USA Property: Cashflow AND Growth in the USA

 

If you are at all interested in property investing and take note of news and media related to property investing—and let’s assume at this point that you are, given that you’re reading a property investing magazine—then you must no doubt have heard about amazing opportunities to be had in the US property market.  It certainly took me some time to take notice of the media hype, though I’m sure that people ‘in the know’ were investing in the US market well before I knew anything about it!

Investing in the US

Certainly if you just look around at many of the well known property investment ‘gurus’ in Australia you’ll find that they have been investing in the US market since the opportunity first presented itself.  Steve McKnight from PropertyInvesting.com, Rachel Barnes from Property Women, Dymphna Boholt from I Love Real Estate—all examples of well known figures in the property investing space in Australia who are all active investors in the US and have been now for some years.

What happened?

So what actually happened in the US real estate market and the economy in general that lead current circumstances and opportunities for Australian investors?  I certainly don’t profess to be an economist or expert in the US housing market and after having read many articles outlining the history of events that lead to the sharp downturn in property values and huge number of foreclosures it appears that quite a number of economic factors seemed to come together to form that ‘perfect storm’ for the US.
US advert
Much of the blame seems to lie with questionable banking and financing processes which saw thousands of people in mortgages that they, perhaps, should never have been in to begin with. The following shop front window shows a typical advert for a subprime mortgage in the US, one of many sold to would-be home owners.

Although it’s beyond the scope of this discussion for us to delve into each of the economic factors leading up to the financial crisis in the US, the diagram on the following page helps to summarise some of the causes of the housing bubble that formed back in 2006 in the US.

Wikipedia, http://en.wikipedia.org/wiki/Subprime_mortgage_crisis

Wikipedia, http://en.wikipedia.org/wiki/Subprime_mortgage_crisis

As we can see, there were decisions on the part of individual as well as decisions on the part of lending institutions that contributed to a financial climate of high levels of debt, elevated housing prices and high risk borrowing behaviour in the US.

Far reaching effects were felt as the flow on effect from the housing market, to financial markets to government and industry came into play.

By 2008 the market had fallen significantly.  In fact between June 2007 and November 2008, Americans lost more than a quarter of their net worth.

The domino effect is highlighted in the diagram on the following page. Once again, a detailed discussion of each of the factors in these diagrams is beyond our discussion here today, but it is interesting to see how a chain of events, actions plays out with such far reaching consequences.

The result of all of this, in terms of an investing opportunity for Australian investors, was the abundance of hugely cashflow positive property investments.  The cost of housing in some locations in the US were, and still are, unheard of in Australia.  We’re talking properties that cost $35,000, earning rents of $650 per month.

Many Australian investors, me included, could simply not fathom these sorts of numbers!  Others, quick to spot and jump on an opportunity, got on board quickly.

So what is the opportunity now? We’ll take a look at that in our next post. Tune in!

Property investing due diligence: Just when I though I was good at it!

Property investing - due diligence

 

 

You can never do enough research and due diligence prior to making a purchase.

And just when you think you’re good at it, there’s always room to improve.

Due diligence involves ensuring the property you want to buy has no hidden secrets that could make a sweet-looking deal turn sour.   Knowing where your easements are, where future roads are planned and who actually owns the property, are all critical pieces of information for the purchaser.

I now have something new to add to my list.

Everyday Property Investing podcast fans will know that I recently bought property interstate. I did my research, hired a professional to help me with legalities, checked all the documents, and had independent experts look the property over. I was set!  I hired a property manager who really knows her stuff.  I found what seems like a great tenant.  All was going well.

As the tenant was about to move in, in the middle of winter, he discovered that there was no gas meter.  No gas meter means no gas.  No gas means no hot water and no stove. No hot water means no tenant anymore.  And it means an eight-week wait to get one installed!

I was left scratching my head, wondering why nobody had noticed that there wasn’t a gas meter. The lesson to be learned here is that there are some features that nobody checks – people just assume certain features are there. Gas meters, for example, were not on the list I provided my inspectors, nor was it on theirs.  Here are some “obvious” factors you want to ensure you’re on top of:

  • Does the house have gas hot water, heating or cooking?
    •  Check that gas has been connected to the property.
    • Check that all of the applicances have been tested by a certified professional.
    • Check that you have a gas meter.
  • Does the property have its own water meter?
    • If you purchase an apartment which has a shared water meter, you will need to pay all of the water bills for the tenant. If the property has its own water meter, the tenant will be responsible for paying the water but you will still need to pay connection fees.
  • Are there any future roads planned on your property?
    • You will not be able to build within a certain distance of the area set down for compulsory aquisition.

Hopefully my experience will help make you an unbeatable due diligence expert!

Purchasing property: Four benefits I gained from using a buyer’s advocate

Property investing - buyers advocate

 

Buyer’s advocates exist to help people find the property of their dreams, without over-paying for it.

They can help take the guesswork, and all the other work, out of buying property.

I love looking for property.  I can spend hours and hours researching areas, suburbs and houses online and the time just races by.  It’s a hobby; it’s a passion.  In doing so, I found the home of my dreams.

So why would I choose to hire a buyer’s advocate?

1. My buyer’s advocate is an experienced real estate agent.

I took my buyer’s advocate, Sam, to look at my new home. He was able to give me a very clear indication of what it was worth (his figure was identical to the sworn valuation I received).  He also spoke to the agent and found out about the vendor; who was selling, why they were selling, and what they really wanted. He even pointed out some important issues and features that I hadn’t noticed.

Basically, Sam knew where to look, he knew what to say and he knew what it was worth.

2. My buyer’s advocate understands what I’m looking for in the sale of my old home.

Sam agreed to be present at the interviewing of my selling agent. Knowing me personally, and knowing the industry, Sam was able to ask the right questions to ensure the agent selling my home was the best I could find, and that I wasn’t going to pay an unreasonable amount for it!

3. My buyer’s advocate is a professional negotiator who can get my new home at the best possible price.

This is where Sam really provided value for money!  Purchasing a home, especially the home of your dreams, can be an emotional experience.  Sam did all the negotiating for me and secured my new home far cheaper than I would have done. He knew when to stall, when to push and when to feign disinterest. The amount of money I saved was well in excess of his fee.

4. My buyer’s advocate put an expert in my corner.

Most people buying property rely on an expert to help them yet they are generally unwilling to pay for one.  In starting out, when Kaz bought her first home, she asked the real estate agent for help.  When I bought my first place I thought you had to pay the ticket price!  Hiring Sam put a bona-fide expert in my corner. I could ask him the “stupid” questions. Listening to Sam taught me a lot.

I am aware that I have more knowledge about property investing than the average Joe. Nevertheless, there are so many things I don’t know and hiring Sam gave me a sense of security and a great opportunity to learn!

And we can never stop learning.

EPI 024 | In the Property Investing Lounge with Kaz & Den

In this episode we settle back on the couch, have ourselves a drink, wearing our furry slippers and chat about all things property in the property investing lounge.  This is a bumper what’s news segment with Kaz & Den – seeing that we have so much going on right now!

Key points we talk about:

  • Tenants
  • Rental managers
  • Property management
  • Renovation
  • Property Development
  • Auctions
  • Buying your own home

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EPI 017 | Real estate research made easy – Interview with Matthew Brandon from Real Estate Investar

SUBSCRIBE in iTunes: iTunes Store – Everyday Property Investing (NB: Need to have iTunes installed)

In this episode of Everyday Property Investing we keep you up to date on where we are at with our property goals and we have a great interview with Matthew Brandon from Real Estate Investar who tell us all about his background in property and some of the lessons that he has learned.  Matthew and Kaz also talk about Real Estate Investar software, which is a great tool for doing your property research.  You can check out Real Estate Investar here in a quick tip video that Kaz made a little while back.

Our listener question comes from Ruth who asks about obtaining early access to a property for the purpose of commencing renovations.

In our quick tip and action we have a great way to access some awesome property education materials free!

Key points we talk about:

 

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Special Announcement!

Next episode is going to be a massive, massive episode, so make sure you listen out for it – we’re covering one of the most important things you need to know as a property investor as well as making a big announcement about Everyday Property Investing – so keep listening!

 

View the transcript here (Coming Soon)

Going, going, gone! 5 tips for buying at auction – because I just did!

Buying property at auction

Well, I’m excited to say that we have purchased a new property just last week…again!  If you’ve been following along on the website here, on our podcasts or even our  facebook page, then you’d know that the last few weeks have been hectic for me as I’ve been inspecting properties, have made several offers, had one offer accepted, got some building inspections and then withdrew from the sale!  Wow, it’s really been quite a ride!

So last Friday, we attended an auction, actually, it was multiple auctions as they were auctioning 6 properties at the one location, one after another.  The properties were in a regional city in Victoria and were all Department of Housing properties.   I’ve only ever bid at auction once before and it was a very long time ago and I didn’t get that property, so needless to say, my auction experience was quite limited.  Now that I have the grand total of one auction purchase under my belt, I thought I’d share with you my 5 tips for buying at auction!

1.  Do your research before you get there.

Property Investing

This relates to both research on the property as well as research on auction rules in your location.   There are a couple of things to remember when you buy at auction.  Usually you’ll be signing an unconditional contract (I won’t be convering adding special conditions to an auction contract here).  That means no finance clause, no building inspection clause, no pest inspection clause and so on.  These are all musts when buying privately that are often ‘off the table’ in an auction circumstance.  In the state of Victoria, your usual three day cooling off period is also not applicable when buying at auction.

So what does this mean?

It means you need to be pretty confident of  your finance situation, preferably having obtained a pre-approval from a lender. You also need to have conducted any  pre-purchase inspections that you wish to conduct prior to the auction.   This can be tricky, as you don’t know if you will be the winning bidder at auction and so the money you fork out for these inspections may be wasted if you are not.

Unfortunately, that’s just a decision you’ll have to make.

Now the other part of the research equation is that you need to make sure that you have an understanding of the rules of an auction, it’s conduct and have an idea of your strategy.  Of course you can just ‘rock up’ and have a go, but it helps to know how things work and what your ‘game plan’ is before you get there!

The day before the auction that we went to I spent a little time on the web reading about auction rules in Victoria and auction strategy in general.  There was actually a very interesting read about auction rules that I came across that helped me to understand things a little better.  Some of it was quite surprising, such as, no one can make you sign the contract at the end of the auction.  Of course, I’m not a lawyer, so I’d recommend you seek professional advice on that sort of thing!

Reading up about strategy was also very helpful and meant that I went into the auction knowing what I planned to do.

2.  Know your ceiling price before you get there.

Australian Property Investing

Have you ever bought anything on ebay?  Auctions are quite exciting and it can be easy to get caught up in a bidding war.  That is why it is important that you’ve had a  good think about your ceiling price before you get there.  We had inspected this property some weeks prior to the auction and had an idea of what we wanted to pay, but we spent several hours the night before going over the deal to determine our maximum buy price.  An important thing to remember here is that it’s not just about what you can afford, it’s whether the price that you pay is right for this particular deal.

Paying too much for a property can make what could have been a good deal into a poor choice.

3.  Calm and confident

Everyday Property Investing - Calm and Confident

When you are at the auction, it helps to be calm, clear and confident, which is funny, because if you’re like me and feeling nervous and excited then calm and confident can be a hard ask!  Lucky for me – and hopefully for you too – I am one of those people who can appear calm and confident on the outside, whilst my heart is racing a mile a  minute inside!

4.  Don’t bid till it’s on the market.

Property investing - on the market

What vendors and real estate agents really want is for buyers to get excited and emotional about the ‘game’ of the auction.  Even the language of auction sets things up so that it seems like a game.  I always remind myself that I am buying the property, I don’t ‘win’ the auction.  There’s nothing better for the real estate agent than to have multiple people competing and pushing up the price of the property.  So what’s the solution there?  Easy.  Don’t bid!

At least, don’t bid till the property is actually ‘on the  market’ – meaning that the property will be sold at the fall of the hammer!

I think the only exception I have for this is that if the property is looking like being passed in then you may want to bid so that the property is passed in with first rights of negotiation going to the bidder who held the highest bid.

The strategy I went in with was that I was not going to bid until the property was on the market and only when I thought it would be sold (i.e. Going once, going twice, going three times…are you all done….?) would I enter the auction and then, of course, only if the property was still under my ceiling price.  I tried my best to look like the seasoned auction professional, standing there, iPad in hand, jotting down random notes here and there throughout the first five auctions – as though I was doing something important (!!?).  When it came to the auction I was there for I tried to appear somewhat disinterested early on in the auction (though of course, I was listening and watching everything like a hawk!).

It was very handy that there were six auctions in a row on the day as this gave me a chance to see how the auctioneer ran the auction, which gave me more confidence  when it was our turn.  The auctioneer’s assistance announced loudly ‘on the market’ when each property had reached it’s reserve – which was indeed very helpful as sometimes at auctions you can be unsure whether the house is on the market or not.

I stuck with my strategy and ended up coming in quite late in the game, but with three confident and immediate bids warding off the competitors – all still under my ceiling – the auctioneer yelled ‘sold’ and it was ours!

5.  The deal of the century comes along every week

Residential property investment

I wanted to include this tip, because it’s easy to get your hopes up and feel disappointed if you don’t ‘win’ the auction (purchase the property!).  There will be another deal, so don’t worry, the deal of the century comes along every week!

Have you bought at auction?  Tell us your experiences and tips, we’d love to hear them!