Thank you for the info Jay.
Is there a PDS (Product Disclosure Statement) or similar formal document that is lodged with your fiduciary authorities there (similar to Australian Securities and Investments Commission -ASIC, here in Oz)? If so, can it be emailed?Shall also navigate your site and have a look around.
Thanks again
Micheal 88
We are not pooling funds. Its one Note or Mortgage on one property to one investor. These transactions do not need to be registered as a Security offering.
Just like any retail lender, lending to a home owner.. The lender then sells the Loan in the secondary market to fannie or freddie.
One note one investor. Now if you then take the notes and pool them and slice and dice them then they become a securitized capital obligation and PPM or Security registry is required…..
Or for example is an owner of a property wanted to sell for sale by owner and hold a Vendor contract. The owner does not want to wait for payments over the years so the owner sells to a note buyer… Same transaction.
hope that helps.
Just look at the 9 minute video that really tells the story and you will see real investors and what they have to say.
Best
JLH
Thanks Jay.
Had a look at the video and it's a little clearer now.
Basically we become the bank.
What control is there over your organisation going belly up?
What recourse do we (as the lender) have?
Am I correct in assuming that as we own the note that we take title of the property should things go pear shaped……and also the risk of litigation from tenants.?I appreciate you act as the hedge by defering your capital cut until a 50 % capital gain is achieved, however as the yields achieved should be higher than 9 % to your organisation and you havee obvious economies of scale due to the number purchased, rehabed, and your property management process, there is also profit for you in the yield. Not saying this wrong by the way. Of course you should be covering your expenses/overheads and still have a little profit, whilst you wait for your gain. My concern as a traditional investment property owner is the lack of control. Perhaps that is what some of your time poor investors seek.
On that basis 9 % isn't that high for the currency risk as similar returns are achievable here with product that don't offer any control to the individual investor either, however they are liquid; and I mean SOLD with the click of a mouse………………. perhaps not with the potential capital growth upside of the slaughtered US product, although that is no guarantee in 3-5 years anyway.
Still, an interesting concept nevertheless. If you are able to assist with my questions above, that would be great as in the spiritt of learning and sharing, you may also be helping others (possibly potential investors/customers) with your answers.
This type of process is a little foreign to me (and I would presume other Aussie investing folk). I appreciate your sharing and understanding these questions are all part of diligence.
Your correct the investor is the bank. and as Such its the ultimate control other wise you would not have a banking industry anywhere in the world.
In the event of default you have an assignment of rents clause were the rents come straight to the bank.. and again in a default situation you end up wiping out our equity and you get to the same place as if you bought the home, Only better as we control the rehab and tenanting to a factor far greater than most rehabbers or PM because they do not own anything they are flipping and walking away with the profit.
Just have to get your head around Note investing and Not property investments. Note business in the US is just as big if not bigger than property, and its a natural progression for most investors in the US. They tried the rental game, and then go into buyinig notes because of far greater safety, ese of management and much more consistant and realible income.
In our investment you have 2 sources of repayment us and the tenant.. when you buy on your own you have 1 source tenant does not pay you do not get paid.
Our liquidity and financial strenght is substantial vis a vi these levels of investments. Our portfoliio runs 95% full at all times. as you pointed out, our rents minus payment to investor gives us positive cash flow, so in essance a management fee, although unlike a manager we stand behind all aspects of the investment.
For us to go pear shaped ( love that term and will use it in the future) it would take a mass default from our tenants.. As we live breath and work these our abiliy to control income is far greater than anyone living 6 thousand miles away just is. In our model you have myself my partner, our staff here in Oregon of 3.. Then you have our partners on the ground in the markets we work that all have 3 to 6 people on their staff. So there is literally 7 to 10 people working on each house to make sure it is the right property from the start. Gets rehabbed to OUR standard not a property flipper….And tenanted with tenants we Want in the house..
And the bottom line really is here in the US there are no 7 to 9% returns that are liquid… Banks pay .05% for pass book savings CD's are 2% or so… Corporate bonds ( junk Bonds) 3 to 5% thats about it.
So if you can put money in a bank in OZ at 9% with no risk and 100% liquidity there is absolutly no reason to risk buying anything in the US. Unless you percieve capital growth.. And or get in the flipping business..
great feedback thank you
Micheal 88
your question of liablity:
thats a great one and one of the compelling reasons for note investing.
The note investor as the bank has ZERO liability to the property or the tenant. Although if you foreclose and take the property back then at that point again your just in the same shoes as one who bought the property although your not liable for anything the past owner may have done, and the courts have huge latitude with regards to lenders in possession ( thats what its called when a bank forecloses on a house and now has taken ownership of the asset…
JLH
jayhinrichs wrote:Your correct the investor is the bank. and as Such its the ultimate control other wise you would not have a banking industry anywhere in the world.In the event of default you have an assignment of rents clause were the rents come straight to the bank.. and again in a default situation you end up wiping out our equity and you get to the same place as if you bought the home, Only better as we control the rehab and tenanting to a factor far greater than most rehabbers or PM because they do not own anything they are flipping and walking away with the profit.
Just have to get your head around Note investing and Not property investments. Note business in the US is just as big if not bigger than property, and its a natural progression for most investors in the US. They tried the rental game, and then go into buyinig notes because of far greater safety, ese of management and much more consistant and realible income.
Yep, truly a mind shift is required form us (or me at least) traditional resi investors from Oz. That's why I initially though it was a managed fund type product.
In our investment you have 2 sources of repayment us and the tenant.. when you buy on your own you have 1 source tenant does not pay you do not get paid.
Our liquidity and financial strenght is substantial vis a vi these levels of investments. Our portfoliio runs 95% full at all times. as you pointed out, our rents minus payment to investor gives us positive cash flow, so in essance a management fee, although unlike a manager we stand behind all aspects of the investment.
For us to go pear shaped ( love that term and will use it in the future) it would take a mass default from our tenants.. As we live breath and work these our abiliy to control income is far greater than anyone living 6 thousand miles away just is. In our model you have myself my partner, our staff here in Oregon of 3.. Then you have our partners on the ground in the markets we work that all have 3 to 6 people on their staff. So there is literally 7 to 10 people working on each house to make sure it is the right property from the start. Gets rehabbed to OUR standard not a property flipper….And tenanted with tenants we Want in the house..
Thanks for elaborating on that.
And the bottom line really is here in the US there are no 7 to 9% returns that are liquid… Banks pay .05% for pass book savings CD's are 2% or so… Corporate bonds ( junk Bonds) 3 to 5% thats about it.
Oh, I wasn't talking about bank products, rather A-REIT's (listed) and REIT's (unlisted) similar to a managed fund for the product it represents however with liquidity. I have actually taken part in an offering of retail shopping centres that gives 9 % net as a minimum with 75-85 tax deferred. This asset was purchased from the trust administratot on a 18 % gross yield, when similar sell-offs were yielding 8-10 % gross. It is non-discretionary retail anchored by Coles supermarket and the remainder are all food, grog, smokes, chemists, etc., etc.
So if you can put money in a bank in OZ at 9% with no risk and 100% liquidity there is absolutly no reason to risk buying anything in the US. Unless you percieve capital growth.. And or get in the flipping business..
Nah, not possible @ 9 %. I still have funds at circa sixes and whilst cash in the bank does not constitutue a long term investment play for me, it is at present, SAFE as we are entering a short/medium term deflation here, hence the value of my currency isn't inflating away. Still looking for a home for those funds and hence my follow up questions Jay. Not saying your product is or isn't for me, I need further consideration and a mind shift to cope with this NOTE focus rather than physical property focus.
I do appreciate you taking the time to acknowledge these questions and answers as I am sure others might be thinking along similar lines.Wishing you every success with this product/process you offer thru your biz. I look forward to reading some more about it in future posts as I undertake further due diligence…..shall navigate your website further.
great feedback thank you
No worries, everyone is here to learn and share. Again, thanks for your insights.
OK, I grant thee permission to utilise said catastrophic terminology of "things going pear shaped"
Cheers for now
Micheal you get to the states lets have a beer.. Your obvioulsy very astute. and I appreciate your feedback and allowing me the license to incorporate Pear shaped investment into my lexicon going forward
Their are REITS that just buy Notes performing and Non performing as well…
whole different level of investing than what is talked about on this forum. Or at least this subject of the forum US investing.
The SFR's are just a really un complicated simple type investment that mom and pop can understand I get that…
JLH
jayhinrichs wrote:Micheal you get to the states lets have a beer.. Your obvioulsy very astute. and I appreciate your feedback and allowing me the license to incorporate Pear shaped investment into my lexicon going forward
Their are REITS that just buy Notes performing and Non performing as well…
whole different level of investing than what is talked about on this forum. Or at least this subject of the forum US investing.
The SFR's are just a really un complicated simple type investment that mom and pop can understand I get that…
JLH
Hey Jay,
don't know about astute, although I am not a low maintenance person when it comes to questions. I have had many successes and a few learning experiences over the years. Fortunately the tuition from the latter hasn't been wasted…….leads me to ask better questions as I accumulate birthdays. Appreciate your comments and info.
As for the beer………..well ahead of you mate. I am sucking on a coldie now as it Australia Day here.
Michael 888 wrote:jayhinrichs wrote:Micheal you get to the states lets have a beer.. Your obvioulsy very astute. and I appreciate your feedback and allowing me the license to incorporate Pear shaped investment into my lexicon going forward
Their are REITS that just buy Notes performing and Non performing as well…
whole different level of investing than what is talked about on this forum. Or at least this subject of the forum US investing.
The SFR's are just a really un complicated simple type investment that mom and pop can understand I get that…
JLH
Hey Jay,
don't know about astute, although I am not a low maintenance person when it comes to questions. I have had many successes and a few learning experiences over the years. Fortunately the tuition from the latter hasn't been wasted…….leads me to ask better questions as I accumulate birthdays. Appreciate your comments and info.
As for the beer………..well ahead of you mate. I am sucking on a coldie now as it Australia Day here.
MichaMichael and Jay…
Really good comments ,and questions, with answers from both of you. Michael I would also like to meet if you are in the states . Where are you located in Australia if you don't mind me asking.
Jay , I told you that I felt given time this program would be a some thing that would catch on. Reguardless of USA or Australian real estate investor.
Look forward to our call Friday
Thanks
AlexHi ya Alex,
Not sure when I will be in the US.
I am on the (currently VERY wet) Gold Coast. Ex-Melbourne. Moved to GC last year.
I have also enjoyed the exchanges on this thread and others. The information on this forum is great for those, who like
me, are learning about the intricacies (benefits and pitfalls) of the US. There are also some Aussies (they know who
they are) who are the pioneers and the information and posting of their experiences has also been valuable.Keep it coming guys………………
I was looking back in the early days on this site and another, and was really facinated by the experince's those had investing in Rochester NY and Buffallo NY…
Seems that what we have been talking about:
1.. One paying far more than one should for a rental
2. Horrible tenants
3. returns that are phantom at best
Has all been covered and been there done that in those markets 7 to 8 years ago.
I seem to recall NY or Rochester or Buffallo actually passed a Local law about selling properties to foreigners for outragous inflated prices and other such malfeisense.
JLH
Hi Jay
Same thing was happening on our Gold Coast. We called them “marketeers” and special legislation was introduced. Those that held on eventually made back their money but those that sold early lost thousands. Might be the same for you if the underlying property is sound.
Regards
David
By you I mean us property markets
Guys,
Buying within a SMSF is ok, although you cannot borrow for the property. This violates the in-house asset rule. You can hold it in an LLC (C-corp is not relevant except for tax election with the IRS) which technically is an in-house asset but the ATO allows exceptions to this rule PROVIDED THE COMPANY HOLDING THE ASSET (LLC) IS UN-GEARED. ie no borrowing.
Tax for SMSFs in the Us:
Option 1: Elect to be a disregarded entity/trust (SMSFs are not recognised in the US) – CGT relief but tax rates escalate quickly
Option 2: elect to be taxed as a C-corp (no CGT relief but lower tax rates)
So, the answer depends on how many your buying and your strategy ie flip or hold ?
Good luck out there, its a mine field.
btw getting loans can jackup the returns to 20%+, so those numbers are possible but best i have done in Tx was 14% on cash buy for a duplex in Dallas. Texas is second state in the US for job growth = good rental demand
In the second quarter of 2012, gross job gains exceeded gross job
losses in 41 states, the District of Columbia, and Puerto Rico.
California had the largest net employment gain of 108,383 jobs,
followed by Texas with 89,160 jobs and New York with 33,889 jobs
Mark
Hi Brent
You've got a lot of questions there. I'm a genuine purchaser of property in the US not a seller. So I consider my opinion completely independent.
You've got to get yourself up to speed with the markets. I've put a post on here about free data and reports on the us markets. This will save you hours.
After completing the research, I've come up with some top markets – Texas, Kansas City, Memphis and Atlanta. No to narrow it down further needs a trusted party on the ground. Fees for this service range enormously – I've seen between $3-7k per property but it is a way of reducing your risk. To reduce your risk further but turn-key with a tenant placed on closing.
Look for properties no older than built in 2000.
Most service companies (there are plenty on the net) set up LLCs for a fee. Don't pay more than $500 per LLC. I buy one property per LLC. It protects your assets. Most experts agree with this strategy.
Re finance. It's loosening up. You can get higher LVRs than 50%. It is possible to get 70% at 5.5% interest in places like texas and georgia but it's rare. It will become more common. Some finance brokers ask for exclusivity for 3 years. You need to weigh this up. Make sure you look for non-recourse and no member's guarantee finance.
Don't know about vendor finance – sorry.
Watch out for c corps. They apparently are a real hassle. Everything I've read says llc's.
You can buy property through a SMSF. A lot of service providers do that.
Phoenix is ok, but I've given you my personal preferences above.
Don't be tempted by high cash return properties at $30k. They often have high vacancies which actually reduces their returns considerably and higher tenant and maintenance costs. You'll usually buy yourself a head ache there. My personal strategy is to buy better quality properties in good locations but higher LVRs.
Property management is critical. As is buying in landlord friendly states. You need to be able to kick out tenants quickly who aren't paying their rent. Sounds cruel but if you're borrowing money, the bank doesn't show any mercy if you can't pay.
Hope this helps you. My knowledge has been hard won over 18 months.
I'm going to the US in May on a buying spree. Might see you over there.
All the best.
Big John
Anyone here who knows me knows I'm bearish the US PI market over the long term mainly due to poor economic fundamentals and exchange risk. However in saying that I don't preclude short term opportunities if you have an appetite for modest risk and can connect with resident expertise and networks.
Jay's strategy/model is probably one of the best I've seen for the hands off investor. Given the complexities and hands on management demands required in the US market 9% net would have to be considered an extremely good return in this climate. Couple that with a CG bump in 3-5 yrs would top things off nicely.
Note: For AU investors you need to get a CG of around 5% annually to maintain your dollars purchasing power. Around 3% for CPI and 1-2% FX exchange costs if you're repatriating money back to AU. This of course does not take into account movements in exchange rates.
Note2: If this was a fixed term deposit you would need to get around 11% to compete
Jay question: Can investors roll returns back into their investment rather than take a monthly payout?
To me you have to be a Kyler an Alex or Jay to survive and flourish in the US market. It's a market you have to eat, breath and live in to make the top dollar. You also need history there to put that knowledge into any sort of context. The lone investors heading there and who've been heading there over the last few years will and have struggled for the most part. There are certainly plenty of horror stories and they only represent the tip of the iceberg.
Just an update on the US commercial market:
Retail Distress Still a Hot Commodity
Among all property types, only retail property saw an increase in distressed sales volume last year, up 4% in 2012 over 2011, CoStar data shows. Sales of distressed property for all other types declined. Distressed hospitality sales were down 52% year-to-year; office, down 45%; multifamily, down 26%; and industrial, down 22%.
“Retail seems to be a strong interest for distressed investors at present and there seems to be an ample supply of attractive, newer yet distressed retail properties,” said Ryan Phillips, president of Signature Asset Management in Dallas. “Moderately leased suburban office may be an opportunity in distressed real estate. I would stay away from very low occupancy buildings unless they are small and could be filled with a few leases. Any Class “A” product that is moderately leased could be viable — as long as it is priced as distressed and not at very low cap rates.”
Cheryl Pestor, senior vice president of NAI Capital, Pasadena, CA, also noted the strong interest in retail among investors targeting distressed real estate assets.
“I specialize in retail or service-oriented retail investments with about 20% of my sales working with banks on their REOs, and there is continued interest for retail properties if they are well located corner locations with good visibility,” Pestor said.
While there are always value investors in the market, no matter where the market is in a recovery, Pestor faults seller for not pricing distressed property correctly to incentivize an investor for the risk in buying a property “as is, where is, with all faults.”
John-USA-CommercialRE
Email MeGuys, I think you will find the ATO is cracking down in the next few weeks on foreign property ownership. Some will be getting away with it right now, but come audit time could by in strife.
Our Melbourne accountant has just got through in writing from the ATO that the SMSF will be taxed at the highest rate if it owns property through an LLC set up and this would be classified as non compliance.
ATO will apparently be refining its foreign asset ownership regulations.
I hope this is not the case!!!
But our accountant has been working closely with the ATO for the past 4 months to get black and white answers in writing… Some people could be really stung with the 50% non comply penalty.
Sorry to be a drainer but as long as your accountant can get the ATO in writing that they approve you to buy foreing property in your SMSF, you are taking a bit of a risk
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