Hi all,
It’s quite obvious there are a growing number of Aussie investors expanding their portfolios to the US market, in particular the Buffalo and Rochester areas. People chasing high cash flow returns are being lured by the opportunities available over there. There has been a lot of talk of how great the returns are, but not much discussion about the current state of the economy of their. If you look beyond the affordability of properties in these areas, and the returns you could achieve, you’ll discover that these cities are facing significant economic distress and have been for some time now.
The point of my post is not to discourage people from investing in these markets, I’d just like to raise awareness and build up a discussion of what people think about in terms of what has happened, what is happening and where these cities are heading. For those of you who have already bought in these markets, I’m sure you have factored in these issues (well I hope you have!).
****Disclaimer: the following comments are purely my thoughts and may not be correct or valid. Don’t take any of this as advice and I urge you to do your own research. Please feel free to correct me if I have made inconsistent or invalid comments.
First of all, the City of Buffalo has had huge financial problems over the past few years due to many contributing factors. One of these being the deterioration of manufacturing industries which has caused lots of job losses in the area. As a result, the population has declined significantly over the past 15 years by over 35,000 people. It’s projected that this decline will continue.
The New York State government has finally decided to step in and take over and without this help, Buffalo’s worsening economy would deteriorate even further. The Office of New York Comptroller has audited the city in a bid to get it back on track. You can read their findings in the following budget review (its 2 years old, but fairly detailed and accurate I believe as to what is currently happening):
http://www.osc.state.ny.us/localgov/muni/audits/2003/cities/buffaloreview3.pdf
Some concerns I have are:
* Reduction in police numbers by around 25% over the next few years. Just imagine what this could mean for crime in the area? If crime does increase, what will this do for the locals? Will they pack up and leave due to fear?
* Reduction to the number of teaching positions at schools. Already a huge number of teachers have been laid off. What does this tell you about the city’s future? Would you bring your children up in a city where education funding is cut significantly?
* Increase in sales tax
* Property taxes – as you may know taxes are already quite high in Buffalo. Actually, they are pretty much maxed out to the allowable taxable limit by the state, but the City is proposing to legislate an increase. Not sure if they will have any success.
These are just some of the issues I picked up, I’m sure there are many more. If you have bought in Buffalo or are planning to, I’d like to hear your feedback on this.
Another ‘BIG’ concern I have is property management. I never really worried about this up until recently. I have spoken to several people who own rentals in Buffalo, including Australians, local Buffalonians, and also out of state investors from the US. To be quite frank, I’m yet to find someone who is happy with their property manager, or someone who hasn’t had problems. This is of real concern, especially for Australian investors – given the distance factor. What good is a “high cash flow” property if you don’t receive any rent, or if your PM keeps billing you for maintenance you were never told about, or if your PM evicts tenants without notifying you, or if your PM doesn’t screen tenants as thoroughly as they should have? These are just some of the stories I have been hearing. The Property Manager is only part of the problem, the tenants could cause even more problems for you. Oh another thing is Sections 8 rentals (Government assistance for low income earners). You may think these tenants are gold, but in fact having a section 8 tenants could be a nightmare. Having guaranteed rent paid by the Government may sound good, but what if the Government decides to reduce the monthly rent of your property? Apparently this is possible and is currently happening. Once this does happen to you, you can’t just boot the tenants out.
Ok, I’ve said an awful lot of Buffalo, now Rochester. Well, from what I’ve been hearing Rochester faces similar issues to Buffalo, as do other cities in Western New York. Kodak, one of the major employers, has already laid off a huge number of staff and there are likely to be more layoffs to come. Most people I’ve spoken to seem to suggest that Buffalo has hit rock bottom, so can only go up from here, whereas Rochester still faces huge problems and the worst is yet to come.
All these issues such as increased taxes, job losses will have significant impact on the economy. I’m sure there will be an increased number of foreclosures and probably many locals will move out of these cities. You may end up buying some cheap real estate, but if you can’t sell it, is there a point?
That’s enough rambling from me now. As I said, I’m not trying to discourage anyone, nor am I trying to put negative thoughts into people’s heads. I’m actually still interested in these markets believe it or not and will be in Buffalo/Rochester in October. I am planning to make a few purchases while up there, but this all depends on whether or not I like what I see. Having said all this, there are many positives too which I haven’t touched on [cap] For anyone wishing to buy in these markets, I urge you to fly over and see before you buy. Consider the air fare as your insurance policy [biggrin]
All the best… and sorry for the long-winded post.
Regards,
OziOzi
You can always consider a US Tax Lien as a return on your investment.
I am working on a short publication which may assist buyers in this area. Will post as soon as it has been completed.
Cheers Richard
[email protected]
http://www.yourstatefinance.comIP funding and US property finance
our specialityRichard Taylor | Australia's leading private lender
Hi Richard,
I have considered Tax Liens, but from what I hear competition for tax lien certificates is extremely fierce, especially in markets such as Texas where you have really high returns (i.e. ~25%) with redemption periods as short as 6 months. Often the liens get bid far too high.
I look forward to reading your publication.
Regards,
OziSounds like a story for Naomi Robson!
Coreyjay
Ozi
You remind me of a engineer I work with , he is very thorough in everything he does. He looks at something in side out before opening his mouth, and when he says something you can bet he knows what he is talking about.
I am a maintence fitter and have worked with engineers all over the world , but he is one of… if not the best I have worked with.
I dare say if you make a choise to buy in buffalo it will not have been without you looking the hole situation inside and out.Cheers Rick
Monopoly, my favourite game
Hi Rick,
You’ve gotta love those engineers!! I happen to be one myself [biggrin] I think it’s important to consider all factors, whether they be positive or negative. However, you don’t want to fall in the trap of analysis paralysis, because then you will never buy anything.
Anyway, I just thought those of you who have bought or are planning to buy in Buffalo may find the Comptroller’s review an intersting read. Oh, there was also a more recent audit done on the Erie County:
http://www.osc.state.ny.us/localgov/muni/audits/2005/counties/eriebr.pdf
Please share you thougts if you have any.
Regards,
OziInteresting discussion.
There are many properties being offered in Buffalo and Rochester by some astute ozzi investors with up to 25% returns at the prices around $30K.
I wonder, if deals are so attractive, why are they flogging them off and not buying for themselves???
Gamay
I think I should probably reply, as, without meaning to, I appear to have promoted the US market, particular in the Buffalo area. My posts were and are only meant to be educational – what you draw from them is your own business.
Ozi makes a number of valid points, as far as they go. After some misfires, some of which cost serious money, I am now satisfied with my team, property manager included. (Don’t ask me who they are, go find your own stream to fish in [smiling]).
As regards section 8, the government rentals are usually ABOVE market rent (at least in my area) and if the government reduces its subsidy, the tenant is responsible for the difference – the rental agreement is with the tenant and how they get the money is, as with all leases, their problem.
Eviction notices are common – it’s a far more confrontationist atmosphere over there. Unfortunate, but a fact of life. You need to be organised, thick skinned, smart and experienced to do well in the market. This is NOT a market for first time wannabees seeking sexy returns, it’s an area where a lot of mistakes can be made.
The upside of a depressed area is that MORE federal funding flows in. If the low paid are your tenants this is good. If you are dealing in luxury condos, not so good.
Property taxes are rising. Population is static, rather than declining. A couple of thousand people (net) left the area over a 5 year period. Big deal, in an area with a population of roughly 1 million.
The point of this post is not to deny the truth of Ozi’s info, and certainly not to criticise. It is simply to balance the viewpoint, as imbalance, so the engineers here will tell you, tends to impede progress. (Unless you are human, in which case controlled imbalance goes by the technical term of ‘running’).[scholar]
In reply to gamay’s point, I think folks like Westan are BOTH buying (for themselves) and selling (bird-dogging). It’s one way to raise cash. But yes, I don’t think I’d be buying from anyone who was selling properties but not buying in the same area.
Hope this helps.
Hi ozi
I read with interest your post and I am yet to find a reason why you would invest overseas on property that hay hasn’t got the same return nor the same growth as your own back yard, I always have this feeling (the qld bottom feeder selling qld property they can’t sell in qld to nsw investors and nsw bottom feeders selling to vic investors) I look at it this way if the return and the margin is so good then why am I flying this distance when the guy down the road isn’t buying it.
After all the US income and investment rate is higher then here.
All this overseas property may well be diamonds in the rough but you also find thorns, bindys, and if you buy in africa lions.
At best you’ll get pricked, stung and at worse eaten.
At least here you can get a feel of the market by being here not sure if that the case on a 4 week buying group.
only my view maybe I’m wronghere to help
Hi Guys
Ozi most of the factual information you say is correct. I first became aware of the opportunities in New York State in May 2004. So i did a bit of research and discovered a lot of negative about Buffalo (things we have always lotd our clients). This actually put me off Buffalo for sometime while i investigated other areas of the US. I ended up making my first US purchase in another state where i was getting 15% and capital growth (i hope).
However over time i was lured by the attraction of the high returns and decided that I’d better go and check it out myself, just in case it wasn’t as bad as i though it would be. As soon as i arrived i was impressed with the city (even though it was in the middle of their winter), i’ve since been back in more pleasant times and I am even more impressed with the place. And as far as Rochester goes i think its even better than Buffalo. Sure there are the staff loss of Kodak and Zerox these need to be factured in.
Quiggles mentioned that poplation has stableized, as well as that the Jobs data shows a slight increase in Jobs (less than 1% but growth anyway).
I’m looking forward to hearing your thought after you have been on the ground. I now know many people who have been to New York State to buy properties, i don’t know any that disliked the place and decided not to invest there. In fact i know a number who had bought before they made their first trip and when there bought several more properties.
Sorry i’m a bit rushed i have my wife waiting for me.
Just a few more comments, Quiggles i agree that Buffalo is not for the seasoned investor , but then again perhaps all property investing is not for the faint hearted.
Gamay I am one who is sourcing properties for others, but i (as quiggles said) am investing there myself. I only take clients where i’m buying myself. ie NZ and now the USA. In fact i’ve made it public on this forum that i’m selling everything i own in NZ to finance Investing in the USA.
gross
i’ve heard that arguement for years, first of all when i was buying properties in Elizabeth SA in 1997 for 21,000, Mowell Vic for 26,000, Ararat for 30,000 now these are all worth more than triple, some more. I heard it again when i was buying in NZ in 2003 i bought a property in Marton for 42,000 just sold it for 106,000 without spending a cent on it. I’m not saying this to show off but rather to say often locals miss the deals right in front of them.
I don’t expect prices to double in Buffalo or Rochester in the next 3 years but i am expecting growth we are seeing it already (its investor driven at the moment) as more US investors, UK investors and Aussies understand the opportunites available.
I’ve spent 13 weeking in the US on 3 different occasions over the past 9 months and one thing i know is Americans have very little knowledge about whats happening in areas outside of their own city, not to mention state.Hope this offers another opinion to this discussion
regards westan
http://www.nzpropertytogo.com
check it out !
Properties in the USA 15-25% returns- email to join our database [email protected]Hi all,
Thanks to everyone who has responded, your input is valuable and appreciated! I agree with Quiggles in that there is an upside here, in that more federal and state funding will poor into these areas. There are changes being made to help restore these cities, but I still think it will be a few years before both Buffalo and Rochester are standing on their own two feet again. Nonetheless, the governments have realised the trouble they are in and are making amends – a step in the right direction.
Quiggles, consider your misfires a valuable learning experience [grad]. You have dived in head first, well before any other Aussie entered these waters and you really have put in the hard yards! I’m glad to see you have ironed out any problems and built a team which you can rely on, because this is untimately what will make or break you. Anyone who thinks they can enter these markets and have everything handed to them on a gold platter, where they can just kick back and watch the money roll in is highly delusional. You really need to be on top of things, or you’ll more than likely get burnt.
grossrealisation, I used to think like you. If these deals are so good, why isn’t the guy down the road buying them? Well for some, investing just isn’t a priority. Especially in low income areas as such, many just can’t afford to buy. From what I hear, most Americans are more concerned about lifestyle, i.e. driving flash cars, owning plasma tv’s, holidays, etc… instead of securing their financial future. But as Westan stated, many locals are too blind to even see what is available to them in their own backyards. Investors from interstate and overseas can see the opportunities which are available here and are flocking there like a bunch of sheep.
The main reason for my trip is to go over and see the place for myself. Sure, I plan to buy while up there, but only if I feel I am comfortable with the risk and effort required to make this work for me. The numbers look great on paper, but you will only be successful if you make it work for you. While over there, I plan to focus more on building relationships with the contacts I have made and only then I will be able to decide if the USA is for me [strum]
I’ll be sure to give you and update on how things pan out when I return. Even if I don’t buy up there, its no big loss to me. It should be a great learning experience to say the least and one which I am looking forward to [biggrin]
Regards,
OziHi Richard,
I am working on a short publication which may assist buyers in this area. Will post as soon as it has been completed.Sounds good richard! Make sure you flick a copy our way also.
cheers
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I think it’s important to realise that Aussies are not the only investors who have come to realise the potential for the Buffalo/ Rochester area. There is a lot of money flowing in from New York City, as well as from California (where rental returns are down around 5% and below).
There is also the local percpetion that Buffalo is dying. When this appears to disregard the facts of the situation, as it does, that spells massive opportunity.
Like I said before, it’s not a market for the faint-hearted or the newbie. REALLY. But it is a market where money, specifically CF+, can be made.
The Brits are also getting pretty serious about investing in the area as well, more demand has to be good
Check out
http://www.hotspotsintheusa.com/page/page/2222170.htmHi bardon,
I guess more demand can’t be a bad thing!
Thanks for the link. I had a bit of a chuckle looking at this guy’s website. You can’t blame him from taking advantage of the opportunities available, but I wonder how many brits have been sucked in. Look at one of the deals he is advertising, a 102% gross yield – quite impressive!
http://www.hotspotsintheusa.com/page/page/1754675.htm
Here’s a 3 bed detached property at $5,000, yes $5,000. Its not the best part of town but hey who cares! We’re talking about a total purchase price of £3,000. If you got a mortgage on it your initial investment would be around £700 to £1,000 depending on your circumstances. In other words this is an EXTREMELY LOW RISK investment. Have a look at the details of the property but more importantly the figures.
I find this hillarious!! Sure it’s only $5,000, who cares if the house is located in the middle of a war zone? As long as the rent is coming in, who cares? This is an EXTREMELY LOW RISK investment, so you can’t go wrong! I think I’ll buy 10 of these right now, given his projected returns I should be able to quit my day job by the end of the year [specool]. I wonder if he allows for maintenance costs, i.e. replacement windows from the daily drive-by shootings, petrol bombs, break-and-enters, etc..?
Is this guy for real? Forget the property, what about finance? Does he seriously think a lender in their right mind would provide finance for something like this? The mortgage setup fees will probably be more expensive that the property itself.
Regards,
OziHi Ozi
those $5,000 deals are a real worry, You will see for yourself when you get there. They may appear nice homes. But you will see the neighbouring homes are boarded up, vacant and derelect, the areas are infected with drug users and dealers. No- one wants to live in these areas and certainly not a paying tenant. These areas are certainly worth a look (for curiousity) but don’t do it after dark.
Play it save go for a lesser return in a better part of town. The City is cracking down on Landlords who are slum lords, some high flyers in Buffalo have even spent time in Jail for failing to do the improvements the City ordered them to do(can remember the guys name off hand).
enjoy your trip
regards westan
http://www.nzpropertytogo.com
check it out !
Properties in the USA 15-25% returns- email to join our database [email protected]Hi Westan,
I’ll make sure I check out these rough areas, I’m curious to see how bad they really are. Playing it safe is good advice. I’d be far more comfortable with a lower return in a better area, as opposed to a higher return in worse area.
I’ll let you know how I go.
Regards,
OziI have some knowledge of Ajay who runs the hotspots in the USA site and have spoke to him a few times about the Scottish and Buffalo market. He has a pretty good track record in the UK and is one of the top cash flow gurus out there. I dont think the deals on his front page are the ones he is touting as they have been sitting on his site for a long time.
Ajay is known for going into more marginal areas and it seems to work for him and his investors. Have a look at what he says about Buffalo and the ozzie investors you will also see the type of deal that he reccomends as they just missed out on two. His view is that you get the houses on high yield and the growth always follows and he has the runs on the board in the UK. Hey I aint buying from him or endorsing any of his services but from my point of view it is good to see that the Brits are getting into the market.
Hi bardon,
Thanks for your insight on Ajay. Up until looking at Ajay’s website, I had never heard of him before. I may have been a little quick to judge him, but then again I don’t know him. At a first glance of his website, there is clearly some misleading information there. The deal he advertises which I spoke about in my last post is a clear example of this. I guess it’s a good way to lure new investors in to find out more about what he is offering.
Regards,
OziOzi,
Be careful about “checking out” the bad areas. Many people I spoke to wouldn’t go there even if you paid them serious money, especially if you have a white skin. My realtor wouldn’t even inspect houses there without an off-duty cop for protection. As for trying to collect rent from one of these places – you’d need Mike Tyson to do it.
Quite often the $5000 houses look good in the photos because they aren’t the houses that are actually being sold (oops, so sorry, meant to put up the photo of the partially burnt out, boarded up dump, not the classic 3 bedroom family home – can’t figure out how that mistake was made…). Lots of them got sold to naive yanks on ebay a couple of years back, giving Buffalo an even worse name.
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