Property investing in USA

I have purchasing experience in the US. I have lived here for 4 years with my wife. A little over a year ago we jumped into the Californian market and bought in Lakewood, a city in LA County. Since I’m buying from within the US, I’m sure my experience is quite different from what you are chasing, but I’ll mention a few things.

For one, just about all transactions have two agents: the buyers agent and the sellers agent. But your agent (the buyers) is effectively free, because the two agents split the 4-6% commission (national average is now 5%) paid by the seller. The seller can negotiate that commission with their agent, but say they go to 4%. That would mean any buyers agent representing their client would be less motivated to push that property. So I’m planning on selling maybe this month and I will be going with 5%. This is a possible plus for you, a free buyers agent! But they paid a percentage of the value you pay, which is a definite conflict of interest, so you need a good agent.

As for when we bought, we only had 5% down and this was a huge problem. We put in 7 offers on various properties before getting lucky on our 8th. On the day that I found our home I saw 4 at lunch and put an offer on 3 of them, my wife having never seen them (that’s trust). Every time we were rejected it was because our offers were coming up against higher deposits, I.e. 10% and 20% offers. The reason this makes a difference is, it is less likely their pre-qualified loans will fall through. On one of those properties we got lucky and to give you an idea just how lucky… the day I saw that home was its first day on the market and my offer reached them that same day: 5%, full asking. They accepted the next day at lunch, but within the hour they had a 20% down offer $10k over. Having already accepted my offer in writing the sellers agent called my agent and begged her to be sure I was able to pay. For the 4 weeks of escrow the sellers were working against us, hoping to pull out for any reason because of the higher offers! So it was the 8th home we’d put an offer on and we only pulled it off by 1 hour. So… gist of it is low down will be hard! Try have 20%.

I assume there were stories like that in Brisbane during the peak of it. Things have settled a bit here now, but coming into spring they say it is picking up. I hope so this time round I’m selling. [biggrin]

As for getting loans… sh*t, I had a difficulty getting a loan from WITHIN the country, because my visa is non-permanent. So I fancy that would be difficult.

I don’t know anything about the returns on the other side of the country… but to be honest this sounds an awful lot like a “grass is greener on the other side” story. Sure Aus does cost more, but I read a lot about the market here and the concern is that it is going to decline. I’m trying to sell early before it does. Rates have gone up 6 times so far… in every consecutive RBA meeting. That’s 1.5%, but you know what? 10 year treasury bill yields (basis for mortgages here) have not yet moved. Greenspan says it’s a conundrum… I think it’s just lag. Yesterday the move began, 0.12% yield increase in 1 day, biggest increase since… 4 years or something?

Another thing… buying in NZ, as seems to be commonly mentioned on this forum , might make more sense. The AU and NZ economies are more closely aligned. But another factor buying in the US the dollar. Here is the history of the AUD against USD since floating (for trivia are you aware before floating the AUD was fixed ABOVE the USD, cool eh).
http://www.rba.gov.au/Statistics/HistoricalExchangeRates/index.html

Now the reason I mention this is, if you download the full history (5MB) you will see that the AUD tends to vacillate within the 60-80c range. We are at 78.8c today, were at 79.8 on Monday. So you might be doing well if you purchase now and believe that the dollar will fall. But if you purchase in 3 months and the dollar is back at 70c at that point, you will be exposed to more downside risk. Read up about Warren Buffet shorting the USD. However, personally I think now is a good time to buy the USD.

The AUD is being driven up by resources demand (and our higher rates in cash accounts). China is the reason for most of this demand. If China slows AUD should go down and your return might well improve, but point is, it’s far more complicated now that you have exchange rates in the equation.

Here is a good article, 05/11/04 insight:
http://www.amp.com.au/au/3column/0,2338,CH4669%255FNI9451%255FSI56,00.html?via=AMPAUAlternateLeftNav
For spot rates:
http://www.xe.com
For noon rates:
http://www.x-rates.com

If the property is cash negative or needs maintenance down the track and you do all your calculations based on 80c… when it hits 60c, will the extra cost break you? Plus you need to pay $25 for each transfer here (ANZ), $14 back (Wells Fargo). The AUD has to be one of he most volatile currencies in the world! At one point since I’ve been here it was 48.5 and it was pretty much 80c this week. Imagine if you had to pump in $1000 a month at 80c, that would become $1650! Another possibility, you have a better investment opportunity in Aus, but the AUD might be so high at the time, you must take a loss in order to return your money.

Now I say all this because I actually have an option of not selling and instead renting out my place of residence when I return home… but I’ve decided not to. Mainly because I believe the US market is close to it’s peak. Unfortunately with the AUD high it is not a good time for me to send money home, so maybe I’ll be holding off for a bit on the bet that it goes lower; average it over a few transfers, in the mean time invest locally.

But the other reason I’m selling is complexity. The US and Australia have dual tax treaty agreements. Which means you will be lodging a tax return in the US and in Australia. I’ve not read up on earning in the US while living in Aus. I was concerned about the opposite scenario, but… ugh, taxation is ugly. And having to worry about a home (in my case in an earth quake zone) on the other side of the world… REIT’s in Australia are still yielding 6.7% (SLF) [biggrin] I think a margin loan on an REIT would be LESS risky than a US RE investment. 2-3 years down the track when the Aus RE market is looking more sensible, your money is already in the country.

Having said all that… good luck either way [cap]
hundreds of ways to skin a cat eh!

Westan’s details:
https://www.propertyinvesting.com/member/profile.asp?mode=display&id=3538

FFComm

As you guys know I buy in dallas twice a year because that is where I started out so If you’d like to come along next time drop me a line
[email protected]