US Atlanta, GA - USA Property Investing

Here is the link from SS regarding my purchases in Atlanta for anyone who may be interested and also to give you an insight/update on what has happened since original purchases in 2011/2012.

http://somersoft.com/forums/showthread.php?t=80120&highlight=Atlanta

We now have the AU$ in free fall at around 74, it has broken the 75 barrier and trending down. When we were purchasing we were buying when the AU$ was 1.00+. What does this mean? 35% increase on our money/returns.

Rents in Atlanta have not increased they remain the same. Taxes in first year dropped due to the values of the properties. Atlanta properties crashed in 2007 seeing as much as 70% drop in prices, now that's what you call the mother of all CRASHES. Taxes are now on the increase due to properties rising so rapidly.

Properties in Atlanta have rebounded and are now heading close to values in 2007. As I mentioned rental returns have not increased the money play gives us around 35% increase on our return.

Property management was hit and miss when we first started buying, every man and his dog trying to rip off foreign investors. We have this sorted, with excellent property manager, Australian style, Karina was instrumental in sourcing the right person. The key is also ensuring you have long term tenants, I still have some tenants in place from my original purchases in 2011.

Maintenance issues, in USA the hourly rates are much lower than Australia. I see this as quite manageable at the moment. Perhaps we may see some major expenses if we have to replace, roofs etc but we are some time off this I believe. Most expensive items to date is replacing HVAC units, as these foreclosure houses had been vacant for many years prior to being sold. In most cases my HVAC units were replaced as part of the rehab/renovation.

Fast track to one of my purchases, figures remain pretty much the same, however the end value of this property is around $120K according to Zillow.

Here are the numbers below, as I mentioned tack on 35% for the money exchange.

http://www.zillow.com/homedetails/6120-Course-Side-Way-Lithonia-GA-30058/61920414_zpid/

PURCHASE PRICE $ 34,300.00
FACILITATION FEE $ 3,000.00
APPROXIMATE REHAB/RENOVATION COSTS $ 16,182.00
TITTLE SEARCH AND SOLICITOR SETTLEMENT FEES $ 1,200.00
INSPECTION $ 300.00
TOTAL PURCHASE COSTS: $ 54,902.00
MONTHLY RENTAL ESTIMATE $ 1,195.00
ANNUAL INCOME ESTIMATE $ 14,340.00
GROSS YIELD ON PURCHASE 26.12%
ESTIMATE BUILDING INSURANCE $ 750.00
CURRENT COUNTY TAX (SUBJECT TO ADJUSTMENTS) $ 935.08
YEARLY H.O.A. DUES (IF APPLICABLE) $ 500.00
PROPERTY MANAGEMENT FEES AT 8% $ 1,147.20
ANNUAL EXPENSES $ 3,332.28
NET INCOME $ 11,007.72
NET YIELD ON PURCHASE 20.05%

My initial investment of $500,000 for 8 properties with the exchange rate as is today, would be estimated at around $1,332,000 and gross rental return of around $130,000.
Am paying much less tax than in Australia, don't ask me any questions of this as its complicated and I have a US accountant that does this, brilliant guy. Everything purchased by a Trust in a LLC (Limited Liability Company).

It would be great if Karina can post of the properties she sold to clients.

I am sure Handyandy, Gentle Chief, Oscar have some great stories to share, its been quite interesting, and there have certainly been some ups and downs, but the risk has paid off.

MTR

 

Hello MTR

I have some questions regarding the property management side of things. I am currently living in a condo that I bought (cash) a couple of years ago. I've decided to move home to Aus and rent it out. How did you go about finding a property manager? How does it work compared to the Aus system? I have a rental property in Aus as well (my former PPOR before I moved overseas). I will probably leave the US rental income in the US as I have a local bank account and am looking at buying some US shares or possibly another property in the complex if one becomes available. I posted last week but didn't get any responses.

Thanks, j

 

MTR
I am assuming all the above is quoted in USD? Which I understand at the time of purchase AUD/USD was 1:1 or thereabouts.

It goes back to my previous comment about leveraging some profits out. Im not sure it is possible but if I was in your position I would be looking into

Borrowing USD$500k (50% LVR)
Assuming a 10% interest rate interest would be $50k/pa. Given current US interest rates this would be extortion.
Park $500k in USD cash (waiting for further AUD decline) before bringing it back home. Current equivalent of AUD$650k (30%return).

This brings back to oz your initial capital + some profit. It remains low risk.
You still have USD$50kpa (currently AUD$65k) available for either debt reduction (under 10year repayment period) or to fund AUD investment/living.

To me this is a low risk strategy. Conservative LVR's. Returns your original investment for more fun in Oz. Allows the US portfolio to continue its growth (which I personally believe there is a lot left) and still leaves cashflow coming back to Oz for lifestyle/investment.

Obviously Im not in your position so have no authority what so ever to give you any advice. You are far better at this than I am!!

But this is just an idea.

Blacky

 

Hi
You did not link/quote me...so sorry had no idea you posted

Where is your condo?

Property management in early stages we had some issues, overcharging on maintenance and sourcing criteria was poor.

We now have a PM that was originally sourcing properties, her background was also property management, she now operates and set up a family business, service excellent.

I have noticed that many USA landlords manage properties themselves due to woeful pm services.

I am more than happy to give further details, however is the
Condo in Atlanta?

MTR

 

Hi Blacky
Yes, all US$ And when purchasing Au$ was on parity with US and above aroun 1.06 was the best when buying

Get your point on LVR and I have not revisited the possibility of finance for a number of years.

If anyone has an idea on this it will be Karina. However she is not able to source foreclosures at the moment, very few unfortunately. She has clients with US$ but the environment has now changed

Thanks for your suggestion, certainly food for thought.

MTR

 

@MTR, well done Marissa. You're in a great position! Unless you need the cash back here, I would actually look to reinvest the excess USD to give you that foreign currency exposure diversification. It doesn't necessary need to be more properties either, an ETF that tracks the S&P or the world market would also work.

 

Thanks KDP

I don't need the cash back and I have cash in US bank accounts which I could also use. Interest on these funds in US banks virtually zip

Good idea, prefer a different asset class.

It's very interesting times now with Au$ in free fall, surely there are also ways many can make money on this, if we believe it will continue to fall?..

 

Shorting the AUD is the obvious option but for us average investors and to keep it simple I think we just focus on increasing our exposure to USD based/producing assets. Which is why I suggested using the USD cashflow you have to buy some ETFs with an international focus.

 

Got it, it makes perfect sense. Thanks

 

Shorting is the obvious choice, however, I cant get my head around the risk profile. I also cant figure out how to do a 'long term' short. The shorts I have read about are very highly geared and very short term (close out end of day). I want something with a longer term focus. I don't know what will happen to the market in the next 24hours, or the next week - however, I am confident that by the end of the year 75c will be long forgotten.

The issue for us average investors is that if we don't already have USD, we are moving money now at 75c. Far less exciting, and higher risk than 12months ago when it was 90c+.
MTR's 30% profit just on the FX will be much harder to come by. A fall that much would be a AUD/USD at 0.50 which is a big call. When it was at 1:1+ a fall to 70c is far more feasible.

Blacky

 

Sorry, didn't mean to imply that you should have replied to my earlier post, just mentioned it for extra info since it is my first on the forum.

It's in Columbus Ohio. How did you find and select your PM? They don't seem to be connected to real estate companies the way they are in Australia. I have a list of well-rated PM companies for Columbus, I'm just looking for more information on the process. Things to ask, things watch out for, that sort of thing. I have an IP in Australia managed by a RE agent so I'm mainly looking for differences in the way they operate. The US forums I've looked at all say to manage yourself, but that's just not a reasonable prospect for me. I don't have any local tradies since I haven't had any work done while I've been here. I do have a local bank account and SSN.

Thanks for your response!
j

 

Do a search on somersoft forum as there is a guy, egnelo?? that is operating in this area, he may be able to help you, he is a forum member on SS. Do a search of Ohio, he possibly has a PM company in place, not sure, just make sure you ask for referrals from some of his clients etc.

All the best
MTR

 

@Blacky

Just an update on this.

I spoke to Karina this morning and she has looked into finance in US and unfortunately as foreigners we can not get bank loans in US, we would be using a second tier lender at 8% and 5% set up fees, not interested in this sort of product.

Problem is there will be conditions in the contract that I am sure will make it a higher risk proposition, ie possibly costly insurance, loan only for 3 years.

MTR

 

Wow! That puts a different spin on things!

Well - good to know in anycase!

Thanks for the update.

Blacky

 

I think that the best days for Aussies to try their luck in the US have passed. I got in at a good time when the $Aus was high, prices were low, and rent yields were good (2011). It really was the trifecta. Wish I had bought more.

I know that this is a USA thread but keen to hear any thoughts on other global opportunities / locations people are considering or see opportunity in.

 

Me too
Wondering if anyone cleaned up in NZ

BTW, I agree, unless you can buy US properties with US $ I would not bother. Problem though as I mentioned hard to source these properties now.

MTR

 

We now have 13 properties in Atlanta Goergia. One is a duplex so soon to have 14 US tenants. The last 2 have been purchased with US dollars, as in rental income used to purchase and renovate further properties.

Gross rent will be about $200k. No bad for an initial investment of around $850K AUD. Expenses run at about 40% of gross.

Not much to tell apart from the fact that it was the right time to buy. Strong AUD, low US property prices and great rental returns.We were buying properties for $20-25 psf with replacement cost at $60-75psf land was free.

I feel anyone contemplating buying in the US currently is letting their AU equity gain go to their head. Saw a recent AU buyer agent suddenly jumping on the US band wagon crowing about properties that were in Michigan (a very cold state) and at best "C" type properties. Great rents (if you get it) against purchase price but, in my view, very little up side. Certainly not buying below replacement cost and this alone will put you behind the 8 ball if you have to unload in a hurry and are competing against 'B' or even 'A-' properties.

The US property market is a totally different animal to the capital city AU market. The closest comparison is the AU mining town market where a lot of people are now hurting but not those people who got in when the market was low and stayed to collect rent or better still sold when the market was topping (always hard to spot). Similarly I expect that the US market will crash again at some point as it has multiple times previously. It has always been my view that the US property play was always going to be a short investment (5-10 years).

As far as property management goes. Look out for contracts that tie you up for extended periods, like 2 years. Tie you to a sales commission. if the property is sold to the tenant they place even if they no longer manage the property. There are other things to look out for but I will have to review some of my past notes to refresh my memory.

Cheers

 

Good post HA, agree, saw that house in Detroit/Michigan, someone purchased a dud.

MTR

 

I know it may be too late to jump on the US bandwagon now, but still,the US properties are better cash flow plays than Australia properties, doesn't it make sense to buy US properties than Australia ones? The yield on Oz properties is such a dismay, compared to US houses!
I am a super newbie trying hard to make sense of property markets..............

 

Problem is you wont get bank finance as a foreigner, so instead of 3% finance, it will be more like 8.25%. If you are using Au$ then you will be coughing up perhaps around 40% on purchase price. If you can leverage on US properties then it may work well, dependent on what properties you can source, price etc.

If you have US$ then definitely the way to go IMO because you will have higher yield and you can make money bringing US$ (rental come) back to Oz as the Au$ is trending down.

Have a chat to Karina. (Select American Homes)