Purchasing Property in the US

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Orange C said:
Hi mate, hardly ever post here but this thread and the ideas are something I've had some interest in for a while and hearing of someone actually doing it is great to hear.
My question, and I'm only near the start of the first thread so it may get answered later on, is why you've avoided Vegas so far? Also what sort of medium to long term plan you have given the requirements of cash purchases and limited initial capital?
(link to the first thread for those interested http://somersoft.com/forums/showthread.php?t=66392)
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Hey,

Avoided Vegas for a couple of reasons.
  1. They have already seen a rise in house prices, small but still a rise
  2. Limited number of multi family properties. Multi family have a higher rate of return and you will always have an income comcing in, even if it's only from 1 apartment if the others are vacant
and some economic reasoins
  1. With Macau now overtaking Vegas as the number 1 casino strip I can see Vegas struggling at times in the future
  2. Vegas has only the 1 thing keeping it going and that is the casino strip. It's simialr to mining in WA. When the Ravensthorpe mine closed there was nothing left in the town and house prices crashed. I dont like relying on a single industry
In regards to capital

Refinancing the 2 houses I own now (if valued at purchase price, I expect it to come in a little higher) will give me about $75,000. With that $75,000 I should be able to purchase a property with a rental income of $2,000 - $2,500 per month. That will leave me with about $5,400 income per month from the US properties, combine that with my wage and I'll have over $10,000 coming in a month.

After 6 months I can buy a property for $60,000 (still ahve some cash left over after selling my Perth property), refinance 75% and purchase another after a few months.

Rinse and repeat. I'll be lookign at purchasing a property at least every 6 - 12 months. When I have the income coming in that allows me to do it quicker, then I will.
 

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For anyone that is interested in looking further into purchasing a property in the US, if you do ultimately make a purchase and use myself as, I guess a buyers agent, no comission will have to be paid. Comission will be paid to me by the company that will be managing the property.

I can/will do everything from creating a US limited liability company by the name of your choice to organising settlement, renovations, renting the property out and on going management. There is no settlement fee as this is paid for by the vendor in the US. The only fees not included in the purchase price will be the $350 to create a LLC as well as any renovations that need to be done prior to renting out the property. An estimate on any renovations can be given prior to purchase.

Please note I have also arranged finance to be available for Australian residents. The finance is likely to only be available for up to 50% of the purchase price and at about 6% interest. You can refinance with HSBC after you have purchased the property up to 75% and at 2.375% interest so it is reccommended you pay 100% cash and refinance at a later date. Paying with cash give you more leverage when negotiating on the sale price as you can close quicker and also have no "subject to loan approval" conditions

I will be setting up a website shortly with reccommended properties among other things but if anyone is interested in purchasing asap let me know and I can send through any listings I like the look of as well as any ther information
 
Sounds good mate, how much cash would you estimate is needed for a minimum purchase, give or take?
Also with the current situation on the East coast of the US would you still be looking at Florida properties or maybe more now in Vegas/southern California?
 
Still sticking to Florida, my research always includes weather risks, just have to be wary about where I buy. The Hurricanes are usualy further South or North of where I have been looking. Staying away from Vegas for reasons given above but very much looking at Atlanta.

The 2 properties I have purchased are 30 years and 60 years old. They have stood the test of time including many large storms
 
Plenty of good purchases around the $40,000 - $50,000 mark, I'm very happy with mine at $35,000 with $5,000 for renos. I wouldnt go much lower than that, if you do you end up going further out from the City and to some pretty run down suburbs that you woulnt feel safe living in. So it's then up to you, do you buy outright or get finance for the purchase. You could get a 50% loan at around 6% for a $50,000 purchase so you'd need at least $25,000.

I reccomend refinancing after the purchase though, as well as the lower rate you have the security of having a loan with a bank rather than an investment company.
 
JohnW said:
The use of a LLC.Does this attract the same taxation ruels as a company in Aus?
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Nope, the LLC is set up in the US so nothing has to be done here in Aus. The only thing that does need to be done is to submit an annual report. I'll be doing this for my clients
 

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How is the LLC taxed in the US?

How are your distributions from the LLC taxed?

Also don't a lot of these cheap US properties have tax liens on them?
 
checkraiseulite said:
How is the LLC taxed in the US?

How are your distributions from the LLC taxed?

Also don't a lot of these cheap US properties have tax liens on them?
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The company itself is not taxed, the owners are taxed. It's as if the income from the business is income from a wage and you are taxed accordingly.

Yes a lot of the properties do have tax liens on them. All of the properties I provide will be cleared of tax liens. This will be shown in the offer documents ie offer of $40,000 subject to a clear title.

This affects the settlement time as communication has be made with the bank to have them clear all of the tax liens on said property. Properties with tax liens cant ake up to 2 months to settle while the liens are being cleared. My first property settled after 2 months due to this very problem.
 
Please note the following case study. Keep in mind the saying "if it sounds too good to be true....."

Eve buys some discounted US property

In 2005 Eve, a single mum from the suburbs of Sydney, was approached by ‘buyers agents’ offering her properties in the US, that they claimed “stood to make her 20 per cent a year returns”.
She was told of the wonderful buying opportunities in the US city of Buffalo, New York. “It actually turned out to be more of a sales pitch, but the rental returns looked really good, so after a few more meetings I ended up buying three homes.”
Here are her US property ‘bargains’:
A six-bedroom home (split into three apartments) for $US79,500, which she was told would rent out for $US18,000 a year – a 23 per cent (gross) return.
A four-bedroom apartment for $US51,900, which she was told would rent out for $US11,400 a year – a 22 per cent return.
A single family home for $US34,900, which she was told would rent out for $8,100 a year – a 23 per cent return.
Converted to Aussie dollars, the three properties (plus the spotter’s fees paid to her US real estate helpers) ended up costing her $250,000 – which she paid for by mortgaging her family home.
Sadly, it didn’t take long for things to go sour.
“The properties have been completely trashed at least a half a dozen times”, says Eve. So far that’s cost her $95,000 in maintenance and repairs.
All up she spent around $350,000, and she stands to recoup about $37,000 – she sold one for $US8,000 and another for $US19,000, and has the last one, which has been completely looted, on the market for $US10,000.
 
Yeah sadly there are plenty of stories similar to the one above. Plenty of good stories though

As the buyers agent was getting a spotters fee (something I wont charge) they wouldnt have cared whatsoever about the buyer as soon as the property has sold. This is a big problem and I'd never pay a spotters fee to anyone.

I will be charging a fee to the property manager which is the equivalent of about 10% (the property managers charge to the owner) of 12 months rent. This means just to recoup the fee they have paid me the property needs to rent for 12 months. This results in better properties with better tennants in better areas as the property manager needs the oroperty to be continously rented for over 12 months for the PM to have any chance of making any money. The PM will not manage properties that are just going to be trashed after a couple of months as he will be losing money.

Another difference is it looks like the person in the article above purchased the property when the Aus dollar was at about 70c. Big, Big difference at the moment.
 
Well done for having a crack I hope it all works out and you make some serious money.

Playing devil's advocate, the concern I always have with these things is if it's such a good deal wouldn't it be snapped in the US or by the property managers/promoters themselves - ie. why make some unknown Australian investor rich ?

I know the US has been doing it tough economically since the GFC but it is still the richest country in the world with most of the wealth concentrated with a relatively few wealthy individuals. As well, despite what you which watch on TV, not all americans are stupid so if an opportunity arose to make 30% returns plus a large capital gain for a relatively small outlay wouldn't they be snapped up ?

In summary the question is why aren't american builders/developers/investors/owner-occupiers snapping these bargains up and increasing their wealth ??
 
Well short answer is the people that can afford it are. The properties with the best returns are getting snapped up on the first day of listing. I missed out on a property having made an offer about 8 hours after it came up.

The other problem is that currently in the US because of the economic crisis there is a massive gap, that is still widening, between the rich and the poor. Most of the rich dont need these properties and the poor cant afford them. Most Americans have very little cash and as such cant afford to purchase. Those that do have enough cash for a deposit for a loan have most likely forclosed on their previous property which, 99% of the time, disqualifies them from getting a loan
 
It's a sad story for some people

What were they supposed to do. They purchased a property for $200,000 which 5 years later is worth $50,000. Do they continue to make the repayments on a property worth 75% less as well as make any lump sum payments requested by the bank to close the gap between loan and valuation? Or do they foreclose on their home meaning they wont qualify for a home loan for at least 10 years (not sure how long the foreclosure stays on their credit file for) meaning they have no choice but to rent.
 
I can see why the supply has occured just wondering why the demand side hasn't evolved.

For example, why don't professionals in the US worth say $100k to $1m see the same opportunity - they have local knowledge of location, tax laws, finance, more convenient etc. ?

ie. 312m people in US - wealthiest 10% - 32 million people - why aren't they buying these cheap properties ??
 
bruceharmes said:
I can see why the supply has occured just wondering why the demand side hasn't evolved.

For example, why don't professionals in the US worth say $100k to $1m see the same opportunity - they have local knowledge of location, tax laws, finance, more convenient etc. ?

ie. 312m people in US - wealthiest 10% - 32 million people - why aren't they buying these cheap properties ??
Click to expand...

Most of these professionals have had the values of their home cut in half. I'd say the last thing they want to do is invest in property, no matter how cheap. With the forelcosure they have had to still pay a lump sum to the bank depending on the balance of their loan. This may have eaten into their cash reserves or with the economic crisis still going on in the US they may be happy just stockpiling cash.

That said, plenty are choosing to invest in property
 
One in every 624 homes was hit with a foreclosure filing in Janaury this year. Spread that over 4 years and thats a huge number of foreclosed homes. Still way too much supply too be taken up by those who can afford it

If you average that number over 4 years thats over 1 in every 13 homes getting foreclosed. Havent compared the numbers from Jan to other months in other eyars but I do know they peaked early to mid 2011
 
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