According to some reports as much as $650 million may have been spent in the United States over the last 18 months in property. Now the real question should be how much of that $650 Million has been spent well. In my view many people have brought into the United States because of cheap prices. I hear every day of people buying properties for $30,000 to $50,000. The problem is that many of these properties are in slum areas. If you saw some of these locations you would not want to get out of your car let alone buy a property there.
People often buy because of the returns. It not uncommon to have returns of 13-15% however in many cases the figures quoted are gross not net returns. By the time you take away property management, Property Taxes and maintenance the returns can fall well below 10%. So at the end of the day you are paying cash which may be costing you 6.5% or more and getting a return as low as 8% with little chance of solid capital growth. To me this is not a great investment.
If you are going to buy single houses you need to buy a lot of them. To simply buy one is not economical because you have to look at the cost of setting up the LLC in the state you are buying in. Plus you also have to look at lodging a yearly tax return with the IRS and also a state return. Both of these processes are not cheap and if you only have one property then watch your return plummet.
There would appear to many suppliers in the United States, some good some bad; the question is how you tell the difference.
Make sure that the people you are dealing are actually operating in the city you are purchasing in. Sounds like a silly question, however in many cases wholesalers are buying properties they have never even been to. So the question arises how you can tell the quality of the property or area in which you are buying, the answer is you cannot. Then you have to find someone to manage it good luck with that one.
You then have people who buy properties and renovate them. These types of properties are better however what is the real value of the properties is the real question. You need to see examples of sales in the immediate area. In some cases the market located just 3 blocks away can be very different. Before you buy spend the money to go and meet the supplier and get them to prove to you that what they are recommending is worthwhile. Also see how big is their team? If it is a one man operation what happens if they go out of business. Meet the property manager and question them carefully about their experience and what kind of follow up support can you expect? Remember you can be in the best market anywhere if you are dealing with an idiot, crook or a salesman you still have a problem.
Suppliers that are locally based are also interesting. It is important to consider the following questions
Do these suppliers have ownership in the US Business or are they just middlemen?
Have they met the suppliers they are dealing with?
Have they been to the city in which they are recommending that you buying?
Now you may be asking yourself how can someone who has never been to the US not met the supplier offer you good advice. The answer is they cannot. Be very weary of people asking for fees when their real knowledge may be limited.
My problem with single homes is that you cannot leverage, because you are paying cash for properties. Personally I like commercial properties and that can include apartment complexes because we can get at least 60% from a commercial bank. To me these are great purchases and good solid investments because you receive a great net return together with strong potential capital growth and in most cases the occupancy rate is over 95%.
America is a great place to make money, however you can lose money very easily if you are dealing with the wrong person. Do your due diligence very carefully, not only on the market that you are going to deal in but look carefully at the experience of the supplier you are going to deal with and match that with your investment needs.
Investing in the United States can be a great and successful experience by simply taking the trouble to do your due diligence carefully.
<moderator: delete advertising>
Nigel Kibel
Nigel Kibel | Property Know How
http://propertyknowhow.com.au
Email Me | Phone MeWe have just launched a new website join our membership today
Hi Nigel
How correct you are. There are many places to invest in the United States but one must be careful not to believe just anyone and stay away from the fluff. Depending on the location ad the product type (commercial industry) then a person could net 4-plus % on a McDonalds ground lease or could net 9% on a retail store or shopping center. It all depends on your people who you team with. Having the best team will always be the safest play.
Here is a link that can assist with some great up to date news: http://www.marcusmillichap.com/Video/bloomberg_112712.asp
John-USA-CommercialRE
Email MeNigel,
Good post and reading.
It is true that people are posting gross yeild and return for property in US and in Australia.
Spoke to someone that said, most of his returns are getting chewed by PM fees,other taxes and charges.
That is correct and that's where a lot of people are being deceived. Always look only at net figures as that will tell you from day one whether it is a good investment or not. For instance in Texas there is a 3% property tax now in a gross return that would not be shown. However it could clearly make a big difference to your returns.
If investing in the states you need to look at
Property Taxes
Maintenance
Property Management fees
Insurance
Accountant costs including structure and yearly returns
It is important to take all of these things into consideration before you buy
Nigel Kibel | Property Know How
http://propertyknowhow.com.au
Email Me | Phone MeWe have just launched a new website join our membership today
Nigel
I think one thing most miss understand is what is a seller and a reseller . Regardless where they are from. There will always be the flip side of the coin for both.
Take my company per say( seller ) , I am in the USA not say where at not to advertise. We use to larger resellers in California to reach a broader market. Now in international markets I have more focused on partners not the resellers. This is for long term thought process. So the resellers are selling the properties I buy and rehab.( with private capital ) Again this is some thing to think about.
For investors they should simple look and see who is really selling you the properties. Do they or have they actually been their to that market, are they willing to invest there own money in that market. The homes I would want to know the level of rehab and why , areas the property is located. I can show you a 2 story house that looks great on zillow , trulia , and show well in video and pictures. The location could be the worst part of my city. This is why taking a trip to the market you decide to purchase in is huge. Then deciding to work direct or go with a solid reseller. I feel there are advantages for both when deciding to invest in real estate.
Stole this next part from you.
Property Taxes
Maintenance
Property Management fees
Insurance
Accountant costs including structure and yearly returns which is great I do not see repairs , vacancy these are two more main factors that will kill a return.
It is important to take all of these things into consideration
Again bare with me it is early and tired
Thanks
I don't get the idea behind posting gross figures (meaningless, except for very specific tax purposes) – but I'm even more lost as to how anyone can fail to ask whether figures are gross or net. Our website clearly specifies "pre-tax return" and "all running and purchase costs included", and still, it's the first question anyone asks when they contact us.
Ziv Nakajima-Magen | Nippon Tradings International (NTI)
http://www.nippontradings.com
Email Me | Phone MeZiv Nakajima-Magen - Partner & Executive Manager, Asia-Pacific @ NTI - Japan Real-Estate Investment Property
I thinks its because so many companies use gross figures to sell American properties. When you look at the net figures it can come back a long way especially when you consider states like Texas have a 3% property tax
Nigel Kibel | Property Know How
http://propertyknowhow.com.au
Email Me | Phone MeWe have just launched a new website join our membership today
I agree Nigel. The term Due Diligence comes to mind very quickly here.
It is just wise and good business to dig into the facts of what people are trying to sell you. Anyone can go on the internet these days and if you want to see good news on an area you can find it; but if you want to see disturbing news on any area you can find that to. But performing your own market analysis is key and it has to begin somewhere.
example…..you have someone posting a deal with 10% return GREAT. I would not recommend simply taking their word for it; test the waters. Between the internet and making a couple phone calls (even skyping) a person can perform tons of due diligence and compare the supposed 10% return to other like kind deals in that area. Even when the 10% deal that is being pitched to you stands out from what that market is currently delivering for return on investment, you must ask the simple question as to why. There are many deals that have a story behind it and that story supports the uncommon higher return. But in the absence of performing the right due diligence most people will gloss over this deal as something is not right and they just move on to the next….
On the flip side of this; when you find a deal that is being misrepresented take a few minutes and file a complaint to the proper licensing board. The key to filing a complaint here in the US is the wording of what was advertised. Does the advertisement say NET return or GROSS return? When it does not say either then a person would find that out on their initial call to that agent or firm. If at any stage in the deal inquiry there is misrepresentation then certainly ask for a confirmation in writing if possible and make a decision as to if the deal is still good enough to go for or not. If a person feels that it is total fluff and just bait to get you engaged then complain about it to that State's Licensing Board. If enough people would ultimately complain against the frauds that are out there then this industry would completely reduce the headaches of false advertising of real estate.
Sorry to get off track on this post but it is so frustrating when the other agents out there make it difficult for those of us who have integrity and ethics about what we do.
John-USA-CommercialRE
Email MeI would like to have some feedback about Splash Property Group as my friend is engaged with them.
You must be logged in to reply to this topic. If you don't have an account, you can register here.
