Forum Replies Created
- Elle Dee Esse wrote:Hi, I am just starting out in getting a feel for the US market and understanding some of the terminology in listings. Can someone please tell me what is a Fannie Mae HomePath property? I gather Fannie Mae was one of the big financial institutions that collapsed – is this correct?
Can someone also tell me what the tax implications are for foreigners earning rental income from the US. Does tax have to be paid in the US and how do you go about getting set up for that?
I apologise if these questions seem naive, I am literally just stepping into this arena and have a lot to learn
Lynne
Lynne,
Fannie Mae is a US government backed institution, that backed alot of the US based mortgages for the banks. In the event of a foreclosure, Fannie Mae would reimburse the banks up to 80% of the mortgage. For those banks that participated in Fannie Mae loans, this was a way to help convince the bank to do the loans, they had the backing of the US Government.
The issues you need to be aware of when dealing with Fannie Mae properties, there is a 90 Day deed restriction placed on those properties (in KC anyway), which means for 90 days you cannot sell the property or have a lien placed on that property for more than 125% of the sell price. If your paying all cash, this will not be an issue, but if you were to take a loan out, this deed restriction will stop that loan in it's tracks. There has been talk that Fannie Mae is considering relaxing this restriction, but I have not seen any evidence of that.
If your paying all cash, and it's a good deal, don't be alarmed with this deed restriction, I buy Fannie Mae products alot, and just wait out the calendar.
As far as tax implications, I really recommend you speak with either a CPA or a really good tax attorney. The IRS tax code is 160,000 pages thick, and there are many things you need to know. A good tax attorney can help you understand the tax code and it's implications, as well as establish your business in the states.
I wish you great success!
John
Xdrew,
I appreciate your comments, though would disagree with the fact that I was crying. I walk away from far more deals than I ever proceed with, because I won't enter into a deal where the federal government (EPA), will get involved. Dealing with city government is sometimes enough to drive the normal person crazy, it's a whole new level of frustrations with the feds, as they will bog that project down with so much red tape, it wouldn't be worth the land it was on.The costs associated with a contamination cleanup, will easily reach into the 6 figures, making this deal very suspect.
The reason I would never pursue this deal, even at the 40K price tag, is very simply there are no assurances, the sight could be cleaned up. There is no way to get the EPA to come out and give you their "opinion", prior to closing. They could very easily determine the sight is beyond cleanup, and require the building be tore down, so they can do an entire lot cleanup, thus seeing your 40K vanish.
To even request a zoning change to mixed use commercial would still be a long shot, as the cleanup would be mandatory. This area lends itself very nicely for residential units, as it is surrounded with like properties, would not make alot of sense as office space/gas station. And given the fact, the location already failed as a service station, doesn't offer much confidence in it's ability to become profitable as a gas station. The other issue with gas stations in KC. If you are not backed by some seriously deep pockets, you will be taking on some of the nations largest corporations on retail fuel stations, backed by oil companies. The retail gas business in US, is very very competitive, and cut throat. There are stories of gas stations selling gas at a penny above cost (it's illegal in the US to sell gas at cost or below) to drive smaller stations out of business, just so they can dominate that corner.
I think the point I was going towards was the lengths some of these banks are trying to pursue to get rid of these bad notes.
John
Alex,
I agree with you 110%, this report means nothing to me.
I would love to be able to interview the reporter and ask them the following questions, and hear their answers.
1. How did you arrive at the rental vacancy rate? In KC you mention that in the 2nd quarter of 2010, the RVR in KC was @ 17%. The issue here is, you never explained the most probable reason why. The way I see that statement is 2010 was the 1st round of ARM's adjusting, those that took a 3 year ARM on their properties, thus when the interest adjusted, sometimes as much as double, this obviously led to hundreds, if not 1000s of investor homes being foreclosed on. It's not hard to understand why the RVR would spike in this quarter. And if you do the math on the foreclosures in Missouri, given the fact that it basically takes 4 missed payments on a mortgage (assuming the banks don't play games with their accounting practices) to begin foreclosure proceedings in Missouri. So the 2nd quarter, being the 4-6 months of the year, the math works for those ARMs that adjusted in January.
2. Which PM companies did you interview to determine the RVRs to begin with? I have to say here, that if they chose some of the same companies I interviewed, then I can see how they arrived at such a pathetic number.
This is why I have such an issue with these magazines, newspapers and so forth, publishing these reports. They never explain how they got the numbers, so a reader can make an intelligent decision based on the facts. Instead these companies put this type of garbage reporting out, and leave it as it is. Have they never heard of responsible reporting? How can anyone come to a conclusion on any statistics, without seeing the source for those statistics, or at least an explanation of how these numbers were derived?
Just my 2c!
John
baruchmax wrote:Jane, I am glad you found the information useful. Good luck in your search. Make sure you do all the due diligence. Below are some of the things I consider in my purchase of investment property, I hope you find this helpful: 1) Does the property appear to be in a safe neighborhood? What is the condition of the other houses on the block? If the are yards are well kept, then the owners take pride in their houses. If the houses look run down, grass is not cut, then you may need to investigate more. 2) I talk to people living in the neighborhood to get their opinion. I talk to neighbors if I see them outside. I talk to some of the local business owners (grocery store owner for the area, gas station, etc.) 3) If you are purchasing a multi-unit, PLEASE make sure that all the units are legal per the city and any other government authority. You can find this out by calling the city's building department. Just give them the address and ask them "What is the zoning for this property?" and they should be able to confirm that. 4) I also call the local police department to get crime report for the area and the particular block. 5) When you are looking at a property, the main things to look for are roof, foundation, water leak in the basement (if there is a basement), heating or cooling system, plumbing system (just check the water pressure in bathroom and kitchen), electrical panel (in my area, the electric panel should be upgraded to 100 amps). Since you are not very experienced, ALWAYS get a property inspection. 6) Find out the taxes on the property. For taxes, make sure the tax amount that you have is for an investor. If you are purchasing a property from an owner occupant, then the chances are taxes will be low due to some exemptions, which you as an investor may not have, so your taxes will be high. The above are some of the items, there are a LOT of other things that go into due diligence. If you have any other questions, please feel free to ask.Great points…
Another technique you can use to determine the quality of neighborhood is to call the local police department and ask them if it's an area they are called to quite a bit. They will give you an honest answer, and you can ask them for the types of calls they respond to. Searching crime stats by zip codes, might not give you the real picture, you really need to narrow this down to your specific block. Hope that helps!
Congratulations on your 1st purchase!! It's always an exciting time!
John
Portpirate wrote:Just a question to the Americans. In Australia, we have a RTA. Rental tenancies authority. This is a government dept which looks after tenancy matters, disputes, etc and also holds all bonds, usually 1 months rent, until the end of the tenancy. The property manager signs off on a form that the home is undamaged, etc and the tenant applies for their bond back from the RTA. Is there something similar in the U.S.? Couldnt find anything on google.Portpirate,
All states in the US have laws regarding landlord/tenant relations, these laws vary from state to state. I can speak for KC in this matter in that, they will send city inspectors for complaints by tenants, if repairs are not being made in a timely manner. I have never heard of an "agency" that does what your describing. I believe there is a rental board in the state of California, but I can't be 100% sure on that. As far as Missouri is concerned, deposits are either held by the PM or the owner, if held by the PM, they must be in an non-interest bearing account, and must not be deposited in the operating account. When I am moving a tenant in to a property, we walk thru the property and fill out a checklist of issues, much like a rental car agency. The tenant will sign the checklist, and this becomes the document by which we do the move out inspection, and deduct any repairs from the deposits.
John
lawsjs wrote:GKCH, See, in Australia we still (mostly) live in a world where people treat people as people. It just doesn't happen like that (the US) over here. The biggest single problem with Aus guys doing business in the US is that it is based on a philosophy of 'if I rip the next guy off I have done well'. I operate in the US successfully, but for all the reasons you mention, I _really_ don't like the place that much. In the 80's it was something special. The early 90's I remember, and I fell in love with fluorescent g-strings and rollerblades. From where I am standing it went downhill from there – IMHO buried in a morass of super expensive personal rights, healthcare and trust fund babies. I cannot communicate with 90% of the US property people I know. Strangely I can communicate with 90% of the Mexicans I know in US property. I don't understand a heap of what they are actually saying, but I know what they are talking about. One of the greatest compliments I was paid was when I was helping the guys rip up a disgusting floor and this bloke looked at me and said 'you are no a lazy gringo – you a proper wetback!' I have said it many times before and I will say it many times again. An Australian/English attitude to life will get you slaughtered in the US. The US and China are way, way off in boondock swamps paddling their own canoes. Thus far I have been successful enough to make it worth my while me being over there. I may well come crashing down and little things like design, simplicity, 'real' online banking and treating others as you would treat yourself – and not that god awful utterly meaningless happy clappy lip service kind, either. Who knows? they may, after all, just be passing fads that get me hammered…. A lunatic, is, after all, nothing but a minority of one:)lawsjs,
I respect your opinion and your frustrations with the US.
I have to disagree with lumping all americans into the pool of people who don't care about others. The US as a majority, has and always will be very charitable. There are countless moments in the US history, where common americans have gone out of their way to assist others. When a problem strikes a neighboring town, the support rolls in nationwide, not just locally. Back in May, we had a tornado rip thru a small town about 150 miles south of KC. It absolutely demolished this town, as it was rated an F5 twister. Within days, semi trucks full of food, medical supplies, clothes…etc, were pooring into that town.
The point being, it's not debatable that America has it's crooks, but that problem exists worldwide. There are those that will take advantage of others in the US, but that group of people make up such a small percentage of what America is about. As a whole, the US is very charitable, as we continue to lead the globe in donations to those that need it, even though we really can't afford it as a nation.
I am completely aware that there have been overseas investors taken advantage of in this country, and I really wish those parties that were robbed, would pursue legal action against those people or groups. It doesnt have to be that way, and we have laws that will do something about it, but it has to be pursued. I am happy to assist anyone who has been taken advantage of by a group or an individual. If the fraud was committed in Missouri, I employ one of the best law firms in Missouri, they will take action.
There will always be those that choose the wrong path to making money, whether in be in the US or anywhere else on earth. The words fraud, extortion and embezzlement show up in the dictionary in every language (or at least in principal), because it exists worldwide. The US has it's share of thieves, but so does everywhere else. I have a saying that I always fall back on when dealing with business "Greed clears the path for poor business decisions". Those that chose illegal means to obtain money, are doing simply out of greed, they want it all NOW, and not have to work for it.
John
What I am trying to get across in my posts, is the fact that there are professionals in every state of the country, that do things the right way and the honest way. These companies are not hard to find, if you ask the right questions of those companies. Don't be lulled into thinking because they are the biggest, that they are better, this may be true, but you need to make sure.
Alex,
Very well said, and I thank you again for the kind words.
John
Jay & Alex,
I appreciate your kind words.
John
Trent,
It is a great way to finish a wall and create that modern look. The technique is known as "knock-down", and if you can find a skilled sheet rock man/woman, it looks simply amazing. When done correctly, it literally makes a house look 40 years younger, when combined with ceiling fans, new carpet (or finished hardwoods) things of this nature. For the best results, find someone who has done a lot of this technique, as it's almost an art form, and if done wrong, looks horrible.
Hope that helps!
John
HighIncomeProperty wrote:KC Homes,
You make some valid points – we do exactly that for our investors, we buy homes, rehab them, and resell them to local home buyers rather than to investors.The market times vary widely as far as 2011 is concerned for us – from just days up to 6-7 months.
Financing is harder than it was back in the day, appraisals is the biggest thing to overcome for us as they tend to be VERY conservative these days!The saving grace for us is the FHA (first time buyer) loans, 99% of our buyers are FHA, bring 3% down – the requirements seems to change almost daily when it comes to what credit they need and other things the banks look at, but it has allowed us to keep our money turning over every few months.
We do most of our deals in the Midwest, I'd be interested in seeing some opportunities in KC as well if anything comes up.
HighIncome,
I will add you to my buyers list and keep you up to date on the deals we have working. Do you have an interest in commercial projects?
For my 2 cents if it's wanted.
The best way to eliminate "brokers", is simply to check the owner of the property, and get it from them.
Most major counties in the US, have websites that are completely free so you can find out who the owner is of any property. As a side note, the state of California does NOT give out owner information on their websites. You can get California owners, but you will have to use a pay service to get that.
In Kansas City, Jackson county is the largest county, you can check the owner of any property by simply going to their website, and search by address. Keep in mind, it could take up to 4-6 weeks for a new owner to record in Jackson county. They are painfully slow in updating records, even though 90% of closings these days are done with e-file.
John
Chicago Max wrote: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!Chicago Max,
I appreciate your comment, and your correct, when the seller has hidden or even not so hidden signs, experienced buyers can catch them and make an offer accordingly. When we are looking to sell to a retail buyer, we work hard to eliminate those signs, as we figure all costs on a worst case scenario, so we don't put our clients in a "must sell" scenario. Thus we can hold out for the top dollar, the buyers are out there, it's just getting one that can actually go all they way to finish line.
lawsjs wrote:It wasn't quite zero down, but I paid $10k + closings for a $950k 4plex in an upmarket area of Socal last month. Assume the loan (which in this case drops from 6.25 to 3.25 next year) haggle over the money the vendor (seller) needs – it is often a lot less than you might think. Horses for courses but if you venture outside the foreclosure market there is also great opportunity.lawsjs,
I completely agree with you, as an investor buyer, there are 100s of ways to get creative on any deals. For the retail end buyer, those opportunites rarely exist, as they simply don't know the business as well as investors would or should. They simply run to a local bank and get the "bad news", we can do your loan, but we need 20% down.
jayhinrichs wrote:agree with the above post's.Your far to undercapitalized to be entering the business of owning rental real estate in the US.
we have finally gotten some realistic and honest US post's in the last month on the site, from US companies.
Investing in 30k properties in the US is very very risky and pretty much a guarantee that you will over time end up spending double that just keeping it rented. and or will tire of feeding it and will literally walk away and let the property go.
All these foreclosures you see are from the first wave of US investors trying to do what the OZ investor wants to do now, they tried it a few years back and it did not work so well ERGO mass foreclosures.
The Gentlemen in KC and Alex from SC will give you some reality check and straight answers.
I use the analogy of one trying to pick single stocks as oppossed to investing in a mutual fund…
Your out their trying to pick a single property, the time and effort to do so the cost etc. you would be far better off with the funds you have to use your time investingating good US REIT's and invest your 10K into one of those they will return 7 to 10% maybe and some equity upside.
The greatest disservice I see going on with the selling of single family rentals is the promise's of huge gross and net returns. These by people and companies that are working on projections not actually running numbers huge diffference. So when you get cross eyed thinking your going to make 18% net guaranteed return because it has a sec. 8 tenant your just buying into someone's sales pitch. Yes this can happen for 6 months but its year 2 or 3 or 5. after you have had turn over vacancies maybe a complete rehab in between that you will see that 7 to 10% is more realistic,
And I am sure Alex and Mr. KC will agree with me 30k all in homes in the US are not what folks should be buying for capital growth. There could be pockets I am not saying this is 100%, however if your buying in any large metro area on the eastern seaboard or south east these are rental neighborhoods.
Just like Mr. KC ( and I mean that kindly) admitted to he gets excited if less than 20% of the houses on a block are boarded up.
This is just not were Mr. and Mrs. Jones is going to buy a house to live in and raise their family no matter how cheap. These homes are cash flow commodities and folks like us in the business treat them as such.For capital growth in my mind you need to be investing North of 50k for your houses. In certain markets I do beleive these are nice enough houses and neighborhoods that you could see substantial captial growth over the next 5 to 10 years.
Jay,
I agree with you 100%. My turn-key program is designed around cash flow, and identifying the best property for that role. For those clients interested in buy/sell strategy, I search for different properties in different locations, that will best fit this model. In Kansas City, it's very easy to locate buy/sell homes, as our city is well defined on where those area's are located, and the pricing model is dependent on that area. In a few areas, we can keep the costs under 45K, on a home valued around 65-75K. When we move into the suburbs, the numbers can change pretty drastically, and it requires a very detailed evaluation of that property.
Both strategies perform very well, when there is proper research into each property.
jayhinrichs wrote:GreaterKCHomes wrote:Jay,
I might of mistyped that information, I am not looking for only 20% rentals, I don't want to be on a street with more than 20% boardups or just simply abandoned properties that are not be taken care of.
You are correct KC has over 40% rental base, but it's not hard to find quality properties in quality areas. I look at approx. 30 houses a week, and I can easily qualify half of those to buy. This city is so stretched out, that are streets literally change block to block, in fact one of our most troubled zip codes in terms of major crime, is also home to high 6 figure homes..To do proper due dilligence in KC, you have to almost ignore the zip codes, and literally look at the street and a 4 block radius, this will tell you so much more than a zip code could ever tell you.
John
John,
Good points, still staggering to think of 20% board ups on a street or abandoned homes.
Our market here in PDX is very much like, as in block to block. But our houses pretty much start at 150k and up for anything decent and rent for 800 to 1200 depending.
for cash flow West coast is tough. And we run into the same problems with tenants. Although I just had my first condenser unit stolen, last month. First time anyone in my area has even heard of it. You will not find one condenser unit caged in PDX a town of 2 million in the metro plex.
Believe me, I get excited when I only see 20% boardups. There are many streets in KC that nearly 80-90% of homes are boarded up, or simply being ignored. An absolute nightmare for any property manager, you can't give the houses away like that.
The stolen condensers are a major issue here, I have tried every trick in the book. I have put them in cages, poured a 6" concrete base and drove anchors in, elevated them 8' off of the ground, and they still were taken. I actually called the fire department and asked them if I could put the emergency disconnect in the basement, I knew they would say no, but I had to ask.
I have come up with a solution so far that is working quite well, to this point anyway. I never have them installed until the tenant is moving in, then I install dummy video cameras on the house looking down at the condenser. These cameras actually have a blinking LED light, and actually will imitate a motion detector and move when you move. So far so good! The down side, they run on batteries,and I have to send my maintenance man out there monthly to change the batteries.
John
Rick,
I know you didn't direct your question to me, but I will throw in my 2 cents if it means anything to you.
An easy quick guide I follow is West of 71 Hwy, just be careful here, the property taxes can jump pretty quickly and kill the cashflow.
South of 55th, for the most part is considered still good, there are pockets that are bad, have to do a street by street search.
Better still would be south of Gregory, which is about 71st, this area is HOT!!!!
If you are going to be East of 71 Hwy, then the closer you get to I435, the better you will be.As far as zip codes the most obvious ones are those located in the inner city:
64109 is considered by many as being the worst in KC, the crime rate is very very bad, however there is a section called Hyde Park that is home to some very expensive homes, and they can still bring a very nice profit on a retail flip, and do make excellent rental units. But only if they are in Hyde Park!
64128–I don't know of anything good in this area, in fact this area is losing about 6 blocks of homes for a new crime lab being built in KC, be careful about buying in here.
64129 — has some good areas further to the east, stay away from the western edge of the zip code, rough rough waters here.
64130– this zip needs to have a street to street search done, there are good areas in here, and there are bad.64111,64112 and 64113 are on the cities far western edge, and meet the state line. Excellent properties in these locations, but will be difficult to cash flow, the property taxes will choke you compared to other parts of the city. Great opportunity for retail flips over there though.
64123,64124 and 64127 are the Historic Northeast area of KC, this area has mixed reviews, I absolutely love this area as it is so easy to rent properties up there. You will here some say that hate it, others say they love it! The taxes up there are a joke, I have a client that we are renovating a 7 unit building on, and his taxes are under $1,500 per year!
If this will help you, I have a attached a link of our zip codes, basically 64105 is downtown, and moving south is typically where you will find the investor zone. http://www.city-data.com/zipmaps/Kansas-City-Missouri.html
Im sure you know the KC area well, but hopefully this will help you some!
Best of Wishes!
Johnlawsjs,
I guess I am a bit taken back by your attack on me…cheap salesman? I don't believe you and I have ever had the opportunity to speak, so rushing to judgement is a bit uncalled for, in my eyes. I am clearly not trying to sale anything on here, as I have never posted one property for sale, nor will I.
My understanding of this "blog" was to post "opinion's" on various RE topics affecting those in Australia who have purchased income property in US. I was simply offering my 2 cents, on a subject I know very well. Why does it have to resort to name calling?
I am simply providing information that I do on a daily basis for my clients, those that are US born appreciate it just as much as those that represent other countries. .The cultures in Aussie and US are clearly different, but from my point of view, when it comes to making money, they are pretty much identical.
John
Jay,
I might of mistyped that information, I am not looking for only 20% rentals, I don't want to be on a street with more than 20% boardups or just simply abandoned properties that are not be taken care of.
You are correct KC has over 40% rental base, but it's not hard to find quality properties in quality areas. I look at approx. 30 houses a week, and I can easily qualify half of those to buy. This city is so stretched out, that are streets literally change block to block, in fact one of our most troubled zip codes in terms of major crime, is also home to high 6 figure homes..To do proper due dilligence in KC, you have to almost ignore the zip codes, and literally look at the street and a 4 block radius, this will tell you so much more than a zip code could ever tell you.
John
Alex,
I could not agree with you more!
So many PM’s just completey miss the idea of actually building a relationship with tenants. Without question the most important part of the equation with income properties, is the tenant, yet to many PMs, just simply ignore it.
I develop friendships with my tenants in alot of cases, and some of my tenants are actually on my marketing teams. They get paid as they produce, This builds a great relationship and pretty much assures they will stay put.
I do the same in paying referral fees for qualifed tenants, I have one client that owns half the block of properties, i convined him that once a year we should do a block party for the tenants. We provide a cookout for them once a year, and provide everything. This costs the owner around $200, but he has NO VACANCY. We once lost a tenant to a sudden death, the unit was re rented 10 days after, with no marketing. The tenants had a name for me within days!
You can never underestimate the importance the tenant plays in this role, this is exactly why I perform exit polls, I actually care what they think.
John
Scott,
I appreciate the reading and comment.
Your absolutely right, I have no idea what keeps these companies going with vacancy rates this high. I think it's the false appearance by investors, that since they are a LARGE company, they must be good. When in reality, it usually is the complete opposite. If these companies themselves, are not properly managed, the whole process just falls apart.
EFT payment is a great option if you can get the tenants to use it. Alot of tenants do not even have checking accounts, and if I am being honest, I would much rather get paid with a money order or cash, than have to worry about a check bouncing. I do not accept personal checks for payment, so I don't have this issue, but I know that I am very unique in this business.
I train my tenants at lease signing that your payment is expected to be mailed or dropped off at my office, I do not make a habit of driving to get it. The post office has got this delivering mail thing down pretty good.
My exit polls are 12 questions designed to get something more than a Yes or No answer out of them, it's impossible to construct data on Yes or No. I will PM you a sample of the questions that are asked of each prospect, I am very protective of these questions as I am sure you can understand why I would have to be.
John
