Forum Replies Created
Jay,
They may seem hard to value, but in the raw capitalistic world of the US what you are doing of course is creating the market. Fortunately there are buyers out there – albeit at a very low level – or total collapse would have occured (Lehmans). Your $38k house, as ridiculous as it seems has a 'pure' value of $38+3k. And of course I agree it is ridiculous, but if you didn't pay that someone would have got it for less. And since the majors paid back most (if not all) of their loans to Uncle Sam, the cash is simply not filtering through to the market. A la 1930 when everyone was hording cash and no one lent anything. At least guys like you are able to pay cash – it may not be much but it IS something. And that $3k is also not much, but it is going into the sickest part of the economy. I am also going out on a limb and thinking that may not have been your only rehab…I am 100% behind you guys out there, I am sure this is a once in a lifetime opportunity. Just play it right:)
I had a couple of builders today talk about 'custom' stuff (poor fools thought I had money) and the meaning of those words finally dawned on me. In Australia there really is ONLY custom – which along with labour at $50ph without penalty rates adds to the costs considerably.
DHCP: I will send you a PM on this but regarding maintenance etc but a part of the problem is (I think) like Grand Designs. How badly do the projects go if the owner is not there to oversee the build? It is setting youself up for a fall. Add in a US/AUS language barrier and 6,000+ miles and simple things will go wrong at some stage.
Karina: Whilst the properties are 'cheap' and you are no doubt doing your best to hand pick them, you are by definition paying market price. In fact, to really argue the point (and to use my pet argument against the auction process at home) you are paying above the price anyone else was prepared to pay or you wouldn't own them:) There is no doubt locals get better prices, which is only fair really – they have been there longer:) You are (like I get in LA) 'good' buys, not bargains:)
Indeed Jay. And (esp Alex) I am not having a go at the US (though many 'Proud Americans' also subscribe to Soldier of Fortune magazine and own weapons the Aust Army aren't allowed) but things are very different in the US.
Its hard to explain, but in Aus if someone does a job (generally) they do it to the best of their ability whereas the US it seems to be something to get through before you finish work for the day. It may have something to do with our property managers earning at least $60-70kpa and US ones working with much harder tenants, way more of them and for far less money. I haven't worked it out yet, but it seems a cultural thing. My mexican property manager complains about the same thing so it isn't just me. Either way, precisely as Jay said above no property investment in the US is 'set and forget'. My sister is attacking the problem by trying to rewrite the US rule book and setting up Australian style management systems. It seems to be working, but I would be the first to say she has helped people buy very specific properties in very specific areas and it is relatively early days yet – 12 to 18 months at most. In any case (and again as Jay has pointed out) I would be very, very cautious about anything in the US if you cannot afford the time or the airfares to check up yourself on what is 'really' going on at least once a year, and I think anyone would be silly not to try to do it more.So that then brings up another issue. Knocking off $5kpa from a $12k net returning property (or thereabouts) for airfares before you talk about any repairs at all really makes a dent. I don't see much point in buying one 'just to see'. It will be very expensive and is very random. I know a few of Emma's (my sister's) clients who have bought half a dozen each, one in particular with 'vast' knowledge of the AUS market from shopping centers to retirement villages and pubs who simply said 'how good is this!' and bought six or seven in LAS, a couple in ATL and has all but given up working in Australia. A few are also people who get to the US through work when someone else is paying the bill, keep a go-fast car they couldn't afford in Australia (US guys – check our auto prices:) store them in that wonderful desert air where nothing deteriorates and making it a working holiday whenever they visit. I know of a Texan lady on the Sunshine Coast who is helping people buy 'well' in Houston, again generally to people who travel frequently to the US. I understand from Emma that Karina has bought a bunch of properties for herself and (so far) a couple for clients so that is a similar approach. She too has made it her 'job' (aside from pocket money she makes selling them) and is spending as much time in the US as she legally can. There is no question that approach will reap rewards – the question for the reader is, how much time can you afford to ensure your investment 'works' as it should?
I am living proof of set and forget US investing and my net returns over about a decade in 'good' areas are basically neutral gearing but very satisfying capital growth – far better than Aus. I have deliberately divested myself of Sydney residential property and moved the capital to the US.However I very nearly sold the entire portfolio in the US because it was just so damn annoying dealing with people who didn't care and a banking system that is at best bizarre in its operation. Conversely I suppose (and unlike Australia) their attitude would be that _I_ didn't care so why should they? Either way, my RE broker put me onto a new manager and we are basically splitting the rental returns – in essence I am paying a lot for property management, but net yields increased overnight from 6-7ish to around 13-14 (from what I understand this is also Jay's approach). More importantly for me the incessant worries about maintenance and bill paying (paying them, despite the banking system is the easier part, getting them is hard) disappeared overnight. The _really_ good part is that I get an instant cap growth hit from having a nice property vs a shabby one and am now in the process of refi'ing them based on the $500-700k increase in value per property:) Like anything though, it was a big struggle until I gave the issue 'serious' attention and worked out how to solve all the problems.
Regardless of what approach you take the returns you get will match the time and effort you put in. And believe me it will be maintenance that will kill the cash returns over time.
DHCP: I only just saw your post (sorry). I live in Sydney and have done all my life – I also used to speak at Australiam property investment seminars so I do know what you are talking about:) What you get in Sydney and Australia is a very controlled market (by the govt) compared to rampant capitalism in the US. Again risk/reward. Which I do not think Australians _really_ understand. 2-4% net in Aus but guaranteed CG. 20% returns in say ATL (and they won't be but lets accept the 'quoted' figures are correct) where I suspect the limit of CG for the next 10-15 years will be a CG increase to make the yield around 10-12%. Because Aus has _generally_ very controlled development you WILL get ongoing genuine CG provided you can hold the losses in the first 5 -7 years until the CG kicks in. Even so, you will probably be negative in a cash on cash position for maybe 10 years. Like the US pre 1986. An interesting aside I got from my US broker when I was whinging about Stamps in Aust. You mention the 10% deposit (say at least 5) on a $600k property. The stamps are $22,490 (NSW) which also has to be saved. Along with govt regulation this does a couple of things. 1) Ensures people have a lot of 'hurt' money in the deal and 2) if you have proved you can save $80k it means you must have earnt with taxes (or been gifted by someone with money) at least $120-130k – you therefore can handle money. Now both these things together ensure the stabillity of the market. Near impossible to get NINJA loans in Oz, which again ensures the low yield is a guaranteed 'win' over time – if you can cover the near to medium term losses. And on a personal note, be VERY careful buying from Australians (especially when they don't even live in the country) selling US property. You might be OK, but make sure YOU at least go and see EXACTLY what it is you are getting.* The horror stories are many and we as a country are very happy to swallow nice sales lines because in our country very little goes wrong. Would you recommend a friend of yours in the US bought an Australian investment property through a US agent who had only visited Aus a couple of times?
*Make 100% certain you get it too – some have not even got title despite handing over the money.
So it seems very strange (read impossible) to have someone who lived in DC be incredulous about plumbing being ripped out and then to mention whitegoods being stolen in Aus…. DC hi cap property means you should be able to mix it Dirty Harry style with the homies:)
Alex: Your double negatives make little sense to me. Can you elaborate? Im not sure if you think hi cap can be ‘awkward’ or if you are saying you disagree and think I’m a fool… I don’t care either way so you won’t upset me but I understand the Aus property market extremely well, yet am heavily weighted on the US side (and have been for more than a decade) so have a reasonable view of my bit of the US. I have been able to assist in a very small way (again over a number of years) aussies who have been royally (presidentially?
) ripped off so I get a little feedback from around the traps. I am also the first to say that I find the US very difficult to deal with – the cultural differences are great and as far as language goes, often extreme. I work out of an office with a bunch of guys in LA who help me out with this stuff -This time they were confused too!My point was simply this: Hi cap stuff makes me nervous. Especially when quoted by aussies who by their posts have little to no experience in the market. It is very easy to quote numbers but very hard to put them into practice long term. Especially from across the globe – and that IS something I have far more experience in than anyone else I have met or heard of so far… And I spent a decade searching for someone to help me – so I would like to be wrong:) One example is my particular taxation issues have been tabled in Canberra – at my expense – because I am apparently highly unique. I am astounded that is the case and sincerely wished it werent so.
I am up to my neck in the reality of management right now; I'm in LA fixing up the last 3 months worth of spot fires. Gross yields are nothing but pie in the sky and net yields mean less than stuff all unless you are talking over 2-3 years. And even then I don't trust what I see on paper. I could give you a 60% cap on the 'right' property over the 'right' month:) The US guys understand what I am talking about, it looks great and congratulations for achieving what you have but be careful out there !! If it was that easy, everyone browsing loopnet would be retired decamillionaires.
jayhinrichs wrote:Buying OZ company that is ASIC approved Like buying shell Corp in usJay – fantastic you are going that route. I believe technically what you are doing is buying an AU company. ALL Au companies are considered compliant (therefore ASIC approved) until they do something wrong. From my discussions with them over some of the more (shall we say) 'aggressive' AU/US RE operators out there, it is pretty hard to fall foul of them. US securities laws seem far easier to breech.
World Investor – To qualify for the nomenclature I would experience the US and hi cap properties first hand over a few years at least. Without wishing in anyway to appear rude, you seem to have only a vague grasp of US realities. In general I find it very funny when people compare AU criminals to US criminals… On a scale of 1 to 10,000, our criminals would be a 1 and any enterprising US criminal would be 10,000+. I know a Police Officer in LAPD. If they are in a pursuit and hit the South Gate border before they get the guy, they just turn around – if they keep going they WILL be shot at by people from their houses, as well as the bad guys they are chasing. Bloods and Crips hate each other, but they both hate the police. How many Australian police cars have bullet holes in them?
Hermosa Beach and Manhattan Beach in LA are ultra premium suburbs, where Baywatch was set and $10m houses are not unusual – even in todays market. Less than 15 minutes drive away on the coast side of PCH (Pacific Coast Highway) the property manager occasionally (as in more than a couple of times) got shot collecting rent, a supposedly 'good' area, nothing like a high crime area. The 'inland' area of PCH is the 'wild west' (or east I guess, to be geographically accurate:) )
I know for US readers that is saying 'suck eggs' but Australians just do not understand how bad things can be in the US. Stealing white goods from a building site in the 'lesser' areas of the US probably wouldn't even count as crime – unless there is a body count involved the paperwork wouldn't be worth it:)
We used to have a constant tree root problem with one drain in Australia. One plumber eventually came up with the cure. He put lime around the pipe and it stopped the roots forever.
I don't have an issue with PM's taking a markup, its the amount of the markup I have a problem with. I have seen 100% markups, and even some a little more than that. That's when it becomes nothing more than taking advantage of a client.
And in some cases 100% is not enough. Totally agree with you – fantastic to see some people doing the 'right' thing by everyone. US returns are so much better than Aus ever will be that I am certain you will get lots of repeats once poeple are comfortable. Trick will be not to fight each other and do the right thing…
Best of luck to all for the new year.
John – thanks for the insight. I have issues with the Taliban on several fronts, not the least of which is that. No-one will ever understand how frustrating that simple thing has been for me – and seriously expensive.
Alex, not insulting the US per se, just the people that work in ridiculous systems day after day and know they are stupid but keep on with them. Like notaries, banks and USPS are trying to send me to the looney bin.
No A/C in LA…
Although painting the entire outside of a 4u would probably add a bit. Emma is the Oracle on rehabs – she always thinks _I_ overpay, I think I am mean…I gutted and rebuilt a 4u for $15k – that seems very high.
It seems if you are effectively breaking so many laws anyway it doesnt really matter – whats one more between friends? Working on this in a parallel universe. Why (in part) I have asked for rip off stories. Facts are needed to combat this, at the moment there is really no protection for either the consumer or the licences and careers of legitimate US realtors so the question must be asked ‘Why bother being licenced?’
As always, the honest guys seem to get hurt first and hardest. The argument seems to boil down to the fact it isnt illegal to charge commissions for something and the game of en mass foreign RE purchases is relatively new and brought about by an extreme set of circumstances. Who could have forseen forclosures on this scale? The law plays catchup and Uncle Sam is probably happy for the cash.
The stories I am aware of are appalling and are everything that consumer protection laws stamped out decades ago. However if everyone sweeps these things under the carpet then how can anyone expect ‘the law’ to help.
I am too Alex. I think it is probably fear and embarrassment. Neither of which are warranted – this is not about looking a fool. These schemes were designed to deceive.
OK well here is a start. How would anyone feel about paying way over the odds for a property and finding out that even after paying enough for two (with markups etc) you don’t actually legally even own the property?
Not a lot of grey area in that set of events is there? There has to be someone willing to say something – we know these events are not isolated.
What is upsetting is these guys have usually done it before, and will do it again.
DHCP wrote:Usually, here the collection is done electronically (e.g., bank to bank payment)Sounds so simple doesn’t it. In the US you are relying on two of the most backward archaic and simply dreadful systems it has been my misfortune to suffer under. US Post (anyone else’s mail get sent to Austria like mine frequently does?) and the US banking system.
For those that can’t comprehend the backwardness, or isn’t aware of the problem, online banking in the states means logging into your bank and typing in what you want to send and where. Sort of like in Oz. THEN it gets crazy. The bank actually prints out a cheque (and they don’t spell it correctly!) and POSTS it to its recipient. It simply beggars belief they rely on so much paper! And the only way to explain the dominance of US couriers (UPS/FedEx/DHL) is by the poor service of USPS. 10 days it has taken for mail to go from one part of LA to another! FWIW most australians I know would not have written out a cheque for ten years – I threw out all my cheque books at least 5 years ago.
I use a company to organise all my mortgages and liens. I tried to set up direct debits but they don’t happen immediately when I buy new properties, and in any case they STILL require a POSTED CHEQUE. So I get the guy to call me (he is an idiot) if there is any problem. Because of his grasp of the works of international finance and the vagaries of the USPS he called me the day I was about to incur an 8% late fee. At least he called me and didn’t post it, but anyway. I get this guy on the phone and ask him how to get him the money. He needs a cheque. Why can’t I just TT him the money? No-one has ever done done it that way! WTF??? Well, simple mate, I am in Australia and I can’t just post you a cheque, and NO fedex won’t work either – we are quite a distance from your house… Forget it, Ill pay that mortgage from here right now – what are your acc details? No-one had EVER done that before, he didn’t believe it could be done. So I ask him what most people do – he said post cheques. I THEN find out that this guys whole job is to collect cheques from the Post Office and take them to the bank to ‘bank’, and most are from supposed ‘online banking’. All 900 customers per month, some (like me) with multiple mortgages and loans for each individual property. He is one of a team and that is his allocation. Unbelievable, absolutely unbelievable.
I live in hope that one day in the US you will be able to use the net for banking and not just downloading porn.
Thanks for the response, but there are plenty of posts regarding advice. Please refrain from advertorials, there are people seriously out to help genuine buyers who have fallen foul of australian marketeers on the edge of the law. They are looking for people who have lost money to tell their story to try to get some positive action.
There is no doubt your post contains great information, but this thread is hopefully going to help people who have been ‘really’ hurt by some very nasty elements – not just ‘bad buys’.
Simple. Change the name.
Why would you choose someone else’s name? Your friends company name?
What were you thinking? Explain to me what was the point? I just don’t get it….
My sister has been operating with the name ‘SelectUSA’ for more than 10 years.
Emma has been buying her own income property in the US (she owns property in several states) and has done since 2000. Because of the advice she was giving and requests for help she got, she started her buyers agency. She has been doing this now for the last 2 years or so with the name ‘SelectUSAproperty’. Her website is, of course, selectusaproperty.com.
Karina has known Emma for the entire time and only very recently set up her own US property company (though she has no US residency) selectamericanproperty. I am Emma’s brother and even I didn’t know the difference, I naturally assumed they were one and the same. I rarely talk to my sister, but it came up in a discussion we had about Christmas Lunch of all things. FWIW she can’t do Christmas Lunch because she is flying back to the US Christmas Day to finish off an investors renovation before NYE as she does these things herself overseeing everything for her buyers. However I was utterly appalled anyone would do such a stupid thing over a name – why choose the business name of a friend of yours???
To Emma’s credit she just said ‘well, I think she is mad, but whats the point – she rang me and told me she liked the name, I don’t care and my buyers really only want to deal with me, so they don’t care!’.
I have dealt with a company that did similar things to me with a business I had for 5 years. They went broke and because of their deliberately misleading advertising it caused me no end of totally unnecessary hassles. So I don’t share my sisters good nature on this particular issue.
Unless you register a trademark or copyright, there is only very expensive and long legal process involved in actually doing something about this. Even then you are a coin toss as to what the final decision will be.
Aside from this totally unethical name choice, Karina is NOT out to rip people off and by all accounts does a good job. Karina is in Atlanta, Emma is pretty much anywhere (ATL,LAX but primarily LAS, due lower ongoing maintenance) but I just have no idea why Karina lifted someone else’s name – what WAS the point???
We know there are many people out there who have been burnt (or about to be) badly.
It takes a brave person to stand up and tell it like it is (or was) for them, but I have been asked by a third party who wants to ‘out’ the rip off guys if they might be prepared to give their versions of what happened.
There is chance (albeit slim) that if enough Australians come forward something may happen to get the cowboys out there.
I do not (personally) need to know any details, but I would be very happy to pass on anyones details to someone who may in the long run be able to help.
In the last 6 months I have heard some really nasty stories and unless someone says something it will not stop.
Email me directly (or PM me) on [email protected] if you or anyone you know has been ‘got’. There is nothing to be ashamed of, but if you say nothing, nothing will help you. There really is ‘nothing’ to lose.
I read on another post what Jay and Cheeves were discussing about subprime. Nothing anyone in Australia has lost comes close to what happened to almost every american home owner in the last 5 years, we have ALL been lucky in quiet little Oz, so no matter what you might have lost, its nothing like most working americans lost through absolutely no fault of their own.
BTW there is a fantastic docco online through CNBC. Anyone looking at the US housing market should watch it:
Its nothing Jay and Cheeves don’t know and lived through, but its really good.Jay,
Once again a really fascinating post. You have outdone yourself again.Alex, I can only speak second hand for LV (I don’t own anything there, my sister does) but there are solid gains occurring. She started buying houses for $30-40k 2-3 years ago and those ones are now around the $60-70k mark. Not huge gains, but decent percentage returns. The rents are stable if not trending slightly up at around $1k per month. As Jay has alluded to, there is (I think) a very solid floor in markets in those areas as everything has been bought for cash and is therefore almost impervious to immediate cost pressures.
The foreclosure market in LA has tightened a lot. The ‘professional’ flippers there a year to a year and a half ago were counting on 25% margins, now those margins have tightened to around 9%. Rule of thumb figures only, but indicative of market gains. And again, rents are increasing, from my perspective across the board.
Jay’s logic with tax liens seems a natural progression. I am very interested in almost anything he says, but this is especially interesting. You could almost foresee a widening of the ‘class’ gap based on derelict housing areas vs ‘prime zones’ – exacerbated by this rush of foreign capital into sub-prime and sub-sub prime housing.
The irony is that you can probably bet your bottom dollar that by chance someone whose retirement fund lost huge amounts in subprime had actually invested and lost money in the exact same house that the person is now investing their own ‘real’ money in today! And they will almost certainly lose out again!! Quite strange how money moves around…
Personally I would suspect you would get a better return at the Casino. The US is not under any circumstances a place to ‘invest’ in real property with $28k when you live 7-8,000 miles away. Airfares alone will chew up a large percentage of that and if you aren’t spending time there I can promise you it will not work out – unless you have very close ties to the locality you are buying in.
If you want high returns maybe look at currency trading, or even a share portfolio. At least with local investment you can turn off the losses when you want. The last thing anyone wants is for you to lose precious capital when you begin investing.
FWIW I saw Steve as way more conservative when he started than buying as far away as he possibly could. I was buying in the US when he started out – he certainly didn’t poo poo the US, but did suggest to me I was being ‘very risky’ buying so far away. Maybe he just wanted me to go to more wrap seminars:)
Steve’s advice above of not biting off more than you can chew is very sound. All of us wanted to run before we could walk in the investing world. If it wasn’t Steve that said this himself it was someone similar – you achieve success with lots of little deals, not hoping for big ones. Big ones can send you broke faster than you can ever know until you have been through it.
I would be very surprised if 90% of the guys you see buying in the US don’t lose out badly. I am confident that I know more or less how to deal with the US, but I have been there 15 ish years and can now afford to lose a couple of hundred k without too much trouble. I have always bought investment grade property and even then if I lost the very close circle of experts I have I will sell up immediately, pay the vast tax on the capital growth (my properties INCREASED in value in sub prime) and get out. Gearing in with $28k if you can’t afford to lose it tomorrow is a very good way to turn yourself off ever investing again.
Thanks Jay, I really appreciated that background. Especially the (what I thought was ludicrous) need for thumb print Notarising. Very grateful to you for sharing that. Invaluable info.
