Buying US property – fun or freaky?
Okay . . .let’s put the jokes right up front. Given the political state of the US at the moment, we know there’s plenty of Americans who are packing their bags to move over here.
Whatever the outcome of the November election, property investment in the US holds considerable interest for Australian investors. Outlined below is a story written by Aussie investor, Matthew Stubbs. Matthew established a company ‘Invest USA’ (www.investusa.com.au) and is successfully renovating / flipping in the US as well as helping Australians purchase property in the US.
US4U – you decide
Buying property in the US has become increasingly attractive to Australian investors. So what are the real pros and cons of investing in US real estate? Every great thing has its potential detractors. So beyond the hype; how does buying property in the US stack up? Let’s look at four of the cons and four of the many potential advantages. Then make your decision.
1) It’s far away
Australians will find the United States one of the furthest places away to invest in real estate. It’s not cheap or convenient to hop over to Chicago for the weekend. This may change over time. But for right now it may be a challenge for those that want to manage their own investment properties hands-on. There are closer overseas destinations to invest in, but they have to be balanced with safety, value, and income consistency.
2) It’s really big
The US property market is big. It’s really, really big! It may be the fourth largest on the planet in terms of land mass. But when you look at inhabitable / inhabited area it is perhaps one of the top two. Most Australians are familiar with major US cities like New York, Washington D.C., Orlando, and San Francisco. There is a lot more in between. These cities have continued to draw major investment from global pension and sovereign funds. Now analysts are seeing sophisticated global investors move on to secondary and tertiary markets to find the yields and growth they crave. For individual Australian investors this all means needing to find a trusted guide to help them navigate to the best markets and neighbourhoods.
3) The process is different
Investing anywhere new means a new process. Investing in London requires one way of doing things. Investing in Hong Kong or Tokyo presents a different method of transaction. The terminology is different. And the accent can be different. Of course the first time you purchased a property at home in Australia it was a new process too.
As with virtually all types of investment and income there can be taxes associated with increased gains. There may be potential taxes on net rental income from US income properties, as well as capital gains on the resale of assets. Whether Australian investors are liable for taxes, and how much those taxes are will depend how transactions are structured. How funds are put into investments, how the title is held, which tax breaks are taken, and how well accounting is performed will all make a significant difference in how much tax is due.
1) Australians are underestimated
Aussies are underestimated as buyers and investors in America. Americans are focused on Chinese, Canadian, and UK buys and investors. Australian investors aren’t even on their radar. Even a Google search from within America for ‘Australian property investors in America’, yields pages of .au sites, and perhaps the odd story from BBC World. Well-travelled US property professionals may be aware that our incomes, wealth, and property values are some of the highest in the world. Most aren’t familiar with much else besides Outback steakhouse, poor impressions of ‘throwing shrimps on the barbie’, and images of the Sydney Opera House. Chinese and Russian buyers in the US are anticipated to have plenty of excess cash and to pay asking price or more for properties. Being underestimated, Australians can have an advantage in negotiations and purchasing properties.
2) It’s priced right
America is still on sale. There are many cheap properties in comparison to property prices in other popular international destinations. Though legendary real estate investor and multi-billionaire, Warren Buffett, best describes the current opportunity as ‘quality merchandise, significantly marked down’. What Australian investors should be looking at to make an accurate evaluation is value, security of capital, future outlook of property prices, and rents comparative to purchase price.
3) It’s the right time
It’s the right time for buying property in the US. Bank data compiler DistressedPro reveals that there are still billions of dollars in distressed mortgage loans and foreclosure properties working their way through the legal pipeline in America. These are present even in New York, Orlando, and Chicago. They are no longer the threat they once were. The US is now back on strong financial footing with moderate but consistent advances in the national real estate market, which means Australian investors can buy US property with confidence and at bargain prices.
The US is far, transactions work a little differently, ownership is held a differently than your house in Australia, and there are many places to invest in the United States. Together this all provides great benefits in diversification. Great investing legends and the wealthiest billionaires don’t stay wealthy, and keep getting wealthier with big gambles on single investments. They do so by diversifying their capital and investment activities. This is a great way to replicate this success.
As with any financial move there are pros and cons of buying properties in the US. The question for you is whether the pros outweigh the cons balanced against your long term financial goals.
Crave commentary and other points to consider
Scott Hochgesang (from Crave Property) has outlined some further comments on the US buying strategy. Scott is one of our Crave Buyers Agents who spent 36 years of his life in the States before moving to Australia. He believes the biggest cons to investing in the US property market right now are as follows.
- You have missed a large part of the bounce back. The markets were amazingly cheap back in 2009-2012 just after the GFC when banks were overrun with foreclosures.
- A new investor has practically zero chance of gaining bank finance. Private money lenders charge high rates at low LVRs. So this is a cash only market.
- Our currency, AUD, is quite weak to the USD right now. About 75 US cents vs our peak (during the mining boom) of 110 cents.
- The potential Trump Presidency factor which is a real wild card [this is Deb snickering in the background . .sorry but you’ve got to take the obvious shots when they arise :-)].
- Natural disasters (tornados, floods etc) make insurance an absolute necessity.
- US tax compliance costs must be factored in. It also takes time which can distract an investor from pursuing other opportunities.
While the pros according to Scott include the following points.
- The US economy is better than most other OECD countries. Unemployment is now under 5% and jobs are growing.
- Properties are still inexpensive with townhouses for $60-80K and homes around the $80-120K mark (in quality markets like Chicago, Atlanta and Kansas City).
- Yields and cash flow are typically much higher (at 6-10%+) than in Australia but represent a higher risk due to vacancy and maintenance issues.
- It’s much easier for an Australian investor to replace a passive income if they sold down an Australian portfolio here and took gains to the US (which is what Matthew has done).
- Yearly trips to the US to inspect your properties are tax deductible :-).
The US market is not for the first time investor who owns no Australian property. Your $100K in savings could potentially be leveraged into one or two lower priced properties here in Australia with values of $500-800K vs buying just one $80K USD property for cash in the US. On the flipside, US property can play a role in the plans of sophisticated investors providing diversification and extra cash flow.
Crave helps clients by pointing them toward trusted US property market experts who know their markets and can help buy quality properties at reasonable prices. There is a lot of ‘marked up’ garbage being pitched to foreign investors so check comparables before taking any action.
InvestUSA (www.investusa.com.au) specialises in helping Australians make property investments in America. Founded by Matthew Stubbs, the company provides end to end services including education, planning, selection, renovation and management.
Buy smarter = limitless ways to build lifetime income
Crave Property Advisory is a unique property strategy and buyers agent service. As the only independent and unbiased advisory that can help you use any property strategy Australia-wide, Crave’s services extend to home, investment and commercial property. A highly client focused organization, Crave developed the Modular Investing System (MI System) to provide clients with the ability to use a tailored mix of strategies and efficiently build profitable portfolios that create lifetime income.
Debra Beck-Mewing is the CEO of Crave Property Advisory, and has more than 20 years’ experience in property investing, Australia-wide. She has used a range of strategies to build her property portfolio including renovating, granny flats, sub-division and development. Debra is skilled in identifying development opportunities, and sourcing properties that have multiple uses and multiple exit strategies. She is a Qualified Property Investment Advisor, licensed real estate agent and also holds a Bachelor of Commerce and Master of Business.
Disclaimer – This information is of a general nature only and does not constitute professional advice. We strongly recommend you seek your own professional advice in relation to your particular circumstances.