Buying in Atlanta

MTR - you've bought 8 in the last 12 months?

Walk us through it?

Hi Jake
After some research I decided that Atlanta had the best prospects in terms of cash flow, more than 1 industry and warm climate. I also networked with fellow investors who had been in the game for some time.

I met up with a couple of buyers agents in Atlanta last May and spent my time looking at various properties.

In a nutshell I have been purchasing properties in bread and butter areas, 3/4bedders, no older than 10 years, approx 2000 sq ft, paying $18-25 per sq ft. building costs in Atlanta is around $80-90 sq ft.

The link below is one of my property purchases at $18 per sq ft, it was built in 2004 and sold for around $150K at the time. It is difficult to determine what a property is really worth in US as it is a basket case at the moment, ie foreclosures, short sales so this is one way of keeping it real.

My thoughts are that once building fires up again in US this is when we will start to see a major jump in prices, however in saying this the prices have already jumped.

The average price of each property I purchased was around $65K this includes the rehab/reno and associated costs and took approximately 4 weeks to complete/tenant in place. They all pretty much rented out within 1 week.

Rental income is transferred to my bank account in US and when I see the Oz $ fall back I will transfer funds to Oz. This could pose a problem if you need funds in Oz and you would need to mitigate this risk.

I personally would not bother investing in US unless you are in a position to buy multiple properties as setting up structures etc. can be costly and there is slippage ie maintenance bills, property management fees, county taxes and for it to work you need to treat it like a business.

In US my lawyer has set up loans against each property so I am personally using my own cash and charging interest at 12% this is to avoid/minimise paying tax in US.

I would tread causiously when jumping into any deals that offer finance, they have expensive set up fees, high interest rates and risky due to length of loan and the properties they are selling are outrageously marked up.

To date its been very positive for me and I would certainly buy more properties if I could purchase at this price point, unfortunately it is difficult to achieve this now.

Hi Engelo10
Yes, I used 3 BA, however the majority of my purchases were through
Select American Homes, Karina and they were my best deals, as they were HUD homes, purchased directly from the Government, better deals, if that is possible. Once again, this has changed as owner occupiers have jumped in now and they get first bite at the cherry.


http://www.zillow.com/homedetails/210-Hazelhurst-Dr-Covington-GA-30016/69877018_zpid/


Cheers, MTR
 
Hi Jake
After some research I decided that Atlanta had the best prospects in terms of cash flow, more than 1 industry and warm climate. I also networked with fellow investors who had been in the game for some time.

...


Hi MTR,

Thanks for your comment. Well done. All sounds good.

Regards,
Engelo
 
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Even though they don't integrate with my current strategy, I've been looking at some of the offerings from
http://www.selectamericanhomes.com/
for a while now. I agree with MTR in that you really do have to adopt a very business like mindset to this investment strategy and it's not one that will work all that well if you're a "mum and dad" type investor looking to buy one or two IP's. I think you need to scale it up to make it work effectively and efficiently.
 
In US my lawyer has set up loans against each property so I am personally using my own cash and charging interest at 12% this is to avoid/minimise paying tax in US.

Cheers, MTR

Hi

I am confused about the above. Your lawyer set up loans against each property but u use ur own cash ?

Cheers
 
Hi

I am confused about the above. Your lawyer set up loans against each property but u use ur own cash ?

Cheers

I think he is using his own money to lend to a US corporation (owned by him) that owns the properties. He charges the company a high enough interest rate that it does not make any money hence no US tax payable by the corporation.

I do wonder why he is not being hit with US tax on the interest payments made by the US corporation to him - this is strange and I dont understand that aspect.
 
Yes, I used 3 BA, however the majority of my purchases were through
Select American Homes, Karina and they were my best deals, as they were HUD homes, purchased directly from the Government, better deals, if that is possible. Once again, this has changed as owner occupiers have jumped in now and they get first bite at the cherry.

Can't beat buying HUD and karina has been awesome.
 
I think he is using his own money to lend to a US corporation (owned by him) that owns the properties. He charges the company a high enough interest rate that it does not make any money hence no US tax payable by the corporation.

I do wonder why he is not being hit with US tax on the interest payments made by the US corporation to him - this is strange and I dont understand that aspect.

Hi Boomtown

Sort of right, and I am a 'she' .... :)

I am using my own money to lend to each LLC. The LLCs own the properties, it is my Australian Trust which is the member.

Your right I charge high enough interest so the properties do not make any money, so the idea is not to pay tax in US. I made an error in my original post, I actually charge 10% interest.

However, I will pay 10% with holding tax in US on the interest, for example if you personally lend your LLC $500,000 (loans) at 10% this will equate to $5,000 that you pay in US, however you will receive a tax credit on this money in Australia.

I am using my own funds which is actually only costing me 6.1% in Australia.

Also, this is a work in progress and will see how it all pans out this year I may need to to tweek things, the interest rate can be changed if necessary.

MTR
 
Hi Boomtown

Sort of right, and I am a 'she' .... :)

I am using my own money to lend to each LLC. The LLCs own the properties, it is my Australian Trust which is the member.

Your right I charge high enough interest so the properties do not make any money, so the idea is not to pay tax in US. I made an error in my original post, I actually charge 10% interest.

However, I will pay 10% with holding tax in US on the interest, for example if you personally lend your LLC $500,000 (loans) at 10% this will equate to $5,000 that you pay in US, however you will receive a tax credit on this money in Australia.

I am using my own funds which is actually only costing me 6.1% in Australia.

Also, this is a work in progress and will see how it all pans out this year I may need to to tweek things, the interest rate can be changed if necessary.

MTR

Thanks for clarifying..
 
Thank you MTR for the clarifications on more than one front. :p.

If I can ask one more question I assume the loans had to be "located" in Australia rather than being "located" in the US because you are only being charged interest withholding tax and not full income tax on the loan in the US. Of course you would still have to pay Australian tax if you are an Australian resident.

How did you make sure the loan was located in Australia?
 
Thank you MTR for the clarifications on more than one front. :p.

If I can ask one more question I assume the loans had to be "located" in Australia rather than being "located" in the US because you are only being charged interest withholding tax and not full income tax on the loan in the US. Of course you would still have to pay Australian tax if you are an Australian resident.

How did you make sure the loan was located in Australia?

For what I know, the loan (note on the property) needs to be located in the US for it to be valid over there. Most probably, 2 tax declarations would be required - At corporate as well as at personal level in the US. So, most probably there would be a set of arrangement (paper work) in the US and different sets of documents in AUS.

BTW, I had a very good experience dealing with Select American Homes. Karina and her team are doing a magnificent job. Very transparent transactions, very helpful, very prompt, etc. Highly recommend them to any one thinking of purchasing properties in Atlanta.
 
Hi All
I met up with my lawyer in Atlanta and he worked through the paperwork for the loans. He has put this together many times for other Oz investors and am very confident that it will work out very well. He has also been in contact with my Aus accountant who is preparing my US tax docs in Australia, James from US Tax Central. To date my experience with James has been good, though he can be hard work at times. You will know what I mean if you decide to use him.

I certainly am not an expert in this area and it can be overwhelming, but slowly starting to work through this stuff. Once my US tax is finalised I will post more information.

Property investing in US may be risky and there are no short supply of horror stories, however it can also provide an amazing opportunities.

This was my first purchase with Select American Homes. I paid $48K, Karina mentioned that they are now selling similar property HUD home in this subdivision for about $85K, properties are now selling over the asking price. I purchased this one in July 2011.

http://s1178.photobucket.com/albums.../Belmont Ridge renovated/?albumview=slideshow

Also here are some stats to look at on zillow, if you scroll to bottom of page you will also see the esitmates of properties in this subdividion, also a recent sale 5765 Belmont Ridge, $89K.

http://www.zillow.com/homedetails/5778-Belmont-Ridge-Cir-Lithonia-GA-30038/54451788_zpid/

Hi Mindmaster
I would think you would need to purchase at least 3 properties to make it worth it, but in saying this perhaps 2 would be fine, its difficult to answer this question as it is dependent on what your cash return is and maintenance issues that may arise. One way of reducing the risk is buy no older than 10 years and look at properties that generate income of at least $1000 per month. Houses over townhouses any day, because of the HOA charges.



MTR
 
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MTR - do you mind telling me how many properties you hold per LLC? I have 3 in one LLC. I may PM you later on this loan thing and use of accountants in Oz. cheers,
 
Hi Oscar
Aim for 3 per LLC, however I think you could easily go for more especially if you have loans with a lien on each property. Its like having a mortgage over a property, in effect the asset is protected by the lien which you have set up.

This would also reduce set up and accounting fees.

MTR
 
Are the yields being talked about/factored in still around the 15-20% mark - and is this after ALL costs including a portion of the establishment fees?
 
All my properties are all returning 20% + gross yields and around 15% net, but of course the net return is dependent on many factors. This is why I believe it is important to buy properties with a high gross return to help mitigate the slippage that may occur, ie maintenance, loss of tenant etc.

MTR
 
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