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 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

 

 

 

 

How to Acquire an EIN

An EIN (Employer Identification Number) is essentially the equivalent of an ABN (Australian Business Number) in Australia. Basically it just allows our LLC to be recognised with the IRS in America. Because we used an LLC to purchase a property, it meant we required an EIN. If we had purchased as an individual, we would either require a SSN (Social Security Number), which is not possible as neither of us are American citizens, so we would have required an ITIN (Individual Tax Identification Number). I remember reading initially that to obtain an EIN; it was required of at least one member of the LLC to obtain an ITIN first. I can tell you now that this is not true, as we were able to acquire an EIN with neither of us having an ITIN.

To obtain an EIN, we used the same company that we set up our LLC with, INCORP. Dealing with Incorp allows you to be assigned your personal company representative, who we were able to contact to help us get out EIN. When setting up an LLC with Incorp, you can opt for a package deal where you set up the LLC and get an EIN, but we thought we could set up the EIN ourselves and thought we would try and save some money. We were told by our personal representative from Incorp that if we had an SSN or ITIN, then we should be able to get an EIN within 24 hours of applying, but due to not having either of these numbers; the process would take a lot longer. In the end it took about 3 weeks before we were assigned an EIN. The cost to us was $69 (US Dollars) by going through Incorp. As I said before, it is possible to obtain the EIN by doing it yourself and free.

You are also able to apply for an EIN online, similar to obtaining an ABN, but again, without an SSN or ITIN you are unable to use this service, and have to follow one of the other methods on this website - How to Apply for an EIN. Essentially you are required to fill out Form SS-4 and submit it to the IRS.

So overall acquiring an EIN for us was not very involved as we simply went through a company, but if you are doing it yourself you may find it slightly more challenging, unless of course you have an ITIN or SSN, then applying online should be relatively easy.

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

Placing an Offer

When we first started looking at properties in the US, our first reaction was of amazement, simply due to the amount of properties that were for sale. Not only just by the sheer bulk of properties, but the amount of properties available under $50,000. Even though we had narrowed our search down to Lee County area in Florida, which includes Fort Myers, Lehigh Acres and Cape Coral, there were still hundreds of properties listed for sale.

Looking at information on Lee County, the population is approximately 620,000. Yet there is more houses for sale in this area than there is in the whole of Sydney, which has a population closer to 4,000,000. I guess when we saw data like this, it just shows the crisis the area was in.

So our initial thoughts would be that finding a property would not be a problem at all, there almost seems like there is an unlimited supply of houses, so when we are ready we can simply go in, put an offer in, get accepted and be done with the search and start investing. I think I was also falsely optimistic when I purchased my first house in Sydney. I only really looked for a couple weekends, went to approximately 6 open inspections of houses, submitted one offer and it was accepted. So I started to think that there was nothing stressful at all about trying to find a house.

Once we started to dig a little deeper in the Lee County houses, we soon found why there were so many houses listed for sale, basically 90% of them were just not worth the money, even for $50,000 they were just dead investments, either they had Chinese dry wall issues all throughout, or they were trashed inside by the previous owners leaving the property needing tens of thousands of remedial works. Quite often houses had termite damage, or simply the properties were just too far away for anyone to want to live there. A lot of the properties were also in undesirable areas, such as areas with a strong gang presence, typically Mexican gangs in this area.

So here we are now, looking at hundreds and hundreds of houses, where only 10% are of any good, still sound like there is not much of a problem. With discussion between the property manager and ourselves, we can find out if a house is worth it or not. Unfortunately, as I have discussed in a different post, there is a difficulty with communicating with our property manager in Florida, with the time zones making it very hard to have an effective and efficient talk. These delays meant that the properties we saw that met our desired criteria had just about always been sold before we had the chance of putting an offer in. The good properties seem to get snapped up very quickly, normally within hours of being put up for listing, seems professional investors keep a very close eye on new listings, and are ready to act fast. It made it very hard to compete with people like this, I imagine it would have been a lot easier if we had been in Florida in person and been able to work physically together with our property manager when trying to find a property.

As you can see, with things going very fast, it is important that you have everything ready when you start placing offers on houses, this turned out to be quite annoying for us, as we had $40,000 sitting in our Interactive Brokers account, in US Dollars, waiting to be used to buy a house. This would have been fine, except we initially put the money into the account in December 2011, we did not end up purchasing a property late April 2012, so there was effectively 5 months of money doing nothing for us. This money was taken out of my home loan offset account, which meant I was forced to pay extra interest. At a 7% interest rate, this equated to an extra $1,200 or so, a significant amount.

So although we did not end up getting a property until April 2012, we did start putting offers in on properties from December 2011, at first we were very hesitant and thorough, making sure we read through all the offer documents and making sure we understood everything, over time we were able to trust our property manager more and in the end we almost signed the offer papers without even reading them. There is a cooling out period in the offers, typically 10 days, so we were able to withdraw the offers if they were accepted, and we had a better chance to be able to look through the property.

At the start, we also only made sure we had one offer in at any one time, if we submitted offers on more than one property, if they were both accepted, we would be responsible to purchase the properties, well actually I guess we could cancel one of them during the cooling off period, but it was still dangerous to offer on more than one property just in case. But soon we found that the waiting time between submitting an offer and being notified if you were successful or not, was weeks, so it was just wasting our time. So we ended up quite often having offers on up to 5 properties concurrently. We also found that short sales tended to be even slower, and would quite often sit with the banks for months before they accepted or rejected the offer.

In the end the property we purchased ended up being a short sale. I cannot remember the exact timeline of how everything went, but from memory it was something like this -

January 5th 2012 - Initial offer submitted at $42,900
January 10th 2012 - Offer accepted by owner of the house
January 20th 2012 - Bank counteroffers with $44,000
January 31st 2012 - We re-offer the asking price of $44,000
March 10th 2012 - Bank reject our offer for the property
March 25th 2012 - Bank changes decision and says offer is back on the table
April 3rd 2012 - Bank accepts offer for $44,000
April 28th 2012 - Money transferred into title account, house is officially ours!

As you can see from the above, there were a couple of months between initial submission of the offer, and the final purchase of the property. Being a short sale, the bank seems to slow down the process to a snail's pace. Which to be honest I do not understand, you would think a bank is trying to get as much money as they can, and although they are accepting a loss on the property as the sale price would not match the existing loan, it is still better than holding on to the property.

Anyway, in summary, I believe we submitted offers on about 20 properties, and approximately 16 of those were rejected by the owner or the bank, 3 or so would have been withdrawn by us due to issues found during a more stringent inspection, and lucky last was accepted and is now officially ours. 

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

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.

-----

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:

-       No receiving bank fees in most countries

-       Extremely competitive foreign exchange rates across 18 currencies

-       Online access 24/7

-       Access to a dedicated Dealer by phone 24-hours a day, 5 days a week

-       Complete exchange rate transparency

-       No transaction fees for amounts over AUD10,000

-       Risk management tools through Limit Orders and Forward Exchange Contracts

-       Exchange rate alerts via email

-       Access to our highly regarded daily and weekly Market Commentary

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.

By subscribing via the link below, you will receive your first two transactions fee FREE: OzForex Registration   

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

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. 

How to Find The Best US Real Estate Agent

One of the most important decisions for an overseas investor looking to enter the US real estate market is to identify a good real estate agent. This is not something that will happen overnight, but it will happen.

I'd recommend to contact as many agents as possible (you can find them through sites like Trulia and Zillow). Get them to sign you up to the MLS and Listingbook services. Ask them lots of questions because it's always a good idea to get an answer from a completely different perspective.

So in summary:

• Contact agents via sites like Trulia and Zillow
• Get them to sign you up to the  MLS and Listingbook services
• Ask them as many questions as you can
• Build a good rapport with them
• Find out if they do property management (it's a good idea to find an agent who can look after the whole process for you)

If you would like to get our agent's contact details or have any questions, then contact us.

The American Real Estate Listing System

The US real estate system is set up quite differently to real estate in Australia. One of the main differences is the MLS (Multiple Listing Service) System. This is where you can find every property that is listed on the American property market. The website is free to use and you can ask your agent to set up a free subscription for you with your buying criteria so that when a property that meets your criteria comes onto the market, you will be notified.

This type of system is really useful for both sellers and purchasers for a number of reasons:

1. For sellers it means that your property will be advertised around the world
2. For buyers it allows you to search, in one location, for all the properties that are currently on the market

A system like this could be very advantageous for Australia, in particular it would allow past sales history to be all kept in a centralised database so the history of a particular property could be known for the next prospective buyer. It would also eliminate the problem of not being able to see all the houses that are available because you're only searching through what is currently on a specific real estate agent's books.