Last time, we looked at the opportunities in the US property market for Australian investors. If you missed the article, here’s a quick link:
USA Property: Cashflow AND Growth in the USA
In this post, we look at the barriers and risks of investing in the US.
What is the opportunity now?
Zillow Home Value Index 1998 – 2012
The year 2006 saw the peak of the housing market, followed by the sharp decline in value. Since late 2008 to 2009, however, things have moved in the US. Positive cashflow, however, is still the key draw card for Australian investors looking at the US property market. The yields that we see in some US markets are still phenomenal and for many Australian investors, simply unheard of! The entry level prices for Australian investors are, once again, simply unheard of and really open this opportunity up to so many investors who would otherwise struggle to get into the market here in Australia.
Many markets in the US are also starting to see recovery in house prices. This has two major effects for investors looking at getting in now. Some markets will no longer present the cashflow opportunities that they had previously and certainly some US property experts have started to ‘pull out’ of investing in some locations for cashflow due to the decreasing yields available. The other effect is the opportunity to see equity gains due to capital growth to complement the positive cashflow of a property.
With low purchase prices and high cashflow, surely this is an opportunity too good to miss? Why then have many investors shied away from investing in the US? Well, there are number of reasons for this, which we’ll take a look at now.
What are the barriers and risks of investing in the US property market?
Lack of knowledge of property market — If you thought keeping up to date with the Australian property market was a big task, imagine having 50 states to keep track of! Just as the ‘Australian property market’ is not really one market nor is the US and you really need to have completed your due diligence and research to learn where the right locations are in terms of states, district and even streets in a city.
Lack of knowledge of process and procedure — Understanding the process of buying property in the US is another barrier for Australian investors. Like all processes, it can be learned but starting out without that knowledge puts you on the back foot.
Prices may still drop — Many people are still concerned that despite massive drops in house prices, there could be further drops to come and this could leave purchasers owning property that is worth less than what they paid for it.
Property management — This is a big issue when investing in the US property market. Arguably, we have quite a formalised, legislated and regulated industry in Australia when it comes to property management. This is not necessarily the case in the US and investors can run into trouble with finding tenants, collecting rent and even having managers forward rent to them when due! Some states have laws which greatly favour tenants rights and others have laws that offer some protection to landlords — but which is which?
Investing in structures — You need to be across the correct investing structures for purchasing property and be able to have those structure set up for you.
Banking and finance — As an overseas investor in US property, obtaining financing can be very difficult from both US banks or Australian banks. Although not impossible, it is better if you are coming into the situation with cash or equity in existing investments to purchase your US property. Obtaining a US bank account is also another banking consideration for Australian investors.
Getting your money out — If you have managed to negotiate all of the other risks and obstacles in your path and you are receiving rental income into a US bank account then you need to think about how and how often you intend to access those funds and set up efficient and cost effective processes for doing this.
Over the past few years we have seen a sub niche of the property investing industry pop up to assist investors in purchasing investment properties in the US. People like Trish Davies are helping investors to overcome the barriers to enter the US property market and to reduce their risk by leveraging off her knowledge, expertise and contacts in the industry. This is appealing to investors as it really does address the very things that are holding many back.
So would I invest in the US?
Now I like to think of myself as an action taker, as someone who is not overly averse to risk. Careful and calculated, yet willing to grab an opportunity when I see it. For some reason though, perhaps fear of the unknown, perhaps it all just seemed a little bit hard, perhaps the fact that my investing funds where already tied up in other ventures, whatever the reason I didn’t do anything with the US property opportunity and currently I still haven’t!
The risks and barriers certainly are enough to put many off; however, my mindset toward investing has changed significantly over the past two years and my overarching goal and strategy has also changed. These factors make me see US property now with a different viewpoint to that which I had only a couple of years ago and I am currently looking into investing in the US. Given my lack of knowledge of the US regions that are best suited and my lack of a trusted team on the ground, I will definitely be using the services of a US property expert to assist me in this venture – as I would suggest that you do also. Getting educated and having the right team around you applies to property investing, irrespective of where you choose to invest your funds!