- British Buyer wrote:Someone asked whether they should borrow in Aus $ or US$.
Assuming you were offered the same rates (eg. 30 year fixed at 6%) in both countries, then you should definitely borrow in Aus.
I say that because the current commodity cycle will end at some point (let's say 8 years from now), since:
1. China will slow down it's infrastructure investment and residential property development
2. African and South American countries will get their acts together and bring on line more and more mines and farms, resulting in a glut.
When commodity prices crash, the US $ will go down to 0.65. That's when you get a cash-out refininance on your US property, and use the cash to pay off your Aus loan.
But if you are offered an Aus loan at 9% but a US loan at 5.5 for 30 year fixed, perhaps go for the US loan. At least you're dealing with certainty, and a 5.5 fixed is going to look very cheap one day when the US economy is humming and everyone else who didn't lock in their rates now are all paying 10%.
Further to this, I was a little bored one day and made a quick spreadsheet which compares the difference between taking a loan out in Australia or USA. Obviously you have to make some predictions about what the currency exchange rate will be in the future, but most seem to think it will go back down to around the AUD = 0.65-0.75 USD mark.
Anyway the spreadsheet basically compares how much the total cost will be with a fixed rate loan over different loan terms and different exchange rates so you can see which is more preferable, it is mainly common sense I suppose. But sometimes the right decision can save you tens or even hundreds of thousands of dollars in the long run.
If anyone wanted to use the spreadsheet just send me a personal message with your email and I guess I could shoot it across to you.
What a stressful day.
Early this morning my agent called me to say that the agent representing the bank (the owner of the REO I made a bid on last night) had e-mailed her to say that today 5pm was the closing deadline for any updates you may want to make on your offer (ie. do you want to make a higher offer). I told her I would stick with my original offer.
I happened to be at the real estate agency around 4:30pm today. My agent showed me the e-mail she'd received, which had a link to a page showing my offer, plus my personal details etc. Everything seemed in order, except there was some very ambiguous wording that mentioned that your offer would be rejected if you hadn't signed and submitted the attached form by 5pm today.
Since there was no attached form visible to us, we assumed that the message was referring to the 30 pages of documents we'd filled out yesterday and submitted, and which were now attached to the page reflecting my offer.
One other confusing factor was that the system showed the amount I'd offered, divided by 1000 (ie. without the 3 zeros). We tried to call the listing agent, but she never answers. So we SMSed her, and got a reply saying if we hadn't changed our offer, just sign the form and attach it to my page in the system.
Now it was 4:58. I called over my agent's boss, and he looked everything over, and he too couldn't find any form attached. Luckily, another agent sitting nearby got attracted to the commotion, and she came over and played around, and found the attached form!
Now it was 5:10
By the time we'd printed, signed, scanned and attached, it was 5:15.
The message in the system clearly states that offers that haven't been confirmed by signing and submitting the form before 5pm would be null and void.
It remains to be seen whether my offer will be considered. Very annoying!
The problem is that different banks use different listing agents to sell their REOs, and each listing agent has it's own sytem to accept and verify offers. It just so happens that this agent's system is far from clear, and then since her home language is Spanish her e-mail left us even more confused.
As if buying REOs wasn't complicated enough, the agents make it even worse.
Good lord BB, epic! Good luck!
Jacqui Middleton | Middleton Buyers Advocates
http://www.middletonbuyersadvocates.com.au
Email Me | Phone MeVIC Buyers' Agents for investors, home buyers & SMSFs.
Hi Steve (British Buyer),
What a annoying situation eh! I am pretty sure everything is gonna be fine, you're a professional investor now, I can tell from your posts. I have been in banks in Miami, and even for me that I speak Spanish because I am Venezuelan (living in Australia) , things could be a bit confusing there regardless the language they use hehe
I believe this is all part of the process. I'll keep reading your posts and see how all this gets to a good result.Best Luck,
Alex
TIME OUT FOR A PHILOSOPHICAL MOMENT
It's nearly 9pm, and I'm enjoying a home-cooked steak and bottle of cabernet sauvignon. By myself. Because my family is on the other side of the planet.
It suddenly occurred to me, with unusual clarity, that one has to get one's priorities right. Reflecting back on my 40 years experience of this planet, I realised that my happiest memories have been generated by experiences that are in no way related to making money.
Now don't get me wrong. I'm not some mummy's boy who likes to hide behind a skirt. I've spent 19 of the past 22 years of my life no less than 10 000 kms from home. And until just 3 years ago, I was footloose, unfettered by emotions and offspring.
Perhaps this is just early onset of a mid-life crisis (in which case it's my second) but I think this evening's revelation still holds true.
We should not blindly pursue wealth for no reason other than wealth itself. First get your life in order. Sort out your relationships with friends and family, make sure they're all on an even footing, and that you're not behaving in a way that you'll one day regret.
Once you're living an emotionally sustainable existence (ie. you're sustainably happy with yourself) only then should you consider how to interact with the material world.
I won't philosophise any further. Hope you take a moment to pause and reflect, because unhappy millionaires are just as common as hobos rooting through fast-food dumpsters.
WHAT IS THE CAPITAL GAINS TAX FOR FOREIGNERS BUYING PROPERTY IN THE US?
I believe capital gains made on property in the US are taxed exactly the same as gains on any other form of investment (eg. stocks). Currently the CGT is 15% on property held for more than a year (that doesn't mean that you'll pay 15% of your profit, since you can make lots of deductions for costs. In addition, I have been told over and over about a law they have here called 1030 Exchange, whereby you don't pay CGT if you use the money you made from a sale to buy one or more new properties.
Here is what Wikipedia says about capital gains taxes in the USA:
Short-term capital gains are taxed at the investor's ordinary income tax rate, and are defined as investments held for a year or less before being sold. Long-term capital gains, which apply to assets held for more than one year, are taxed at a lower rate than short-term gains. In 2003, this rate was reduced to 15%, and to 5% for individuals in the lowest two income tax brackets. These reduced tax rates were passed with a sunset provision and are effective through 2010; if they are not extended before that time, they will expire and revert to the rates in effect before 2003, which were generally 20%.
ABOUT TAX WITHHOLDING FOR FOREIGNERS
Because you're supposed to pay 15% on any profit generated by your property investment (if held for more than a year), the US gov. is worried that foreigners will do a runner back to their home countries after selling, taking all their cash with them and not paying any CGT.
So they've invented something called Tax Withholding, whereby the buyer of the property you're selling keeps 10% of the sales price, and hands it over to the IRS on your behalf. It is then up to you to declare your CG, and if the CGT you're supposed to pay is less than the 10% that got withheld, then you must claim back the excess from the IRS (although you may find that getting money out of them is like squeezing water from stone).
For this reason, foreigners put their properties into LLC's. One complication is that many lenders (and so far, all the ones I've talked to with lower interest rates) don't want to lend on a property that you've put in an LLC. The way around this, according to a very knowledgeable mortgage broker from Canada that I spoke to yesterday (I mention he's from Canada because he's invested in property here as a foreigner), is as follows:
For the first few years that you own a property, just keep it in your own name (no LLC) so as to use the lender with the best interest rates. When you know you're going to sell soon, if you have the cash, pay off your loan and put the property in an LLC just before you sell. That way you won't have any tax withheld at the time of sale.
If you don't have the cash to pay off the loan, you could conceivably change lenders (to one that doesn't mind if the property is in an LLC), but changing lenders will have some costs (eg. the purchase of new Title Insurance for the new lender, amongst others).
If you want to read up more on tax withholding for foreigners, below is the link to the IRS site, and I've copied and pasted the relevant parts.
http://www.irs.gov/businesses/small/international/article/0,,id=105000,00.html
Withholding of Tax on Dispositions of United States Real Property Interests
The disposition of a U.S. real property interest by a foreign person (the transferor) is subject to the Foreign Investment in Real Property Tax Act of 1980 (FIRPTA) income tax withholding. FIRPTA authorized the United States to tax foreign persons on dispositions of U.S. real property interests. A disposition means “disposition” for any purpose of the Internal Revenue Code. This includes but is not limited to a sale or exchange, liquidation, redemption, gift, transfers, etc. A U.S. real property interest includes sales of interests in parcels of real property as well as sales of shares in certain U.S. corporations that are considered U.S. real property holding corporations. Persons purchasing U.S. real property interests (transferee) from foreign persons, certain purchasers' agents, and settlement officers are required to withhold 10 percent of the amount realized (special rules for foreign corporations). Withholding is intended to ensure U.S. taxation of gains realized on disposition of such interests. The transferee/buyer is the withholding agent. If you are the transferee/buyer you must find out if the transferor is a foreign person. If the transferor is a foreign person and you fail to withhold, you may be held liable for the tax. For cases in which a U.S. business entity such as a corporation or partnership disposes of a U.S. real property interest, the business entity itself is the withholding agent.
One of the most common exceptions to FIRPTA withholding is that the buyer/transferee is not required to withhold tax in a situation in which the buyer/transferee purchases real estate for use as his personal residence and the purchase price is not more than $300,000.
Today is a tense day for me, waiting to see if my offer on the REO is the highest. You all may be wondering why I'm so obsessed by this one property. The answer is: water frontage.
It is about a 2 minute walk from Miami Beach (which is on the east side of the island) but it sits on a waterway on the west side. The home faces south (which is good if you're in the northern hemisphere), and the property sits sideways against a waterway. The waterway is about 100 metres wide, so you have a great open view of water. Furthermore, you can moor a yacht on your own front lawn. The property is long and thin (as is the house) with the longest side (of both the property and the house) facing the water. The entire living room is just windows on one side, with incredible water views.
The price asked by the bank is $225K. Normally, with an REO, you should offer anywhere from 30% less up to asking price, you normally don't need to go over asking (unless you really want it).
But this property is special. All the comps (similar sized sold homes in the area over the past 6 months) went for between 230K and 350K, but none of them faced the water. Water frontage is practically impossible to get, since every other waterfront property in the area is a triple or quadruple plot, owned by a multimillionaire, with a luxury yacht moored in front, and (if for sale) going for anything from 2 mill to 10 mill.
So you can see why I offered 25% more than asking price. In addition, the house in question sold in 2007 for 965K. The owner put it straight back on the market for 1.45 mill. He didn't get it, and went bankrupt waiting (he'd paid a deposit of 96.5K, which he lost when he walked away).
I want this property so badly that it gives me butterflies in my stomach thinking about it. If I get it, I've just doubled my money.
But every time I've been to see it, there were other buyers sniffing around.
It came on the market on 30 Oct (6 days ago). The bank received 10 offers by yesterday (the 5th day on the market), so they closed the bidding. We're expecting to hear back today or tomorrow if I got it or not.
But one can't put all one's eggs in one basket, so today I'm going out to see 9 more REOs, in areas just south of downtown Miami. Not near the beach, but solid areas, and I've told my agent to select single family homes in the 100K to 300K range.
I'll let you know what I find.
Thanks for the tax info BB.
The house sounds great. Good luck.
Best of luck BB! Very awesome of you to keep us informed!
Jacqui Middleton | Middleton Buyers Advocates
http://www.middletonbuyersadvocates.com.au
Email Me | Phone MeVIC Buyers' Agents for investors, home buyers & SMSFs.
Today I spent many hours looking at MLS listings of REOs in decent areas that middle class families like to live in (the area between Brickell and Coral Gables). I'd passed through this area several times over the past week, since Coral Gables is where all the banks seem to have their head offices, and I've been checking out all the banks' different Mortgage Programs for Foreigners.
The prices I saw today for REOs really are astounding. In the 120K to 220K range you can find nice-sized good looking homes (both inside and out) with nice gardens, in decent areas. I know that's a lot more expensive than Atlanta's 50K homes, but this is Miami!
I lot of these REOs immediately got bought when they were first put on the market a few months ago, but then the buyer pulled out of the sale at the last minute (probably because his/her bank turned down their request for a mortgage). Now the homes are back on the market, and since the first sale fell through (usually at 10% below the bank's asking price) you could probably go for another 10% reduction on the asking price.
The above info I gleaned off MLS listings. I only had time to see 2 houses in the late afternoon. One of these houses was going for $209K (with a nice garden, on a peninsula with security guards screening all entrants, although not on the water, but only about 20 metres from a place you could launch a small boat). Were I not already waiting to hear about my waterfront REO offer I probably would have put in an offer on that home right away.
lets just hope the Miami Heat dont win the NBA till we all have property there…
still amazing how cheap property is relative to sydney prices, good luck hopefully u can get a foothold in miami b4 trip ends
Hi all,
Been reading this topic with interest over the last few weeks. I am looking at getting a single family home somewhere along the Clearwater beach down to St Pete beach area (west coast of Florida, ~4 hrs from Miami). The main purpose is a vacation place or somewhere for my family to go while I am traveling for work. Not really an investment property but if we can get some holiday rental or capital appreciation it would certainly be welcome.
From the agent I have been dealing with it seems she thinks you can normally get 10-20% under asking price for properties in that area currently. I will be taking a trip over there for a few days later in November to look at some places and try to decide upon an area.
I have pre-approval for a loan (albeit with 30% deposit required due to not living in the US). I have lived in the US previoulsy and as such have a SSN and credit history. While I lived in the US I had a mortgage, I approached the bank I had the loan with whilst there and they said due to new rules they couldn't do it because I was not a citizen/resident. I went with another bank I have accounts with and got it sorted no problems.
Good luck with the purchase Steve. Will be interested to see how your experience with REO properties goes.
Cheers
snappytom wrote:Hi all,Been reading this topic with interest over the last few weeks. I am looking at getting a single family home somewhere along the Clearwater beach down to St Pete beach area (west coast of Florida, ~4 hrs from Miami). The main purpose is a vacation place or somewhere for my family to go while I am traveling for work. Not really an investment property but if we can get some holiday rental or capital appreciation it would certainly be welcome.
From the agent I have been dealing with it seems she thinks you can normally get 10-20% under asking price for properties in that area currently. I will be taking a trip over there for a few days later in November to look at some places and try to decide upon an area.
I have pre-approval for a loan (albeit with 30% deposit required due to not living in the US). I have lived in the US previoulsy and as such have a SSN and credit history. While I lived in the US I had a mortgage, I approached the bank I had the loan with whilst there and they said due to new rules they couldn't do it because I was not a citizen/resident. I went with another bank I have accounts with and got it sorted no problems.
Good luck with the purchase Steve. Will be interested to see how your experience with REO properties goes.
Cheers
Hi SNAPPYTOM
I'm interested to hear what interest rate you've been offered.
And what will the property taxes be like on the west coast of Florida?
Please let us know how things work out.
Best of luck
SteveToday has been another day of trying to stay busy so as to keep my mind off the waterfront REO I'm waiting to hear back from.
My realtor and I went all around the area between Brickell and Coral Gables (ie. north and south of Coral Way). This is a nice middle-class area, so long as you don't stay too far north. I saw a total of 9 REO single-family homes, priced between $100K to $250K. 3 of them looked perfectly decent to live in myself (if I decide to move to Miami next year with my family), ie. the ones priced at $145K, $179K, and $250K. All of them are in great condition inside (I think the banks do renovation work before selling them) and have only been put on the market a week or two ago. The most expensive one had the biggest garden, although the $179K was a double story with a big enough garden to have a pool and some grass left over. The $145K was also beautiful and had a nice-sized garden, and I would probably have put an offer right away, but when I went to ask the neighbour about it he told me this long interesting story:
The house was sold to somebody (let's call him Mr. Crook) in 2006 for 430K. Mr. Crook (as his name implies) had sinister motives for buying the house. In the hurricane of that year, he collected his insurance money for the damage to his roof. He then only cosmetically repaired the roof, and used the leftover money to expand the house by converting the garage into a studio. He didn't bother to apply for permission to do this alteration.
In 2007 he then sold the house for $630K to his nephew (who had no bad marks yet on his credit record). The idiotic bank agreed to this sale (an extra 200K in just one year) since the market was gaining, and because he'd added value to the house (the bank didn't realise the new studio was an illegal alteration). So the bank let Mr. Crook's nephew (although they'd didn't realise the two were relatives) buy the house for $630K, with only a 3% downpayment, ie. 19K (which obviously came from Mr. Crook).
So Mr. Crook profited 200K minus the 19K he gave his nephey as a downpayment. Mr. Crook & nephew promptly ran away (with their 181K profit) leaving the dumb bank with a loss of $611K ($630K minus 19K).
The bank is now trying to sell for 145K. Actually, they put it on the market 2 months ago at 150K, and immediately found a buyer for that price. The buyer then retracted his offer (you can legally pull out and get back your full deposit during the inspection period) when he found out that :
A. The roof still needs to undergo a major repair
B. The studio (ex-garage) is illegal and is awaiting a hearing by the building dept.The roof isn't such a big problem (according to the neighbour) because maximum outlay would be 20K to totally redo it.
But the illegal alteration is as yet a big question mark.
Hence the bank has dropped the price from 159K to 145K.
What's the lesson: if you really like a particular home, do your due diligence, even if that means ringing the neighbour's doorbell!
Late in the afternoon I found myself in the realtor's office going through MLS listings for REO single-family homes to go see tomorrow.
My realtor, on a whim (probably because I've been trying to teach her about my investment strategies in the property market in China) asked another realtor colleague of hers, who was passing by on the way to toilet, if he had any info on rental properties.
The man stopped and said "Wow, that's exactly what a client of his from New York asked him earlier this year", so he helped the client to buy 3 condos with cash (all for 50K), which he then helped him rent out (he says he got tenants for them "within days"). I asked him what the rental return was. He said maybe "How do you work that out?". I made him sit down and go through the numbers, ie. monthly rent of $900, minus HOA fees of $350, minus Property tax of $110, which gives a monthly profit of $440, which is rental income of 10.56%
And that was for 3 properties purchased for a man who didn't even bother travelling to Florida, and found by a realtor with absolutely no experience in rental return properties.
What I've noticed here is that no realtors understand the concept of rental return. Everyone is just paying cash for luxury condos on the beach (wealthy investors from South America, Canada, Europe and Russia).
My realtor then related a story to me of a friend of hers (another realtor) who bought an REO condo in North Miami for 25K, planning to rent it out. I made her call up her friend and find out the numbers (it has a pool and gym, and is in a so-so area). This is what she discovered:
Her friend rents it out for $950 / month (2 bedrooms, 2 bathrooms)
HOA is $350 per month
Tax is $100
Monthly profit is $500
Annual profit is $6,000
Rental return is 25% !!!!!!!!!!!!!!!!!This is an actual case, in progress, easily rented out (waiting no longer than a week for a tenant). Whether it was a lucky purchase (since it was an REO) remains to be seen. But that is a phenomenal return.
By the way, all the 4 cases I've mentioned above are rented out WITHOUT ANY FURNITURE WHATSOEVER. I don't know how you guys in Aus rent things out, but in China landlords have to fully furnish, including flat-screen TV's, washing machines, driers etc.
DISCLAIMER CONCERNING RENTAL RETURNS IN MIAMI
In the previous post, I gave the rental statistics for 4 individual condos purchased recently in Miami.
The above was all hearsay, since I have not met the owners of any of these condos, nor have I visited any of them. The info I related was told to me by my realtor and her colleague at my prompting. I have no reason to doubt the validity of the figures, and did some preliminary research of the properties they mentioned (using the MLS site, checking up on sales price, renting figures, HOA fees and property taxes) and I therefore came to the conclusion that what I was told was most likely true.
Having said that, nothing is 100% until you've seen it, done it, and pocketed the $.
British Buyer wrote:Hi SNAPPYTOMI'm interested to hear what interest rate you've been offered.
And what will the property taxes be like on the west coast of Florida?
Steve,
I got 3.625% with 15 year fixed loan. I am wondering if the new "stimulus" offering by the government is going to change rates and this may go down by the time I come to purchase.
Tax ranges from 1.8 – 2.1% depending upon which section of the coast you are on.
Will be over for a few days in 2 weeks. Have my agent booked out for 3 days so we can see as many properties as possible.
Hope fully we find something otherwise it will be just to confirm areas we'd be happy with and make sure the agent is legit.
snappytom
MORE ON MIAMI RENTAL RETURNS
From talking to my realtor, I discovered today that people who invest in condos in Miami usually don't use property management companies. Because condos are rented out unfurnished, once you've purchased one you just give it to your realtor to rent it out. Your realtor will charge you a one-off fee to find a tenant, and from then on all the income is your own.
snappytom wrote:British Buyer wrote:Hi SNAPPYTOMI'm interested to hear what interest rate you've been offered.
And what will the property taxes be like on the west coast of Florida?
Steve,
I got 3.625% with 15 year fixed loan. I am wondering if the new "stimulus" offering by the government is going to change rates and this may go down by the time I come to purchase.
Tax ranges from 1.8 – 2.1% depending upon which section of the coast you are on.
Will be over for a few days in 2 weeks. Have my agent booked out for 3 days so we can see as many properties as possible.
Hope fully we find something otherwise it will be just to confirm areas we'd be happy with and make sure the agent is legit.
snappytom
Hi there SnappyTom
Although today was my first day to look into the condo rental return market, I came across a few surprises (namely that it seems you can get good rental returns despite condos having high HOA fees).
If you're interested in Miami by any chance, I can highly recommend anywhere along Miami Beach (in terms of natural beauty). But I doubt rental returns on this island will be much above 5% if you have an ocean view (simply because you pay a premium for the location).
That's an amazing interest rate you've been offered. I guess it's because you have an SSN and credit history. The lowest I've been offered is 4.63%. Perhaps your rate will be even lower, what with Bernanke's controversial quantitative easing plan just starting to hit the market.
Why is it that you're concentrating on the west coast of Florida?
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