US Multi Family Housing USA

Do any forum members own multi family housing in the US and care to share some details and the process that was involved?

There are a few here that have done very well from single family houses in the USA post GFC. I was just wondering what type of yields and pros and cons there are from these multi-unit assets.

 

From the research I remember when Tracey and I were looking, most of it no longer applies....!

 

Hi Aaron, I remember some interesting exchanges circa six or seven years ago.

What do you mean that "most of it no longer applies" ?
Are the net returns not there as they were in the past?

 

we placed an offer on 16 apartments which needed some work.

We were not successful because we went in with a expected return of 10-15%. If we can not achieved these numbers we move on.

Multi units high demand and fierce competition at the moment just about anywhere in US. At the moment it's a perfect storm as rents are rising rapidly for the first time in 3 years in the markets I play in.

I will share a deal down the track but it's a little early. We will be flying to US in mid July, I have been networking with US investors in Atlanta, Florida, 2 high cashflow markets and another area, which will mention down the track

What I can say is you need to be a cash buyer and if a deal is good regardless of what it is it will have multiple offers or by the time you view it someone has already got it under contract

It's very easy to buy a bad deal if you don't have the knowledge and the right contacts. I will be is a position to share more info after my return.

MTR

 

@MTR the US is fascinating.

 

Thanks
Pretty excited at the moment. Lots happening in US
with the 16 apartments mentioned needed to come in at around $40,000 each, however the seller was pitching for around $50,000 each and would not move.
We are continually chasing the deals and have teams in place to source and we will be on the ground in July

MTR

 

I have 8 properties in the US, one is a block of 6 and another a block of 4.
I would not recommend these types of properties in low socio-economic areas.
There are many problems relating to asset protection and taxation and I am happy to pass this information on but not on this forum.

 

why so? don't tell me you are dealing with Aussie experts know this one well.....they have no clue on complicated US tax laws need to use US tax experts? I can give you an expert in this area pm me

 

I am an expert in the field and I teach people how to invest safely in the US. I have a comprehensive knowledge of all matters relating to asset protection and taxation both here and in the US. The same applies to personal funds as well as those from Self-Managed Super Funds.
The reason I wont post detail in any forum is because the US property market and the rules relating to investing in the US are a moving target. What I post today may not be relevant or correct in a few months time.
Your post about being a cash buyer is a perfect example of this. What you said about being a cash buyer may have been correct 12 months ago but it is no longer the case. In September last year I financed two of the properties I purchased in 2012 with a US lender. The same lender is still lending to foreign buyers with no serviceability requirements beyond the income from the property with a 70% LVR.
The same is also true of your comments about US tax experts. They may know the rules as they relate to the US tax system but they do not know how that impacts on our Australian tax liabilities. I have dealt with both tax jurisdictions for the past 5 years and know them both very well.

 

Hi JB

You are actually incorrect, foreigners could source finance at 4 years ago, but as I have mentioned before on this forum I would not touch any of these products.

I have and am working with US residents/investors and I know exactly how lending criteria works in US, if you are not a citizen you will be paying through the nose for loans.

As I mentioned I would not touch these products, because you are paying much higher interest rate, the fees are scarey, the lender/s may also require insurance that is expensive, the time frame of the loan can be much shorter, exit fees a killer, no paying down loans, another layer of complicated paper work, another layer of risk and don't miss any bank payments, they don't do direct debt would you believe??. This is why I recommend cash when buying in US/using equity from Australia.

If you can recommend any bank in US that is currently financing investment deals to foreigners at the US bank rates/conditions then please share I am all ears.??

As far as a US accountant goes, my US accountant understands Australian Trusts, SMSF, Australian tax laws and is an expert on US Tax Law. He works with many Australian clients and my Australian accountant works with him to strategise at the end of each financial year.

Its not that scary, only if you employ dud professionals who have no clue. I would personally recommend US accountant as part of the team as US tax law is too complex and the Aussie accountants I have used in the past made a mess of it and charged through the nose. I am sure there are some Aussie accountants that know what they are doing, but all I know is my US tax accountant is bloody brilliant and makes my life very simple.

MTR

 

I agree, its very much dependent on what and where you buy, this is a given.
My properties are almost all large Single Family Homes in bread and butter areas, not war zones, most definitely a difference and I would not recommend buying in war zones regardless of the product.

MTR

 

I borrowed last year from a US lender and was offered a variety of loans with LVR's from 60% to 70%, P&I or interest only and rates that varied from 6.5% to 8%. The interest rates where at the lower end with loans above $500,000 and at the higher end with loans below $100,000.
I do no consider that to be scary when you take into account that my rates in Australia at the time I purchased the properties was 7.6%. My rates are fixed for 30 years, you can't get that here.
There are fees and they took over the payment of my insurance policies, not their own insurer. They also took over the payment of County Taxes and the outstanding balances for taxes and insurance where withheld at closing on the loan as were the first 3 months payments.
Again, nothing scary about this.
You are absolutely correct about having a good accountant in the US for US tax returns. I use a company called Greenback Expat Tax Services and they have representatives all over the world, including Australia.
The biggest problem I have found is that they do not understand the tax implications when the LLC's in the US are all disregarded entities and the member is an Australian Trust. If the trust deed is not worded correctly the Australian trust will be taxed in the US at a much higher rate than is necessary rather than the beneficiaries of the trust.

 

You mention SMSF's and this is where the biggest mistakes are made. First, an LLC owned by a SMSF MUST be taxed as a corporation in the US and cannot be a disregarded entity. Second, the LLC cannot have a bank account with a US bank and third, the LLC that owns the property MUST be owned directly by the SMSF.
There are a number of real estate spruikers operating in Australia who are enticing people to invest their SMSF money in US real estate and they are using structures involving land trusts and series LLC's that are in breach of SMSF regulation 13.22c. They are also setting up bank accounts that violate the same regulation.
Many investors do not understand the SMSF regulations and are being duped into investments that put their funds in breach and their accountants often do not know any better. US accountants are also generally unaware of these regulations.

 

Yes, know all about this and agree.

Its also important to use a good US accountant because the penalties - IRS can be severe. ATO is a walk in the park in comparison.
Imagine getting a $10,000 penalty in the mail, thanks to my useless Australian/US tax expert based in Australia. Fortunately my US accountant sorted it out straight away. Comes down to doing your homework and getting the right information, using the right people. Very happy with my current US/Aust tax arrangement, I have switched on professionals.

 

All to their own.
I am coming from my own personal experience, I am not happy using finance with these IR for US property due to the slippage, and for me this is a major consideration when chasing cash flow.

MTR

 

Are quads or six or even eight packs large enough to optimise the scale of management and maintenance of these assets? I have been under the impression that something with 30 to 40 doors plus would have enough income to cater to an on site manager who would reside in one of the units. This is more of a commercial proposition in my eyes.

Keen to hear and learn from those investing over there and what are the pros and cons of the large multi's.

 

I believe the issue is more to do with the location and the quality of the tenants, not the number of units. If you are renting for $400 per month each then you are going to be very low in the socio economic scale and this increases the likelihood that tenant damage will be high.
Good quality properties in good location bring good tenants and there is less damage and less tenant turnover cost.
Claims of high cash flows in low socio economic areas are a myth. All the alleged cash flow will be consumed with repair bills.
An onsite manager may help but they are going to have little influence o,n the bulk of the tenants.
I have found that property management in the US is expensive and largely inept. Their tenant selection is generally poor and site visits almost never happen. Reliance on them in bad areas is a bad mistake.
I have one property in Dallas, a single family home that is in an up market area. It has little if any cash flow and yet I have made more money from it than all of my other 7 put together.
Don't be so fixated on cash flow that you overlook growth.

 

@John Bone

Agree that location is important however so is the yield and return. I wouldn't have any interest in D grade assets in a C or D location. I would however be keen on B or C grade buildings in a B or C minus location.

Capital growth to my understanding is likely to feature more as a consequence of emotion in SFH in the US than on multi's. The SFH will capture a larger market such as home owners who wish to occupy the property as well as investors.

Multi unit assets are investment class and their price is calculated on net operating income so the return/yield is very important in my eyes as this in turn will dictate the value of the asset and hence capital growth. These buildings are not purchased by owner occupiers. Without rising rents over the years the value of the multi stays stagnant all other factors being equal. The only way capital growth can occur otherwise is by compression of the cap rates.

I haven't invested in the US so stand to be corrected, however this is my understanding of how values are determined.

 

I think your experience with the lower end has more to do with poor selection from what you have stated and poor property management which is common IMO. As I mentioned there is a difference from war zone to bread and butter areas and this is what investors probably don't understand.

I disagree about growth this is a general statement, all my properties have more than tripled in value and they are all in bread and butter areas and still achieving growth.

Atlanta has been a spectacular market primarily because the Hedge funds have moved into these markets a few years ago now buying up also foreign investors are driving prices up. There are also other markets that have achieved and still achieving similar growth, once again bread and butter areas and the reason for spectacular growth is Hedge funds buying up, they have seen the writing on the wall and buying by the bucket load.

I don't make these figures up, I don't need to, here is the evidence, one of my purchases in Atlanta, I have 9 now and currently buying up. Happy to post more properties to view.

As you can see from Zillow, I purchased $34,100 - 2011 and the value is now around $134,000.
All my properties have achieved similar results.

Lithonia Home

I purchased this one for $48,000, now estimated on Zillow at $152,000
Lithonia Home

Rents are currently rising as well, first time in 3-4 years.

I have mentioned this before many investors got burnt by buying from the wrong people who had no clue and did not care what they did, karma is a biatch, not something I would want to happen to any investors.

MTR

 

Player

There is lots of rubbish out there with regards to multi units and properties in general which I would not touch. Its very easy to get burnt.

We have been looking for 2 months, and most don't fit our criteria, but a gem will come along, we are not interested in rubbish.

As I mentioned before it comes down to knowing the product, location and then you need property management to be in place. I know investors who has purchased 4 multi units (quads) working out very nicely in terms of cash flow but all the boxes are ticked, also investors who has purchased a duplex, same working out well in terms of cash flow.

My suggestion is to actually fly over and look at the markets you are keen on and take it from there. This is what I did, been over a few times now.

I will say that multi units are a competitive market, but then again so is everything else.

MTR