Hi Jay

Like you, I have been in this business a long time, be it in Oz rather than the US. We have just over 50 properties in Oz where I only pay 5% management fees and  a 1 weeks placement fee. No lease renewal fees and no long term management contract, in fact I have been with the same  property manager now for over 12 years for the bulk of the properties. This is because they have performed over all this time.

I have previously calculated that with the 1 month placement fee, a 1/2 month lease renwal fee and 8% management fee  that you are potentially paying 20+% pa in fees to the management company. This is not even including the retention fee that a lot of management companies require nor the 10 – 20% add on to invoices etc.

So the gouging by the management companies is a big shock to the Oz investors. Particularly those who operate on the eastern seaboard. Over in WA they try and gouge you I suspect due to a lack of competition over there or maybe they have followed the American model lol.

The other thing is that you defend the level of charges based on the work that is involved. I simply don't buy the concept that it's harder in the US then Aust – it's a people business and at the level that I want to operate (A to A- properties SFR's) there should be very little difference in tenants in either country.

Further, the staffing overheads are less in the US as the pay rates are significantly less than remunerations in Aust. 

Anyway, it's a pet peeve of mine and as I am a cash-flow guy a cost is a cost and should be minimised. Maybe with these new market conditions (no substantial capital gain for 8+ years)  more US investors will also start being more conscious of the + cash flow rather than the hoped for capital gain and will start demanding reduced management fees and management contract that are less biased to the PM.

I am sure that most Aussies will understand when I talk about the one sided contract that is the US owner management agreement.

So I stand by my statement that I consider it gouging but as you say we will have to agree to disagree.

My only reason for highlighting the situation is to make other Oz investors aware as through awareness things can change.

regards

Hi Alex

Just use Google to locate them. I don't want to put up the link nor email.

This is the accountant that the sponsor of this site uses.

Regards

Hi Jay

Interesting stuff.

Went of and found the s1033 as per

http://www.law.cornell.edu/uscode/usc_sec_26_00001033—-000-.html

but can't readily find anything about the ratio of debt! Can you highlight section that relates (for future reference)

From your explanation I gather that a 1031 can also apply to REIT? Which is obviously where the majority of those type of clients are coming from. I don't currently see to many resumptions happening.

As far as Zillow etc and values they are an average and as you point out averages get distorted by manipulations of the market. In your example the value is distorted upwards and of course with most foreclosure sales the price is skewed downwards.

I totally agree and with this awareness I still do use zillow, not to be the bible on value but at least be indicative. I, personally will then look at similar properties that have sold in the area and also similar properties that are still for sale (not so much as still only an asking price). Then I also look at the age of the property and the price as it relates to the sq foot of the property.

Finally I confirm the expected rent for the property to allow a gross return to be calculated. In fact the zillow rent figure has been a fairly accurate reflection of the likely rent for a property, particularly when surrounded by similar sized properties.

Last but not least is the approximate rehab costs that are involved to make the property rent ready.

In the end I am looking for bargains well below comparable properties in the area.

So in conclusion zillow et al (including BPO) are just tools that are used to arrive at a point to make the decision.

Regards

Is there any reason that you don't provide a list of your charges in this post so they can be discussed?

You will find that Australian property owners expect a lot of service included in the monthly management fees. Also they are not used to the absolute one sided agreement which is the 'standard' US  fixed term management agreement. In Aust most if not all management companies agreements are, at most, for only 3 months with the majority for just 1 month. This is a performance issue where if the manager does not perform then we move the property on with no more than 1 month notice and certainly no penalty.

The Aust management fee per month is 5-8% with 1 weeks rent for finding tenant and no lease renewal fees (at all).

No fee for inspections. No fee for evictions of attendance of a case at the tribunal.

So on a $300 pw rental and 7 % fee the annual fee to the RE is about 1092 + $300 = $1392

In the US based on a 8-10% management fee and 1 month sign on and 1/2 month renewal $1300 + $1404 +$650 = $3354 (This on a 6 months lease renewed at 9% management fee)

A substantial difference in costs for much the same rent and much the same tenant issues.

Regards

Hi Jay

You need to be very careful quoting ASIC as ASIC doesn't as such approve anything. ASIC is a regulator and all thing company and investment related need to be registered in some way with ASIC, but in no way has ASIC given tacit approval over and above any other company or fund under its regulations.

One of the more infamous RE promoters Henry Kaye operated outside of ASIC guidelines and ended up in court with heavy fines.

http://www.asic.gov.au/asic/asic.nsf/byheadline/03-237+ASIC+obtains+undertakings+from+Henry+Kaye+and+others?openDocument

Amongst other things any company or trust needs to be registered with ASIC and to continue a good standing an annual return with associated fee must be lodged with ASIC. Very similar to your state regulations regarding LLC's and C-Corp's. It would be like saying that your  Secretary of state gives your LLC a recommendation – a ridiculous statement.

Regards

Hard to get back to the original subject – so much spruiking but all good info (good or bad)

To date we have 9 SFH's in Atlnata area. Been buying since May this year. We are not buying turnkey but doing reno's after purchase and then having to source tenants. Only started getting some rental income in October All up we had rented out 6 properties by the start of November.

The other 3 properties are still in the process of being renovated and will take a little bit longer as we are trying new method to achieve reno (hopefully more cost effective ones I establish process).

Regards

I have used Inc Paradise in NV to set up 2 LLC's.

For about $350 they will set up the LLC and provide a vanilla operating agreement and 2 years of registered agent fees. Just look on their site for the sample documents and services provided.

If you are going to use Top rental returns then as part of the initial purchase they will provide a LLC as the property is purchased into an LLC. It will cost you about $200 when using Top rental. They will act as the registered agent for the first year.

North Atlanta Law will provide a very specific operating agreement for about $600. Speak to Mike Jacobs.

Getting the EIN for your LLC is as simple as a phone call to the IRS, just be aware of the form to use when calling them.

No need to get a bank account until you are in Atlanta. Top rental can direct you to a person in  Wells Fargo who will arrange to open an account immediately. You will need the LLC formation documents and passport etc. Opening a persoall account is even easier.

Good luck with your trip.