I have finally booked my fligths to the US and it is "getting real". I leave in Jan 2012 and will spend 2 months on the ground in Fort Worth looking for my first US property investment! Very excited.. But so much to get done before it all begins.
I wanted to ask people a list of questions I should prepare for prospective Realtors and Property Managers.
At this stage I have emailed a few I have found online, but was hoping some people that have been through this process already could give me some advice.
I understand that Property Managers and Realtors are quite different from Australia so want to ensure I am prepared and asking the right questions.Have read this forum and have already got some really good tips so far, but would like a further insight.
I appreciate any advice, as I am new to this
Hi Jane,
It is definitely a very exciting to be buying first investment property, specially as an overseas buyer. Below are some of the questions I would ask:
Realtors
1) How many overseas investors have you worked with?
2) Can you provide me references for these overseas investors?
3) If you like some property, ask the realtor to provide you with comparable sales information for similar properties in last 6 months. Don’t go based on the comparable sales information that is more than 6 months old, as the market may have changed a lot in last 6 months.
4) If the realtor tries to tell you that Cash Flow = Rent – PITI (Principal, Interest, Taxes, and Insurance). Keep in mind, that’s not true. There are a LOT of other expenses that come with owning a rental property like, vacancy, property management, repairs and maintenance, utilities while the property is vacant, letting fee, etc.Property Managers
1) How many properties do you manage for overseas investors?
2) Can you provide me references for these overseas investors?
3) Will I have online access to property financials including lease, tenant information, etc.?
4) How do you handle repairs? Do you have some handyman or repair person in your own crew that handles small repair jobs?
5) Do I get a discounted price if you manage multiple properties for me?
6) Are you licensed with the city and state?
7) How many total properties do you manage? Do you have other property managers on your team? What is the average number of properties each property manager handles? (You don’t want to see one property manager handle more than 30-50 units)
How do you handle eviction?
9) Is there a fee when the property is vacant?
10) How much do you charge for filling a vacancy? The average is 1/2 month rent all the way up to 1 month of rent.These are some of the questions I could come up with. I will add more if I think of something else.
2 months is plenty of time to give you a good idea of the market. Are you going to be in Fort Worth only for 2 months?
Just curious, how did you decide on Fort Worth market? Please feel free to contact me if you have any other questions. I will be more than happy to help you
Good luck with your search.
Thought I would comment on some of the answers below agree with most of the comments. Only one I disagree with .
Hi Jane, It is definitely a very exciting to be buying first investment property, specially as an overseas buyer. Below are some of the questions I would ask: Realtors 1) How many overseas investors have you worked with? 2) Can you provide me references for these overseas investors? Simple enough referrals is a great way to get a feel of the team and management company.I would also see that the company deals locally and nationally. For example Dealing with Australian investors is new to our company , but in the USA dealing with investors who are out of state is and has been our companies main focus for years.
3) If you like some property, ask the realtor to provide you with comparable sales information for similar properties in last 6 months. 6 months I like 30 to 60 days for most deals but appraisals and comps make sure we explain foreclosures and turnkey investment deals.They are two different examples of properties we are dealing with .
Don't go based on the comparable sales information that is more than 6 months old, as the market may have changed a lot in last 6 months. 4) If the realtor tries to tell you that Cash Flow = Rent – PITI (Principal, Interest, Taxes, and Insurance). Keep in mind, that's not true. There are a LOT of other expenses that come with owning a rental property like, vacancy, property management, repairs and maintenance, utilities while the property is vacant, letting fee, etc. Property Managers
This is the question for all we all have different approaches for coming up with actual rehab cost. Owning rental properties is not for the faint of heart.You will have vacancies, repairs .With the team sthat you are dealing with that really is the key. (How do they rehab properties what do they look for.Are the major elements fixed , ( electrical , plumbing ,in South east USA AC units are a must , and roof s) How do they manage the properties.What is the system in place. Can they maintain and handle growth. Meet the team , that is every body the team deals with. The last statement not always necessary.1) How many properties do you manage for overseas investors? 2) Can you provide me references for these overseas investors? 3) Will I have online access to property financials including lease, tenant information, etc.? 4) How do you handle repairs? Do you have some handyman or repair person in your own crew that handles small repair jobs? 5) Do I get a discounted price if you manage multiple properties for me? 6) Are you licensed with the city and state? 7) How many total properties do you manage?
I agree with all the aboveDo you have other property managers on your team? What is the average number of properties each property manager handles? Not agree completely For example We have a full service staff with a system in place so no manger handles any certain number of homes .The staff caters to both investors and tenants.
(You don't want to see one property manager handle more than 30-50 units)
Strongly disagree some of the strongest teams in the USA buy fix, and manage there properties in house.We have over 150 in house adding 10 – 15 monthly. Biggest Memphis team has 800 properties and Indianapolis team has over 1000. I not sure about Jay please chime in I think you manage over 200 .
How do you handle eviction? 9) Is there a fee when the property is vacant? 10) How much do you charge for filling a vacancy? The average is 1/2 month rent all the way up to 1 month of rent. These are some of the questions I could come up with. I will add more if I think of something else. Again good questions. 2 months is plenty of time to give you a good idea of the market. Are you going to be in Fort Worth only for 2 months? Just curious, how did you decide on Fort Worth market? Please feel free to contact me if you have any other questions. I will be more than happy to help you
Good luck with your search.[/quote]Alex
Alex SC wrote:Strongly disagree some of the strongest teams in the USA buy fix, and manage there properties in house.We have over 150 in house adding 10 – 15 monthly. Biggest Memphis team has 800 properties and Indianapolis team has over 1000. I not sure about Jay please chime in I think you manage over 200 .
Alex,
I agree with the points you added. Really good points.
But with number of units managed, I think it comes to personal preference, I guess. I personally would feel more comfortable with a property manager who manages 50 properties vs someone who manages 200. Not to say that a manager managing 200 units will not do as good a job as someone managing 50.
Again, great additional points.
Thanks so much for your feed back Alex and baruchmax, I really appreciate it. It is such a big step to take to invest in a country other than your own and it seems in the US it is very different to Australia in some ways. I want to be sure I chose my team right as we all know this is one of the most important things to do!
Baruchmax the reason why I have chosen Fort Worth area is because my father has opened an office of his company there and we have a house to stay there. Also it seems you can find some good deals there offering good cash flow returns. Howver I am aware that the capital gains will not be as good as the likes of Florida or somewhere else.
Jane,
I am glad you found the information useful. Good luck in your search. Make sure you do all the due diligence. Below are some of the things I consider in my purchase of investment property, I hope you find this helpful:
1) Does the property appear to be in a safe neighborhood? What is the condition of the other houses on the block? If the are yards are well kept, then the owners take pride in their houses. If the houses look run down, grass is not cut, then you may need to investigate more.
2) I talk to people living in the neighborhood to get their opinion. I talk to neighbors if I see them outside. I talk to some of the local business owners (grocery store owner for the area, gas station, etc.)
3) If you are purchasing a multi-unit, PLEASE make sure that all the units are legal per the city and any other government authority. You can find this out by calling the city’s building department. Just give them the address and ask them “What is the zoning for this property?” and they should be able to confirm that.
4) I also call the local police department to get crime report for the area and the particular block.
5) When you are looking at a property, the main things to look for are roof, foundation, water leak in the basement (if there is a basement), heating or cooling system, plumbing system (just check the water pressure in bathroom and kitchen), electrical panel (in my area, the electric panel should be upgraded to 100 amps). Since you are not very experienced, ALWAYS get a property inspection.
6) Find out the taxes on the property. For taxes, make sure the tax amount that you have is for an investor. If you are purchasing a property from an owner occupant, then the chances are taxes will be low due to some exemptions, which you as an investor may not have, so your taxes will be high.The above are some of the items, there are a LOT of other things that go into due diligence. If you have any other questions, please feel free to ask.
[. Howver I am aware that the capital gains will not be as good as the likes of Florida or somewhere else.[/quote]
Yes finding the right team is most important. Let me know if your father if he is in the USA still .Would like to fly to Charlotte and see our operation and our team.Along with the houses we hold and sell.
I would not mind paying for his flight out from Ft worth to Charlotte to come check us out.
I am currently in the process of setting up my property management company in Florida .This should take a few weeks.We will be up in running by DEC.
Sincerely
Alex
[email protected]baruchmax wrote:Jane, I am glad you found the information useful. Good luck in your search. Make sure you do all the due diligence. Below are some of the things I consider in my purchase of investment property, I hope you find this helpful: 1) Does the property appear to be in a safe neighborhood? What is the condition of the other houses on the block? If the are yards are well kept, then the owners take pride in their houses. If the houses look run down, grass is not cut, then you may need to investigate more. 2) I talk to people living in the neighborhood to get their opinion. I talk to neighbors if I see them outside. I talk to some of the local business owners (grocery store owner for the area, gas station, etc.) 3) If you are purchasing a multi-unit, PLEASE make sure that all the units are legal per the city and any other government authority. You can find this out by calling the city's building department. Just give them the address and ask them "What is the zoning for this property?" and they should be able to confirm that. 4) I also call the local police department to get crime report for the area and the particular block. 5) When you are looking at a property, the main things to look for are roof, foundation, water leak in the basement (if there is a basement), heating or cooling system, plumbing system (just check the water pressure in bathroom and kitchen), electrical panel (in my area, the electric panel should be upgraded to 100 amps). Since you are not very experienced, ALWAYS get a property inspection. 6) Find out the taxes on the property. For taxes, make sure the tax amount that you have is for an investor. If you are purchasing a property from an owner occupant, then the chances are taxes will be low due to some exemptions, which you as an investor may not have, so your taxes will be high. The above are some of the items, there are a LOT of other things that go into due diligence. If you have any other questions, please feel free to ask.Great points…
Another technique you can use to determine the quality of neighborhood is to call the local police department and ask them if it's an area they are called to quite a bit. They will give you an honest answer, and you can ask them for the types of calls they respond to. Searching crime stats by zip codes, might not give you the real picture, you really need to narrow this down to your specific block. Hope that helps!
Congratulations on your 1st purchase!! It's always an exciting time!
John
Baruchmax : can you explain your comment 3.
3) If you are purchasing a multi-unit, PLEASE make sure that all the units are legal per the city and any other government authority. You can find this out by calling the city's building department. Just give them the address and ask them "What is the zoning for this property?" and they should be able to confirm that.
What do you mean by "legal" ? I would have thought any property that was built would be legal? (niave aussie investor)
Your points are really helpful, thanks again.
Alex, my father is a busy man and has barely got time to drink a coffee when he is on the go. I am kind of my fathers personal financial advisor as he has no time. He will be investing with me in the US so I would be interested in what you have to offer. Is there a website you have that I can take a look at?
Thanks again to all your comments everyone
Thanksjanemcewen wrote:Baruchmax : can you explain your comment 3.3) If you are purchasing a multi-unit, PLEASE make sure that all the units are legal per the city and any other government authority. You can find this out by calling the city's building department. Just give them the address and ask them "What is the zoning for this property?" and they should be able to confirm that.
What do you mean by "legal" ? I would have thought any property that was built would be legal? (niave aussie investor)
Your points are really helpful, thanks again.
Jane,
Legal would really apply to multi unit properties. Let’s say you are purchasing a duplex (2 unit property), each unit is rented out separately. What you should do is call the city building or zoning department and confirm that both the units in the duplex are legal to be used as rental apartments. A lot of times what happens is that people convert a basement or an attic in a single family house into a rental apartment and then they advertise it as a 2 unit property; however, the 2nd unit (basement or attic unit) is not legal. The property is zoned as a single family house and should be used as such. If the city building authority were to inspect the property, they could possibly shut down the other unit.
I hope my explanation makes sense. If you have any further questions, please let me know.
Chiming in per Alex
We have 500 plus units in our portfolio of whiich we own the majority. although this includes MH parks as well as single family.
The biggest thing I take from this thread is that expense’s are generally understated as one poster said. Not near enough allocation for on going maintenance ( that is if you want to keep your unit in great shape anyone can be a slum lord)) Letting fee’s…. Vacancy factor. all these play into the Net Numbers. I know the Aussie focus on gross returns but who really cares about gross us US investors only care about net. In the good ole days of rapid appreciation gross was fine and I have many rentals that are negative cash flow because of this
however for todays times NET is the only number you should focus on.One other issue is what is your threshold for worry, rentals create worry and stress when things do not go right and thats a given in the industry….
If your going to own US rentals in the Turn Key type programs your going to be engaged in the process from day one to the day you sell.
Its the invest well sleep well theory, if you are the type that worries over every little thing and or if a 5k problem is going to keep you up at night then you really need to look at those issues. The personal stress is an issue here do not think you can buy US properties and sit back at home and collect checks like its some sort of government payout program….JLH
Hi, I am just starting out in getting a feel for the US market and understanding some of the terminology in listings. Can someone please tell me what is a Fannie Mae HomePath property? I gather Fannie Mae was one of the big financial institutions that collapsed – is this correct?
Can someone also tell me what the tax implications are for foreigners earning rental income from the US. Does tax have to be paid in the US and how do you go about getting set up for that?
I apologise if these questions seem naive, I am literally just stepping into this arena and have a lot to learn
Lynne
hey Jane!
it’s really very exciting to be the first buyer of that property but before it all if u can just give an answer of my question.
1.how many overseas investors have you worked with?Elle Dee Esse wrote:Hi, I am just starting out in getting a feel for the US market and understanding some of the terminology in listings. Can someone please tell me what is a Fannie Mae HomePath property? I gather Fannie Mae was one of the big financial institutions that collapsed – is this correct?Can someone also tell me what the tax implications are for foreigners earning rental income from the US. Does tax have to be paid in the US and how do you go about getting set up for that?
I apologise if these questions seem naive, I am literally just stepping into this arena and have a lot to learn
Lynne
Lynne,
Fannie Mae is a US government backed institution, that backed alot of the US based mortgages for the banks. In the event of a foreclosure, Fannie Mae would reimburse the banks up to 80% of the mortgage. For those banks that participated in Fannie Mae loans, this was a way to help convince the bank to do the loans, they had the backing of the US Government.
The issues you need to be aware of when dealing with Fannie Mae properties, there is a 90 Day deed restriction placed on those properties (in KC anyway), which means for 90 days you cannot sell the property or have a lien placed on that property for more than 125% of the sell price. If your paying all cash, this will not be an issue, but if you were to take a loan out, this deed restriction will stop that loan in it's tracks. There has been talk that Fannie Mae is considering relaxing this restriction, but I have not seen any evidence of that.
If your paying all cash, and it's a good deal, don't be alarmed with this deed restriction, I buy Fannie Mae products alot, and just wait out the calendar.
As far as tax implications, I really recommend you speak with either a CPA or a really good tax attorney. The IRS tax code is 160,000 pages thick, and there are many things you need to know. A good tax attorney can help you understand the tax code and it's implications, as well as establish your business in the states.
I wish you great success!
John
Thanks John, that is helpful. So just to get my head straight the steps I should take go something like this:-
First decide which state I want to invest in before setting up the accounting requirements as these will be dependant on state law?
If I get an LLC this is a one time only procedure or is one needed for every investment? If I do engage an organisation such as American Real Estate Investments I should expect them to be able to advise as part of their service?
For the Aussies out there who have invested: if we are paying tax in the states then we are being taxed on foreign investments back here as well where does that leave us? Perhaps this is getting off topic and I should start a new thread with that question.
Lynne
Elle Dee Esse wrote:Thanks John, that is helpful. So just to get my head straight the steps I should take go something like this:-First decide which state I want to invest in before setting up the accounting requirements as these will be dependant on state law?
If I get an LLC this is a one time only procedure or is one needed for every investment? If I do engage an organisation such as American Real Estate Investments I should expect them to be able to advise as part of their service?
For the Aussies out there who have invested: if we are paying tax in the states then we are being taxed on foreign investments back here as well where does that leave us? Perhaps this is getting off topic and I should start a new thread with that question.
Lynne
Lynne,
Yes you will want to establish your company in the state you will be doing business in. An accountant or an attorney might discuss a tax haven with you, by establishing in another state, and then creating a foreign entity in the state you will be buying houses in. They should be able to help you all the way thru the process. Each state has it's own taxing systems, some states do not have an "income" tax, where others do. Just keep in mind, just because the state does not have income taxes, there will always be federal income taxes. It's a huge confusing mess, what we call our tax system in this country. It's much easier to have a CPA or attorney working for you!
As far as creating an LLC, some attorneys will advise you to create new LLC's after you build up a certain number properties in that LLC, this will help protect you from those attorney's who look to create a situation out of any old scenario. By limiting the number of properties in your LLC, this chases those attorneys off, by creating the illusion your income is not as large as they would like to see.
I would probably recommend to you, that if you have yet to decide on a location to invest, talk with a CPA or tax attorney that will give you the benefits of each state, if there is more than 1 option here. This way you can be well armed with information as it regards to taxes. The deals can be found in any state, so regardless of where you choose to invest, finding the right deals should not be difficult.
John
Once again thanks John
How do you handle eviction?
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