Inflated Property Returns

I was talking to someone recently about our property in Florida, and was saying how the expenses were higher than we first imagined, and in turn our return is a bit less than what we were hoping for. Initially I was hoping for a net yield of around 8.00%, I thought this might be a bit optimistic but going through the numbers before purchasing a property, it seemed like a realistic value.

But after obtaining our property in Florida and seeing first hand the expenses, it seems that despite being fairly conservative in our initial assumptions, the return is still less than what we initially hoped for. However, if you rearrange the numbers a little, the investment looks better and perhaps even a bit more realistic as well. See below for the initial and subsequent calculations which show net yield returns.

Initial Calculations

The Net Yield of 0.56% is less than desirable, and if we were told we would be getting this return then I don't know if we would have taken the leap to invest in the US as the hassle would just not be worth it. Although I did not include any capital gains on the property (as our plan is for cash flow) this can be  disregarded as the cash flow target simply has not been met.

But by making some adjustments to the calculations, like shifting some of the expenses to the capital (moving the cost of the A/C unit and the whitegoods under capital expenditure), the numbers start to look much better. This is realistic as these expenses are not a yearly expense and you would hope that a new A/C unit would last a few years at least, the same with the white goods. Further, you can remove the cost of PI  insurance (as this expense is not dedicated to this single property and will cover all properties under the LLC) and include it as part of the LLC's general overheads.

Adjusted Calculations

As you can see by adjusting the calculations to perhaps more realistic figures, we have now obtained our 8.00% Net Yield that we were hoping. It is important to note that both situations are essentially identical with all expenses included in both examples (with the exception of PI Insurance), yet it is simply a different way of
calculating that gives you a very different result.

I think this is a good sign to be careful when seeing advertisements purporting unbelievable returns. You should always look through the numbers yourself and satisfy yourself that what is being advertised is achievable. You should also always check whether the returns are 'gross' or 'net' yield and what expenses have been considered.

How to Choose the Right Property Manager

So, you’ve just purchased your property. You’re over the moon that you’ve finally made the leap into the property market and can now start reaping the rewards. Well, unfortunately the hard work is not over. The number one, most critical decision outside of when to buy and sell a property is choosing a suitable property manager.

A property manager’s role is broad and can cover anything from choosing a tenant, collecting rent, carrying out repairs, and providing sensible advice on management decisions. A good property manager will do this and more, covering all of the little, but very important things as well. These should include, but are not limited to:

• Find prospective tenants
• Check a potential tenant’s criminal record
• Prepare the lease documentation
• Advertising
• Maintenance
• Take initiative with undertaking repairs under a nominated dollar value
• Organise bond documentation
• Pay authorised account and statutory charges
• Undertake regular property inspections and provide good feedback back to the landlord
• Check a potential tenant’s credit history
• Give you up to date advice on rentals and the property market
• Administer rent reviews
• Pass on the rent payments to you promptly
• Provide regular statements
• Handle arrears

So, how do you choose a good property manager? There are a number of ways that good property managers can be found. It’s rare that the best one for you will be the buyer’s agent. It’s much more common to find good property managers through word of mouth, looking through investment forums etc. Here are some tips for finding a good property manager:

• Always contact the property manager’s current and previous clients to get a bit of perspective on his or her character
• Have a clear contract set up with your property manager which outlines all the services that will be provided
• Generally, try and steer clear of really cheap property managers as it’s likely the services will be of a much lower quality and will end up costing you more money in the long-run
• Try and gauge the reputation of the company that the property manager works for by looking on the internet and contacting other professionals in the industry
• Find a property manager that specialised in the types of properties that you are planning on buying

Here are some other articles that you might be interested in:

 

How to Set Up a US Bank Account

Advice on American Real Estate Agents

American Real Estate Listing System

If you have any questions or comments feel free to email us at streamlineinvesting@gmail.com

 

Disclosure: The article is not to be taken as investment advice and the views expressed are opinions only. Readers should seek advice from someone who claims to be qualified before considering allocating capital in any investment.

 

How to Find a Buyer's Agent

Finding a good buyer's agent and property manager can be the difference between having a very successful and prosperous investing experience, compared to having a horror one.

A buyer's agent will be your point of contact when purchasing a property in the US, they will put offers in on your behalf and also keep a lookout for properties that you might be interested in. Because we are purchasing a property on the other side of the world, in an area we have not even visited before, let alone researched significantly, it means we are putting a lot of trust into the buyer's agent to find us a property that suits us, and give us an honest price guide on the property. Because an agent works on commission, i.e. they make money by selling houses, it can be easy to believe that an agent does not have your best interest at heart and they simply just want to make the sale and collect their cheque.

Of course in my opinion I believe the agent should do everything they can to be honest and trustworthy to the seller, especially in our case. For our first property, we were simply trying it out to see if investing in the US worked well for us, if it did, then there is no reason why we would not be investing significantly more into the US property market. So by being dishonest and collecting a smaller commission, they are potentially missing out on building a solid relationship with us which will benefit both of us financially in the long term. We were lucky that the buyer's agent we ended up going with was on the same line of thought with regards to this. She is initially from Australia, and now lives in Fort Myers, Florida, so being initially from Australia, she is able to better understand our concerns with regards to investing overseas, and is also able to decipher the jargon that is sometimes used in the US and relate it back to Australian terms that we understand better.

While we were looking at houses to purchase, we would have contacted probably around a dozen buyer's agents in the Lee County area, and just about all of them were very responsive and seemed very eager to help us with regards to purchase a property, but I guess we just did not feel as comfortable as we did with the buyer's agent that we ended up going with. It is important to note that the system in the US is different to Australia with regards to buying a property. A property is not simply listed with a single real estate agency and sold through them; it is listed on a database, and gives all real estate agents the ability to see all the properties on the market, so it is not like you are missing out on a good property by going with one particular agent. That being said, we were talking with one agent, who claimed she had information on properties that were about to go on to the market, and what price they were looking at. This way, you could put an offer on it instantly as it went on, and get it before everyone else saw it. I have a feeling this was not quite ethical and perhaps even illegal; anyway we did not feel comfortable working with this person.

Building trust with your buyer's agent is another very important aspect of the process of purchasing a US property. You are not going to feel comfortable sending over $50,000 (or more) of your hard earned money into the US if you are not confident you are getting value for money. You want to make sure you are purchasing a good quality house and not getting something that is just going to continue to drain your money. The main way we were able to build trust with our agent was just by constant communication with her, and by continuously asking her questions just to make sure she knows what she is talking about. Another good idea would be to talk to other people who your agent is currently working with, we did not do this as we believed to be confident enough with her to not need to do this.

The process we used to find a house for us was fairly simple, our agent set us up to receive notifications of new houses that met a criteria on the database of properties. Basically all the houses for sale are listed on the database, and by entering certain criteria to find a house you are looking for, such as price, size, location etc. You are sent a list of all the current houses that match your criteria. When we got the list, normally there would be about 40 new houses or so a week, we just sent our agent a list, normally of about 10 or so properties that we thought looked good on the photos. Our agent with local information and being able to see the properties for a property inspection would then review the properties and provide her own opinion. One of the reasons we were comfortable with our agent was that she would reject 90% of the properties we suggested, which lead us to believe that she was not simply in it for the commission, and that she was looking out for our best interests. Our agent would also look at houses herself and send us (and her other customers) a list of all the properties with her review of them.

The last aspect that made us comfortable with investing with this agent, was that she too is a property investor in the area, and quite often with the properties she saw as good value, she would say that we should put an offer on the property, and if we didn't then she would put an offer on the place herself. So if an experienced investor sees a property as a good investment, then it is a good sign that it would be a good place to put our money.

So as you can see finding a good buyer's agent is very important, they are your representative on the ground and you need to work together to make this successful. At the end of the day, you need to find a good, honest, genuine and trustworthy agent that you feel comfortable working with; otherwise the process will just never work out.

If you would like more information and the contact details of our property manager, or have any other questions you wish to ask us, feel free to email us at streamlineinvesting@gmail.com

 

 

 

 

Why we chose Fort Myers

When we first started looking at investing in the US, there seemed to be almost unlimited amounts of opportunities. The opportunities were not limited to a specific area; they were literally all over the country. We would read stories about one investor who made money flipping properties in Las Vegas, another who purchased unit blocks in Detroit, others who invested in Atlanta, etc. Basically it seemed like we could find good properties in a number of places, all of which had advantages and disadvantages. At the end of the day, when we finally picked a place, we made it based on a hunch, I believe that you could invest in a number of areas and be successful, but by selecting Florida as a state, it at least meant one decision was finished and we could focus on the next steps.

So why did we choose Florida?
As I said before, we really only chose Florida as a necessity to make a decision, where the result of the decision was not that important, but it was essential that a decision was made. One of the reasons we chose Florida is that the properties there seemed to experience the biggest gain in value during the real estate boom, and subsequently experienced just about the biggest loss since the bust. For example, the property we purchased for $44,000 in 2012 was sold for $133,000 in 2007 and $110,000 in 2004. So although the value of the house in 2007 was undoubtedly too high for what it is worth, we believe the house is still worth significantly more what we paid for it. And this was a similar situation all across the state, where property values had dropped by upwards of 75% of its value from just a couple of years ago. So expectation of capital gains was a big factor for us, if the value of our property reaches half of what it was in 2007, then that is a 50% capital gain of what we paid for it.

Another factor for us was the properties in Florida seemed to be relatively newer compared to other places we were looking. One option for us was Rochester in New York State, where many properties had very high rental yields, but it was very common for the properties to be nearly 100 years old, and although maintained all those years, still showing significant signs of wear and tear. Whereas in Florida, and typically in the Fort Myers area, there were thousands of houses that were built during the boom, which are now for sale, so there was a good opportunity to get a house that is less than 10 years old and still in as new condition. Actually there were several properties that had never been lived in before. However it should be noted that there are many instances of defective drywall in newer properties called "Chinese Drywall" which should be avoided at all costs. So age of property was a big factor for us, although in the end, we ended up purchasing a house that was built in 1966, so one of the factors that drew us to Florida, we did not really adhere to in the end.

We also knew that tourism is a big industry for Florida, and since there will almost always be tourists of some nature, there would always be associated business that would aid in the economy of the local area. So while several areas seemed to have dying industry (Detroit being a big one), we believed Florida to at least be able to maintain the tourism industry. Part of the tourism aspect is the fact that Florida is a popular retirement area of the US, with a lot of senior citizens looking to escape the cold northern states and into the tropical Florida climate, with an ageing population, we believed that in the future, Florida's population would only increase and there will always be some demand to live in this area.

There are many other positive aspects, and it should be noted there are also a lot of other negative aspects with Florida compared to other areas in the US. I have not been able to go into them, but above I have outlined our main reasons for investing in Florida, at the end of the day, choosing an area to invest in, when there is so much choice, is just a personal preference and you need to make a decision that you are comfortable with.

Why do we choose Fort Myers?
Again narrowing down a state to a certain area was no easy task, there seemed to almost be unlimited areas where we could obtain the results we wanted. One of the biggest factors was that we knew a fellow successful property investor, Steve McKnight, was investing in the area. Being a very successful and astute investor, we believed that he would have put careful consideration in selecting an area to invest in, so in a way we took that as a reason that it would be a good area to invest in. In a similar way, if you see McDonalds is building a new restaurant somewhere, then it is typically a good place to invest in property too, as the people at McDonalds would have put significant effort in choosing a location, and it is not common that they get these things wrong.

Another factor in choosing a specific area was we found a property manager we really trusted and wanted to work with. Our agent is originally from Australia but now works out of Florida, so she understands our position and knows the issues that we will run into before we experience them ourselves. So as I have said before, rather than finding an agent in a place, sometimes it can be effective to just find an agent and invest in where they operate, as a good agent is worth their weight in gold at the end of the day.

So these are the reasons why we selected the area we ended up investing in, like I said at the start, there seems to be an opportunity everywhere. So it is not always important what decision you make, just as long as you make the decision. If you want any more information on how we came to select our location, or anything else you wish to ask us, feel free to email us at streamlineinevesting@gmail.com

Set up an LLC (Limited Liability Company)

Once we decided that we wanted to invest in US Property, the first step we made was to set up an LLC. If you would like a description of what an LLC is then please see this LINK.

There are many different entities that you can create to purchase a property in the US, and there is nothing stopping you buying a property in your own name. There are advantages and disadvantages with every entity, however we believed an LLC suited our purpose for the following reasons:

We needed to create a separate entity to purchase the property to protect us from litigation. The last thing we wanted was to purchase a US property, only to have a tenant slip and fall and then sue us for our own personal assets. An LLC means that the only assets that can be taken in the event of a lawsuit is what the LLC owns, in this case, the property we purchase. Of course this means that we could technically lose our property in the event of severe negligence on our behalf, but it would be better than losing my personal property in Australia as well.

An LLC allows one entity to be set up to represent the two of us, because we are not investing individually, this allows a simpler transition to purchase the property, instead of having two names on everything, there is just the company name.

Setting up an LLC is relatively cheap, in all, the total cost to set up the LLC was $350, see below for a breakdown of the costs.

Overall the LLC entity is simpler and has much less paperwork compared to other entity types.

So now that we had decided to start the LLC, the next steps we had were to determine how we would set it up. You are able to set up the LLC yourself by filing forms with the IRS, I will be honest and I am not sure which forms you require as we did not do it ourselves. However to make the process easier for us, we decided to use the help of a US company to start up our LLC.

The company we used was Incorp, which specialises in the set up of LLCs. They also provide Registered Agent services for a relatively low price. It is compulsory that an LLC has a registered agent in the state that you register the LLC in. It is just to ensure that there is some address the IRS can find if they need to. The registered agent can be anyone provided they are not members of the LLC.

The following is a breakdown of the costs to set up an LLC in Florida:

Incorporation Fees - $150.00 (compulsory)
Service Fee - $99.00 (Incorp service fee)
Compliance Service - $49.00 (for 1 Year - optional)
Certificate of Good Standing - $35.00 (compulsory $5 fee with $30 service fee - optional)
2 Day Shipping - $18.00 (overnight shipping is $24)

The registered agent was free for the first year, and $99.00 every year after that. However I believe you can purchase 3 years at a discounted price of $270.00 approximately.

So the total cost to start up the LLC for us was approximately $350.00. Looking online, the typical fee you would be looking at would be between $500.00 and $1000.00 to set up the LLC if you went with a solicitor or similar, so I believe by using Incorp we were able to save some money. It should also be noted that although they are cheaper, I do not believe the people at Incorp were any less knowledgeable. When we submitted our application, we were assigned a personal salesperson, who helped us every step of the way with the LLC set up. As we did not fill out the forms correctly the first time, the salesperson was able to help us ensure the forms were filled out correctly. Overall I would highly recommend Incorp for their services, they allow establishment in all states of the US, and respond quickly to all queries you many have.

Step by Step Guide to Buying in the US

Below is a list of the steps we took to acquire our property in the US. I am not saying it is the best example of how to do things, and most likely not the most streamlined approach, but it worked for us so I do not know why it would not work for anyone else.

Step 1 - Choose an Area
There appears to be opportunities all over the US at the moment, and if you read around, there seems to be dozens of people who are promoting every area. It can be a big decision to make when you choose what area to invest in. However I believe that if you just make a decision, then you will see that there is an opportunity wherever you choose to invest. Also when I say by area, I believe if you first narrow it down to the State you wish to invest in, then it will help a lot of your problems down the line. We ended up settling on Florida for our State to invest in, although we ended up investing in the Fort Myers area, we did not narrow our search upon later in process. For more information on why we chose to invest in Florida, please see this ARTICLE.

Step 2 - Set up an LLC (Limited Liability Company)
This is the main reason why I feel it is important to pick a state you want to invest in first, because an LLC is registered by the state. And I believe if you set up an LLC in a different state to where you purchase then it can become fairly difficult, however I have no experience with this as our LLC was set up in Florida and we purchased in Florida so it was a fairly smooth transition. For more information on setting up an LLC, then please read this ARTICLE which outlines the steps we took to set up our LLC and any recommendations we had.

Step 3 - Acquire an EIN (Employer Identification Number)
Our next step was to acquire an EIN for the LLC, this number is basically a tax number for the IRS (Internal Revenue Service), so pretty much the equivalent of an ACN for the ATO in Australia. I have been told by others that one of the members of the LLC need to have either an ITIN (Individual Tax Identification Number) or a SSN (Social Security Number), however please note that neither me or my business partner have an ITIN or SSN and yet we were able to acquire an EIN for our LLC. For more information on acquiring an EIN, please see this ARTICLE.

Step 4 - Find a Specific Area
Once you have everything set up, you need to narrow down your search to find a specific area you want to invest in. Ideally you want to narrow your search down to a county, which normally encompasses a city and surrounding areas, or maybe a couple smaller towns. We ended up settling on Lee County, I am not sure why exactly, but we saw a lot of good opportunities in the city with low house pricing, and decent rental returns. Please see this ARTICLE which explains why we came up with investing in Lee County and some information on the area.

Step 5 - Find a Property Agent
This is probably the most important step we had facing investing in the US. As neither of us had ever been to the US, and had no intentions of travelling there due to work restraints, we had to make sure we would find a property agent that we could trust. This can almost decide what area you want to invest in, if you have a good agent then you will most likely be swayed to invest where they work. Alternatively if you have a great area, but cannot find an agent that want to work with, then you will most likely end up taking your money elsewhere. We talked to approximately a dozen agents, and although none of them were outright criminal, most of them we just did not trust. Since they were all born and raised in the US, they just did not seem to understand the concerns we had as an Australian investor. In the end we ended up choosing a property agent who is originally from Australia and invests in the Fort Myers area herself. For our advice on how to find a property agent and our experiences, please read this ARTICLE.

Step 6 - Get money ready
This might sound obvious, but when dealing with things across the other side of the world, transferring money can end up taking longer than expected. There may be delays with depositing money, converting into US Dollars, or sometimes your withdraw limit may be lower than you thought. All these things happened to us and affected our ability to purchase our property. To convert the money from Australian dollars into US Dollars, we used an online broker company called Interactive Brokers. Using Interactive Brokers we were able to deposit money from our Australian accounts, however the maximum limit we were able to do from our accounts was $15,000 at a time, so it took several different deposits to ensure we had enough money into the account. As you can see this took longer than we expected, lucky we had the money ready before we had a property lined up. Converting the money into US Dollars was relatively straight forward and we actually got a great rate using Interactive Brokers. With the money sitting in the Interactive Broker account ready to be placed into the Escrow account, it made the last step to purchasing the house run a whole lot smoother.

Step 7 - Find a Property
This could possibly be the most stressful step in the whole process. It is not that different to finding an investment property in Australia, the only difference was that we had no idea about the area, seeing as we had never visited there before. So this meant we were completely relying on our property agent's recommendation for our property. This meant there was a significant amount of trust we had in her hands, this is why it is so important to find a great property agent. One of the things that let us gain our trust in our property management was that not only did she invest in the area herself, she also rejected probably 90% of the properties we suggested to her. This showed us that she clearly was not just after our commissions and that she wanted to help us out. With new properties becoming available daily, it is only a matter of time before a property you want comes onto the market, unfortunately a property that you want, is typically a property any investor wants. This means that a good property goes fast, and when I say fast, I mean it can be gone within hours. I believe a lot of this is because the seller's agent has their own contacts for the property, and they tell the contact before the property becomes officially listed, so as soon as it is put on the site, it is effectively already sold. Persistence is the key, keep searching and eventually a property that suits your investment needs will be there for the taking. 

Step 8 - Place an Offer
Once you have found a property you like, same as Australia, get your property agent to submit an offer on your behalf. This does not have to be the advertised price of the property, with your property agent try and submit an offer that reflects the true value of the property. A lot of the time we found that the advertised price was purposely low to get more people interested, and in the end it turned into a bidding war driving the price up to almost double of the listing price. Other times, the advertised price was higher than the selling price. Essentially, the listing price does not reflect the true value of the property, so make sure the offer you submit reflects the true value of the property (or at least as best as you know). If you would like to hear more about our success rate regarding placing offers, and also about the short sale process, please read this ARTICLE.

Step 9 - Organise Inspections
Your offer has been accepted by the seller/bank so now the time has come to perform your inspections to make sure the building is structurally sound. The last thing you want to find is the house is constructed with defective dry wall, or significant termite damage. Luckily there is typically a 5 day inspection period you can use to carry out inspections and withdraw without losing anything more than the couple hundred dollars spent on the inspections. We were lucky that our property manager's partner is a professional builder and is able to carry out these inspections for us free of charge. Assuming everything goes well then you are up to the final step in the process of acquiring a property.

Step 10 - Celebrate!
This is the final step, you have acquired your property, and although this may seem like the end of a long process, it really is the start. You have now spent all your money, now it is time to make that money back. Our next step was to perform some rehabilitation on the property, approximately $5,000 worth, but this was known when we submitted the offer and factored into our calculations. Next step is to find a tenant and start collected some cash flow.

We will update you more with how our property goes once it starts renting and getting us some decent money back. But hopefully the above outlines some simple guidelines you can follow to purchase a property in the US. Like I said at the start, I am not sure if it is the most effective way to go about things, but it definitely worked for us.


If you have any other questions or comments, feel free to email us at StreamlineInvesting@gmail.com


Disclosure: The article is not to be taken as investment advice and the views expressed are opinions only. Readers should seek advice from someone who claims to be qualified before considering allocating capital in any investment.

Managing US Property Investment Currency Risk

When investing in property abroad, you should take care to manage your exchange rate risk appropriately, since currency fluctuations can have a significant impact on the overall success of your real estate investment.

Not only is it important to get a great deal on the initial exchange rate that you transfer your local currency at in order to purchase the foreign property, but subsequent exchange rate changes often require management or hedging in order to minimize risks and maximize returns.

The following sections cover some straightforward methods for managing your property investment currency risk efficiently.

Shop around for the best exchange rate when buying property abroad

A key thing to remember when making the initial currency transfer for an overseas property purchase is that you are generally not locked into using your local bank for foreign exchange transactions and forward contract hedges.

This means that you can shop around among various banks for the best forex rate, which can often save you as much as 1-2% on your currency transfers. You can also use reputable currency transfer providers like OzForex, who make sure that all of your currency transfers will be both cost effective and straightforward to perform.

Furthermore, not only can you shop around for the best exchange rate on your large initial property deposit, but you can also get better exchange rates on your regular currency transfers if you plan on making periodic mortgage payments in a foreign currency.

Placing currency limit orders

Placing a limit order with your foreign exchange provider is another way to help you get the best exchange rate on your property-related currency transfers.

When you enter a limit order, you will need to specify an exchange rate level, a currency pair, an amount of one currency and whether you wish to buy or sell that amount at that level.

If the market exchange rate subsequently fluctuates to your specified level, then your foreign exchange provider will buy or sell the specified amount of currency for you automatically based on your instructions.

Limit orders are especially helpful because people cannot be watching the actively fluctuating foreign exchange market all of the time, and so they might miss out on a short lived exchange rate improvement. Although limit orders are often used when dealing through stock brokers, this useful ability is rarer among foreign exchange providers. Be sure to ask whether your currency transfer provider offers limit orders if you think you might wish to use them.

Managing currency risk from foreign property investment with forwards

Most real estate investments have a fairly long time horizon. As a result, people who invest in property abroad typically tend to manage their long term currency risk by using forex forward contracts as a hedge against adverse exchange rate movements.

These contracts permit you to lock in a market-determined exchange rate for a certain amount of currency and a given future delivery date. The forward exchange rate you receive is related mathematically to the prevailing spot rate and the current interest rate differential between deposits in the two currencies involved in the transaction.

Forward contracts can be used as much as two years in advance of when you anticipate actually needing the foreign currency to make payments related to your foreign investment property.

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This article is brought to you by OzForex Foreign Exchange Services. OzForex is one of the world’s leading foreign exchange companies, providing live exchange rates and focused on providing a smarter, online alternative to existing international money transfer services. Established in 1998 with the aim of giving individuals and corporate clients a better deal, OzForex has offices in Sydney, Toronto, London, Hong Kong, San Francisco and Auckland. 

The OzForex Group includes OzForex, UKForex, Canadian Forex, USForex, NZForex, Tranzfers and ClearFX. It is a strategic investment of Macquarie Bank, Accel Partners and The Carlyle Group.

OzForex

 

Sending money overseas can be expensive if you are using the major banks or money exchange companies like Travelex. Thankfully, Streamline Investing have partnered with currency specialist OzForex, Now you can transfer money overseas faster, with minimal to no fees and at a great rate. Their fee is only AUD15.00 for transactions of under AUD10,000, free for above AUD10,000 and their exchange rates are much better than banks and other providers. Best of all you can do it anytime you like online or by phone as they are open 24-hours a day, every business day!

By using OzForex you will enjoy:

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To speak to one of their accredited dealers about your foreign exchange requirements call 1300 300 424 in Australia (0845 686 1950 in the UK; 1800 680 0750 in Canada or 0800 161 868 in NZ) or register online. Registering with them is FREE and you can view their live dealing rates immediately.

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Difficulties with Time Difference

Obviously one of the biggest issues with investing in US Property is the fact that you are on the other side of the world, so ultimately, the power of control is taken out of your hands. At the end of the day, being so far away really forces you to be hands off with your investment. This means your total investment is in the hands of your property managers over there, one of the reasons why it is so important to have a solid team working for you in the US.

One of the biggest issues which I did not realise would become so relevant, was simply the time difference. In the internet age, it is so much easier to communicate with the other side of the world, allowing you to invest your money wherever you want. However there is one problem with communicating with people in the US. When I am awake and ready to communicate, they are asleep, and vice versa. 

The last week of so I have been in constant touch with our insurance broker, every day I have been firing off emails to her. But by the time I wake up and send it, she has gone home from the day, and when she sends her emails to us, I am already fast asleep. Looking at a typical work day in Florida (where our investment property is), 9.00am - 5.00pm, that converts to 11.00pm - 7.00am Sydney time. It has made it very difficult as I am not typically available between 11.00pm and 7.00am, so our email conversations typically consist of just one email each day. Meaning a decent exchange of emails can take up to a week just to get through. The timezone difference just makes everything so much slower than it would if you were investing in Australia, where you could quite easily just talk on the phone with much more appealing time zones.

We are lucky our property agent is more dedicated than a typical 9am - 5pm worker, where she seems to be able to be contacted almost any time of the day, and quite often get a reply fairly quickly. Without this dedication to her job, I can't imagine how much more difficult it would have made the whole process.

I know it may not sound like a big thing, but it has definitely added to the difficulties with investing over in the US. It is something that needs to be taken into consideration, possibly investing on the Western coast of the US might make things a bit easier

Is it worth spending the money?

With our first property in the US. We had to carry out some small renovations to get it up to scratch in order to find a good tenants. Most of the renovations were only small, such as painting walls, repair some minor damage and clean up the property as it had been left vacant for a few months.

On the quote from the contractor was replacing the carpet with tiles. There is obviously a benefit with tiles compared to carpet with regards for an investment property, as tiles are typically more lasting and can be cleaned a lot easier. The existing carpet was slightly worn and had a few stains, but overall it was not in too bad a condition. The quote to replace with tiles was $2,900, we opted not to spend the extra money and just hired a good carpet cleaner for $200 to give all the carpet a thorough clean.

After the carpet cleaner did their work, the carpet was a lot cleaner, but there was still an issue of smell, aparently the old owner had animals, and the smell of dog was almost ingrown into the carpet. Having not being able to visit the property we only heard the issue from our agent, and we were told that although it was not great, it should not stop us getting a tenant.

When we started looking for a tenant, we received a positive response on the property generally, apart from the smell of the carpet. That was the deal breaker with the first few groups who were looking at the property. Due to this, we had to reduce our advertised rent from $800 per month to $700 per month. There was also the delay of approximately 1 month due to the vacant property which we had to deal with. I cannot say for certain that the property would have rented right away for $800 per month if we did replace the carpet with tiles, but I am confident that this would have been the case.

So if we did initially spend the money to replace the carpet, then we would have made back our money in a couple years. Not to mention, replacing the tiles would have also added value to the property, so any money spent on renovations for the property would have been instantly rewarded in a capital gain.

So although we still receive a decent return, it seems it may have been worthwhile replacing the carpet with tiles while we were renovating the property. I guess it is just important to know if improvements you plan on doing to the property, will really be worth it in the long term. Down the line we may plan on approaching our tenant about replacing the carpet with tiles, and perhaps negotiating a higher rent from them, so all may not be lost.

If you want more information from our experience, or any other comments. Feel free to email us at streamlineinvesting@gmail.com

Disclosure: The article is not to be taken as investment advice and the views expressed are opinions only.  Readers should seek advice from someone who claims to be qualified before considering allocating capital in any investment.

First US House Expectations

There is no point investing without a plan. If you simply choose to invest and do not have a goal, then most likely you will not succeed. Of course you may get lucky, but investing and just hoping to get lucky, is not really a strategy. Definitely not a successful one. 

That being said, with our US property investing, we were not 100% sure how well it would work, our plan was to purchase one property, if it worked out well, then we could continue this and keep purchasing more and build our portfolio in the US. If we found that the US did not work well for us, then we could cut our losses and get onto a different investment strategy.

Because we were only hoping to invest $50,000 for our first US property, it would not break the bank if we failed, whereas if we invested in Australia, we would still have a significant mortgage lying over our heads. This is why we felt that investing in the US, although it may seem a lot riskier, we actually think due to the lesser investment amount, it is almost a safer bet than investing in Australian property.

Below I have outlined what we initially predicted our investment to be like in the US, we were hoping to be conservative so that there was more chance of us surpassing our expectations, rather than not meeting them.

Initial Information

House Price + Renovations = $50,000

Monthly Rent = $750

Gross Yield = 16.8% (not the highest that we have seen in the US, but we were comfortable with this amount)

Deductions

Property Tax = $1,000

Maintenance = $800

Insurance = $850 per annum

Vacanct Rate = 5% (750 x 12 x 0.95 = $8,550)

Property Management Fees = 10% of gross rent  ($8,550 x 0.1 = $855)

Tax = 30% ($8,550 x 0.3 = $2,565)

Net Return

This gives our net return of $8,550 - $855 - $1,000 - $800 - $850 - $2,565 = $2,480

Net Yield = 4.96% 

The return does not look that impressive and it seems like you could invest in a high interest term deposit and receive a similar return, however it is important to look at the capital gains aspect of it. If the property value increases by 5%, then the net return will go up to almost $5,000 or near a 10% yield return.

Now that we have our first property, I will be keeping track of all expenses for the property and can see if our initial assumptions were accurate. Hopefully by learning more information we can refine our assumptions for future investments and be able to make more accurate information.

If you would like more information about our US Investments or anything, please send us an email at streamlineinvesting@gmail.com

Disclosure: The article is not to be taken as investment advice and the views expressed are opinions only.  Readers should seek advice from someone who claims to be qualified before considering allocating capital in any investment.

Insurances for our US Property

With our property in Florida recently being purchased, and the renovations just about complete. The next step was to ensure we were insured properly. One of our biggest fears was that a tenant would slip over in the shower and then sue us for everything we had, probably a bit dramatic but was still a real concern for us. Even though we have the property owned in our LLC, we thought that this meant the total liability we could be facing was everything the LLC owned, i.e the property. I mean this is what Limited Liability Companys are used for right? To limit the liability, at least that is what I initially believed. Although it is true in most cases, in the situation where the owner of the house has been extremely neglient and there is a serious injury or death due to this neglience, then the law system may have the power to go after the personal assets of my business partner and I. 

To be honest, I have not looked into the potential to be sued as an individual too much, I have only been told that is is a possibility, especially in America where anything seems possible. Due to this, we have to make sure we protect ourselves as best as possible with all the necessary insurances. Our property agent set us up with a contact who is able to sort out insurances for us, she recommended that we procure three different insurances for our property

Flood Protection - although in a 'low risk' flood zone, it is still recommended

Personal Liability - otherwise known as Umbrella insurance to protect the landlord for being sued as above

Property Insurance - self explanatory, building insurance should the property sustain significant damage

We initially received quotes for the insurances and below were the premiums (received on 24/5/2012):

Flood Protection - $343 per annum

Personal Liability - $410 per annum for $300,000 cover

Property Insurance - $1,826 per annum

The property insurance quote definitely raised my eyebrows, it was a fair bit higher than I initially was hoping for. Also along with this, due to the age of the property (it was built in 1966) we were required to have a roof stability report carried out, as well as a wind mitigation report conducted. To be honest I don't even know what a wind mitigation report is, I assume it just analyses the capacity of the property to withstand strong gusts of winds? Anyway, each report is only about $100 each so I have no problem getting them both carried out to satisfy the insurance company.

Back to the $1,826 quote for property insurance, looking through the quote, I noticed the property is being insured for $192,000. This seems a bit ridiculous seeing as only paid $44,000 for the property and spent $5,000 on renovations. So I would expect we only require it to be insured for around $75,000 to fully cover our investment on the property. Flood protection was similar, the property was being covered for $200,000, well over its actual value. Also there was contents insurance associated with the flood protection to the sum of $80,000, which again is not realistic as we not be renting out this property furnished, so we would only provide the bare minimum to the tenant, assume only $10,000 cover would be required for contents.

To be honest I am curious how this works, seeing as my home insurance for my house in Sydney is only $640 per year, and I paid $350,000 for this property a couple years ago. And yet, a property over there worth $44,000 requires $1,800 in insurance a year? Three times the cost of insurance for a property worth an eighth of what mine is in Sydney, it really does not make sense. I do understand that they are looking at replacement cost of the property, rather than the actual property value. So it very well may be that it would cost $192,000 to rebuild the property. But still, when I put the same property details into a quote generator with AAMI Home Insurance, the home insurance premiums were still only $750 a year, so I really do not understand where the extra $1,000 or so comes from.

After emailing the insurance broker, we found out that $1,200 of the cover for the home insurance was for wind cover. This seemed very excessive seeing as the property is relatively inland (approximately 20 miles) so most of the damage from a hurricane would subside, and also the property has been around since 1966 and never had wind damage previously. Due to this we opted to remove and wind cover for the property, bringing the property insurance level to $586. We were also able to reduce the flood protection cover from $200,000 to $100,000, which reduced our premium by half down to $174.

The final amounts we ended up paying for our property insurance were -

Flood Protection - $174 per annum
Personal Liability - $410 per annum
Property Insurance - $586 per annum
TOTAL - $1,170.00


To be honest it was still a bit higher than we initially were hoping for, but I guess it seems like a standard rate for the area so not much we can do about that. Removing the wind cover makes the total cost a lot more accessible for our budgets. It should also be noted that the personal liability insurance should be able to cover us under all of our properties, not just the individual property.

I was also talking to another investor who opted to not provide any property insurance, their argument was that they would most likely not bother claiming on the insurance for anything minor, and anything major is such an unlikely event that it was not worth worrying about. Their typical property value was around $40,000 and by saving the $17,000 a month in insurance fees (they had hundreds of properties), as long as a large fire or similar didn't occur more frequently than every 3 months, they would come out on top. I believe they are happy with their situation and have come out on top without using insurance at all. This is definitely one approach that can be taken, however for our first investment, we have chosen to have some security for us, if our port folio substantially increases and insurance starts eating significantly into our profits, our line of thought may change.

Anyway that was our experience with insurance for the properties, I guess at the end of the day it is important to question the costs of everything, it is easy to just assume it is the going rate over there, seeing as we do not know much about it. But by simply asking questions and realising what cover we need and what we can do without, we were able to reduce our premiums by half. And my business partner and I are more than comfortable with the amount of insurance we have. If we feel it is not enough, there is nothing stopping us increasing the cover next time when we renew our insurance.

Disclosure: The article is not to be taken as investment advice and the views expressed are opinions only.  Readers should seek advice from someone who claims to be qualified before considering allocating capital in any investment.

1st Purchase!

28th April 2012

So today was the day we have been waiting for the best part of 2 years ago. We finally landed our first property in the US. Like I said we started this adventure about 2 years ago, it has been filled with a lot of ups and downs, not to mention a lot of frustrations. But in the end, we have learnt so much on or journey. We do not plan on this being our only property in the US, so we hope that this information will allow us to streamline the process for future deals. Also we have a lot of things set up (LLC, Property Agent, Property Management) for this first sale, so we hope to be able to start looking for a new property very soon.

This property we were able to purchase in cash, the total price was $44,000, so we were fortunate enough to between us have that much saved up. As we have exhausted a significant amount of our savings, we will hope to obtain finance for the next purchase, however we will need to establish some sort of credit rating prior to being able to do this.

Over the next few weeks we will outline all of the steps we went through to purchase this property, hopefully it will allow people who follow in our footsteps to be able to streamline their efforts and make it easier for themselves. I believe our next one will be very difficult too however, with the added requirement of needing to obtain finance for the property.

Once everything is settled, we will also provide all the expenses we have incurred in order to obtain the property initially, and also to maintain the property successfully, once we have some history with this property, hopefully we will provide an accurate record for everyone.

But for now, it is definitely time to celebrate, along the way I had doubts that this would simply never happen, that it was all too difficult, that there were simply too many obstacles in our way that were there to stop us, but eventually we were able to prevail and now we are looking forward to our next step in our investing journey.

How to Buy US Dollars to Purchase a US Property

To purchase our property in the US, we needed to convert Australian Dollars into US Dollars. This was a gamble in itself, making sure we got the best exchange rate and taking on all of the risks that come with forex investing. We had to make sure we got a good exchange rate when we did get our US dollars.

Our method in trading foreign currency was fairly simple, we knew there was always going to be ups and downs in the value of the dollar. We looked at the historical figures of the USD/AUD conversion rates and if the current rate was above the average then we figured it would be a good deal. This AUD/USD Comparison has the figures from 1990 to today.

The average over the last 22 years is 1.00AUD = 0.74USD. We purchased US dollars over the period of a few months ago to average out the exchange rate and managed to get an average rate of 1.00 AUD = 1.03USD which is quite high compared to the last 2 decades.

The Aussie dollar will drift back towards the 90 cents mark as the current exchange rate is having a very negative impact on the mining and the export industry as a whole. When this occurs, not only will we make money from our US property investing, we will also make money from foreign currency exchange.

How to Finalise the Paperwork When Purchasing a US Property

When signing any official document in America, you need it to be witness by a Notary Public. A Notary Public in the US is similar to a Justice of Peace in Australia and is just as common over there. In Australia, a Notary Public is much less common (they are generally a practising solicitor with around 10 years experience) and MUCH more expensive.

When we had the offer on our first property approved, we needed to get the closing documents witnessed by a Notary Public with both of us present. As both of us work full-time as Civil Engineers and on the opposite sides of Sydney, this posed a problem. Finding a Notary Public that worked outside regular business hours and didn't cost an arm and a leg proved very difficult. A Notary usually charges on a per hour or per document fee and you will be hard pressed to find anyone to witness a set of documents for under $200.

To find a Notary Public, use this link in Australia - http://www.notarylocator.com.au/

The Notary Public we chose works at Chatswood and was very easy to work with. He was very interested in our US Investing and was actually working on investing over there himself. He did not have much experience with the whole purchase of a US property and the forms involved, so it was a bit of a learning process for all of us. One thing that we were very impressed with was his professionalism and thoroughness. This is crutial when selecting a good Notary Public.

When we contacted our Notary for a quote, he asked us to send him the documents via email so that he knew exactly what he had to do. Others simply gave us a figure (sometimes much less and sometimes much more than our Notary) without really giving this too much thought. Our Notary ended up quoting us for $380 for his services.

You need to be well prepared when visiting a Notary and have the following documents ready:

• Two types of photo identification (preferably with your signatures on them like a Passport and Driver's License)
• Proof of ownership of the company or entity that you are purchasing under
• Evidence that your company is in good standing and is active at the time of the purchase

The whole process took around an hour (we had around 12 forms in total that we had to sign and about 6 or so that the Notary had to witness). In the end he decided to charge us only $350 for his work, a bit less than the initial quote, but still a fairly expensive exercise. When we deposited the money into his bank account, we decided to split the difference and sent over $365.

It seemed that both parties were happy with how all this turned out, he asked us interesting questions about our US investing so it was good to get some more critical information from a different perspective. It was a win-win situation that we created, which we believe is important because we intend to purchase several more properties over the next year or so.

If you are from Sydney or are visiting and would like to have an appointment with our Notary, then feel free to email us and we can pass on his information. He is very helpful and we are more than happy to use hime again.

US Banking Fiasco - Learn From Our Mistakes

If you want to invest in the US property market then one of your first challenges will be to set up a US bank account. This step is not 100% required to purchase your first property as you can use an Escrow account to deposit the purchase price of your property. This is not something that you can use for rent collection and is simply a way to transfer money from the buyer to the seller. In theory (and this is what we did), you can hold off opening a bank account till you have the first property secured and tenanted out. It will then be required to either visit the US or get a lawyer to open a bank account for you.

To collect rent, you can use your property manager to collect this money in the short-term. You'd want to have build up a very good relationship with your property manager before taking this step.  However, the preference is to be in full control of your money and being being able to look at your bank balance whenever you want. If you're thinking about opening a bank account without actually visiting America then forget about it! Here is our story:

Without actually visiting the US we knew it would be difficult to set up a bank account from overseas, what we found was that it was near impossible (well sort of). You can set up a bank account with HSBC from Australia, however there is a $200 fee associated with this and you need to have at least $200,000 in your bank account. There are ways around this which we will cover in another blog post. Every other bank requires you to be present in a branch to open a bank account. This is due to the Patriot Act which came into effect shortly after the September 11 terrorist attacks in 2001. 

Our US property manager provided a contact at Fifth Third Bank. The contact (let's call him Bill) said that it did not matter that we were not able to visit a branch and that we would be able to open a US bank account from overseas. It was all looking very positive, we were finally going to have a bank account in our company's name and it would take us one step closer to being able to purchase a property in the US. We corresponded with Bill numerous times via email, provided him with certified copies of our passports, mother's maiden names etc., only to be told, only hours after sending him all the information, that he is no longer able to open up bank accounts for people based overseas. We were afraid that we may have become victims of identity theft but as it turns out,  nothing bad happened. It was definitely a frustrating experience to be so close to something only to have it all fall away at the end. 


A couple months later, we were talking with a property manager from Century 21 who also said she had a contact for us to set up a bank account (let's call her Sue). Initially we thought it would be the same as what happened with every other bank, that we would simply not be allowed to since we were based overseas. This time we were dealing with BB&T Bank. This experience was beginning to be a lot more positive than the other banks we had asked, we were actually able to start up an account! We even received a Debit Card with the company's name on it! (I still have it in my wallet, even though it is useless, as a memento). 

It did not cost us anything to set up the account (apart from stamps to post information to the US) and we had everything ready to go. We had our US bank account set up in our company's name, had internet access so we were able to log in and look at our balance and everything was going well. To avoid the minimum monthly fee, we had to maintain $1,500 US in the account, which was not a problem as we were intending to hold all of our money from the property in the bank account.


Then out of the blue, we received a letter from BB&T (dated 3 weeks from the date we received it). It was to inform us that our bank account would be closed and that we had 14 days from the issue of the letter to remove our money from the account or they would send us a cheque of the remaining balance. Immediately after receiving the letter we tried to log in to the account and realised it had been closed. We received no email, phone call or text from the bank prior to this 3 week old letter. It took over another 4 weeks to get the cheque for the $1,500 balance of the closed account.


Unfortunately this story doesn't end here, we then had to try and cash the cheque. The cheque was made out in the bank account's name, 'Streamline Investing LLC', but we didn't have an Australian bank account in that name. So here we had a cheque which was basically just a piece of paper, worthless to us. Our banks in Australia would not cash the cheque into our personal accounts despite being able to provide evidence that we were the owners/directors of the company. Eventually we realised we had to open up a business account in Australia for the sole purpose of being able to cash this cheque. Just about all of the banks required us to set up a business in Australia with the same name, we were not able to set up a business bank account for a US company. 

So we went through the process of getting an ABN and TFN (we set up a partnership, filled out the form online, both numbers were free to receive, ABN was received instantly and the TFN took a couple weeks to arrive). Unfortunately that was still not enough and we had to register our business name with the Department of Fair Trading, this costs $160 for 3 years registration in NSW. Before registering our business name, we managed to find a bank that would open a business account for us in our US company's name. Westpac provided us this service, and we were finally able to open an account to cash the cheque!

Overall, this was a very frustrating experience but one that taught us a number of lessons. This is the benefit of doing things yourself and not getting one of those 'ready-made deals' that are becoming so popular nowadays.