US USA Property Investing

Hi Guys,

I'm tossing up the idea of purchasing a property in the US. I currently own 28 properties in Australia and as a result, I think it's time to diversify. Shares still rub me up the wrong way, so I'll be sticking to to good old bricks and mortar once again.

In summary, I have no real knowledge of the US market and would like to know if there is anyone in this forum that has a good working understanding of the markets there? Do you recommend buying one blue chip property or a few cheaper ones? Initially I was thinking of buying a 2 bedroom in NYC, but the market is going backwards we speak. Maybe I should try the West coast or forget the US completely for now?

Anyways, you can see I'm only just starting to look into this but I would value any informed opinions out there on the USA. I'm excited to learn more about these foreign markets!

Scott O'Neill

 

We just purchased this in Boston, commercial building which is currently with architect looking at converting into condos, and retail on ground floor.

a photo of the grand lady above, there are actually two buildings, 35,000 sq ft, which does not include basement, that was a nice surprise, also 15 car bays
We also have ocean views from the upper floors.

I have a portfolio of properties/cash cows in Atlanta, GA. Do a search of my posts and media includes photos of Boston and Atlanta properties.

Practically all markets started booming in 2011 and are now back to prices of 2007 when the market crashed. States like Atlanta dropped 70%

Even Detroit is now booming, not for me, but I know someone who owns 25 properties and more than doubled his money and has income.

I would recommend investing in US, but like everything.... homework, homework, homework

I will also say that inventory in most States are low and this is pushing prices north because the world is buying, US allows foreign investing, different to Australia. I have met many people from all parts of the world making it work.

All the best

MTR

 

Any new property market will be very different to what we expect here. The USA seems to have several tiers of property and their low tier is far far lower than ours. These social issues and racial and "segregation" issues are very evident in some cities and the economy of each city means micro property economies exist. Their financing system is also somewhat conservative and a little old fashioned to be honest.

I had a similar idea to look at the USA last year and decided while I was there to look at one emerging regional centre to see if was better or worse than my opinions and research done from here..I was confused by one city that had a broad price range of $100k through to $400K...I wanted to come to grips with why and what the differentiators are. It seemingly is close to LA but a major hub with good local employment etc. Went there and it was far worse than imagined. The cheap end was literally an abandoned former air force suburb seeking revitalisation...I reckon it needed a bulldozer and if the land was free it would still be a no. Turned me off but it was just one place. You get what you pay for. I would stick to conservative reasonable property - The cheapies are major major issues.

I'm still looking eg - This looks OK : 14450 Dalton Ct, Victorville, CA 92394 - realtor.com®
This doesnt : George AFB, CA Land for Sale & Real Estate - realtor.com®
(Its the old air force base land...)
Prices have grown a bit in the past year (12%) and continued growth is expected. Good data but likely led by the economy. Rents have also risen a bit. Victorville CA Home Prices & Home Values | Zillow

Unpaid taxes on properties can see them sold at mass auctions which I cant quite get my head around eg https://sbcounty.mytaxsale.com/ IMO that just keeps prices down. I still havent completed research on this issue.

The US seems more tolerant to foreign ownership and low entry costs (ie no duty) and no land tax but instead municipal and city taxes are cheaper than here (see the above auctions for how many go unpaid !!). Their tax system is a bit intrusive however and while it seems simple its complex so additional costs can be expected but its nothing major. Their CGT rules and spouse co-owners etc all affects matters so get that clear.

As MTR says -homework, homework homework.

 

that's a nice property Paul.

From experience list price does not mean it will sell at this price, in most cases it will be highest and best offer because there is so much demand.

As far as Zillow goes its only a guide don't treat it as a given, there is also Redfin which I prefer.

Real estate agents are a different beast to Australian RE agents, good luck if they return your phone calls. You will need thick skin and lots of patience.

What is very confusing about US property is the price points, you can buy very low in a suburb and very high in the same suburb, because its dependent on many factors. What we have seen is gentrification where values can significantly increase in 12 months. We now see streets lined up with skip bins, when you see this you know rehabbing/renovating has started this is a good sign of course.

When I went to US/Atlanta in 2011, all I saw was foreclosure homes every second home and a foreclosure sign at the front, I kid you not. Now nothing, no signs and also very few "for sale" signs because there is so little stock/inventory.

My last purchase did not even hit the market. I got a lead from my builder/contractor, I promptly placed an offer on the table, only to be told 2 others wanted the property, so I increased my offer and currently its being rehabbing/renovated.

Its a doggy dog world

As far as US Tax/IRS, you need to ensure you have a good Tax accountant that understands US tax law, if you have this then you are sorted.

MTR

 

I'd tread somewhat carefully in California (which is in a bubble - though not in my opinion one likely to burst soon, as job growth, income growth, population growth, rental competition etc are all very, very strong - personally I think some Californian cities are where Sydney and Melbourne were in 2010 - a bubble, yes, but with lots of room left to grow, though it's still a risk as bubbles are vulnerable to external shocks or in USA's case, to Trump doing something nuts).

Overall though I'd say USA's on a winner right now. Many markets there are extremely affordable and are growing well. Even the bubble markets have good growth prospects. The most pricey are in the low 9s and so are firmly in that mania stage of attracting a lot of interest.

 

I don't know about California but all I know is when there is no stock and more demand this keeps pushing prices north which is exactly what is happening.

Also interest rates are on the rise because the US economy is doing so well, its starting at a very low base, I don't see this impacting on property prices purely and simply because of the low inventory everywhere, its actually quite a dilemma, people want to buy but they can not due to demand.

I have a different view about Trump to most, I actually see the Trump effect happening which is positive for the share market and property market. I also don't listen to lefty mainstream media anymore because its not reporting the facts on both sides. Anyway that's another thread.

Also, Hedge funds, Warren Buffet ..... they are also continuing to buy in lower priced markets, we have the best investor in the world buying, has been buying since 2012, first time in US history, that has to tell you something.

MTR

 

Hi Guys,

This is all great info, so thank you!

@MTR - that Boston purchase looks like an amazing property. Well done! I know you mentioned you didnt know the West Coast well but do you see any markets as having more upside in growth than others in the medium term? Is it like Australia where you can generalise growth in Capital cities. (E.g. Perth falling, Sydney growth Slowing, Brisbane looking like good value, etc....) Obviously these are just opinions, but i'm interested in yours, as you seem all over it!

Are there any investment focused buyer's agents in the US that look across multiple states similar to Australia?

Scott

 

Probably worth having a chat with Todd Hunter at wHeregroup. He is currently advocating and getting right into USA property. I use to live in the USA back in the 90s and it did surprise me how cheap properties were there even back then compared to Australia. There are a few key take-aways for US property which others have commented upon. The ones that come to mind from personal observation include:

• The US population has a very segrated demarcation in terms of income levels, the lows are very low compared to Australia, and the highs are very high. Unlike Australia, where you don't need a college degree to have a good job (we worship tradies here), in the USA without such, people earn minimum hourly rates and it is a real battle for them to make ends meet. The social structure and social welfare system is not as integrated as Australia, and so communities are often very divided, even by streets. The area and street you buy in is very important. (As an anecdote, a friend living in LA told me that outside of Home Depot (USA equivalent to Bunnings), a lot of tradies/laborers from central/south America hang out the front advertising their services to do the DIY work, hence one can get almost anything done for like less than $US10/hr. How many people do you see outside of Bunnings advertising as such? In Australia, we actually value manual labor - the rest of the world doesn't). So where you buy is the utmost importance and buying the cheapest is not always good, and in a poorer community most likely not.
• The level and quality of property management services in the USA is very different to Australia, it is very old fashioned where people will visit the agency and pay by cheque. Tenants have a lot of rights, and so getting a steady hassle-free income is more challenging than Australia. Particularly in poorer communities where there could be issues that are much more difficult to handle than in Australia. One really needs to check out the property management system for its quality and reliability.
• Unllke Australia, where local council taxes are paid for garbage collection, local road maintenance, paying the councilors etc, in the USA at the local government / county level, such property taxes pay for local schools, the local police force, etc (it does amaze me that the US police are largely at a county level not the state level like Australia), so the property taxes and local government conditions for property owners are much more onerous than in Australia (note this is why in USA TV shows/films, always talking about the school districts).

All these issues are solvable but are an added level of risk that needs to be managed.

 

Are you putting a new slant on the phrase "It's a dog-eat-dog world" or have you just been listening to Snoop?

Scott - I've got property in the US so can provide some insight. Happy to have a quick chat on the phone as it's probably easier. Shoot me a PM if you're interested.

Cheers!

 

Sorry, I couldn't help it. Here's a video of a Sign Language Interpreter at a Snoop Dogg concert.

 

Scott

If you have 28 properties I think you should take a second look at shares.

I know it is not your thing but they are different to your thing. And that can be a good outcome.

If you buy a low cost ETF or a LIC you do not need to do much work or thinking about it.

Anyway. 28 properties and no equities would typically ring alarm bells for some,

And congratulations on your achievement to date. You are clearly a successful smart person and I admire that.

 

Depends what your strategy is and where you want to buy

We are currently also looking at A grade properties where we can source US bank finance...will keep you posted on this, work in progress

 

Depends, plenty buying shares at the moment bull market, but from what I am reading may be close to peak.

Watch everyone run for the hills when bull turns to bear.

I see many newbies in this game, same as boom/bust property cycles, buying close to peak is never a good idea just my opinion

 

Yeah. I do not pick shares at the peak or the trough.

I just buy as I go along regardless.

 

Just add a little to this -

Taxes vary dependent on State, for example very high taxes in Texas, this is in part why I did not buy here. However it is booming.

PM - this has taken some tweaking to find suitable pm, we now have two pms, both good

Buying the right property will be dependent on homework, however easier to get it wrong in USA as its a different beast to Australia and different rules apply

Be wary of buyers agents marketing in US and Australia. I know many who got ripped off. No different from Australia you need to have the tools to understand whether infact what you are buying is not a lemon

Need to set up right structure and consult with right professionals

Buying multiple properties work better in terms of cashflow

Finally still a great time to buy in USA, 2011 was better but US property is strong/rising

 

Gin and Juice? This clip is hilarious....go D-O-G-G

 

My thoughts on the US of A.

It looks great in theory....but what are the unknowns now...:

1. Currency risk.....dollar is worth a lot less than 2011/2012
2. Property Management....very different to Australia
3. Most probably a large cash purchase....the questions is is you money better utilized in more properties in growing markets in Australia
4. You can't just jump in a plan and be there to sort issues in 4 hours (Perth)...

Not saying the USA is not profitable...but food for thought.....

 

Just wanted to say that was a great read MTR, Paul & ORAC, thank you.
First time I've seen/read a thread on here regarding USA property.
(Thanks for adding links Paul, I love the look of those big homes (5x3 for bugger all), then they have a basement and attic.

Back during the GFC a work friend was continually going on about buying in the US, trying to encourage me etc, whilst I could see the investment sense in it I'm the type that hates having a property more than a few hours from where I live, so the idea of having one in the in another country in the northern hemisphere was way to much.

I wonder if Trumps aware of this, if he'll allow it to continue.

 

So first things first @Scott O'Neill - congratulations, you've done exceptionally well in your property investing activities, with all your efforts, insights and hardwork, definitely something to be proud of.

With such a large property portfolio currently, before moving into USA property, it would be pertinent to step back a little and do some risk analysis on currently where you are at and where you want to be. Your strategies have been well documented, finding below market opportunities, adding value, looking for higher income producing properties and recent ventures into commercial properties.

It would be assumed that with a large portfolio, there would always be issues to manage (e.g. tenants issues, maintenance issues, land tax issues, potential vacancy issues, potential changes in interest rates etc). This is particularly important where the net positive cash flow is driven from kind of an arbitrage situation - lower interest rates and all time record valuations, and where equity out of one property has provided the input into other - pyramiding up. It would only take a small change in interest rates where the resultant cash-flow would be impacted, a slowing economy could impact valuations, or businesses fail leaving a commercial property empty, etc. So it would be best to stress-test your current portfolio, and apply appropriate risk management before moving to overseas property which has a totally different risk profile yet.

Some items to consider:

1. If you don't own your own Principal Place of Residence (PPOR), would it make sense to sell down part of the portfolio (yes, pay the tax) and buy your own home, pretty much debt free? Nobody can take it away from you then and nobody went broke realising a profit!
   
2. Would it make sense to sell some properties to pay down / extinguish some debts and have some totally "free cash flow"? It would be a great "sleep at night factor" with reasonably secure income stream and where the banks also couldn't take it away from you.
3. Would it make sense to dispose of poor performing properties to reduce LVRs?

After such risk management considerations, then venturing into a whole new set of risks becomes viable.

History is littered with entrepreneurs, property developers, builders, and investors who took on too much risk / debt based on good asset values, only for the situation to turn around quickly and then those persons became unstuck. The good thing about entrepreneurs is they don't mind risk and not afraid of it, the good entrepreneurs are the ones who know how to manage it (e.g. Branson vs Bond!).

So whilst doing your research on USA property, also look at your risk management and mitigation on your current portfolio.

 

@Scott O'Neill: You've done really well but consider what @Ross Forrester says. You have 28 properties. It sounds like you have a fear of the stock market and I can completely understand that, it's because of the huge mostly negative attention the media brings to shares. But sharemarket fear is unfounded, the problem is that you can see the value of your shares on a daily basis, whereas for housing nobody tells you your house price goes up or down each day. Ignore the noise (daily fluctuations) because that's not important. (And if prices go down, that's when to buy more), dividends don't drop in the same way as share prices do. Plus shares are no work, no expenses.

You have a huge properties base, I'd honestly consider its well worth the time to attend the next Thornhill event in Sydney (it's in August). Its the investment of just 1 day that will stay with you for the rest of your life. Peter has had many people see him 20 years ago and the same people will eagerly see him speak again today. The advice is timeless and it works. It's really sound and solid advice.

Btw. I was in your same mental position in regards to shares at the beginning of the year... I didn't "get" the share market either, I was also afraid but a forumite was putting her offset money into shares so I thought, hmm... must be something in it.... (at least it gives a better return than the offset!) And it will. You have yield plus capital growth. Plus franking credits. Minimal work. Minimal expenses. Winner.