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Craig,
Feel free to email me at [email protected].
I have a spreadsheet which you should be able to use, should be fairly straight forward.
I will get on to Nigel and see how I go.
And yes I do have a risk management strategy, appreciate your concern but I do not have all my eggs in one basket. Along with my properties in the US, I also have property in Australia and shares in Australia as well. I understand it may seem risky to purchase property all within the same area in the US, but I just feel I have set up a network of people in the area who I trust to be able to help me and would find it more of a risk if I was to try and start all over again and get a new network.
Looks good Engelo, looking forward to seeing the “after” pictures…as well as a bit of a breakdown of all the costs, it is amazing to see how much work you can get done to a property cheaply over there in the states.
I just read an interesting article about renting verse buying, I have looked at it all before and at the end of the day it really is a personal decision, but if you do want to look at it from a purely financial perspective then maybe the option below would be for you –
Option 1 ) Purchase 3 x $200,000 investment properties at 7.00% interest rate (interest only), collecting a 6.00% yield and rent out a $600,000 property which has a 4% yield (typically higher end properties are lower yielding)
Option 2) Purchase 1 x $600,000 PPOR at 7.00% intest rate (interest only – for ease of calculations).
Note it is assumed 40% tax rate to be paid.
Option 1 –
Rent Received = $600,000 x 6.00% x 60.00% = $21,600
Interest Paid = $600,000 x 7.00% x 60.00% = $25,200 (claiming interest on tax return)
Rent Paid = $600,000 x 4.00% = $24,000
At the end of the year you are down $27,600
Option 2 –
Interest Paid = $600,000 x 7.00% = $42,000
I know the above is very simplified and there are a lot of other factors involved, but there is still a significant financial advantage here to renting compared to owning, and given you still end up with the same result (living in the same value property) it really makes a lot of sense.
I use OzForex whenever I transfer from AUD to USD, seem to give me decent enough rates anyway. Easy to deal with as well, never had too much of an issue.
I think one of the biggest things that turned investors off was the dream returns that always seemed to be promised simply did not come. So all confidence was lost in the market.
Unfortunately some times being brutally honest does not make you the best salesperson so unless you are willing to stretch the truth you will be unlikely to win over people who are only 50% sure about investing in the US.
That being said, if I did present my "true" returns from what I have invested in over in the states, I think you would see very strong returns. Returns much stronger than you could expect in Australia. But for some reason, people are more comfortable to receive 5% yields in Australia rather than 10% yields in the US. I guess they are just too hesitant to part with their money when it is on the other side of the world. I guess they are also of the belief that property prices will continue to rise at the rates they have over the past 15 years or so, so any investment you make is a sure thing!
But I believe my investments over in the US are median, nothing spectacular, definitely not poor, and something that is definitely achievable for any investor. So here I sit with about a 10% net yield after all expenses are taken out, and that does not even take into account the capital gains of the property. If you promised returns like that to any investor then I would say you would win just about all of them over. Unfortunately when you promise 20% yields and return ONLY 10% yields, it makes you look like a fraud and all confidence is lost in the market.
Just my impressions anyway.
I am not sure why all the focus has gone off the US at the moment (well for the past few months at least anyway). I know I am still heavily looking into and actively investing in the US markets to try and build my portfolio over there as much as possible while the buying is good (and I believe it is still very good for the time being).
I know at least in the areas I am buying that prices have gone up by about 20% since I started a couple of years ago. I do not believe this to be a "true" increase in value in the area, more of just an artificial increase due to all the property investors snapping up properties in the area creating a short term demand. And although there is a strong reduction in the Australian investor in the area, the US investor is more active then ever. I believe finance is becoming easier to obtain over there so smart (hopefully to be proven in the long term) investors are sinking their dollars into the market.
Regardless, even with the increase in value the returns from rent are still significantly higher than anything I have seen in Australia (apart from some spectacular deal) so I continue to keep putting my hard earned into the US Market.
I would say the low Australian dollar may have something to do it with it but would only be a small factor, I guess because the dollar really has not dropped that much, it is sitting at 93 US cents at the moment, about 10% down from it's peak but given it is expected to drop significantly further down to about 80 US Cents, you would think it would still be lucrative for the Australian investor to get their dollars into the US.
I think it is just not popular now, like a couple years ago it seemed to be the "cool" thing to do, buy a property in the US, make your millions and do whatever. But now there is just less exposure on it in the media so the masses have stopped flocking to it. Also there are a few articles every now and then about horror investing stories from Australian investors who got burned by trusting the wrong US people, definitely a deterrent to stop people even looking into the idea of US Investing. Probably a good thing for the few Australians left who do still continue to invest in the market.
Ok I have had the day to let it all sink in try and reflect on the experience, I will try and put it all in a summary so if anyone did want to follow in my footsteps they could hopefully have it a bit smoother than I did.
Step 1 – Met with Mortgage Broker while I was over in the US (October last year), overall he was not too much assistance, but he did get the ball rolling so I guess I give him credit for that. I guess with him being American he did not really understand how difficult it was for an Australian, and the cultural differences we have over here, particularly with the language barrier (I know we speak the same language, but the terminology is just too different and hard to have a proper discussion).
Step 2 – Put an offer on a property, was mid January at the start of this year. My property manager set me up with this one through her real estate agency (Century 21). I was lucky that I had very understanding sellers who were able to hold on to the property while I dealt with all the issues of closing the finance. I have not physically seen the property, however I do trust the judgment of my property manager enough that I will take her word for it when she tells me a property is a good buy. Also it is only down the road from my second property (which I have visited) so at least I know the general area is good.
Step 3 – Provide proof of income for the bank to obtain loan approvals – this was probably the most difficult step, it did not seem whatever I did provide them was enough. What was required was 24 months of earnings, apparently payslips were not enough either, I needed a bank from filled out and signed off by my current employer which states my current income as well as a few other things (like expected job stability and such), I also needed a similar form from my previous employer (because I had only been at my current employer for 20 months). In the end it was not difficult, I was just frustrated that providing all my payslips and tax summaries were not enough for them.
Step 4 – Provide extra documentation to the bank – Another tricky one to provide was 3 credit trade lines. I had never heard of this before, and at first it made no sense. In the end I just needed to provide proof that I have maintained good credit. Unfortunately, unlike Australia where they only seem to require 3 or 6 months, they needed 24 months proof of good credit. Again I tried to provide to them what I thought they would like, statements from my mobile phone, internet, and 2 credit cards for the past 24 months showing them that I had always paid on time, but in the end it was still not satisfactory. In the end I went to a credit report company, at first I tried Veda (which was free) but it did not give them the required information, I then went with Dun & Bradstreet, and I had to pay $30 (I think?) for a credit report the next day in the mail, and I scanned this through to the bank and this seemed to satisfy them. Basically it just had a blank page when it said any infringements which showed I had never shown signs of bad credit. I think it is a lot easier in the US with a credit score available to everyone, so they were hoping to get something like this, unfortunately they just did not realise that we do not have these facilities in Australia.
Step 5 – Organise insurance for the property – This is a step I did out of place, I did not do this till last, did not realise it was required so it became a bit of a rush in the end. Luckily my property manager knew a insurance agent and was able to organise it very quickly and it did not delay the closing at all. You will see as part of your deposit there is a provision for insurance (it was $1,500 for mine, insurance was only $1,333 in the end).
Step 6 – Get loan documents signed/notarised – I had a few forms initially from late January which I sent off, but these were useless because by the time the final loan documents had to be sent off I just had to do them again. So I did the same documents more than once over the 1 month period from initial loan documents to final loan documents. Having loan documents notarised was also tricky given I was working in the bush, far away from any Notary Public. If you are in a city it should not be too difficult to have documents notarised, however it is not cheap. I believe I paid about $300 to have 6 documents notarised. Once I had these documents notarised I immediately went to FedEx to get them over to the US as quickly as possible. Not sure if this was essential, I just didn't want to take any chances. One mistake I did make was only sending the notarised documents through FedEx, the other documents I just scanned and emailed them through. Unfortunately, they needed originals so I needed to visit FedEx again and send off those documents. One hint I can provide is just make sure you have everything organised, you will receive approximately 30 documents that needed to be signed off or initialled, just double, triple check that you have everything sent off so that nothing is missing. A lot of the documents do seem to be very useless and not too important, but the last thing you want is to be waiting for them to review the documents, only to find they are missing one.
I think that was pretty much everything I went through, it does look fairly simply, but I guess it was made more difficult given all the travelling I do for work (also had a trip to NZ in the middle of there too). In the end, it is not complicated to give them what they want, but it just took me a while to understand what they actually did want. I kept trying to give them what I thought they were after, only to find it was of no use to them. I would say the next time I go for a property it would be a lot simpler.
I will also add another post with all the costs involved as a summary, so you can just see if it is economically viable (to be honest I am not even 100% how profitable it will be myself)
Just an update, it looks like all the frustrations I have had over the last couple of months have been worth it! The house is now mine and deposit has been paid, still awaiting the actual title documents to come through but it look like I have finally made it!
I guess looking back there are a few questions I will be asking myself –
* Would I do it all over again? Definitely
* Would I do it the same way? Definitely not, I have learnt a lot about how the finance process works over the in the states, hopefully I will be better prepared next time (I do not think I could do it much worse though).
In time I will reflect on everything I have been through and try and write a comprehensive step by step guide based on my experiences, hopefully with a few lessons along the way. For now, it is just time to celebrate (or sleep)
It is definitely a big decision, and of course a lot people are always going to want to have their 2 cents worth.
I have developed a spreadsheet which allows you to compare if it is worth buying a place or renting. Basically while renting you are able to save up more money for a deposit, and in turn will reduce the amount of a mortgage you will incur. The spreadsheet also allows for capital appreciation of the property, so although you are saving more money and reducing the loan amount, the house price may also increase so in the end you are not achieving anything. Unfortunately that all becomes a bit of a guessing game if the property values in the area will increase (or decrease) so it is hard to know what the right answer is.
Well now that I have probably confused you too much, I think you will need a simpler answer. You just need to do what is right for you, what that is, well only you can answer that.
It really depends what stage you are at in your life, if you are still single and moving around regularly, then maybe an option for you would be to purchase a nice house that you can look at living in some time in the future (when you have a family with you and everything) and rent that place out, and use the rent from that place to pay for you to rent where you want to live now (most likely near the city), that way you can be comfortable knowing you have the place for the future, but be flexible enough to live wherever you want in the mean time – effectively free since the rent from your future house is paying for the rent you pay.
I just do not understand why they are so pedantic about some things when other things seem so trivial….they cannot spell my address properly (despite telling them right from the start my suburb is spelt Carlingford, not, Carlingsford). And also telling them I do not work for Murphy Pipe Engineering, and that I am an Engineer at Murphy Pipe and Civil.
I do not know, they just seem to run very strangely over there.
Also I think I used black ink, I could be back to square one now…
I did a similar thing with my grandmother, she wanted to invest some money to pay for her funeral (morbid I know, but it was her money), and I offered to use my home loan.
Being family you obviously just offer them the same interest rate as the home loan, so it is no benefit or harm to you, but a great benefit to them (hopefully Karma is real).
I made a spreadsheet for it and would be happy to flick it through if you did need something, it is not very complicated, all you do is just input the interest rate with a date when it becomes effective, and add a deposit whenever they do and it all calculates automatically.
You could put it online in Google Documents or similar and the "giftees" could check it whenever they wanted to.
I was currently looking at properties around the Central Coast as well, initially was looking or a place in Sydney, but was just too expensive. I do not want to be under a burden of a mortgage for the rest of my life. Plus I really have no reason to be around Sydney, would much prefer be in a nicer, bigger place on Central Coast, just a short stroll from the water for a fraction of the price.
Julsss1, the property is only $82,000, broken down into a $50,000 mortgage and $32,000 deposit (roughly, with some fees and such in there). The rent should cover everything. Currently the tenants are in the property paying $800 per month and the monthly repayments will be $425. So this leaves $375 a month for maintenance, property taxes, fees etc etc. Hopefully it will pay for itself anyway.
I do have two other properties in the area that were bought outright and they receive $700 and $800 per month rent, so I will have no issues being able to pay off the mortgage and not have to transfer money from Australia over there.
Just an overall update, I had to visit FedEx again, luckily this time I was in Sydney so it was a much easier experience, they needed the originals of all my loan documents. When I sent the first documents over last week I only sent the ones that were Notarised and I scanned and emailed the other ones through, I was not thinking straight and didn't realise they would need a wet signature of the ones that I had just signed myself. Regardless, they are all sent over there now, they should currently be on a plane headed for USA. Estimated delivery for 21/3/2014 which is good to get there before the weekend.
Been a long and tedious journey, but I have a feeling I am almost there (but I am not cracking open the champagne just yet)
You could try and do something similar to what I did with a friend recently, basically I let him "invest" into my offset account.
So he puts his money into my offset account, and I offered him an interest rate slightly less than my interest rate for my home loan (which was a fair bit higher than the interest rate offered for a savings account).
So he gets a higher interest rate, I pay less interest, and it really is win win.
May get complicated with other parties involved but if it is all tracked and everyone is happy with the arrangement and you agree on it PRIOR to any money changing hands, then no reason why it could not work out well for everyone.
Well I appreciate your admiration, I just do not know why they make it so difficult…it has almost broken me I can tell you that.
All I am trying to do is give the US Banks some money, but doesn't even seem they want to let me.
Thought everything was sorted, then I got another hurdle to jump, hopefully should be the last one though. Unfortunately it may prove to be a near impossible one logistically.
Basically, with all the loan documentation, there is one document that needs to be notarised. Now that would be simple enough (about 6 documents needed notarising and that was no problem), except that there is also I need a US Agent who also needs to sign the document, and their signature also needs to be notarised. Which again is not too difficult, except according to the US Regulations, this document needs to be signed on the same day!
How can it be possible to sign the same document on the same day when we are halfway around the world from each other? I did the best I could, I had to leave work at about 1pm and drive 2 hours right on to Toowoomba where my nearest Notary Public was located, and then once the documents were notarised get back in the car and drive on to Brisbane (another 2 hours) to the FedEx drop off near the airport (the only FedEx in QLD it seems). Even if I sent it express post with Australia Post it would only get to the US straight away, it would still then go on the road in the US and take a while to be delivered. FedEx would be the fastest way (at least that's all I could think of), but unfortunately by the time I got to the FedEx drop off point it was 6.15pm, their last plane on the night leaves at 5.30pm, this was on Friday, so I now have to wait until Monday before the next plane leaves.
So in the end, the documents are not expected to reach my US Agent until Wednesday anyway, I scanned copies through to them so they have the documents, just not the originals. Will it be enough? Will they accept signatures at different dates? Only time will tell, but if it does not work, I just do not know what other alternative I have….
Why must they make things in the US so difficult…
Only one last thing left outstanding, just need to organise insurance for the property, should be just about there by tomorrow, frustrating having to wait for US to go over the weekend, everything just goes on hold for a few days.
Still worried something else will pop up causing another issue, I guess just a healthy bit of pessimism
Well I believe I have provided everything to the bank so they are happy now to continue, at least they seem so for the moment anyway.
I do not really understand how one piece of paper saying how much I have earned in my current job signed by my payroll officer means more than all the payslips also signed by my payroll officer? But anyway it is what they wanted so that is what they got.
And no I am not offsetting the loan against one of my current properties, both my current properties are owned under my LLCs, this one will be owned under my personal name, because the bank would not lend to an LLC. Perhaps down the line when the LLC can show a steady income from all the properties they may change their mind, but for now it is just under my own name.
Would be good to be able to use collateral or leverage against other properties so did not have to provide a deposit every time.
Just imagine being able to buy a new property every day that is positively geared, paying for itself comfortably. There would be no limit to the money you could make, but sigh, for now still need to save up for the deposits. At least it isnt as bad as saving for one in Australia.
Just an update –
Still awaiting finance to be approved…sigh.
Bank is requesting a credit report to be provided, I tried to send them one from Veda (seem to be one of only 3 companies in Australia that provide credit reports) but it did not suit their needs. They basically want proof of 3 trade lines where I have maintained good credit for the past 24 months.
I have sent them in 24 months worth of credit card statements (only 2 credit cards as that is all I have) as well as 24 months worth of statements for my Internet Service Provider, hoping this would confirm that I do not have any bad debts under my name (which I don't). They have not come back to me and now that it is weekend I do not think I will hear anything until at least Tuesday.
They also requested a letter from my company confirming how long I have been with the company and my earnings, I did not understand this requirement given I had provided them with every one of my payslips for the past 2 years (approximately 100 since I get paid weekly) and all with the letterhead of the company and signed off from the finance department. Still trying to convince them on this one as well.
Getting quite frustrating as I am eager to close, and also do have a tenant waiting around to move in as well. If they make me wait any longer I will almost have saved up enough money again to just buy the property outright instead…..
