Don't Be Sucked in by Cheap US Property Prices

When people approach us in the street asking about whether it’s a good time to buy investment properties in the US, alarm bells start to ring.

If you’re reading about the collapse of the US real estate market and are tempted to become a “vulture” investor our advice is … don’t.

It will sound very exotic at the next dinner party to talk about having an American property portfolio but be careful it doesn’t turn in to a nightmare.

Yes Australia is the most expensive residential property market in the world and US residential property has crashed, but that’s no reason to invest. Yes we know the Aussie dollar is high which can make it more enticing but the answer is still… don’t.

The US property market is a great example of why you should never believe the investment myth that property never goes down in value.

The American property market is huge, very diverse and hard to generalise but it is scary at the moment;

. 13 per cent of all American houses are vacant… the worst State is Maine where vacancies are 23 per cent. That’s 1-in-5 properties vacant. Amazing.

. property prices dropped another 3.1 per cent in January which is the 7^th consecutive month of falls.

. average property prices have fallen 30 per cent since the GFC. They’re back to 2003 levels in many markets.

. 18 of the top 20 residential property markets fell in value over the last year.

. 23 per cent of mortgages are “underwater”. That’s where the value of the loan is now higher than the value of the property.

. sales of existing homes were down 10 per cent in February.

. sales of new homes are at record lows.

As a result there are lots of reports of houses worth $450,000 3 years ago now being sold for $35,000 and some even as low as $1.

We’re all doing the maths, with the Aussie dollar at a record high against the greenback, and there is no doubt it looks a great opportunity in theory. Until you look a bit closer.

. investing directly overseas not only carries the usual investment risk but also a currency risk. If the currency goes the wrong way then a perfectly good investment can be wiped out by currency losses.

. indirect property ownership is probably the best option (through a specialist managed fund) but success will depend on the quality of the management as much as the quality of the property. There don’t seem to be any Australian-based property funds specialising in US real estate at the moment.

. direct ownership carries a lot of problems for non-residents of the US. You can’t borrow without a social security number and the paperwork is so complicated that you’ll need expensive accountants to handle it.

. don’t forget all that income earned in the US will have to be declared as “Foreign sourced income and foreign sourced assets or property” in your Australian tax return.

. the costs and structure of property management are very different to Australia. Here the local real estate agent will handle the tenants and the maintenance. In the US there are only specialist property management companies who keep around 10 per cent of the income. Plus the costs of repairs is much more expensive.

. that attractively cheap property will most likely be in a decidedly dodgy neighbourhood with a higher chance of tenants who may not look after the property or be that fussy in paying the rent.

. with vacancy rates at 13 per cent, renters have a lot of choice so your property will need new carpets, kitchens and paintwork. Otherwise that low cost property will earn no rent.

. then there’s the costs associated with keeping tabs on an asset half way round the world. There’s the cost of international phone calls, flights, US accountants and lawyers etc. It can all add up.

If you have a friend or relative in the US who will buy a property around the corner and watch over it, then it could be worth a look. Otherwise be very careful.

A lot of people would think they could buy 10 investment properties in the US for the price of one here in Australia. That’s 10 lots of tenants, 10 lots of property managers, 10 times the tax and accounting bills.

Also, don’t be fooled in to thinking property prices can’t go down any further. That’s what a lot of investors thought a year ago and have now been caught by the latest double dip.

And while property prices may not drop further, there’s no guarantee they’ll go up either. Given the appalling state of the market it could be years before any rebound in values.

Comments

0 #18 Victoria 2012-12-27 08:07

Quoting Simon:

The Good and The Bad (my experience - Gilbert,AZ)

The Good: good long term investment.

The Bad: avoid these people, Matthew Nair, Jessica Wilson and any of their affiliates. I paid $1000 for bills which they couldn't produce tax invoices for. Business is a 2 way street :)

Do your research on them. They also go by Jessica Hannah Wilson, Hannah Wilson, Hannah Nair. He goes by Mr. Bradley WIlliams, Edwin Mack, Edwin Nair, Matthew Williams, Matthew Nair.

They are residing in a penthouse in Las Vegas and living off the money they scammed from in Australia, Thailand and other countries. They are serious scammers with multiple passports.

They are and engaged/married couple

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+1 #17 Simon 2012-10-21 07:08

The Good and The Bad (my experience - Gilbert,AZ)

The Good: good long term investment.

The Bad: avoid these people, Matthew Nair, Jessica Wilson and any of their affiliates. I paid $1000 for bills which they couldn't produce tax invoices for. Business is a 2 way street :)

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0 #16 Jason Simpson 2012-09-05 13:39

I lost 60K back in 2008 all the flippers and scamers they are all the same. This gave me the idea of starting my own business and looking after the investor the way it should be! I work on a basic fee and that's it no commissions at all and never sell a loaded of flipped property. My goal is education just to let investors know about the tools they have to protect them and get the ideal investment they are expecting from the start. I have seen homes loaded as much as 80% with profit for the sellers and driven past vacant land where an investor told me his investment stood. We work on referrals and it is great now we have F/T staff we are really trying to become an industry leader and as you could imagine getting a lot of our competitors off side giving investors the tools to keep them in check.Love to talk more at some time I love the show and just my two cents worth, the US market is amazing if done right and it should be at the top of everyone's list for cash flow and capital return.

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0 #15 Dee Waldron 2012-05-02 06:57

Hi kochie
Just wanted to say I am missing you not being on sunrise. Hope your ok and back soon!
Your financial advice is invaluable and I also like the way you can laugh at life and getting older!! I can so relate!!
Take care
Dee

Hepburn springs Victoria

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0 #14 Daisy 2012-04-28 15:42

Hi
The person here selling her ebook .....I thought it was free. You say they took your money to teach you to invest. How are you different from them? you are taking money to teach us why not to buy !!!

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+1 #13 Daisy 2012-04-28 15:35

I had been wanting to invest in the US property market since last year but came across so many dodgy schemes that I delayed buying. I found agents selling property for upto 4 times the cost. There were some crooks who said that the property was fully refurbished and with a tenant in. I found out that these crooks only bought the property for a quarter of the price when people like us gave them the money and within 6 weeks used our money to refurbish it and put a tenant in. I now know how to research property. Email me the address of your property and I can tell you whether it is still in the market for sale. Even if they have bought it, I can tell you how little they have paid. Besides I can get you a report of how many incidents of crime of what type of crimes have been committed in that area. Yes it is a great oppportunity but you need to research it well. nish51

hotmail.com

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+3 #12 Mr Advice 2012-04-21 11:25

TERRIBLE advice from kochie !!! I'm a professional advicer and investment specialist. I've worked in banking and portfolio management for 20 years. The current state of the US property market presents an OUTSTANDING and rare opportunity. sure- do your homework- some properties have accumulated taxes, some carry liens and debts BUT if you do the pre-work and fine a property or block of units that are fixable and rentable, it could be the absolute best growth opportunity for the next 10 years. Think of your self managed super fund for example ! would you rather own BHP shares in a managed fund that is never going to do more than 7% pa or take a chance on buying 10 units for $1,000 each. If you have the means, the cashflow and equity and can at least travel to USA once a year then I highly recommend looking into this. Avoid certain areas riddled with crime but by all means look into it. When prices rebound in ten years- you'll be glad you did.

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-1 #11 Elroy Beauzec 2012-01-06 10:57

My concern is everyone's ignorance around the safe Australian market. If the US and Eropean markets could colapse the way it did, what makes us so different. I personally think our market is driven for over inflation. It is a matter of time before the same thing happens here.

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0 #10 Donna 2011-11-21 21:17

Check out the eBook on my website is http://investingintheusapropertymarket.com

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0 #9 Donna 2011-11-20 11:39

I totally agree with Koshie on this one speaking from someone who has brought and sold in the US a few years ago. I even wrote an eBook about the whole process and the pitfalls so if anyone wants to go down this track... I urge you to read before you buy. You can find the eBook on my website above.

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