I've been following this forum for quite some time now and have finally decided to post some observations with relation to the current US property market.
A simple search on the internet shows there is no end of Australian property spruikers who claim there are endless opportunities in investing in the United States. Likewise, there are also thousands of websites on the internet that are warning investors not to invest there for several reasons. Some of these reasons include; poor rental returns, investing in poor areas, buying overvalued properties etc.
I'm new to investing and I'm currently restructing my finances so I can invest in the United States. I'm not the most savvy investor on the planet but I do believe in good old fashion common sense.
Here are my observations as follows;
Warnings about one-stop-shop property spruikers:
Consumer alert websites are currently advising to watch out for those Australian companies that offer a full service for US property market investing. These are the type of companies that provide legal and financial advice as well as act as buyers advocates in the US. Being careful about using these type of companies is a no brainer. However, my view is that if I pay a one-stop-shop company a fee to do everything and still get the return I want then it's a win-win situation for both parties.I've currently engaged such a company and they've been very up front with all the fees I need to pay. As a result, I've factored in these fees and determined that I should still be able to meet my financial goals long term. The only warning I will abide by is when they offer both the legal work and finance lending as well. I'm more than happy to take on financial advice but I will only go to a reputable lender (such as a bank) for money. I will also never let a company do my legal work. I'll only trust my personal lawyer which should be a reasonable expectation on the company's behalf.
Warnings about 'not seeing the property':
There is certainly a danger about buying something you haven't seen. However, my view is that a person has two choices. They can either jump on a plane and go see the property for themselves. Or, they can do their own research from the comforts of their home computer and find out if a property is worth investing in. I've recently found that Zillow.com has more than enough information to satisfy my information needs about a property. Furthermore there is also Wikipedia and Google Maps (for street view) if I want to know more about a particular area. My point here is that I'm not convinced that there is a logical need to jump on a plane and waste one's time to visit a place before committing to something. With enough on-line research there should'nt be a need to personally view a place. I could be wrong here and would be interested in hearing the thoughts of others.Warnings about 'overvalued' property:
Again, Zillow.com has all the historical information one needs about a particular property. If a property was worth 200K in 2006 but is only worth 80K in December 2010 then something suggests the property may be worth buying. Straight away this sort of information tells me that the property is severely undervalued and has potential long term growth. When the US market stabilizes then there should be no reason why the property should'nt be worth more than its current undervalued price.Warnings about buying in 'bad neighborhoods'
There are some classic consumer warnings about Australian investors buying properties in poor neighborhoods after receiving some poor advice from spruikers. My view is that if an investor is buying in an area that has high unemployment then they should'nt be too upset if their property doesn't receive the returns they were initially after. Last year, consumer alert websites referred to investors who spent little money on buying properties in Detroit. I've personally never been there but I know enough about Detroit to know that it's like a warzone in some areas. My point is that a property must pass the common sense test before an investor should commit themselves. My research has led me to only invest in four states, and very specific suburbs, in the entire continental USA.At the end of the day, I'm just a 32 year old investor who wants to learn more about overseas property investing. Last month I was completely disillusioned with the whole issue but now I feel I've got a handle on the topic after talking to a number of experts and reading websites like this one.
I would be interested in hearing others thoughts about potential scams and 'over-hyped' consumer alert websites too. I just feel that the current US market is simply a too good of an opportunity to let go. Yet, I'm being constantly bombarded by people who advise me to do nothing and just focus on the market here in Australia.
Thoughts?
Regards,
Runway.
Runway wrote:I've been following this forum for quite some time now and have finally decided to post some observations with relation to the current US property market.A simple search on the internet shows there is no end of Australian property spruikers who claim there are endless opportunities in investing in the United States. Likewise, there are also thousands of websites on the internet that are warning investors not to invest there for several reasons. Some of these reasons include; poor rental returns, investing in poor areas, buying overvalued properties etc.
I'm new to investing and I'm currently restructing my finances so I can invest in the United States. I'm not the most savvy investor on the planet but I do believe in good old fashion common sense.
Here are my observations as follows;
Warnings about one-stop-shop property spruikers:
Consumer alert websites are currently advising to watch out for those Australian companies that offer a full service for US property market investing. These are the type of companies that provide legal and financial advice as well as act as buyers advocates in the US. Being careful about using these type of companies is a no brainer. However, my view is that if I pay a one-stop-shop company a fee to do everything and still get the return I want then it's a win-win situation for both parties.I've currently engaged such a company and they've been very up front with all the fees I need to pay. As a result, I've factored in these fees and determined that I should still be able to meet my financial goals long term. The only warning I will abide by is when they offer both the legal work and finance lending as well. I'm more than happy to take on financial advice but I will only go to a reputable lender (such as a bank) for money. I will also never let a company do my legal work. I'll only trust my personal lawyer which should be a reasonable expectation on the company's behalf.
Warnings about 'not seeing the property':
There is certainly a danger about buying something you haven't seen. However, my view is that a person has two choices. They can either jump on a plane and go see the property for themselves. Or, they can do their own research from the comforts of their home computer and find out if a property is worth investing in. I've recently found that Zillow.com has more than enough information to satisfy my information needs about a property. Furthermore there is also Wikipedia and Google Maps (for street view) if I want to know more about a particular area. My point here is that I'm not convinced that there is a logical need to jump on a plane and waste one's time to visit a place before committing to something. With enough on-line research there should'nt be a need to personally view a place. I could be wrong here and would be interested in hearing the thoughts of others.Warnings about 'overvalued' property:
Again, Zillow.com has all the historical information one needs about a particular property. If a property was worth 200K in 2006 but is only worth 80K in December 2010 then something suggests the property may be worth buying. Straight away this sort of information tells me that the property is severely undervalued and has potential long term growth. When the US market stabilizes then there should be no reason why the property should'nt be worth more than its current undervalued price.Warnings about buying in 'bad neighborhoods'
There are some classic consumer warnings about Australian investors buying properties in poor neighborhoods after receiving some poor advice from spruikers. My view is that if an investor is buying in an area that has high unemployment then they should'nt be too upset if their property doesn't receive the returns they were initially after. Last year, consumer alert websites referred to investors who spent little money on buying properties in Detroit. I've personally never been there but I know enough about Detroit to know that it's like a warzone in some areas. My point is that a property must pass the common sense test before an investor should commit themselves. My research has led me to only invest in four states, and very specific suburbs, in the entire continental USA.At the end of the day, I'm just a 32 year old investor who wants to learn more about overseas property investing. Last month I was completely disillusioned with the whole issue but now I feel I've got a handle on the topic after talking to a number of experts and reading websites like this one.
I would be interested in hearing others thoughts about potential scams and 'over-hyped' consumer alert websites too. I just feel that the current US market is simply a too good of an opportunity to let go. Yet, I'm being constantly bombarded by people who advise me to do nothing and just focus on the market here in Australia.
Thoughts?
Regards,
Runway.
Runway,
I like your attitude as it shows that you are willing to have a go. You do make some valid points. I am investing in the USA, I did go to one of the many companies that advise were you should invest and to be honest I was not impressed. I have lived in the USA, done business there, have family there, so I feel that I have an affinity, I have invested in the Sydney property market and do hold property in some very expensive area’s in Sydney, however the notion of positive cash flow is a pipe dream re the property market in Australia unless you want to spend 750K in WA and then you will get maybe a 10% RIO.
I have spent over 6 months researching the US market, subscribing to realtyrtac, I have hooked up with some switched on guys in upstate NY that know there market I am receiving 25% ROI nett, and as soon as I sell some property here I will be investing more money in the USA, there are opportunities however there are many so called spruikers who have NVER invested in property and are giving advise to first time buyers, I do get concerned.
One needs to do there own diligence.
If you want some advise my email address isJeff
Hi Runway – good posting, thanks.
Not seeing the property – I agree with you in many respects and yes, we can do much of the research from our computers. However, I still think that there is a due diligence process we should go through, even if it is to hire a local inspector to look at it for us. If there is no physical inspection of the property and the place burns down with a tenant in it due to poor wiring, can you imagine the lawsuit you would have! Often the websites show only one photo of the outside of the home – I have found that very few listings show the interior. It's very hard to gauge the condition under those circumstances and make a qualified judgement. The house could be completely vandalised inside.
Also, whilst we can use google for streetview of the property and its surroundings, I find that many times the streetview image is a few years old. What looked great in 2007, might be a very different picture if you were standing on that same street today.
Bad neighbourhoods – agree with you in some respects. A city like Detroit is a bit of a wildcard in that I think that there are still some good neighbourhoods there, as well as some dodgy ones. Their prices are incredibly low, properties in the better neighbourhoods look amazing and even if there are no capital gains for 20 years, who cares if you have a tenant paying you rent – it's still positive cash flow! It's one of those places where there are both good and bad stories.
I think you make some really valid points and I'm constantly tempted by what I see on sites such as Realtor and Zillow. When I see a property for 45K with an 900p/m income, I just want to call up the agent and buy it
It is my personal opinion that investing in Australia is just too hard. Prices are far too high and the rental yields are inevitably below or on a par with what I can get from a decent Term Deposit. Yes, it works for those who are after CG, but for those of us looking to free ourselves from our jobs we need immediate replacement income.
I think that the States has a lot to offer and there are definitely people who are making it happen for themselves.
I agree with you all. Yes the USA is a different market. Yes lots of people say "oooooh, risky". I think … GOOD! you keep thinking that, and it leaves all the more opportunity for me.
Due diligence is the be all and end all. As mentioned, properties do need to be viewed, but not necessarily by me. If I have a property manager, building inspector, pest inspector *at least* doing inspections, taking lots of photos and keeping me in the loop, I don't need to go there myself.
All the information we need is online.
I think that the danger of the one stop shops is that some people believe that tagline! So much better idea to have a few different people on your team from different sources … means no one is likely to be conspiring to rip you off.
I'm quite happy for people to think it is all too hard
If there is no physical inspection of the property and the place burns down with a tenant in it due to poor wiring, can you imagine the lawsuit you would have!
Probably sucks for the tenant too
Good OP runway.- I am also torn between the idea of trying to do this remotely and getting over there. Ideally would like to go and stay over there for a while and do it properly but opportunity cost re loss of work income is significant when I am negatively geared on property here.
hi runaway
your views missed a few areas
1. syndicates a group of investors that buy as a group and combine cashflow now they are not selling anything they are investing together.
2. group that don’t invest in the asset but lend to people to invest in the asset so you are like a little bank just you take a position as well.
3.investors (or hard cash funders) using smsf and getting an on going return
all of these don’t current come into your plan but they should as they are all a bit more profitable
as for the bad area problem investing in that area is over come if you use cashflow from the major asset
so you buy in first and use cashflow to buy into the higher risk area
yes it reduces profit if a problem occurs but capital is preserved and cash flow losses are part of doing business
the aim is to spread risk and set up purchases in capital secure areas
and this is why you need to be in either a group spread the eyes or direct invest and be there
for me being there is just not worth it
I would rarther margin off a local
but each to their own
be very carefull with regards to people telling you this area is better then that
thruth is no area is better then the other
why its all to do with value
the value of a 2br in cleveland is very different to the value in miami or in vegas or fort worth
or even detriot
thats does not mean you will not make money what you need to work out is what is the value of the asset and are you buying under value
then look at what the are is going to do
and from there why do you want to buy it and there are lots of reasons why
is vegas better then fort worth
is it better the cleveland
or south carolina
new york
la
there are a few states in the USA
can you know or understand them all
good luck
so for me I dont try to
I leave the locals to tell me about their area and why I should invest with them
and if they make a good case as a few have
then I put a group together to invest
now is that to hard to understand.
you do not need to be a rocket scientist to invest money
you need to know the following
is my money safe
1st mortgage security
will I get a good return
running at 15 to 20% so they say so thats a good return in my book
can I hold title
I do
is the rental secure and if not will someone else rent it so I get my return
if the boxes get a tick what more do you wantG’Day Runway,
Thanks for starting this thread. A worthy subject, and you’ve raised some good points.
I’m brand new to this forum, but just finished reading some great threads, including the Miami ad(vice) thread from top to toe. Fantastic contributions from many, but particularly British Buyer. A wealth of information.
I’m very keen on investing in the USA. I’ve been weighing up this issue of buying by remote versus going over to see for myself. I’ve been trawling the main RE websites to learn as much as possible about suburbs, neighbourhoods, employment figures, history of values, and spent hours on Google Streetview “walking” the streets, all to try to satisfy myself that all the research can be satisfactorily done on the Net from home.
And I have considered the one-stop-shop companies, and the associated risks with using them which I think we all understand quite well.
I’ve decided to go over there, for a few reasons :-
1. I want to get a proper feel for a property, a street, a neighbourhood by seeing it for myself. And to meet the locals. To me, it’s a big part of due diligence. To really observe what the status is. To get a sense of where the area is going (combined with using statistics). If i’m committing my hard-earned savings into a USA property portfolio, it deserves to be done properly. Why cut corners and kid myself I can do it from my armchair, just to save a few grand?
2. For the same reason, I want to meet the relevant people. To meet solicitors and agents face-to-face and form relationships. I’m big on looking a person in the eye and listening to my gut feeling on them. Do they deserve my trust? Can you tell that from an email or even a phone call?
Then, there are the smaller details. Some of these can be done by remote, and some cannot :-
1. Opening a USA bank account. My view is it’s best to start forming a relationship with a local bank (e.g. Bank of America) to start building a credit rating, so that I can one day get some leverage using finance rather than limiting my purchases by always paying in full with cash. As I understand it, opening a local USA bank account can only be done from over there. (as for international banks, I’m not keen on tying up $200k in a HSBC Premier Account earning stuff-all interest, just to avoid their heavy monthly fees).
2. As a landlord, forming an LLC is clearly the way to protect yourself from litigation. (From what I’ve read, USA landlord insurance policies do not give you sufficient protection). Yes, there are companies who offer to do this for you by remote (and provide a permanent USA mailing address, which you need for registering your LLC). But I plan to first apply for an ITIN with the IRS, then set up an LLC through a solicitor that I have met and trust, whilst there. I will arrange the permanent mailing address whilst there.
Flights are so damn cheap now. And 2 or 3 weeks of accommodation and car hire isn’t going to break the bank. What can I expect to achieve in 2 or 3 weeks? After having done the groundwork on the Net and having narrowed the field down to a shortlist of say, 30 or so properties in a given area, then 2 to 3 weeks is enough to inspect them, shortlist them further, and make some offers. Also, meet a previously researched short-list of agents face-to-face and form relationships.
Anyway, that’s how I see it.
So, all things going as planned, I’m heading over there in late January 2011. Nothing ventured, nothing gained. Wish me luck!
I like your attitude Treasure Hunter. There is nothing like being there and being able to see for yourself, and weighing up your investment decisions first hand, so what you are doing is very smart indeed.
Good luck with the trip, I hope it serves you well!Thanks Reme.
I’m thinking I will do regular blogs on this forum, leading up to, and whilst on this upcoming trip. I’m happy to share my thinking and learnings as I go, and invite others to offer their feedback and contributions as well. It’s a learning curve for all of us, and I believe in the concept of synergy. I’ll let you know if and when I start a new thread on this.
Cheers.
We service a German group that buys and probably half of them buy "site unseen", but not until we provide a full video of the investment and if rehab is needed, a before and after video helps. We are also starting to shoot videos as we drive to show the neighborhood, surroundings, distances, etc. Makes them more comfortable. Perhaps this can be an option if you invest in other areas.
I noticed someone said something about Zillow. Zillow is a great website for general information. However, the site is normally 6 months outdated and should only be used for a ballpark estimate on your due diligence. I've noticed that everything including median values, price per square foot, sales volume is almost always inaccurate. If you are looking for more precise, talk to a local agent. The best agents usually have good websites and a google search will help you find some.
It's also important for those agents to be experienced in bank owned properties. A realtor focusing on everyday homebuyer stuff doesn't have the experience an investment agent does where economics play a bigger role. I always give my investors an example of the most recent property we do. I give them access to county websites to cross-reference details so that they know we are actually factually doing these deals. It's easy to say you do investor deals, another thing to prove it.
CheevesFinancial | Cushman & Wakefield - Commercial Property SW FL
http://www.CommercialRealEstateVoice.com
Email Me | Phone MeHello everyone (first post!)
One thing that I heard the other day at a spruiking seminar (you be the judge), was that in the USA you can have good streets & bad streets, whereas in Australia it tends to be good suburbs and not-so-good suburbs. So it can almost literally be a case of 'the other side of the train tracks' being different to each other – something that you don't see in Australia.
Mark
Hi Mark,
You are correct. In the markets I have seen all up and down the east coast, it could be a matter of being on one side of the tracks. The difference is the rating. I give neighborhoods an A, B, C, and D rating with D being mostly comprised of subsidized living (Section. Actually, on the topic of Section 8, you can do C Class neighborhoods with it. Section 8 vouchures don't mean the tenant is a bad person. Could be a single mother. It is fitting how this type of recession/depression can bring the best out in tenants. If they are on subsidized rental vouchures, the investor as the landlord has the upper hand. The tenants are VERY well aware that if they mess up the place, they lose their privelege forever. They don't want to be on the streets. You can eliminate the non-payment factor since they are mostly covered by the Housing Authority.Anyway, a good realtor will tell you the truth. A bad realtor will try to justify a C class neighborhood as a B. This is where it is important to verify rental rates with your property manager. I invest in plenty of C Class neighborhoods. I have rarely had any problems. In fact that is where most of your good deals are these days.
CheevesFinancial | Cushman & Wakefield - Commercial Property SW FL
http://www.CommercialRealEstateVoice.com
Email Me | Phone MeI just signed up with propertyinvesting,Wow! so many great thoughts and ideas. Runway you certainly hit the nail on the head. I have been working with investors in the greater Metro Phoenix area where property values have depreciated over 50% in the last 4-5 years. Many areas have bottomed out, and other areas still have some room to go. When talking about bad areas, some of the highest trackable appreciation has been within the not so great areas due to investor flipping. The big thing here is that less than 20% of the land is privately owned with the remainder being Federal or State owned. So everytime there is a big snow blizzard out east or midwest, a California earthquake, more people migrate to our sunny days.
And compare it with this list of the cheapest cities to buy in.
http://www.statjump.com/lists/house-value-dp4c112tc.html
If you can find cities that have low vacancy rates and low prices, it could be a winner.
. Actually, on the topic of Section 8, you can do C Class neighborhoods with it. Section 8 vouchures don't mean the tenant is a bad person. Could be a single mother. It is fitting how this type of recession/depression can bring the best out in tenants. If they are on subsidized rental vouchures, the investor as the landlord has the upper hand. The tenants are VERY well aware that if they mess up the place, they lose their privelege forever. They don't want to be on the streets. You can eliminate the non-payment factor since they are mostly covered by the Housing Authority.
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