US Detroit - turning the bend

Guys,

It is simple -

If you are going to make $1000 and have to pay 37% Tax, are you going to walk away from the deal?

Your choice of walking away earns you Zero.

A Profit is a Profit. Whether you made that profit in Darwin or Detroit.
This is a GIVEN in our Lives!
No escape from Taxes.

Your income Tax bracket since it is 37%, this is the max tax you will be paying.

So if you have made that 1000 in the US and have to pay 30% in State & Fed Tax to the US govt, then disclosing the foreign income to ATO you will pay the difference - i.e 7%

So you STILL earn 63 cents to every dollar you make.
Whether you earn this in Aus or US.

I am in no means a Tax expert.
Just a common-sense investor who seeks cash-flow and the next big deal in CG play.

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Cheers,

 

I hope you do well too @MyDarlinghurst in your journey.
My very best wishes.
Let's reach out for a coffee anytime you are in Sydney

Buffett says that he enjoys work & explains that he does not begrudge paying taxes because he would much rather be on the paying side than on the receiving side.
And also explains the importance of working with people he likes & being positive..

 

Well, that's not quite the case. It may be as much as 37% plus the US State tax, for which you do not apparently receive a credit when the money is taxed in Australia. So it could be well over 40%

So it's not a matter of walking away. It's a matter of disclosure. The 4K being claimed as profit is no longer 4K under these circumstances. Its more than 40% less than 4K, potentially. And that leaves the strategy extremely vulnerable to the costs of a one off repair or a prolonged vacancy. The repair issue is an especially reasonable and valid concern where the properties are approaching 100 years of age and are located in a climate where 4 extreme seasons occur.

As I understand it, you have ready access to a tax expert . So it's difficult to understand how someone with 70+ properties in the US and with ready access to a tax expert and who is now launching a business offering their own product to PC members, doesnt know how these things work....



Its just generally concerning all around that the responses now received from two US property sellers on these forums appear to be so casually dismissive of these realities when I have raised them.

I'll say it for the umpteenth time. I like the US property opportunity, but so far everyone I have researched has failed to talk about how tax treatment may affect things. Just tell people. That's all. Then they can decide for themselves whether the likely returns are satisfactory to them or not.

 

Hey mate, I fail to see your argument - @euro73

It is not 37% plus State tax btw,

As I said 37% is your ATO rate

And if you paid 30% in the US (State + Fed taxes)

You will pay the 7% difference you owe here in Aus - Simple?!

I understand that you understand this. But you wish say things your way!

Good luck with your business - trying to upsell NRAs by discrediting other CF +ve investments opportunities may not be such a good idea, I reckon.

And the smart Investors know this....

I don't have to blow out other's candles to make mine look bright,
It is Bright naturally and we know it,

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P.P.S - End of this topic wasting time, from my end, busy acquiring deals for the investors.
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Cheers,

 

If you fail to see the argument, that's concerning.

If I pay state tax in the USA and do not receive a credit for that amount when paying tax in Australia, and I then pay 37% between US and in Oz, I am not paying a total of 37% . I am paying 37% + whatever the State liability is in the USA.

I'm trying to help you, not criticise you . I'd likely have invested in 20 or 30 of your properties if you could have been more careful with your numbers when I pointed out the omission, rather than going on the attack.

I havent mentioned NRAS in this thread. You did that. What I have done is question the numbers provided by US property sellers. Not you in particular. No one in particular, actually. @Karina mentioned you. I didnt. But if I did mention NRAS ( and thanks for wishing my business well..its actually been a massive, roaring, stupendous success for over 6 years now- because I am thorough and what I say people will get is what they do actually get ) I'd provide complete and comprehensive numbers. I would not present outcomes with up to 40% +, or 37% or 32.5% or even 15% inconsistencies.

Why is it so hard for you to concede you have made an omission, and just correct it?

 

@euro73
You are trying to make something that is actually quite complex look simple and the reality is its not. I have said this before the actual cash you put in your pocket VRS your NET taxable income on your US tax return are 2 very different things. You can actually be making lots of money and showing losses on the US tax return (or a much lower income than what you banked) due to all the LEGAL tax advantages US property offers so your basic calculations don't take into consideration the entire picture. Hence why I advise clients to speak to a licensed tax professional for accurate numbers based on their structure and holdings in the US.

If you don't believe me then I suggest you listen to some US CPA podcasts that explain this concept.

Here is 1 link, listen to minutes 5 - 10 of the podcast which captures the basic message I am trying to communicate. There are many other CPA podcasts that explain the same concept.

Link

As far as @GentleChief is concerned I don't think he needs anyone's help. He is doing just fine having acquired more than 75+ properties in the US. The amount of learning that goes into having undertaken that many transactions makes him someone to look up to and admire in my opinion.

 

Yet his numbers are potentially out by @ 40%. Look, I'm not having a go at anyone here. I would have been far more ruthless if that were my goal. But to ignore tax is to ignore tax.

The number of properties someone holds doesn't impress me, either. At 20-30K a pop the entire asset base at less than the value of my PPOR, and less than 20% of the value of my entire portfolio, and about the value of my cash reserves. Its not a measure that means anything when the assets are so inexpensive.

Net income is a measure that matters though. So you'll forgive me if the number Im more concerned with is income rather than asset volume. And from the very first, all I have been trying to understand is those numbers , and why all the sellers of US properties- whether its Mary, Jimmy, Uncle Bill or Gus down the road- market them as generating X, when they generally actually generate Y . I simply want to understand what goes into my pocket.

 

I pay peanuts in US taxes each year compared to my actual income.

Just worked out last years financial figures in US I made exactly 60% of gross income, that included my US taxes county and IRS.

My Australian Trust is the member and distributes income in Australia

Tax is not the major issue in terms of getting the cash flow to work, its about keeping long term tenants. If you lose a tenant you are up for reletting fees and getting the property rent ready for new tenant which could screw your cash flow.

Touch wood, I still have some tenants from 2011. Atlanta is a landlord market so happy days.

MTR

 

I would have to disagree with you. I have invested enough time on your posts. I also won't be making any further comment on your tax questions.

 

I have a suggestion, buy a few and see if it works.... they are going cheap today, tomorrow who knows... if it goes the Atlanta road, you will more than triple your money in a short time frame.

 

So whats your opinion GC on product??

do you go cheapies and chase cash flow or perhaps higher entry level .... what are the pros and cons

My gut tells me it wont matter as long as you buy in aspirational suburbs

Why.... cos of my experience in Atlanta which was one of the hardest hit States, 70% falls in property values... hard to believe this today

We purchased lower blue collar suburbs with great cashflow and they achieved same growth as blue chip, difference we had the cashflow income .... meant you could continue to buy and increase income

I think. Rinse....repeat

 

hey mate,

The US deals listed are quite simple:

Buy a box of 20 Mangoes @ $40 dollars for the box, from the farmer direct

Cost price?
$40 - wholesale price from the farmer

Sell the individual mangoes for $3 a piece. (20 x 3 = 60)

Selling price?
$60 - retail price to the consumer

Profit?
$20 (I don't think it's necessary to show the math, until you complicate it)

Not rocket science - isn't it?
At least not to the savvy 99.9999% of investors out here.

And that is what is claimed. By all of us here wasting our energy.

i.e,

Profit before Tax.

And you so claim to be an expert in by bringing in State Taxes on the profits!
Wow!!! aplomb....

And staking a claim that numbers are overhyped. Remember the 60-40=20 example.

Or if you want, also by trying to sound too intelligent, since we can - by bringing in factors of variables outlining the statistical ANOVA on a random number faction theory.

Get my drift?

If your Tax accountant says - 'No!!! that is a Bad idea dude - don't even attempt it',
because you will be making $20 and your State tax of 4.25% will make you poor as a church mouse, (which no one with common sense knows how, yet!)

then listen to you Tax accountant.

Or Mr whoever.

And go back to what you do best - over analyze every deal to every nth whimsical degree and kill the opportunity.

When common sense simply says "Great deal".
And when even my grandmother could have sniffed it,

So Mr, one can set their alarm up at 6:10 am and begrudgingly wake up and take the 712 express bus into the city whilst wearing a colorful tie and pretending to be the smartest specimen on planet earth, drinking chai latte on their way to the dream job that they so love!

(not naming anyone - did I?)

Good luck,

worked with super high profile investment bankers all my 24+ years in career life,
some who could only see the tree and forgot the forest in front of them.
Bang!! Crash.

And unfortunately, have 2 pennies to show on their wills - and sounded super smart on their resumes with mammoth corporate titles. (worked with them all).

Show me your best deal, with math, who your investors vouch for and we can put this to a closure.

Easy?

No long-winded posts with vocabulary which begs ignorance

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Cheers,

 

Hello Marisa,

I think the cheaper ones (sub 50K) will rise faster than the higher end (which tends to be a home owners preference). At least in the beginning on the next few Qtrs.

Detroit is an Investors market today - Investors chase Yields.
Cheapies will be the first ones to get picked.
Not the top end until they get pushed up as a market reaction to the "good" ones on the bottom end. Which is already happening.
A penny stock rises as fast and further than a Blue chip in a climbing market that was decimated previously to levels unfathomable since 2008 crash.

Just my thoughts.

I agree - think... Rinse, repeat as well.

Cheers,

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Yes... me thinks keep it simple, get the product

Hey Bala
How did you go with this list??? Did many meet your criteria

 

Hey Marisa, the property viewings went alright - some of them were not in 'our' target zones, so just drove past. In the process of finalization of a few - i.e. 11 on the list 'under progress'
Shall keep you and the interested investors updated with a neighborhood videos on selection.

By the way I have another very interesting proposal.
Shall start another thread on that - a stunning Tudor & masonry Church conversion
Cost price - 400K
Rehab costs - don't have the estimates yet but approx 450K
Potential 350K in Income

 

@euro73 @GentleChief

Based on these posts, does the tax picture look something like this (just asking):

After Tax Profit = Profit x (1-.0425) x (1-.25) x (1-(.37-.25)).

Where:
US State tax = 4.25% with no OZ credits
25% US Tax
37% assumed OZ MTR (reduced by US credits).

 

Had a cursory look at some properties in Detroit. Why are some selling for so little? See screen shot below.I noticed in the description that taxes are payable on sale. Could the unpaid taxes be significant? This house is not far from downtown Detroit so not outer suburbs by any means. I am obviously missing something.

 

This house is blighted amongst several of it's neighbors.
And is scheduled to be torn down by DLB by 2019 Mar 31st.
Along with several other 2018/19 (list is in the 1000s)
As a massive city-wide drive (against blighted properties such as this).
This one has back taxes of US$10,831.47.
Water and other utilities could be significant too.
Not my or any investor's cup of tea - as it is in an extremely weathered neighborhood, SW of Detroit destined for the Thursday morning council pickup service.

 

There are areas you can invest,
and others are culled for public parks.
Detroit is super super large (3 cities in 1) with the good mixed with the bad.
Areas to Buy and areas to avoid.

 

Hi

Well done on Detroit. We have been doing business in Florida and Georgia for seven years and it has been very profitable too. We are now branching into Alabama.

While Australia has been a very good market the past 20 years but the costs of doing business here are very high. What with stamp duty and land tax - it does not add up. Very low yields. In the US much lower entry costs, no stanp duty/land tax and many write-offs plus up to 15% yields, not worth it.

Keep on going!

Steve