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Hi guys,
I'm new on this forum; I just took a look around on different topics and got amazed by the multitude of miss-information or miss-direction of the investors trying to enter into the US real estate market. I'll try to help as much as possible.
First, let me introduce myself: my full first name is Ovidiu, but just call me Ovi, as it will be easier for you to remember it. Currently, I live in Vancouver, Canada since 2006., when I moved from the US where I lived between 1995-2006. I was on a work visa (H1-
as a mechanical engineer and after that I worked in the construction industry. I couldn't get the Green Card in time and for this reason I moved to Canada. I have my own renovation company for almost 6 years (based on the experience gained in the US ) and I'm extremely familiar with the construction practices in the North American continent.
I'm crazy about smart investing; I invest in metals (gold and silver) and real estate. It took me almost 8 month to learn how and, more important, WHERE to invest in the US, as EACH U.S. state/county/township/city has its OWN specifics! Keep this in mind and don't GENERALIZE! Also, I've seen in some other posts that people get sentimental about some properties: some love new ones, some love the areas, some like the neighborhoods,etc.,etc. Guys, as investors NEVER do your calculations based on what your heart tells you, GET A PENCIL AND A PIECE OF PAPER AND DO THE MATH. As I say all the time to my potential investors: "doesn't matter where the property is located; it can be a tent in the middle of Antarctica, or a shelter in a middle of Sahara, as long as it CONTINUOUSLY brings money and is a long term money making machine, that's a good investment ".
I lived and worked in the U.S. on most of the Eastern cost and Midwest and I'm very familiar with the American mentalities, way of living, goals, expectations, quality of life, etc., which, again, are different from location to location.
As an investor, the main focus has to be on the cash-flow, that's what everybody knows; in order to have a great cash-flow you have to consider the ratio price of acquisition/income first of all. As much of the income coming from rents is pretty close to an average in all the US states, the main factor influencing the cash-flow is the purchasing price. Secondly, other expenses such property taxes, management fees, HOA (Home Owner Association) fees, maintenance fees, insurance premiums are affecting the cash-flow, but in a minor manner.
From the investor's point of view I want to present some so called traditional places for investment in the US and the DOWNS of investing in those areas:
– Las Vegas, Nevada – low purchasing prices (advantage), but very high vacancy rate. The world's gambling capital move from Vegas to Macao 1-2 years ago. As the locals say "Vegas is a ghost city" now. Only the "Strip" area is somehow populated, the rest of the city is filled with Mexicans. I had good connections there and it was very obvious that investing in Vegas will be a mistake.
-Florida – very few properties worth buying, as lots of Canadians did what Chinese people did in Vancouver in 1987: they damaged the local real estate market through acquiring properties at the ASKED prices, waaaay above the real price, due to a false comparison with Canadian market (extremely expensive compared to the US market – probable comparable with the Australian). Lots of residential rental subdivisions changed their profile, the landlords practically splitting them into smaller properties (condos-apartments) and selling them to prospective investors. Suddenly, most of this types of properties had no more management, no more security, no more maintenance crews, etc. and ALL the areas were invaded by low class people, drug-addicts, gangs, etc. One of the worst and full with criminality area in Florida is Kissimmee (Disney properties), together with Orlando. The purchasing price for a rental house is pretty low, but the cash flow is diminished by the high HOA fees + management fees.
– Arizona – Phonies is a very nice area with low investor potential in my opinion. The good rental areas are Tempe (University area) where the rent is pretty small and the HOA fees are high. Add the management fee and you'll have a very small cash-flow.
-North-Carolina – economically stable, but the acquisition price is high and the cash-flow is small.
When I say the cash-flow is small I compare all the above areas with the ONLY area worth investing in the US: MICHIGAN State, with the cherry on the cake: DETROIT.
I've been in all the above mentioned states and tried to find good investing potential, but, believe me guys, all those areas gathered together don't have even 5% of the potential Detroit offers. Let me explain:
– the acquisition price: extremely low when compared to the other cities. 90% of the houses in Detroit are SOLID BRICK and not wooden frame.
– the rent is high and pretty much stable all over the city: around $850/month for a 3 bedroom house
-extremely low vacancy rate : most of my renters are Section 8 tenants (welfare program with rent paid by the US Government).
So far, the Section 8 tenant program has an almost 2 years backlog (there aren't enough houses compared with number of prospective tenants)
-very low eviction rate, due to a simple fact: if a Section 8 tenant is evicted by the landlord, he/she won't ever get help from the Government. Anyways, most of the Section 8 renters are represented by single women with children. The Property Management company I'm using has a very tough screening process (that's why it takes up to 1 1/2 – 2 month to completely rent a house); in 14 years they didn't have to evict anyone – their vacancy rate is practically 0 !
– very low bottom price; what is today $40K, was 150-200K only 3-4 years ago. Sooner or later the prices will bounce back – that an economical and financial law.
– almost 0% maintenance reserve, due to the fact that all the properties are completely rehabbed before being rented out.
– minimum cash-flow of 16%. For bulk purchases, the cash-flow can get up to 25%
And many, many other reasons…
In some other post, somebody who visited the US said that in the beginning was afraid of the black people. Man, he wasn't in Detroit for sure, where 98% of the population is black. But, as one of those guys once told me: "I live in Detroit and I'm not afraid to be here, but if I'll have to go to Toronto, I'll sure be very scared." You see, Detroit is a huge city (144 square miles – 3 cities as big as San Francisco can easily fit on that area), and only 3-5% of it is worth investing, and for this you have to know the city extremely well. Detroit is a block-by-block city and offers very nice opportunities for those willing to invest here. You don't have to be afraid of the criminality rate in Detroit or anywhere in the States – you are buying a property for investment purposes, not to move there. As long as you have high cash-flow from your business and are covered by the US laws you don't have to be afraid
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Another guy, on another post here said: "There is no tax on capital gain in the US". Wrong ! If you keep the property less than 1 year and sell it the tax is 30%, if you sell it after more than 1 year is only 15% out of the profit. Also, if you don't intend to sell it and keep it just for rent, the tax is 10%. Anyways, there are legal ways to dodge the tax in your advantage. <moderator: delete advertising>
as a mechanical engineer and after that I worked in the construction industry. I couldn't get the Green Card in time and for this reason I moved to Canada. I have my own renovation company for almost 6 years (based on the experience gained in the US ) and I'm extremely familiar with the construction practices in the North American continent.
