I need unbiased opinions on a business model for overseas investing.I have 2 properties in the USA that are vacant and require repairs. They are both 3 bedroom houses built in 2008. I bought one for about 35K and one for about 45K.I just received an offer on the 45K house for 60K. I could either sell both houses and come away with about 90K or proceed with the business model below-I become the BANK.. and essentially receive mortgage payments each month at a rate of interest of 9%.All maintenance costs and tenant issues are taken care of.
The plan is on a 5 year contract. At the end of 5 years I am repaid the ‘note amount’ plus 50% of the net equity – net equity is sales cost IE commissions deducted from gross price.
I would real appreciate third party opinions on the above.
I'm familiar with a similar model being used by friends in Detroit. It works well as you 'the bank' are in a win win position. The retail buyer agrees to purchase at ???? … say house 1, $50k and pays you a deposit that would be as large as can be negotiated. Let's say $10k so your investment in house 1 is $25k on which you are receiving 9% with no outgoings and a $15k profit at the back end.
Being paid the note ( full sale amount less payments made?) is ok and 50% of net equity I dont get. Surely the business who have presented this want their cut of the action as early as possible, not at the end.If the retail buyer defaults, then make sure your contract to purchase reverts back to a simple tenancy contract. This eliminates a probable foreclosure process which can take an eternity. As a tenant they have 45 days to leave. You then resell the property and collect another deposit lowering your exposure further.
Strangely it is better that buyers default then not. All part of the win/win.
The contract term seems long at 5 years. The ones I am familiar with are 2 – 3yrs. Depends on the price set to purchase and the repayment amount.
Everything seems ok except the final part.
I/m happy to chat to you about this if you want. Contact me at [email protected]
Cheers
Ian
http://theblockblog
Free Property Investment Info, Tools & Resources for Investors with a Sense of Humour.Sounds like jay's business plan.
If that’s not Jay, I’d be curious as to who it is. I though Jay’s model sounded quite appealing and pretty safe, as on OS investor I would be worried about exactly the kind of mess you’ve recently posted about labradorinlove. with this model, you’re not dealing with the property directly, so are unlikley to encouter any such mess.
the main downside to it I have considered is that you’re not actually purchasing real estate, so you couldn’t borrow against it or anything like that.you get 9%, but the rent is actually about double that, TWH uses that for their costs and takes some as profit as well.
for what it’s worth, I’m strongly considering purchasing some of Jay’s notes, but haven’t taken the plunge yet.
NB: correct me if I’m wrong pls, this is based on my own research into this.
My sister (emma171) does an outstanding job as a buyers agent with foreclosures, and you won’t beat the buys she finds and certainly not the reno work and particularly the ongoing hand holding that goes with it, however I have got to say if direct ownership doesn’t make you drool then I would be into Jay’s system hook, line and sinker. It makes a lot of sense – the profit is obviously less but the risk is near as dammit to zero. Moreover you have no ongoing stress with bad builders, busted water heaters at 3am, angry tenants, etc etc etc etc etc. Etc etc etc.
Owning your own will obviously get you a bigger return and 5-6 of these will get you a very good salary for the rest of your life – but you hold the can. Bigger upside, but how much time in the long run do you wish to put in? A ‘lazy’ 9%+ for a lot of people is an unheard of return, nice currency hedge too….
lawsjs wrote:Owning your own will obviously get you a bigger return and 5-6 of these will get you a very good salary for the rest of your life – but you hold the can.I would say you need about 20 investment properties to bring in a ‘very good salary’.I currently only have 3 properties bringing in anything.After I pay for HOA, taxes and management fees, my 3 properties probably bring in a couple of hundred dollars a week. Try paying rent and living in Sydney for only a couple hundred bucks- I don’t think so.I see overseas investment as a ‘hobby’ rather than way to earn a decent income.I bought a 3 bedroom brick house in Florida for 31K all inclusive (closing costs and repairs). There is no HOA, taxes are about $1300/year and the PM takes 10% of the rent. The place has had the same tenant since day 1 and he pays $800. I think that was a good investment.Property 2 is in Las Vegas and cost about 42K all up. The HOA is $130 a month because it has a swimming pool and gym and is in a gated community. It’s a really nice looking condo around 10 years old with 3 bedrooms. The annual tax is only about $300 and the PM takes 10% of the rent. The tenant pays $850 a month so the ROI is pretty average.The last property is in Phoenix and is a lovely 3 bedroom house built in 2005 which cost 56K. This property has been really problematic. Things seem to be straightened out now, with the tenant paying $850, annual tax is around $900 and HOA is about $50 a month. I think the PM takes about $80 a month for management. I would say the weekly income I get from the 3 properties is quite measly and even if I had another 3 the income would still not be substantial. I’m counting on the economy recovering and the properties being worth a lot more in another decade or so.
You bought the wrong stuff Lab…. Getting involved with HOA’s is plain silly (often only a few people are paying so that means the bills fall to YOU). Also, unless you look at a system like Jay’s playing at US property as just a hobby you are setting yourself up to get badly hurt. Management really shouldn’t be more than 7ish% but after 15 years of US investment I have yet to find the ‘perfect’ (i.e.: Australian/UK standard) manager. In short US managers as a generalisation are hopeless. Again Jay’s system gets around that – or use my sister who is setting up her own long term systems based on Aus standards. I agree with you about taxes. I would NEVER recommend anyone from O/S buying properties scattered all over the place – you are likely to find it almost impossible to get good maintenance people. I am sure you can do well in FL. but it is not my cup of Oolong – boats and retirement are the ‘main’ industries – Space Coast notwithstanding:). Given my sister has been living and breathing this since ’08 I have all the wherewithal and trustworthy assistance to buy foreclosures very well. I don’t because of the major dramas involved in operating my LA portfolio. I did not need to replicate the problems in more places – one was quite enough! To replicate my dramas with just one property in a different area would be logistical suicide IMHO. Globetrotting simply to check up that maintenance is completed as it said it would be would lose its appeal VERY quickly. And if you aren’t there it ain’t going to go smoothly! I was also very fortunate that my portfolio actually increased in value over sub prime (more tenants) and I was getting good finance. 7-8% nett returns might be boring, but they have worked over time for me and spending cash seemed expensive to me – I am addicted to gearing:(
Your summary however is very good and I think a lot of people would do well to heed it. It shows the ‘hobbyist’ approach and how it is likely to work in real life. You will in time, do very well, but I am certain you will have a rough and painful ride along the way. Hopefully you will be able to keep up with the dramas and not just get sick of the hassle & offload your properties for peanuts to end the annoyances.
If you find the ‘right’ help (Alex, Kyler, TX cash-flow or Emma) you will get ‘experts’ on your side and get ‘much’ better buys and especially rehabs. Amateur vs professional. A guy at work was talking in hushed tones about US property – turned out he used Emma. I think he said he had 8 or 9 and was netting (after 12 months) around $80-90kpa. He spent all up ‘under’ $500k but I am not sure of the exact figures. He wasn’t advertising either who he bought through or what he bought but when I asked if it was Emma (my sister) he asked how _I_ knew her:) So I knew what type of thing he was buying. Point is, this guy had never bought investment property before and thought it was ‘easy’. Professional help makes the difference. The trick is, of course, how to find the genuine help in the sea of charlatans, thieves and scumbags that either sell Pink Batts or Tea Tree schemes if they weren’t ‘selling’ US property.
But steve is advetising 30% returns. …
Who the hell is Steve and can I have his number???
Lawsjs I have definitely avoided HOA where possible. But you can’t buy a condo without a HOA- at least to my knowledge anyway. And with the low property taxes on the condos, the extra money you pay on the HOA equates to about the same as property taxes on a SFR anyway.
I have probably over estimated when I stated the PMs are getting 10% commission. I’m not sure the exact amount by memory but they’re just taking their standard cut. And I’m very very happy with the PMs I have.
I think an individual can definitely invest in property abroad without employing one of the many ‘teams’ and ‘schemes’ that are out there. One of my funnier moments was buying foreclosure properties and doing cosmetic fixers and reselling them with a profit of about 15K a pop. All this I did via phone and email whilst travelling around the world with my other job. Obviously there’s a lot of precautionary measures you have to put in place though. And I would say I’ve been lucky bar a few items in Phoenix.Paullie wrote:But steve is advetising 30% returns. …Hi Pauliie
My understanding is that Steve was buying bottom feeder stuff in Florida, also multi unit sites, I think he started doing this perhaps 2 years ago.From what I have been reading there is so much demand I doubt you could pick up these properties now for the price he paid,so that yield is probably very difficult to achieve today.
Once again seems like Steve always jumps in and makes his money before the herd.
Cheers, WI
You _can_ buy condo’s without HOA, just rare. I would avoid HOA’s (in general) like the plague. Just don’t buy in them! There is no shortage of houses to buy! The whole thing is that people think the buying is the hard part. Buying is the EASY part.
I suspect you are happy with your PM’s because you haven’t had the properties long enough:)
Organising rehabs over the phone is fraught with danger. Obviously it worked out OK, but if it was that easy I suggest you wouldn’t be doing anything else, so you wouldn’t need to work your ‘other job’. $15k profit is what I would consider wafer thin doing what you are doing, but I would be the last person to criticise anyone for making a profit.
I would not in ten million years recommend the types of properties Steve (McKnight) uses to advertise his USA Property Power Pack thingy. Financial suicide IMHO.
WI: You will be able to buy the properties Steve talks about forever. They are the worst of the worst – no one with half a brain wants them:) In any case he uses very specific management ‘techniques’ which will not work for everyone and even then I doubt the numbers really ‘work’ – I suspect the business in reality is offloading them immediately.
WI: You will be able to buy the properties Steve talks about forever. They are the worst of the worst – no one with half a brain wants them:) In any case he uses very specific management 'techniques' which will not work for everyone and even then I doubt the numbers really 'work' – I suspect the business in reality is offloading them immediately.
I absolutely agree, would not touch this stuff, financial suicide indeed.
Not sure whether you can buy these properties any day of the week though?? Be interested to hear from those who jumped in.
Anyway, that should be discussed in another thread, lets keep this one going.WI
All of 3 minutes to find….
But yes, unnecessary digression.
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