alone] that amounts to about a five-by-five-foot cubicle for every man, woman, and child in the country.BritishBuyer,
You might wish to reconsider purchases in your own name.
This is from the Somersoft Forums
Quote:Hi,I don’t wish to buy in USA so I haven’t read this thread but I thought someone may be interested in this article.
It is long, but there are important points made, such as USA has inheritance taxes and they must be paid
http://www.wegelin.ch/download/medie…/kom_265en.pdf
I read a bit more today, and I must say I don’t like what I see. http://www.firpta.com/what-is-firpta Nobody knows when they are going to drop dead, and investing overseas can be so risky in this manner. The threshold is only circa $60k for foreigners.
The person blogging here is very knowledgable. http://www.firpta.com/
http://www.firpta.com/0205-using-trusts-to-prevent-estate-tax-on-us-real-estate
Quote:Doing it rightIt has to be an irrevocable trust. The person contributing the money to the trust can’t control the trust, directly or indirectly. Nor can the person contributing the money enjoy the benefits of the trust. (These are called “retained interests” in tax jargon).
The trust can be set up as a foreign trust or a U.S. domestic trust.
The typical situation for this strategy is where nonresident parents wants to provide a house in the U.S. for their child. It works best when the parents have no desire to eventually reclaim the money–they see the structure as an outright gift.
There’s more about rental election. http://www.firpta.com/essential-tax-election-for-real-estate-investors. Unlike Australia, you are taxed at 30% of gross rental not net profit unless you elect to (no brainer!). The language, backed up here for posterity.
Quote:Sample languageHere is a sample you can follow. Just attach this on a statement attached to the Federal income tax return filed (Form 1040-NR or Form 1120-F).
(Taxpayer Name)
(Taxpayer Identification Number)
Attachment to Form (1040-NR or 1120-F)
Tax Year Ending December 31, 2008
This statement constitutes an election under Regs. §1.871-10(d)(1)(ii) to treat the income generated from the following properties in the United States owned by the taxpayer as income effectively connected with a U.S. business for taxable year ending December 31, 20__ and thereafter:Property 1 –
Land and Improvements located at 123 Easy Street, Anytown, USA. The structure is a commercial office building. Taxpayer holds a fee interest in the land and all property improvements located thereon. No prior election has been made under Regs. §1.871-10(d)(1)(ii) with respect to the subject property.Essentially, once you have an asset in the US, do not conduct any transaction, e.g. assign your wife as tenants in common, give it to your kids etc, without talking to a tax lawyer. You can be severely taxed.
At the moment it appears that it is best you purchase the property in a foreign corporation’s name (not US based corp).
Thanks Steve.
I couldn’t find the said property on the MiamiDade website. I wonder if Miami-Dade is not Delray Beach. Delray Beach is just north of Boca Raton. It’s about an hour’s drive from Miami-Dade. It sounds like a small residential community (pop:60k).
My gut feel is to avoid it, because it is an hour’s drive from Miami Beach. A small residential community of 60k has less upside. You can always modify a building, but you can never change it’s location.
Another observation: the photo of the building consists of two properties, 509 and 511. Perhaps this is why it is classified as a condo. The larger/tidier one is 509 (not for sale). I wonder if it used to be a single residence that has been subdivided. No wonder the living room looked longish.
Here is another one in Delray Beach. This 2BR 2B has just been on the market for 3 days. $54900 14549 Canalview Drive #A, Delray Beach FL 33484. The building is in much better condition.
This one just came in through the mail. (for Delray Beach FL)
http://imgur.com/a/ffZ3r/delray_beach_fl
Looking up Zillow:
http://www.zillow.com/homes/511-nw-50th-Ave,-Delray-Beach-FL-33445_rb/0-_baths/0-_beds/
Offered at $43,900, ZEstimated at $94,500, valuation range 68k-105k.
This is described as a “condo home”. Is this correct? I thought condos were apartments.
Update Wikipedia clarifiesQuote:It is also possible for condominiums to consist of single family dwellings: so-called “detached condominiums” where homeowners do not maintain the exteriors of the dwellings, yards, etc. or “site condominiums” where the owner has more control and possible ownership (as in a “whole lot” or “lot line” condominium) over the exterior appearance. These structures are preferred by some planned neighborhoods and gated communities.According to email, 2009 taxes were $1448, but Zillow reported $2977. That’s odd.
The HOA fees were minimal.
Comps were 50k, 56k but for 3BR 2B.
Rentals: not tenanted, but nearby properties 2B 1.5B offered at 1150/mo Using Steve’s 2% rule, we arrive at price of no more than $57k. It then depends on how much does it cost to fix the place up – coat of paint, cleanup yard. etc.
The known issue is the question mark over taxes, at $2977 would amount to 20% of the rental income, while at $1448 amounts to only 10%.
Say final cost after repairs at $56k
Assuming rental property agent charges 1 month’s letting fee (and tenant leases for 2 years), 10% of revenue, $1k insurance/maintenance per year
Then, the return rate is
(1150*12-1448-240-1150/2 – 1150*12*0.1-1000)/56000
is around 16%Are there anything else (unknown unknowns) that needs to be taken into consideration?
In terms of housing affordability, according Wikipedia “median income for a family was $51,195”. This kicks butt compared to housing affordability in Australia, which is running at in the 8s in Sydney.
Steve,
British Buyer wrote:IF YOU BUY A 1 BED 1 BATH CONDO FOR 30K, IN A NICE AREA (NEAR THE INTERCOASTAL WATERWAY) BUT WITHOUT A WATER VIEW, YOUR HOA FEE WILL BE $250 PER MONTH.TO THIS $250 YOU ADD THE $9 FOR PROPERTY TAXES.
30k would be the purchase price, not necessarily the assessed value. I saw some pretty horrific property taxes on Zillow for some cheaper dinghy-looking SFR in Miami.
Mike,
As you said, a lot of people are on the sidelines because of concerns over the ability to find good management. The article is interesting but it doesn’t tell an investor what I need to know – how long are people taking before they find a renter, what sort of property managers were they happy with, what is the result 1 year on. etc. In addition, we don’t know what are the taxes involved in the U.S. May be some more facts, e.g. water taxes are X per month, garbage are X per month.
Regards
Chui
Awesome Steve, thanks for all your tips. I noticed too a lot of the low ball prices point to auction.com, and it is clear that the reserves have not been met.
Have you visited the offices of any rental agencies?
