Yankee Doodle Dandy…
Howdy Yawl,
Many of you know I have been back and forth to the USA 4 times this year… this is why my usual weekly Blog has not been.
Its certainly not for holidaying, although I do try to catch a sporting event or two on the weekend while I am there, it is because I am looking at the USA to invest in. And offer the same service to you, the investor.
I have worked endlessly on researching this as an option along with trying to get finance and learning the terminology.
This has been one huge challenge, whilst also buying many properties here in Australia… It couldn’t be easy, could it… nothing worth while ever is!
Well I am happy to say, I have just purchased my first property and very close on a second…
The finance side of things has been nothing short of DAM frustrating… mainly due to one reason, customer service. We had a lady who was “apparently” the only person in the company who could do international applications… and it was more fun for her to go to lunches, fake appointments and call in sick rather than process loan applications. We must of emailed her 150 times with nearly the same amount of phone calls to simply find out where our loan application was at… with no response. In the end we gave up…
The time difference, being 15 hours, certainly does not help…
But it looks like we were not alone… she has been moved on and the new lady in charge has great customer service… so we are back on track to getting a loan pre approved.
The interesting part in researching the USA was to know what parameters to search for.
I mean, what makes the US tick and house prices increase? It’s certainly not the same as Australia
As you know in Australia, I search for three main things:
- Price point
- Depressed property cycles
- Population stats – supply verse demand ratios
The US is different, with those being:
- Depressed property cycle – and we all know it certainly is
- Employment – this driver alone has seen towns turn into ghost towns and cities double in size in a short timeframe
- Income to debt ratios
- Crime statistics
Population increase is not important, as long as they are not leaving in their droves… wHy?
America has critical mass… meaning 330 million people in a land mass the same size as Australia.
Yes that’s 13 times more people than we have here…
So as long as there is employment, then the population increase is not an issue… and getting tenants is no problem.
Income to debt ratio is a very important factor as Americans, on average, do not earn anywhere near as high an income as we do in Australia.
Household income of $45k – $50k is very common. So with this info you must be buying in the right neighborhood’s where houses are very affordable so that they can easily afford the rent. At this level I would be purchasing homes for $60k-$80k… Yes that low.
That way they can afford to pay rent of $200 -$250 per week easily enough… Yes it can be over a 20% yield.
For those with a healthy superannuation they can set up a SMSF and look to buy 6 with cash and have a great cash flow coming in. Obviously the correct advice is required here before going down this path.
On household incomes of $100k plus then purchasing at $150k- $240k is fine. That way they can afford to pay $370-$450 rent per week. The yield is not as high but the houses are new and nothing short of huge.
Americans also do not believe in negative gearing, meaning that if interest rates increase, and they are currently, then the rents go up too. Great for the investor.
And to chuck another nice piece of potential bonus in for us, our dollar is currently back at 95c… but expected to go down to around 70c long term… meaning the rents would go up around 25% as well simply through exchange.
And so would the value of your property…
Oh yeh that’s also on top of their recovering economy… it’s like a trifecta!!!
How nice would that be???
Well nice enough for me to jump in, that’s for sure…
So lets number that out:
- $230 per week
- Markets jump even 10% on house prices
- Interest rates go up 2% (which is what they are expecting) = $30 increase in rent per week
- Added steady rent increase as economy recovers = $30 per week
- Aussie dollar drops to 70c in a few years
- And Bam you have a rental return of $365 per week on a $70 purchase
Equals 27% yield…
There is a couple of “catches” though…
I haven’t been able to find a way to get a loan for those wishing to buy in their SMSF’s so they are cash buys only… but 4 of them with a healthy balance equals a nice passive income.
It looks like we may finally get finance through for those looking to finance, BUT you can only finance one property per location. Doesn’t really make the exercise worth it… you could however possibly use equity in other properties to fund this and pay cash for them that way. You could however finance several properties in different locations.
So this investing is for the investors who are more risk adverse, with equity in a property they already own or a healthy SMSF looking for a great Return On Investment (ROI).
Lastly, its not a get in and get out investing strategy, this is those looking medium to more long term investing.
If this is of interest, please do not bombard the office with questions as this is my project initially, so feel free to email or call me on my mobile…
Stay tuned for more…