Purchasing Property in the US

[Lyyynnnchy]

Hey All,

I mentioned in a couple of other threads that I have recently purchased property in the US. I had quite a few PMs so thought I would start a thread on it for those that are interested to save me answering each PM individually.

So, in my opinion the Australian (possibly minus WA) property market has a real chance to tank. I think it will at least plateau for a good few years and a good chance of it happening for a whole lot longer. From quite a young age I was very interested in property and wanted to retire young by investing in property but after doing a lot of research I found it was becoming harder and harder to do so in Australia unless you had a large amount of capital to invest to start with. It was and still is possible to do starting with a small amount of capital but the amount of time it would take is getting longer and longer.I am an impatient guy and with a goal of retiring before I turn 40 the Australian property market wasn't going to do it for me.

I had noticed a thread on an investors forum I was a member of, somersoft.com.au, now up to thread number 10 or so with 1000's of pages about investing in the US. After reading every page in every thread (a couple of forum members have ben investing in the US for years) and doing 6 months of my own research I decided I wanted to take the plunge. I finished the renovation on my house and sold it.

The first thing I had to do was decide what state I wanted to invest in. After a couple months of research I came up with Florida. I believe they are at the very bottom of a property crash, at the very height of unemployment and on the rebound as an economy. A few supporting graphs below. As you can see by the graphs Florida has started to plateau after a crash

FL house prices


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[Lyyynnnchy]

A couple of hints I picked up along the way with my research was to

• buy somewhere it doesn't snow as it causes your plumbing to freeze and you're constantly repairing your plumbing
• try to stick with concrete constructions to keep maintenance and repairs down. Also limits the amount of damage unruly tenants can do
• stick to the east of florida. West/South Floridas insurances are sky high due to cyclones, east and north florida are still higher than most other US states but not by a whole lot

While in the process of selling my property in Perth I started searching USAs equivalent of realestate.com.au. Houses in Florida were returning between 8 - 15% gross profit while the apartment complexes were returning 10 - 30%+. The US call apartment complexes multi family properties. Although slightly higher in risk as the expenses a little higher, the returns are unbelievable so this is where I turned my attention.

In talking to countless realestate agent about properties, talking to property managers about the best place for rentals and other US investors I built up some contacts and one contact in particular. Unfortunately I'm not willing to name him on here as I am looking to build up a working relationship with him in the near future.

After talking with my contact in the US it was decided it best to purchase under an LLC (limited liability company) this limits your liability in case anything goes wrong. It means that should you be sued, go bankrupt etc only the assets the LLC owns are under any threat, nothing in your own name. It's $350 to setup an LLC

With properties in the US that have foreclosed, the rpevious owners have often cleaned them out of thing like plumbing, light fixturs etc and left the outside of the property in a state of disrepair. This can work in favour of the buyer. A lot of properties that have falled in to a state of cosmetic disrepair will have a lien against it, this means that each day the owner of the property, in most cases the banks, are getting fined a certain amount for each day that the outside of the property is in a state of disrepair. This means the banks like to move quickly on the property and the best part is that before the sale can close, the bank must fund the cosmetic renovations to get the property back up to a certain level acceptable by the city. The property I brought in West Palm beach needed a full otuside repaint, landscpaing and replacement of windows, this was all funded by the bank!

So I decided on my first property, a concrete block multi family property with a 2 bed apartment upstairs and a 2 bed apartment downstairs. The asking price was $69,000 and I eventually got this down to $35,000. I needed to pay a $2,000 deposit to secure the property.

First of was for my contact to arrange for the bank to fund the outside renovations which finally finished after a couple of months. The reason for taking so long is first of all you have tog et the bank to agree to fund the renovations and accept the quotes and then you need tog et the council to approve the renovations and remove the lien. Banks and city councils are kown to be difficult to work with so it does take time.

So after the approvel from the council the house was settled. It's actually quite easy to settle as the wire transfers are very quick. I just transferred money by wire from work and it settled that afternoon.

Next was to do a bit of a cleanup on the inside. Trades people are desperate for work in the US, and you can ofteng et professional tradesman to do work for less than $10ph plus materials. All up the renovations cost me $4,700, this included

Paint throughout both apartments
New carpet throughout both apartments
Tiles through wet areas for both apartments
New front doors
Repair damaged walls
New bi-fold doors openiong to courtard

I was extremely happy with the quote and before and afters which I will post up shortly

After the renovations my contact went throught he applicants, they had 16 applicants in 2 weeks, and both apartments are now rented. I've recieved all rent on time so far and have had only the 1 issue which was to replace the old hinges on 1 of the bedroom doors.

If you're going to invest in the US you need to be very trusting of who you're dealing with. Things can be delayed as dealing with a bank on a foreclosure is a lot more complex then simply buying from a normal person. Properties with liens can also take a lot longer as you need to have renovations done and approval from both the bank and council before you can close you just have to be patient and hold your nerve. You will eb transferring $10,000s to people you have never met and have only had communication by email/over the phone

I am happy to answer any questions people may have as this is now a huge love of mine

I will soon be setting up a website with properties available and will be working with my contact to organise peoples property purchase from organising the LLC to negotaiting with the seller on the price to organising the renovations, down to setting up a tennant and also managing the property. I will be available to meet in person and hopefully that will go someway to easing some peoples fears. A lot of people I have met are very,v ery interested in purchasing property in the US but are too scared to take the plunge

I'm sure I have missed some stuff as I have done this fairly quickly so yeah if you have any questions ask away!

 

[Lyyynnnchy]

Property 1 - 2 x 2 bed 1 bath - West Palm Beach, Florida (now rented)
closed September 2012
Sold in 2007 for $275,000



Purchase price - $33,000
Contacts Fee - $2,000
Closing costs - $600
Required Repairs/Maintenance prior to renting - $4,200

Rent in - $17,880pa
Expenses out
Tax/HA Fees - $800
Insurance - $1,200
Property Management - $1,600

Total $12,600

Property 2 - 1x 2 bed 1 bath and 2x 1 bed 1 bath - Jacksonville, Florida
to close on December 2 (blue house)



Purchase price - $62,000
Contacts Fee - $2,000
Closing Costs - $800
Required repairs Maintenance prior to renting - $3,000

Rent in - $24,600 (estimate)
Expenses out
Tax/HA fees - $1,400
Insurance - $1,800
Property Management - $2,450

Total - $18,950

 

[Elixuh]

Amazing thread Lyyynnnchy, I hope you keep us updated with news, information and tips as time permits. Already one of the best threads I've read on Bigfooty.

Are the lessee's aware of your status as an overseas lessor? Or is no such information passed on and as far as they're concerned you might be living next door?

 

[Lyyynnnchy]

Amazing thread Lyyynnnchy, I hope you keep us updated with news, information and tips as time permits. Already one of the best threads I've read on Bigfooty.

Are the lessee's aware of your status as an overseas lessor? Or is no such information passed on and as far as they're concerned you might be living next door?

Thanks Elixuh, it has become a real love of mine so I enjoy talking about it!

No the lessee's arent aware that I am an overseas investor. It works exactly the same way it does in Australia if you havea property manager. All dealings with the tenant are handled by the property manager and the tenant has no idea who the owner is

 

[Lyyynnnchy]

Oh something I did forget to mention in the OP is that you are unable to finance a a purchase in the US if you are buying a foreclosed property. 99% of the time it must be a cash purchase. You are then able to re-finance the property up to 75% AFTER you have purchased.The loans are ultimately through a US bank so you are able to use US interest rates.

I have been approved for a 30 year loan fixed for 10 years @ 2.275% through HSBC.

I dealed directly with HSBC not through my contact in the US

 

[onlymagic]

This is fantastic info mate, I am also very interested and love the property market and I am currently looking to invest in and build up my property portfolio. I am fairly young (early/mid 20's) and have already got a couple of properties but they are borderline for positive cashflow (even taking depreciation into account) and it is becoming very hard to find good positive cashflow investmens in Australia from my research.
I just finished reading 'Rich Dad Poor Dad' and it gave me even more motivation to pursue my passion, also it gives good insight into a few loopholes/benefits in the U.S markets.
In saying this I have next to no idea where to start to invest in the U.S markets or how to make GOOD/RELIABLE/TRUSTWORTHY contacts over there without physically getting on a plane and doing the groundwork over there myself (very costly), I like to do a lot of research myself before making investments as well (like you).
I'd be super keen to have a look at your website once up and running and even meet up and pick your brain if you go down that avenue.
Also what is the website for Real Estate in the U.S?

 

[Lyyynnnchy]

This is fantastic info mate, I am also very interested and love the property market and I am currently looking to invest in and build up my property portfolio. I am fairly young (early/mid 20's) and have already got a couple of properties but they are borderline for positive cashflow (even taking depreciation into account) and it is becoming very hard to find good positive cashflow investmens in Australia from my research.
I just finished reading 'Rich Dad Poor Dad' and it gave me even more motivation to pursue my passion, also it gives good insight into a few loopholes/benefits in the U.S markets.
In saying this I have next to no idea where to start to invest in the U.S markets or how to make GOOD/RELIABLE/TRUSTWORTHY contacts over there without physically getting on a plane and doing the groundwork over there myself (very costly), I like to do a lot of research myself before making investments as well (like you).
I'd be super keen to have a look at your website once up and running and even meet up and pick your brain if you go down that avenue.
Also what is the website for Real Estate in the U.S?

Have a look at the property investment forum somersoft.com.au and search specificaly for the US Property thread (not the "investing in property overseas" thread) I think they got up to number 10 or so. Start from the start, the first 1 or 2 have the best information for people who are just starting.

Yeah my property in Perth was a little cash positive but not enough to make a decent living off. With, in my opinion, the property market staying pretty flat in Aus for the foreseeable furure I decided to start looking in the US. For both my properties I'm looking at 20%+ net cashflow

Yeah would definitely be keen to meet up with yourself and others. I live in Melbourne but am frequently in Perth and Sydney. Actually have someone to chat to face to face would hopefully help ease people fears of investing overseas. A number of my friends and family are very interested but are waiting a few months to see how I go with everything first. I'm also in my mid 20's so I guess it's a bit easier parting with money for something with an assumed high risk/reward than if I was 50 odd years old.

 

[Lyyynnnchy]

Also soemthing I forgot to add in the OP

The West Palm Beach property was sold for $275,000 in 2007. Thats how much prices have crashed in Florida. The previous sale price is much more readibly available than in Aus as well as other information. You can even see how much the bank is holding against the foreclosed property! This can help in the offer you make.

 

[Leper]

I take it from above you are basically setting yourself up as a buyer's agent of sorts and more for a set fee (or % or whatever mechanism)? If so I'm certainly interested also.

Many may see the currency side of it as a risk, but personally (just my opinion - probably wrong!) I reckon the AUD is way overvalued (just look at what anything cost here cf. OS). So if the AUD went back down to (say) 80 cents you've got a 25-30% capital gain in AUD terms straight away. Florida seems a good choice for the reasons you've mentioned. Other areas I'd consider (off the top of my head) would be southern Cali or Vegas (just for the reccie trip!).

Whilst I haven't done as much research as yourself, my understanding is one of the main causes of the US property crash has been due to their (weird!) law whereby if you default on a loan the bank cannot "go you" for your assets other than the security property itself. Thus causing people with significant (or not so) negative equity to deliberately default.... and on the snowball rolls.

 

[Lyyynnnchy]

Yeah I guess I would pretty much be a buyers agent. I understand peoples hesitation with investing in something they can't see for themselves (unless they want to travel over) particularly in something overseas so most dealing would be very much face to face and I'd try and make myself as accesible as possible

I agree in regards to the currency. So far I'm averaging about 1.035 with my conversion after fees and can see the dollar quite easily comign down around the 85 - 90c mark, surprised it hasnt already actually. I aslo like the fact you really have 2 investments; the property itself and also the currency fluctuations.

Yes, in the US if you default on your home loan you can pay a one off fee and hand the keys straight back to the bank. After doing so you no longer have any agreement in place with the bank. The place I purchased in WPB had a $240,000 loan against it (this information is easily accesible) and a one of payment of $12,000 was made to the bank in return for breaking the agreement.

It's the reason why a lot of banks in the US are/were in strife

This also bodes well for investors as people who have defaulted, in most cases, dont and will never be able to, qualify for a home loan...meaning lots of renters

 

[Lyyynnnchy]

Some other points

All repairs and maintenance as well as any real estate tax and insurance is tax deductable, similar to Australia
As an overseas property investor you can claim up to 2 tax deductable trips to the US each year

 

[The Falcon Strike]

Who are you using as your rental agent? and how did you discover them?

I might need to buy you a beer next time I am in Melbourne as I have been looking at exactly this

Lastly - have you financed them with HSBC locally or in the US?

Lyyynnnchy


edit: scratch the agent quesion - i just read another of your posts

 

[Lyyynnnchy]

Who are you using as your rental agent? and how did you discover them?

I might need to buy you a beer next time I am in Melbourne as I have been looking at exactly this

Lastly - have you financed them locally?

Lyyynnnchy


edit: scratch the agent quesion - i just read another of your posts

Yeah the agent I use is the owner of an investment company over there. They do everything from the negotiations/settlement/renovations/on going property management. The guy is awesome answers any emails within 30 mins no matter what the time is.

A lady I worked wth 5 years ago recommended him. She is now living in the US, on to her 20+ property and managing them all herself. She started in Vegas but has moved to investing in Atlanta and Florida

Edit: Oh and I havent yet financed it but I have been approved by HSBC over in the US for a 75% finance @ just over 2%. No bank in Australia, even if it is a bank based overseas, will finance it. All my dealings are with HSBC US, specificaly the Buffalo branch.

 

[The Falcon Strike]

Very interesting indeed - I'll have a read of the forums.

Might be a case of pay cash, re-finance, get cash - and the rinse and repeat.

 

[Lyyynnnchy]

Very interesting indeed - I'll have a read of the forums.

Might be a case of pay cash, re-finance, get cash - and the rinse and repeat.

Thats the plan!

Once both are rented and rent has been coming in for a while I'll get the properties valued and will then refinance and repeat

 

[The Falcon Strike]

Thats the plan!

Once both are rented and rent has been coming in for a while I'll get the properties valued and will then refinance and repeat

I'm in Melb in early December so could be up for a beer!

 

[Lyyynnnchy]

I'm in Melb in early December so could be up for a beer!

Yeah no problems, flick me a PM a couple of weeks before you come over. I'll also be in Perth from the 15th and Sydney from the 26th of December if anyone else is interested in catching up

 

[onlymagic]

Thanks for that web site, I'll give it a thorough read over the next week or so.
I'll be in Melbourne in a few weeks or so for work, so if your keen for a beer I'll hit you up.
I'm sure I'll have a million and one questions by then.

 

[Lyyynnnchy]

Thanks for that web site, I'll give it a thorough read over the next week or so.
I'll be in Melbourne in a few weeks or so for work, so if your keen for a beer I'll hit you up.
I'm sure I'll have a million and one questions by then.

Yeah sure thing, send me a PM before you come over. I'm still learning so may not be able to answer all of them hah!

 

[onlymagic]

Sorry to be a pest mate but I can't seem to find the 'U.S Property' thread do you have a link?
Also what are the vacancy rates like on the rentals in your areas at the moment?

 

[Lyyynnnchy]

Sorry to be a pest mate but I can't seem to find the 'U.S Property' thread do you have a link?
Also what are the vacancy rates like on the rentals in your areas at the moment?

I've found thread number 3 but can't seem to find number 1 which contains the probably the most important info. Only hd a quick look though

http://somersoft.com/forums/showthread.php?t=73895

I had 15 applications in 2 weeks for the 2 apartments in West Palm Beach so they cant be too bad. It's a bit hard to see in Florida as there are parts that have been deserted, pushing up Florida's vacancy rate. It's hard to find accurate stats for each city. If I find a property that fit's my criteria I'll call property managers and real estate agents to see what the demand is like for rentals in the area

 

[sheahen]

simple question, what is the minimum deposit you need to start off?

 

[Lyyynnnchy]

simple question, what is the minimum deposit you need to start off?

It must be a cash purchase. You can finance up to 75% after the purchase with a US bank but as the properties are foreclosed the bank that owns the property will 99% of the time only accept cash offers.

 

[Orange C]

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)