I have just returned after 10 days checking out the property market in Orlando and have a few tips for those thinking of investing in the US.
My first tip would be go and look for yourself. Pictures on the net are all well and good but there is nothing like going and checking it out 1st hand. Your trip over is a taxable deduction and at the end of the day the money it costs to check it out for yourself is nothing in comparison to buying a bad investment.
Stories abound of cheap houses, and yes there certainly are some. The ones I looked at in Orlando looked great on the net, nice houses in good neighborhoods. In reality when we got there some of the pictures would of been at least 10 yrs old and the properties nothing like the condition in the pics. Some of the houses were in good repair with little that needed to be done, however they were in low income areas adn you could hear music booming, youngsters on mini bikes dragging up and down the street and groups of young teenagers roaming the streets looking for trouble. (I still don't get why they walk with a limp holding their crotch, perhaps they think this makes them look cool but makes them look bloody retarded if you ask me!)
We did buy one property before we left, a SFR that was listed for $225 and we got it for $205K. We had an independent inspector check it out and the report was fantastic. On viewing it for ourselves we were less than satisfied and consequently spent just over $10K to renovate a home apparently ready to move in. All cosmetic though so nothing that couldnt be fixed with new doors throughout, new paint, re stain and varnish cupboard doors, new vanities in the bathrooms, new shower screens, new kitchen counter top etc etc.
Our realtor and settlement agent had plenty of stories of agents not presenting offers on foreclosures as they were keeping them for themselves. Apparently quite a common occurrence in the US at this point in time. We were fortunate enough to have opened a Bank Of America account 10 years ago so had no problems there. We paid cash and didnt ask about financing. We did find a very good accountant who specialises in international real estate customers. Todd Baldwin of http://www.baldwinaccountingcpa.com/
After looking closely at the market we decided not to purchase anything else when we were there. We only looked at SFR's. Word on the ground is prices are going to drop even further next year and there will be another influx of foreclosures hitting the market. For us we are happy with our purchase. My sister in law is renting the property so we dont have to worry about tenants. The agents we spoke with all warned us off getting anything with a pool or a second story because of litigation concerns. How someone falling down the stairs is the fault of the landlord is beyond me but quite a common law suit we have been told.
Anyway, make of this what you will. At the end of the day the US is still a good investment but make sure you do your homework properly on the area you are buying in. Even streets within the same suburb vary dramatically. If your going to buy get on a plane and go and see exactly what and where you are buying.
Interesting post, thanks.
Out of curiosity, if your sister-in-law was not the tenant, you would have to charge at least $2500 in rent per month to get a gross return of approx 14% before expenses.
Is the house in an area where such a rental is achievable?
Are you sure about that Your trip over is a taxable deduction.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
Minimum,
Excellent email. I was in Orlando myself in January of this year and I did see a lot of homes & condo’s for sale, all looked good on the outside, on closer examination many were in a damaged condition. Prices were very low, but upon returning to Australia I did a lot of research into the Florida market, I found that the vacancy rates were just to hight to take the risk. Also the condo market in places lie Miami again seem attractive but when I thought about the HOA fees and did some more research into the ramifications of being tied to a condo that if vacant I get no RENT, and the otherside of the coin, you can be asked to contribute many thousands of dollars for repairs on the building, which you dont have any say in. If you dont comply with the HOA then in a worst case scenario they could force you to sell your condo to pay for outstanding fees owed.
I have found an area that Ihave invested in that is mainly duplexe’s, triplex’s and single family homes with average ROI of 20% all tenanted and rehabed.
if anyone wants any info on these area’s my email is
Jeff
Qlds007 wrote:Are you sure about that Your trip over is a taxable deduction.CheersYours in Finance
Absolutely, whether the 1st trip is added to the cost of sale and then taken off a future capital gain or used as a deduction it comes off your tax somewhere down the line. Confirmed by both the US and Aus accountants. After that 1 trip each financial year 100% deductible in that year.
As for the rent, we charge $1000 mth. Could maybe go to $1400 tops but we are happy for it to be negatively geared here and the aim was to give the sister a nicer place to live. The property last sold in 2006 for $395K so we will enjoy the capital gain further down the track.
On the subject of HOA fees be wary. Some suburbs with high foreclosures and vacancies are charging existing owners more to make up for lack of regular owners all paying what they normally would.
Yes, I think the initial costs associated with the purchase (even travel) can be deducted when selling.
However, if you hold the property for 20 years, you have to wait a looooong time to get that benefit
Personnally, I hate the words "negative gearing". Anything that doesn't put money in my pocket from day 1 should be avoided. CG cannot be guaranteed and, as Steve McKnight says "whose worried about capital gains, if you have a property providing you with cash from the start". How will you be able to afford more properties if you are negatively geared??
That's a personal opinion though.
I guess it all depends on your individual situation. When you pay over $100k a year in tax you learn to love the words negative gearing. Don’t plan on holding the property for 20 years either, maybe 5 depends on the US economy. If prices go back to what they were in 5 years I have doubled my money, reduced my taxable income in the meantime and helped my sister in law with more affordable housing. All around a win situation for us.
Anyway, I’m not here to debate tax issues or what anyone else thinks about what I do or why I do it. All I’m doing is telling how it was in Orlando.
As i said it is not Tax deductible but added to the Cost Base there is a big difference.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
And as I said I’m not here to debate tax matters. If you knew that was the case why not say it in your first post instead of trying to make yourself look all high and mighty now. You said nothing in your post except are you sure.
Sister-in-law aside, I'm not sure I understand why you would schlep all the way over to America and purchase a property that way. You can easily neg gear here and the capital gains are quicker and probably more reliable. Most people in Oz would these days would say that their properties have virtually doubled in value in the last 5 years – I know mine has.
Not trying to debate tax issues, but just curious about your method.
I do agree with you though about being on the ground and checking it out for yourself – nothing like first hand experience.
Orlando is a market that has fallen in value by nearly 50% since 2006
I am sitting here in Texas, a property market that has not fallen at all.Nigel Kibel | Property Know How
http://propertyknowhow.com.au
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You have to buy the property before you travel there to claim a tax deduction., and then you can only claim a part of the travel expenses. In other words bugger all.
Miniman,
Just wondering why you purchased negatively geared property in the USA? is it possible to negatively gear an investment loss from the USA against an Australian income? Did you purchase your US propery in an LLC or in your own name? And did you borrow money locally in the USA or borrow money from an Australian lender?
Sorry, I am not really up speed on USA property investing as I have only just started research.
Cheers,
LukeOkay – let’s take a breath. Some posts have been deleted in an attempt to get the discussion back on track. – Admin
Great OP Miniman. These stories of peoples experiences of travelling to the US and eyeballing the difference between what you see on the net and what you see for real are so helpful.
Good to hear you actually got a purchase through.
Miniman wrote:On the subject of HOA fees be wary. Some suburbs with high foreclosures and vacancies are charging existing owners more to make up for lack of regular owners all paying what they normally would.The whole area of HOA fees is not really understood here in Australia. You can be asked by the HOA to make a contribution to lets say a broken elevator which they might ask $5000 from each unit owner, if you don’t come up with the money they HOA could force you into s eliing situation. Each time any repairs are done you have to contribute, it is like the strata here.
This is why for me ,I will not be investing in any condo any where no mater how cheap it is to purchase.
I am investing in duplexes, triplexes and single family homes. NO HOA
Jeff
Ok i have had some sleep now, i was literaly still travelling back and 40 hour journey with little sleep makes one a bit cranky. Perth to Orlando are pretty much opposite sides of the globe.
We purchased the property mainly for my sister in law to rent. She struggles so we helped her out, she has a nicer property now than where she was for less rent than she was paying. Even at full rent however the property wouldn’t be cash flow positive.
Yes we could of got property here but we wanted to help out family. From our point of view we need the tax deduction and it is a good investment. The house is about 10 mins drive to downtown Orlando and in a good area.
From an investment point of view the house will gain value, we bought it at parity so when we do eventually sell chances are the dollar rates will be back to .70c to the A$.
We bought in a trust and used our line of credit here to finance it. After going and seeing the market for myself I would strongly suggest you go and see for yourself what you are getting and more importantly where it is. Like I mentioned earlier streets within the same suburbs vary a huge amount.
Thanks for sharing your experience, Miniman. Both you and BB have been great that way.
I recently took a trip to Miami to explore the property market and came away with some useful tips for anyone considering investing in the US.
Firstly, I would advise that you visit the area in person before making any purchases. While online pictures can give you an idea of what to expect, seeing the properties for yourself will give you a much better understanding of their true condition and value. The cost of your trip can be deducted from your taxes, and it is a small price to pay to avoid making a bad investment.
During my trip, I came across many stories of cheap properties that looked great on paper but turned out to be much less desirable in reality. In some cases, the photos were outdated or misleading, and the properties were in poor condition. In other instances, the houses were located in lower-income neighborhoods with high levels of noise and crime.
Despite these challenges, I did find one property that was worth investing in. It was a single-family home listed for $450,000, but I managed to negotiate the price down to $420,000. After having it inspected, I discovered that it required some minor renovations such as new flooring and fresh paint, but overall it was in good condition.
It’s worth noting that the real estate market is highly competitive, and there are many unscrupulous agents out there who will keep the best properties for themselves rather than presenting them to potential buyers. However, with some careful research and the help of a reliable accountant (we worked with Freedom Tax Accounting), it is possible to navigate the market and find a good investment.
Finally, I should mention that some types of properties carry a higher risk of litigation than others. For example, homes with swimming pools or second stories can be particularly problematic due to the potential for accidents and injuries. It’s important to keep this in mind when making your investment decisions.
Overall, I believe that the US property market still has plenty of potential for investors, but it’s essential to do your due diligence and thoroughly research the area you’re considering buying in. By taking the time to investigate the market and see the properties in person, you can avoid costly mistakes and find a property that will be a solid investment for years to come.
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