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Using USA as a Strategy – Part Two

Screen Shot 2017-04-11 at 11.59.31 AMContinued from Using USA as a Strategy – Part One…

Mother nature plays a factor in deciding where to invest as the middle part of the US falls into what is called ‘Tornado Alley’. With an average of 1,274 tornados per annum, it’s definitely a factor you need to consider. That said, they are not all large tornados but there are some locations, like Kansas, that are more prone to them than others. On the east coast, cyclones become a factor in Florida, Louisiana and as far west as Texas. The great part is that there are stats on every location for both tornados and cyclones. That said don’t let this deter you from investing there, it’s simply a factor you have to consider when choosing where in the US to invest.

 

Population plays very little in choosing where to invest in the US unless you buy in a tiny town (50,000 or less). Small town populations in the US are over 100,000 and normal towns can have a population of 250,000 up to 1 million people. To put that into perspective, a good size town is as big as the Gold Coast. And there are tons of them. Remember there are over 330 million people there, so critical mass is on your side. To put this into perspective, there are more people in the state of Texas than the whole of Australia!

 

The median house price in the US is around US$140k. Yes, only US$140k. I invest in areas that are about half that price, around US$75k. Make note: these are US dollar amounts. Even still, that equates to around $100k Australian (this is of course dependant on the exchange rate), and in the locations I invest in, you would receive US$220 – US$250 per week, being between 15.2% and 17.3% yield. Negotiate the purchase price to under US$70k though and the yields jump to over 18%.

 

So this begs the question; why don’t they just buy the houses themselves? On the surface that seems like a very legitimate question, and it is. The reason is quite simple; they do not qualify to apply for a loan. Let me explain…

 

In Australia to get a loan you must have three things:

  • A deposit to match the loan and property you are looking to purchase
  • Be able to afford to repay the loan in the eyes of the lender
  • And lastly, you must have clean credit

 

In the US, their system also requires three things but one differs immensely:

  • A deposit to match the loan and property you are looking to purchase
  • Be able to afford to repay the loan in the eyes of the lender
  • But the last one is different, applicants must have a credit score of 720+

 

It is this reason and this reason alone that most of the population in the USA will be tenants for life. To achieve a credit score of 720 is quite difficult. And to make it worse, they don’t tell you the algorithm as to how this is made up. But in simple terms:

  • you must hold a good job for a period of time
  • Have borrowed a personal loan and repaid on time every time
  • Pay your utilities on time every time
  • Have car loans and repaid them on time every time
  • Have a bank account with the lender, usually, for a period of time
  • Repay your store cards on time every month

 

If you’re picking up on a common theme here – it is to NEVER pay any bills late. By doing so your credit score will drop – and drop far more than it goes up when you pay on time. So over many years you may be able to build that score up to 720.

 

But let’s imagine you were a tenant, you worked hard for years, finally got your credit score up to 720 and are ready to buy a home for US$80k, there now are a few more hurdles to overcome. Most mainstream lenders have a minimum loan size of $100k and they also have insane property location restrictions. They base this mainly on Foreclosure sales (mortgagee on possession) stats they have for every neighbourhood in the US. So if the property you want to buy has had many foreclosures nearby, you will find it almost impossible to get a loan for a property there, which is information they won’t tell you until you give them an address. And lastly due to the monetary and tax system of the US being state based, not all lenders lend in every state. State legislation and licensing is different in every state, so many lenders are restricted to certain states. It must be a nightmare for low income home buyers!

 

This can be very overwhelming for an uneducated investor too. But once you cover all this off, the benefits are fantastic. If you’re picking up on a theme here, you really need a Buyer’s Agent to help you through all this.

 

Continued next week with the Third and Final Part…

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2 comments…
  • Russell Humphreys April 12, 2017, 11:41 am

    Love the concept – love the strategy – just wondering why the rest of the world is not catching on or do you think this strategy is too much of a small concern for the ‘majority’ investor to worry about?
    I guess I will learn more on the May 2nd information night – looking forward to it..

    Thanks Todd

    Reply
    • Todd May 16, 2017, 3:45 am

      Hi Russell,

      There are a few people investing in the USA… our property prices in Oz are far higher than most of the world, so we see this as much better value than many other countries.

      Cheers Todd

      Reply

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