US The Risks and Bureaucracy in Real Estate Investment

Discussion in 'Where to Buy' started by John Makrylos, 21st Feb, 2020.

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  1. John Makrylos

    John Makrylos Member

    3rd Feb, 2020
    Risks in US Investment

    Each investment contains different risk components. When investing in Australia, the risk components are high but recognized. In contrast, when investing abroad, many investors have the feeling that there are risk components such as bureaucratic procedures that are unfamiliar and a great concern. To confirm and dispel these feelings and understand the urban procedures and requirements, you should read this article to the end.

    In the United States, in contrast to Australia, many municipalities operate a home inspection, control and enforcement mechanism to ensure the quality of the home. Highlights vary from city to city but are usually characterized by a minimum common base of requirements in the context of the exterior visibility of the building and its surrounding environment as well as safety considerations.

    Challenges and Risks in Real Estate Investing in the United States:
    Over the years, Australian investors in the United States were either unaware or aware of and ignored municipal requirements or failed to respond properly to those demands. The risk is that at some point in the future a proactive city inspection may occur and then there is a chance and surprises will arise as to the scope of the requirements and the repair costs could amount to significant amounts.

    There are quite a few investors who tell of cases where there was some issue in front of the tenant or neighbor and that a certain time later the inspector came to them. As a result, investors may find themselves facing flooding of several challenges at once, and the thought that this is a coincidence is not necessarily correct.

    However, the American apparatus underpins opportunities and benefits if they work well and simply according to the process required. This is because, first of all, in areas where urban requirements work, there is better preservation of the visibility of houses in the area and thus better value of the value of houses in the area. Second, proper action against the urban requirements creates the possibility of taking into account even before the purchase the correct and complete required considerations regarding the state of the building, and to provide a safer and higher quality rental product.

    How are municipal property enforcement requirements enforced in the US?
    Enforcement practices vary and include mechanisms such as:

    POINT OF SALE point of sale inspection - Enforcement mechanism at point of sale. A bureaucratic mechanism whereby the law requires that a municipal inspector come in to inspect and write a report on the state of the home and the repairs required for the municipality to approve the residential property. It should be noted that US homes are required to comply with municipal standards, for example, in terms of electricity and plumbing. The POS report lists all the deficiencies the municipality requires to perform on the property as part of the closing of the transaction and transfer of ownership. The property seller can issue the report and make the repairs so that the property is sold free of municipal violations but usually this report is issued after the parties have agreed on the purchase price. Therefore, the terms of the transaction in receiving the report allow you to withdraw the offer as soon as the report comes to us. In this way, the risk can be mitigated because the feasibility of acquiring the property can be better estimated before committing to closing the transaction. This is done if, for example, we find that the renovation requirements listed in the report exceed what we consider to be a good deal. There is a possibility where the property buyer accepts the property with the deficiencies and then it will be his responsibility to deal with them in front of the municipality.

    Periodic Asset Review - Repairs and ongoing maintenance are a very significant part of operating and renting a rental property in the US. We as Australians do not usually recognize the high standards required in the US. In the US. In some areas, the municipality operates a periodic rigorous annual inspectorate check on leased assets when the inspection findings require the property owner not to lose the rental license and penalties. In other areas, similar mechanisms operate at different frequencies, for example, once every three years. It is the responsibility of the property owner to correct the deficiencies that arise as a result of the inspector's inspection, otherwise the landlord may suffer a fine or lose the permit to rent the property.

    It is important to note that ordering a professional inspector to perform a home inspection on your behalf before purchasing the property (HOME INSPECTION) is a separate inspection regardless of the municipal inspector's inspection and does not replace it. An inspection on our behalf of the property will provide us with a detailed report of the deficiencies in the physical structure of the property. In accordance with the results of measurements and inspections carried out in the field, we perform an up-to-date calculation of the immediate renovation expense items in the property as well as the allocation clauses for the long-term maintenance of the property. It is important to know that the findings in the private inspectorate do not require the purchaser to handle the findings, whereas the findings of the municipal inspectorate do.

    Therefore, for a successful investment, it is important to specialize in urban requirements in the areas of operation that you invest in because dealing with a municipality when significant deficiencies arise after the purchase of the property are the main reasons for the failure of individual Australian investors in the United States and which are severe in their damage, The same mistake over and over again in multiple assets and investing a considerable amount of the savings money even before the problem looked back on them. Investors classify this as risk and therefore have been included in this article but in truth it is the result of a mistake that can be prevented through a professional investment process and not a risk and objective uncertainty. In this context, it can be concluded that risks are also subjective as everything the investor does not know constitutes a risk.

    In conclusion,
    There are risks and bureaucratic procedures in real estate investment in the United States, but with the prior knowledge of the procedures and the ability to professionally address these issues, the significant risks can be completely reduced and created an opportunity to grow. There are simple tools in the United States that allow us to completely protect ourselves from bites and take proper action to avoid such and other problems.