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Using USA as a Strategy – Part One

Screen Shot 2017-04-06 at 3.33.02 PMFour years ago, I started to build a property portfolio for myself in the USA. So what made me look overseas to invest? It was both the extremely low purchase prices along with the awesome yields. Now I can’t get enough!

 

More, and more investors, are seeing the returns I am regularly posting on our wHeregroup Facebook page and are calling us to learn more about why I am investing there and how they can get involved. For the rest of you, here we go:

 

With purchase prices around US$75k achieving rents of US$220 per week (15% yields) and no stamp duty costs, it’s no wonder that Australian investors are very keen to get involved. And those yields are the bottom end of what we are seeing. It’s not uncommon to see 18%+. I personally own a couple of houses achieving over 21% yield. Where can you achieve this in Australia without huge risk?

 

Some people see investing there as a risk, but it’s simply because they don’t understand the market. It is a little like those investors who must own a property near where they live because they know the market. It makes them feel comfortable being able to drive past their property daily and knowing that if something went wrong, they could go fix it themselves. When in reality, they don’t. It comes down to the old adage in property investing “It’s all about the numbers”.

 

Well, these numbers are going to get you excited.

 

But from the outset, I must say it did take me two years of research and educating myself before I even purchased for myself. The reason was that I needed to learn from scratch how investing in the US works and what parameters to research within so I could find awesome locations to invest in. Add to this, that there are 3,144 counties in the US with a population over 330 million people, means researching can be a long process.

 

Once you have a location to invest in, then you must put together a team that is willing to deal with Australians. It sounds weird but with each new location I look to invest in, I email approximately 20 realtors and receive around 3 responses. Building rapport is not an easy task. And if it were not for the team I have on the ground in the US, I wouldn’t even be investing there myself. You read a lot about having the right team by your side when investing in Australia, and yes it is true, but with a little due diligence you could quite easily do this yourself. But in the US, unless you are willing to travel there many times and spend many weeks researching, then using the right Buyers Agent who has an awesome team around them is absolutely crucial.

 

Before you decide to invest you must know what structure to invest in. And I must say that every investor should obtain their own independent advice here. Myself, I purchase through a Limited Liability Company (LLC). That way, should anything go wrong and a tenant potentially tries to sue you for whatever reason (it is the US after all), then all that is at stake is whatever the LLC owns – your US property. Everything you own in Australia is protected. That said I have never known anyone in the US or Australia being sued by a tenant. Asset protection is essential. To help negate the risk, most counties do what is called a city inspection that is undertaken during the buying process. This inspection is required to be done before you can lease the property to a tenant. I negotiate this inspection into my offer stating that the owner must bring the property up to code at their expense prior to closing (settlement). Most owners accept this.

 

Now the city inspection helps protect you, the new owner, from things that may potentially hurt a tenant. As the houses around US$75k are generally older homes, they may need a few updates to bring them up to 2017 building standards. Things like, safety switches to be installed, concrete slabs needing to be levelled where one slab has raised by an inch and could be prone to a trip hazard and loose handrails etc. That way, when you take ownership of the house, you know it’s up to code and safe for the tenants. The tenants also know this is the case as well. As a secondary defence, you need to take out insurance on your property similar to the insurance you would take out in Australia.

 

So back to what I look for in choosing a location to invest in. Researching the US is completely different to researching to here. In Australia I research things like:

  • Market timing
  • Infrastructure projects
  • Increase in population along with population size
  • Price point
  • Access to public transport

 

And so on… but in the US the factors that matter are:

  • Employment
  • What large companies are within working distance
  • Price point verse rental return (yield)
  • Crime Stats
  • Is the location within Tornado Alley
  • Are they cyclones in that region
  • Is there NO public transport nearby (explain later)
  • Quality of nearby schools and Colleges
  • US state monetary system

 

As you can see the only criteria that matches Australia is public transport. But not for the reason you think. In the US, you don’t want to buy near public transport (with the exception of New York and a couple of other major cities) as this is where the highest crime rates are. In nearly every city in the US, the wealthy and good locations to invest in, are the outer rings of any city as there is zero public transport. In Australia, it is the complete opposite.

 

This factor alone has caught out hundreds of Australian investors who have lost a lot of money investing in those areas.

 

Continued Next week with Part Two…

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2 comments…
  • Russell Humphreys April 12, 2017, 11:50 am

    Hi Todd,
    the insurance comment you make is something that we can discuss on May 2nd…

    But I am really interested in your remarks you purchasing through a Limited Liability Company (LLC) – is this something that Wheregroup look after for it’s clients – as I am sure we would follow your lead and need to ensure we cover ourselves (as an investor) appropriately..
    Is this similar or the same as a Self Managed Super Fund? If so we would need to set this up as part of the purchase on such properties in the US – correct?
    I look forward to chatting more about this….
    See you soon

    Reply
    • Todd May 16, 2017, 3:46 am

      Hi Russell,

      I hope we covered this in detail for you on the night…

      Cheers Todd

      Reply

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