G’Day fellow Aussie property investors,
I am in the final stages of preparing for my foray in US property investment. The easy part (so far) has been the set-up of the required US entities (incorporating, banking, EIN’s etc etc). Through my extensive reading on this forum and information generally, I am reasonably comfortable with the next stage of the acquisition of properties in my upcoming US trip in May (I am at least prepared for many of the potential pitfalls, although I am under no illusion that there won’t be others that come at me from left-field).
But it would seem that the real challenge is going to be property management and tenant issues.
So, I am keen to hear from Australian property investors who have now at least a year behind them of actually having tenants in their properties.– How are you going with your US property managers?
– How are the tenants treating your properties?
– What are the unexpected expenses you are incurring?
– What is the actual net ROI you are achieving, compared to what you were expecting?It is clear that there is a myriad of scams that the “less ethical” property managers use. (e.g. claiming the property is vacant and pocketing the rent, fictitious maintenance costs, kickbacks from overcharged maintenance costs…. the list goes on).
Then there are the risks from property management incompetence (e.g. having a lien placed on the property because the property manager didn’t address a County infringement Notice in time nor notify you of it, failing to address a tenant’s maintenance or safety complaint and the tenant starts litigation).
And then there are the tenant risks and annoyances (e.g. refusing to pay rent, unwilling to do basic maintenance, property damage).
It would appear that these risks are more pronounced with US property investment, partly due to differences between our 2 countries with property management practices and tenant-attitudes, and of course due to the tyranny of distance. So, I’m sure there are plenty of Aussies like myself preparing to be US property investors who would be grateful for some tips on what you have done to mitigate these risks, or how you have addressed them if they have eventuated.
PLEASE, NO SELF-PROMOTORS ON THIS THREAD. DO YOUR ADVERTISING ELSEWHERE. I just want this to be a resource for Aussie investors, without having to sift through endless advertisements about turn-key companies and what area to buy.
Cheers, Mark
Hi Mark
Unfortunately I can not give recommendations or advice as I am in the same position that you are in, with travel plans for end of April. I too am mostly concerned with the ‘human factor’; relying on property managers to look after my investment whilst I am across the dateline.
I am keen to hear of other peoples experiences and if they can recommend their resources. It would be great to establish US contacts for purchasing and managing investment properties that come recommended.
Cheers,
Qflez
Great post treasure hunter, I too would be greatly interested to hear tips on minimising these sorts of risks….
Hi TH,
Where are you looking at investing. Personelly my property manager is linked to housebuyers usa and I have direct contact to him and he seems to answer emails during the middle of the day here ……. must be nocternal *L*
We had 3 or 4 tennants wanting to rent our place prior to closing which was great. Our property manager reccomended a Section 8 tennant who had alreadt lodged a $500 hold on the property pending our OK. This was paid to PM knowing if they for any reason dont take up the lease the $500 is forfeited and passed to us. I am happy with how they pre arranged tennants and
screened them.
Lets hope they continue to keep on top of things as closing is booked for Tuesday US TIME.LOove the comment : NO SELF PROMOTORS …….. agree 100%
Selling via lease option seems a pretty good way to get rid of any potential issues with property management, make it worth the tennants while to look after the property and pay on time.
APerry : –
Thanks. That’s a great suggestion. I’m in the very early stages of learning about vendor finance (as a buyer and seller), so the idea of lease options really appeals to me. I’m trying to break out of the traditional loans mindset, especially since loans are virtually non-existent.RickHy : –
Initially, Florida. I’m going to take the well-worn path and work with trusted contacts and learn the ropes. I like the idea of Section 8 tenants, for some degree of reliability and respect for the property.
p.s. good luck with the closing on Tuesday. Get the champagne ready.Thanks TH……… I feel like it should go well.
Good luck with Florida ……. i researched where we bought for 6 mths with online info as well as contacting local real estate agents for opinions on differnt zip codes ect . I feel confident we have picked a "mr and Mrs Average" part of town close to everything and bought well below current zillow/trulia estimates.
All the best and look forward to hearing how you go.
Great question..hopefully some who have invested can answer
To APerry and Treasure Hunter:
Selling using a Seller Mortgage can be a very good way, although in my experience, it doesn’t eliminate as many headaches as you’d like it to. I run a U.S. based real estate firm and we have been doing seller mortgages for a number of clients looking to create a high-yielding portfolio, while at the same time mitigating the risks.It works fairly well for them, although they have a minimum of 5 properties each, so it is easier for them to live with at least one of the properties not performing. In my personal experience, what you really need to look out for, is the amount of down payment that is made.
Unless you get something like 10-15% down, you can expect to have issues. Just look at it from the “new owner’s” point of view.. They sign a land contract saying they’ll own the home in ten years. If they were planning on maybe staying there for ten years anyway, rather than just renting, they’ll now own the house, so it works well for them.
If they have moved in with zero down, or close to, they can always just walk away, as they don’t have enough equity in the home to protect anyway.Traditionally one of the big selling points to the tenants is that in return for agreeing to buy the home, the amount they pay as a monthly mortgage is less than the average rent in the area (to allow them to cover taxes and maintenance) and lower than they are currently paying you.
So while this can be a more hands-off approach, you will see your net yields at pretty much the same level, while ten years down the line you do no longer own the property assuming the mortgage is paid off.
Often what we see happening is they make the payments for a year or two, something “major” happens – roof etc needs replacing, and they’ll be gone, sometimes taking furnace, copper etc with them, so your profit is pretty much gone.I’m not saying it never works, or isn’t attractive in some cases – just giving you my 2c
HighIncomeProperty, thanks for the great input. Invaluable to hear from someone with real experience in this field.
What’s the situation in the US with regard to taking legal action against those who fly off with your furnace etc? Surely there is some avenue to pursue them.
And what measures do people take (physically, legally, financially) to prevent or reduce this happening in the first place?
(e.g. I have seen examples of strong cages built around a/c units to stop them being stripped for their copper).I find it extraordinary how rampant this sort of thing seems to be there. Something that Aussie are just not used to, and need to be weary of when investing there.
TH
Hi TH. Managing US property from a distance is the big concern for me as well. I am in the process of completing a small development in Sydney and once that is finished I hope to jet off to the USA and start my foray into property over there.
I plan to talk to as many people as I can who are investing the the areas I want to get into. This will hopefully mean I will have a list of contacts (property managers, legal representatives, accountants etc) who have come recommended that I can meet over there. Setting up this team is crucial from my point of view as I will be relying on them to keep the operation running from day to day while I communicate from a distance. I am confident I can handle the acquisition side of things, as buying property is something that I feel comfortable. However, I am going to make sure I put enough time and effort into building and managing my team to ensure my assets are safe and well managed profitably and sustainably.
Look forward t hearing other preoples comments and thoughts!!
Luke
Hi Treasure Hunter,
No problem – happy to share my experiences any time!
You are right in that it is shocking how some of these people “thank” you, for offering them an opportunity to own a home and giving them a mortgage. The issue is often that once they leave (and take with them whatever appliances they can) you usually have no clue where they’re going to, and your chances of getting hold of anything is very slim!
The cops are not usually the most interested in what has happened either – in the cities where you see a lot of these deals (Detroit, St Louis, Kansas City, Indianapolis, Cleveland….) the cops usually have other things to worry about!
The key is to get a large down payment – 15-20% if you can, and to record the land contract, which means you can legally enforce it in case of non payments, evictions etc.HighIncomeProperty,
One thing I find interesting with Americans when they rent a property is their expectation that the house comes with various “loose” appliances. e.g. a fridge, washing machine and perhaps a tumble dryer are all provided, and this seems fraught with danger from a landlord’s perspective. (None of these things typically come with an Australian rented property – only built-in appliances, such as a dishwasher or a/c) So quite apart from the risk of them disappearing, there is the responsibility for their maintenance.
Given the relatively strong rental demand in the US as a result of virtually no lending available for purchases, I can’t help but think that “good” tenants would (begrudgingly) accept a condition in the lease contracts that these appliances are either :-
– “sold” by the landlord to the tenant (i.e. pro-rata’d into the rent over a 12 month lease) so their up-keep is the responsibility of the tenant.
– or, covered by an extra bond. Let’s call it a “white-goods bond”.Are you (or anyone else) aware of either of these conditions being used or at least tried? Knowing the US renter mentality, do you believe there is a reasonable chance of them being accepted? (especially if the property was particularly desirable, due to presentation or price).
The “sold appliances” option is particularly of interest to me.
TH
TH,
That’s a good question, and I think you could probably do something like that both on a rental and a “seller finance” deal.
It might be a better idea to increase the deposit you are asking for, say you did 1.5 months + a security deposit (so on a $1500 rental, you’d get $2.250+ whatever you wanted for appliances) than to put it down as a separate item. Most rental agreements are just really standard contracts (happy to send you one or two that we usually deal with) and as soon as something deviates from what people are used to, alarm bells seem to go off!Unfortunately, you also need to keep in mind that some tenants are just really short for cash which might affect their ability to pay a large deposit to be able to move in.
Another thing to consider is a Lease to own contract, in my experience those homes are usually looked after very well, as the condition of the property is absolutely crucial 2-3 years down the line when it comes to applying for a mortgage.
Nigel,
Interesting to hear about the finance deals, I posted in a few other threads (and I have seen other people do it as well) asking how you get the banks to agree to a deal like that where the new owner assumes the financing, as even in the “good days” the requirements were very strict for who they allowed to do so.
Also if there is a fee paid ($20-$30K) I have seen mentioned – where does that go? If the owner is walking away from the mortgage anyway I don’t see why they would be entitled to this, the bank obviously won’t get these funds either?
I think a lot of people would be interested to hear how it works, as legally assuming a mortgage is a great option for many.In my opinion, a month isn’t nearly enough – I’m American myself with 6 years “on the ground” and I still learn every day!
Hi Highincome
I could not agree more I say a month because so many go for a week not even sure what market they are looking at.
The $20,000 Plus amount is for a number of things, sometimes there is a great deal of equity so we pay some of that to the previous owner. In other cases there can be back taxes, the mortgage needs to be brought up to date in other cases some renovations may be required. In every case all the figures are accounted for.Nigel Kibel | Property Know How
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