Buying in the US, the first of a series. Folks, this is supposed to be educative rather than a look-at-me, ain’t-I-good. I’m therefore trying to set down my warts and all experiences for those interested which is going to take a fair bit of effort and a whole series of long emails.
While I write these, I may not have time to answer questions (I haven’t settled my properties yet and am still running negotiations far into the night), but post them anyway and I will get back to it.
I’d searched for a year and a half and had found nothing that met my definitions of acceptable cashflow – the property had to return at least 3% over the prevailing interest rate and council rates had to be well below 20% of gross rent.
I’d looked at commercial, I’d looked at Broken Hill and I’d looked at New Zealand (I think other forumites rather beat me to the punch there). So I looked at the US. At the same time I was reading up all I could and the Robert Kiyosaki ‘success stories’ book was a bit of an inspiration.
So I looked at the US. I searched the forum here for tips – Jeremy Laws had done stuff with some success in the old old forum, but I couldn’t locate him so I spent about 3 months searching the net every night for about 3 to 4 hours trying to find good real estate deals.
The best US site for cashflow assessment that I’ve found was http://www.loopnet.com which gave net operating income (NOI) which usually meant rent plus late fees less vacancy, maintenance, property taxes and other expenses. You need to know who is paying the utilities to do a proper assessment and many land agents won’t talk to you unless you are making a cash offer or are prequalified by a US bank. More on credit later, but if you’re planning to rush out and buy, and assume that you are going to easily get finance, don’t. Just don’t.
Loopnet also allows you to search by cap rate which usually is calculated as NOI/purchase price – ie. Cap rate of 15% on a $100,000 house would mean $15,000 income before debt servicing and taxes.
At the start, I made a few offers – some vendors didn’t respond to emails at all and others wouldn’t touch unqualified offers (btw, I had about $250,000 to spend and was willing to leverage to whatever hilt I could find.) Finally I struck it lucky in Florida – a block of 20 units for $800,000 and a 14% cap rate. After adjusting a few figures for reality, it looked closer to about 12.7% but that was pretty good.
Then the bank started hesitating – I was a foreigner (but not a South American, to whom they specialise in lending), the property was in North, rather than South Florida (their area of expertise), it was my first US property (well, of course it was – everyone has to have a first) etc.
Then the vendor said that the original purchaser had come back – some kid from California who had missed the deadline to buy but stood to drop $20,000 if the deal didn’t go through in already-incurred expenses. Seeing I had finance difficulties, and out of sympathy, I agreed to let this one go.
One of the lessons I learned though, was that the US vendors expect you to sign a contract specifying the price before starting negotiations on conditions etc. They also want a down payment. That casued a few confused emails before we straightened it out, but the deal fell apart before I needed to send money.
Side note: A week after the deal fell through, thanks largely to the bank, Hurricane Charlie, (followed by Francis and Ivan) all made landfall in South Florida, the bank's preferred area. Ivan made it north, but not to Jacksonville except as a reasonably heavy storm.
So I looked a bit further and I noticed that very high returns were available in Buffalo, NY. (As well as a number of other places whose agents weren’t into returning emails.)
End of Part 1
While I write these, I may not have time to answer questions (I haven’t settled my properties yet and am still running negotiations far into the night), but post them anyway and I will get back to it.
I’d searched for a year and a half and had found nothing that met my definitions of acceptable cashflow – the property had to return at least 3% over the prevailing interest rate and council rates had to be well below 20% of gross rent.
I’d looked at commercial, I’d looked at Broken Hill and I’d looked at New Zealand (I think other forumites rather beat me to the punch there). So I looked at the US. At the same time I was reading up all I could and the Robert Kiyosaki ‘success stories’ book was a bit of an inspiration.
So I looked at the US. I searched the forum here for tips – Jeremy Laws had done stuff with some success in the old old forum, but I couldn’t locate him so I spent about 3 months searching the net every night for about 3 to 4 hours trying to find good real estate deals.
The best US site for cashflow assessment that I’ve found was http://www.loopnet.com which gave net operating income (NOI) which usually meant rent plus late fees less vacancy, maintenance, property taxes and other expenses. You need to know who is paying the utilities to do a proper assessment and many land agents won’t talk to you unless you are making a cash offer or are prequalified by a US bank. More on credit later, but if you’re planning to rush out and buy, and assume that you are going to easily get finance, don’t. Just don’t.
Loopnet also allows you to search by cap rate which usually is calculated as NOI/purchase price – ie. Cap rate of 15% on a $100,000 house would mean $15,000 income before debt servicing and taxes.
At the start, I made a few offers – some vendors didn’t respond to emails at all and others wouldn’t touch unqualified offers (btw, I had about $250,000 to spend and was willing to leverage to whatever hilt I could find.) Finally I struck it lucky in Florida – a block of 20 units for $800,000 and a 14% cap rate. After adjusting a few figures for reality, it looked closer to about 12.7% but that was pretty good.
Then the bank started hesitating – I was a foreigner (but not a South American, to whom they specialise in lending), the property was in North, rather than South Florida (their area of expertise), it was my first US property (well, of course it was – everyone has to have a first) etc.
Then the vendor said that the original purchaser had come back – some kid from California who had missed the deadline to buy but stood to drop $20,000 if the deal didn’t go through in already-incurred expenses. Seeing I had finance difficulties, and out of sympathy, I agreed to let this one go.
One of the lessons I learned though, was that the US vendors expect you to sign a contract specifying the price before starting negotiations on conditions etc. They also want a down payment. That casued a few confused emails before we straightened it out, but the deal fell apart before I needed to send money.
Side note: A week after the deal fell through, thanks largely to the bank, Hurricane Charlie, (followed by Francis and Ivan) all made landfall in South Florida, the bank's preferred area. Ivan made it north, but not to Jacksonville except as a reasonably heavy storm.
So I looked a bit further and I noticed that very high returns were available in Buffalo, NY. (As well as a number of other places whose agents weren’t into returning emails.)
End of Part 1