I think the best thing to do is to just calculate it all out and try and see if it is worth it, investing in the USA or investing in Australia. Taking into account a wide range of things such as forecasting the AUD/USD conversion in the future, capital gains, interest rates etc etc, and by using a spreadsheet to be able to change variables and see the worst case scenario and see what the best option is, it is probably the best way to figure out what is best for you.

Looking at it from my current situation, capital of around 50,000 AUD to invest, current AUD = 1.07 USD as stated above. Assume to invest everything for a property in the USA, have 53,500 USD so minus fees and such obtain a property for 45,000 USD. Net rental yields (taking into account vacancy and all necessary fees and taxes) of 9% which is seemingly likely as long as you invest in a good area and have a good property manager. Assume 10% capital growth over the next 5 years. And assume the dollar goes to AUD = 1.20 USD (I personally think it would peak at 1.15 and go back down but just as a worse case).

Total value at the end – Property value = 45,000 x 1.1 = USD 49,500. Rent received = 45,000 x 5 x 9% = USD 20,250. Total value = 49,500 + 20,250 = USD 69,750. Converting to AUD 69750/1.2 = 58,125 AUD.

Similarly investing in a property in rural Australia (where yields are typically the best), say 150,000 AUD property value with 7% net rental yield (after all necessary fees and vacancy, taxes etc) Interest rate of 7%. Loan of 110,000 AUD including fees  and purchasing costs. Capital gain of 10% over 5 years (quite high in my opinion but anyway).

Total value at the end – Property value = 150,000 x 1.1 = 165,000 AUD. Rent received and Interest cancel each other out in this instance (I do realise that increase in property value would increase rent, however it is a simple example and I did not do this in the US example either). Currently still a loan of 110,000 AUD. Total value = 165,000 – 110,000 = 45,000 AUD.

As you can see in the above example US is ahead by about $13,000 after 5 years, obviously I have made a lot of assumptions, but I find if you make a spreadsheet with these assumptions as variables, you can do your research and become more accurate with your assumptions and then you can accurately model the different situations. Then the only true variables you would have left (capital appreciation and AUD/USD forecast) you can play around with and test out a whole bunch of scenarios and find out which direction is most likely best for you.

jclimie,

I think I am in a similar position to you, I am ready to invest in the US but of course am worried about everything I hear regarding the unstable economy and weak dollar. This is why I am not putting all my eggs in one basket when I do invest over there, just in case everything does go pear shaped. Basically looking at getting a property around $50k mark and buying it outright with some savings. Worst possible outcome I have is the house becomes worth $0, and I lost $50k, not ideal of course but I could bounce back from it. If I went all out and invested in a $300k place with a $250k mortgage, and the property became worth next to nothing, then I would definitely be in struggle street.

So while limiting the investment in USA I am hopefully going to try and purchase something cheap in Australia, in rural NSW, seem some nice positively geared properties out there which do look enticing, and also have seen some development oppurtunities in some towns which also look like they could turn a decent profit, lots of decisions with not much money at the moment unfortunately.

Just a question, if you could buy it from the partnership, wouldn't there be a lot of fees that would have to be paid? Stamp duty, attorney fees? Probably a few other things I am not thinking of at the moment.  Just seems like it may be cheaper if you could transfer the name on the title instead of just buying it off the partnership?

I cannot speak for Carlton, but I have lived my life in the western suburbs of Sydney, and currently own a house in Seven Hills, which is a few suburbs along from Auburn (the other side of Parramatta). These suburbs do tend to have a bad reputation, which is understandable, there are a few problems here, but I do not think it is that much worse than other areas.

One thing I have noticed is that even within the suburb, there are good and bad parts, good streets and bad streets, where I live in Seven Hills is perfectly fine, in fact I really like living here, a lot more than when I lived in Mascot (supposedly a much more desireable suburb than Seven Hills) but I know that if I live in a 'dodgy' street then it would be different. I guess you need to have a look closely at the suburb and determine if you are in one of the better areas.

I have not been successful in setting up a US account with Citibank from Australia. They all seem to require you to visit in person to set it up. Will have to get someone on my behalf to set it up in the name of the LLC that is based over there.

You can maybe try Bank of America, they have an office in Sydney I believe, have not tried it myself but could be worth a shot.

There was a good article I read months ago, couldn't tell you the name of anything anymore sorry, has slipped my mind. Basically the guy in the story bought a house where he wanted to live when he was older, out in the suburbs, lots of bedrooms for the future family, nice sized yard, near schools etc etc. But in the present, he wanted to live near work, in the city, near his friends. So basically continued renting and just bought the house he was going to live in some time in the future. It worked for him as the rent he earned from the property was far greater than the rent he paid where he wanted to live, so he worked out positive that way, and seemed to get the best of both worlds.

I know it is very scary trying to figure out when to buy, and you keep saying just to save a little bit more, which is all well and good, providing house prices don't go up. Say you want to buy a $400,000 property somewhere, and you currently have $20,000 saved up, but you want a 10% deposit. So you spend an extra year saving up $20,000 but in that time property prices have risen 5% so your property has already increased up to $420,000, effectively as much as you have saved, while paying rent $10,000 rent or so at some other place.

Anyway everyones situation is different, but when I chose to purchase a place I just made a pretty simple spreadsheet to try and calculate the difference in buying a place now, or waiting 1 year, or 2 years or 5 years..renting while I was waiting, and at the time it made sense to just buy one now (well that was over a year ago now)

James

Interesting read, to be honest I do not believe there will be a housing crash in Australia, maybe a slight correction where prices may steady for a few (or many) years until they reach a historical average over time. There is no doubt that they are over-priced at the moment.

That being said, I am no expert, I did not do finance or economics at university so there is a lot about that world that I know nothing about. So my opinion is basically just my personal idea. And like any idea it can be wrong, and if I am wrong I will be the first to admit it.

One question Matt, you said early in the post that we were up to Step 4 with banks starting to restrict lending requirements. If your plan does play out, do you have an idea of the time frame before prices to completely collapse? We saw in USA that prices went from highs to lows over a period of about 4 years (that is if they did indeed reach the bottom). Do you expect something similar in Australia , so prices to collapse and hit the bottom of the trench around 2015 or so?

George,

All the best with your endeavours, it is important to start young, I myself am only 24, however have not started full on investing, but I did purchase my PPOR when I was 22 so I guess you could call it passive investing.

I understand your situation, you have all these plans, all these ideas, and you want to make everything happen right away, just do not have the financial backing and it is holding you back, I am in the same boat at the moment. I have a lot of ideas and plans of what I want to achieve, but in the end it seems it just takes time.

My only suggestion would be to just start small, and invest within your means, at least for the meantime. Angel had good suggestions, going for some place cheap, renovating, doing it up, turning a bit of a profit, getting a credit rating with the banks, there are some decent properties in rural centres around NSW like Goulburn etc where you can get properties for around the $180,000 mark so you may be able to get financing for such a property.

I myself have been looking a lot recently about investing in the US, I know it is a lot riskier and most people I talk to don't even want to hear about investing over there. But something about it just keeps drawing me back to it. I guess maybe it is the fact that I can see 3 bedroom 2 bathroom houses on a quarter acre block that are only 3 years old, for sale for around $35,000, which are a lot nicer than the place I bought in Sydney for $350,000.

Another option to at least get your feet wet would be to attend meet ups with similar like minded people which could perhaps become future business partners so you could share the initial investment, meaning not such a large outlay for you in the first place, which in a way would minimise some risk, however there would be an added risk of more people being involved, but at the start it is always an option.

As for uni, it is definitely not essential, a lot of people have become very successful without a university degree, I myself have a civil engineering degree, it is a good way to get a formal education, but sometimes working in the field you can learn a lot more in a much quicker space of time.

Anyway just some thoughts, hope you keep your excitement for it for years to come

James

Congratulations RickH, I really hope it all works out for you

Would you be able to email me, I would just like to hear about your experiences and make sure I have a full understanding of the process of getting a US Property. I think I know as much as I need to know about getting one, but just would like to make sure and ensure there are no little things that come up unexpected. Thanks in advance