Investing in the US

Anyone got any results on the big push into the US a couple of years ago? I know we looked at it all pretty closely before deciding we just couldn't due to where we were at at the time. Steve McKnight was doing lots over there and I think there were a couple of other investors on Somersoft doing big things over there. Has the market improved? Anyone think it is still worth it?

 

@MTR @Handyandy @Ozzie in Texas

 

+1
all these guys have runs good results in USA properties.

 

Jessica - there is a US Investing thread where MTR has provided great guidance. The difference between then and now is the exchange rate and an overall improvement in the housing market. Still a heap of spruikers to sell you the idea, but Exchange rate is a huge barrier to entry in my opinion.

Cheers Ivan

 

And US tax law should not be under estimated either. A withholding tax regime applies to sales to ensure offshore buyers lodge a US return and pay tax. This negates our generous CGT regime and results in a less favourable US CGT tax.

Don't even think about using a trust !! This includes a SMSF.

 

Paul I structured 3 LLCs Limited Liability Companies and my Australian Trust is a member it's working very well. US accountant and Australian accountant and US lawyer provided advice on best way to structure for my scenario.
I know plenty of investors have also used this structure.

CGT is pretty bloody brilliant in US, you don't pay CGT if you use these sales proceeds to buy another property. Also CGT in US if realised is no more than 15%

US tax laws are complicated, that is why I am using US accountant. It's also very difficult dealing with IRS, ATO is a joy in comparison. Anyway this is just my personal experience

MTR

 

I would hardly say that I have runs on the board. We have bought a grand total of 2 properties in the US. Both in San Antonio, Texas.

MTR and blackie.......as well as others here have done far better.

Unlike foreign investors, we now live in the US. We are currently stuck because we either chose between creating good credit scores in the US.....and thus, being able to obtain low interest rate loans.........or forever be stuck in high interest rate mortgages.

Foreign investors have more latitude long term.

For my family, both properties were bought with the same principles in mind. If we lived in the US, were would we want to live?

The first one was bought because we had decided that we wanted to immigrant......but knew that it would take time to do so. It took nearly 4 years for me to obtain a visa. My husband is a US citizen.

While waiting for my visa, our first US purchase was generating savings in USD as well as capital gains. We bought when the market was starting to pick up again in Texas.

We have 3 children. At the time of our first purchase, we were really undecided on where we wanted to live. We did our research. We check out everything......from affordability to job and economic growth, good education systems, safety, etc.

In the end, we narrowed our search to S. California, Texas and Atlanta.

Atlanta was ruled out because we wanted to still live in a big city........that was also more racially diversified. We lived in Los Angeles in the late 90s and during that time, I worked with gang kids in East LA. I have no knowledge of Atlanta other than my research.....but I didn't want my children to be exposed to a city that ranked 6th highest in term of violent crimes and was still highly segregated.

S. California.......our favourite.........was ruled out because coastal neighbourhoods were expensive and is still suffering high UE years after the last economic bust. Cheaper neighbourhoods either had high crime rates or so distant from cities that made it unattractive for us.

Texas - we narrowed our choice to Dallas, Austin and San Antonio. My favourite was Dallas. My husband's was Austin. I am not a huge fan of Austin. Michael didn't like Dallas. And the compromise was San Antonio.

I understand Redwood's ......and others concern about currency exchange......and currency rates will always be a concern. A high AUD will mean a lower entry point, but also a higher return because of the exchange rate......or a higher entry point and lower return........or a mix of both. That is what you get whenever you invest overseas. You have to factor in changes in currency and how that will affect you.....and what you do.

At the time we bought our first property, AUD was running all time highs and we decided that it was best to pour our rent into a US based savings account rather than suffer the exchange rate of transferring funds back to Australia.

At the end of the day, you have to weigh up what makes sense to you. Where do you think you will receive the greatest return on investment. It is a punters games. Risks can be negated through your own due diligence .......but also being ok with whatever risk/rewards you decide are ok with you.

 

But still, living there I knew you'd have something constructive to add to the OP's question in the current climate. You didn't disappoint. Thanks for your input.

 

Hi Jessica
Here is my link on my experience in Atlanta
US - Atlanta, GA - USA Property Investing

In short its been an amazing ride, in hindsight I wish I had purchased many more.

Have houses gone up, almost back to prices in 2007 when market crashed....YES

We were paying as little as $35,000 for 2500 sq ft homes (2011/2012), now after 3 years they are back to around $150,000.

Convert US$ to Au$, and you are pretty much tacking on close to 40% on top of the end value and rent.

I am still looking for more opportunities in US, its a little tricky now unless you have US$ as Au$ is weak.

On the flip side there have been investors that got burnt, but perhaps they did not work with the right people?? Not sure, some of the spruiker companies have closed shop. I think Redwood knows about this one?

MTR

 

OinT
Thanks for sharing, great work.

MTR

 

Many investors have been burnt - yes. Some of these cases are going through the courts now and others just disappeared, unfortunately many naive investors were burnt! This goes back to 2008.

I lived in the states 2006 to 2008 - it was 2008 when things got interesting to invest in the US.

Can I warn anyone, the mailing list of these 'marketing' companies are shared they will hit your mail box under different names - a big company recently shut its doors and the founders have a list of 30k people, they are mailing those with 'secrets' - its laughable.

Be careful of facebook advertising too, there is one firm with a heap of SMSFs investing in the states using facebook only.

In essense, you can still choose the right areas. Atlanta has been popular, I have invested in 3 states and more recently infratructure funds, these are in Texas and highly successful. Much rather this approach than a flip.

Alot of my clients do flips or foreclosure buys, you need to be careful not to lose here. Buy wholesale not retail. That is people are buying in bulk from the banks in high foreclosure areas and then onselling to retail customers like me....problem is there is a significant mark up. Finance is prevalent so when it comes to finance - the finished flip does not value up (bit like a south yarra apartment). I am growing my hair back with less US transactions on the book, I'm tactile, I like to see what I buy - so many don't even do a google search to check the demographics of a neighbourhood. Take Atlanta for example, check the demographics, high espanic population equals high crime rate equals good luck getting your rent.

You need people on the ground. Without it, its an expensive flight to fly there once your house is trashed!! of course these are war stories, read MTR who has great stories.

I have just seen so many unknowledgeable investors burnt.

There are some great aussies over there though to help you out.

As MTR said, yep - you have a structure sorted before you purchase, a LLC and a good accountant, the more you buy and over different states there is a awesome structure to use to minimise tax and also reduce the burden of tax returns. You do need to file over there so understand the costs!!!

Exchange rate - well it was $1.20 a few years ago v $0.71 this morning. Pretty big difference hey!

Oh well, some food for thought.

Cheers and happy investing

Ivan

 

I was just talking to s friend of mine about this today he bought a number of properties in the US. He still has 4 and the numbers went a little like this. Cost $50kAUD each and yield $10k AUD net p.a. Each. The currency swings have been the main benefit.

 

Great post
I do recall many companies scamming investors, they were not selling the foreclosures at purchase price but marking it up as much as 100%+. Then there were the clayton loans.
I don't think we hear too many horror stories because I believe many feel embarrassed, but I am sure there are many.

Would you believe that I ended up with a US property that was actually placed into my LLC accidently so I got a free property. The actual owner did not find out this had occurred until he wanted to sell the property.

I looked at what he purchased in Atlanta and the price, he got totally ripped off. The property remained vacant and he could not rent it due to bad location. He just wanted to get rid of it and offload.

MTR

 

Where did your friend buy? I would be surprised if they not achieve growth?

Foreclosure market that really got hammered where properties dropped 70%+ were Atlanta, Florida, LV, Arizona, Detroit, Ohio.

I have friend who purchased in Arizona, they are from Canada, their properties have at least tripled and I am pretty sure all the above areas have gone up considerably, though personally I would only buy in mid west.

I have been recently looking at Florida and this is where Steve McK was buying, properties have risen sharply and continue to rise.

There is strong demand for US properties and foreigner investors who purchased in the early stages now have equity and US$ to buy more this is what we are seeing. Hedge funds have been buying up.

My friends are now buying through Karina in Atlanta, they have US $ and they can also get US finance at 3%.

MTR

 

He has doubled in value at least.

 

This F^%khead misappropriated over $1m of funds....the feds here fif not know the properties were still owned by his LLCs....a simple title search and we found'em, the prick is getting out next month and another clown involved got away scot free. Another botch job by ASIC and to a certain extent the feds.....
Media release: QLD (Schmierer) Former bankruptcy trustee receives jail term for misappropriating client funds — Australian Financial Security Authority

do you own research and you can connect the dots.

 

True. However, it is mostly those who invest with spruikers / property banks, etc.

I really don't understand why people fall for those gimmicks. On weekends, TV is filled with so-called property guru infomercials - where people pay thousands of dollars to a dude .....when those dollars can be better used as your deposit on IP.

Sites like truila and redfin do a great job of giving you demographic info on neighbourhoods in your search area. They provide info on crime rates, school rankings, access to transport and shopping. Redfin will also provide you with information on the last yearly appraised property tax.

The combination of this information gives you great insight into your potential buying areas.

For example, school rankings is closely correlated to neighbourhoods in demand (the higher the ranking, the higher demand among families seeking to buy/relocate).

I find redfin to most reliably up to date. Zillow the least up to date.

 

Location is everything. Sure, you can buy cheap......but it is often priced at the low end for a reason. It is either priced cheaply because of bad location or because it needs work. Knowing the difference comes down to your homework.

 

I would only caution that Florida tends to be a fickle market - prone to big ups and downs.