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Buyers warned of risks in 'bargain' US homes
Richard Webb and Rachel Browne
January 2, 2011
AUSTRALIAN property investors risk losing hundreds of millions of dollars after snapping up thousands of US housing bargains at forced-sale prices, experts have warned.
Emboldened by the soaring local dollar, Australians invested about $600 million in US residential property last year, according to the Washington-based National Association of Realtors, as overseas buying of US housing doubled.
But consumer advocate Neil Jenman predicts thousands of Australians will lose their money after unwittingly buying undesirable property.
''It's going to be a calamity, for sure and certain,'' he says.
Many investors are being lured by agents promising unrealistic rental returns of up to 20 per cent.
Investment experts who spoke to The Sun-Herald, warn that swaths of properties for sale are in bad neighbourhoods where it would be almost impossible to get a tenant, and even harder to get your money back if you later decided to sell. In the past six months, Australian companies that help investors buy US residential property have reported a surge in interest.
Vincent Selleck of Byron Bay-based buyers' agent 888 US Real Estate says his business has grown five-fold since June.
The robust local dollar means Australians' purchasing power in the US has not been this strong since the Australian dollar floated in 1983. Last week the dollar hit a high of 101.98 US cents.
At the same time, bank-forced house sales after the global financial crisis have flooded the US residential property market with millions of homes at bargain-basement prices.
With a strong local market offering relatively low rental returns, frustrated Australian investors are looking overseas for opportunities.
Property experts point to a number of potential pitfalls including buying over the internet sight unseen, finding a trustworthy property manager, ensuring the property is in a location that potential renters like, local tax laws, and a tough market which might make it impossible to recoup your money if you need to sell.
''Some of the properties being offered are in ghettos and you need a bullet-proof vest and an armoured Humvee to collect the rent in there,'' Mr Jenman says.
''Tenants also have more rights in the US and if they don't clear the garbage up, it can be the landlord that gets fined - there are a lot more legal issues.''
Sydney woman Kathy Graffiti bought three properties in upstate New York in 2005 and estimates she has lost between $300,000 and $400,000 on her investment.
She bought two properties in Rochester and one in Buffalo for a total of $250,000, expecting rental yields of between 22-23 per cent.
The rental income stopped in 2007 and Ms Graffiti was forced to sell two of the properties at a significant loss. She has been offered $10,000 for the third property.
She regrets not having done her research into the areas before going ahead with the purchase.
''The areas I bought in were depressed and the quality of tenants was not very high,'' she said.
Property Planning Australia's Mark Armstrong advises potential buyers to do their own ''on-the-ground'' research.
Mr Selleck warned of a further 3 million foreclosures during 2011.
Richard Webb and Rachel Browne
January 2, 2011
AUSTRALIAN property investors risk losing hundreds of millions of dollars after snapping up thousands of US housing bargains at forced-sale prices, experts have warned.
Emboldened by the soaring local dollar, Australians invested about $600 million in US residential property last year, according to the Washington-based National Association of Realtors, as overseas buying of US housing doubled.
But consumer advocate Neil Jenman predicts thousands of Australians will lose their money after unwittingly buying undesirable property.
''It's going to be a calamity, for sure and certain,'' he says.
Many investors are being lured by agents promising unrealistic rental returns of up to 20 per cent.
Investment experts who spoke to The Sun-Herald, warn that swaths of properties for sale are in bad neighbourhoods where it would be almost impossible to get a tenant, and even harder to get your money back if you later decided to sell. In the past six months, Australian companies that help investors buy US residential property have reported a surge in interest.
Vincent Selleck of Byron Bay-based buyers' agent 888 US Real Estate says his business has grown five-fold since June.
The robust local dollar means Australians' purchasing power in the US has not been this strong since the Australian dollar floated in 1983. Last week the dollar hit a high of 101.98 US cents.
At the same time, bank-forced house sales after the global financial crisis have flooded the US residential property market with millions of homes at bargain-basement prices.
With a strong local market offering relatively low rental returns, frustrated Australian investors are looking overseas for opportunities.
Property experts point to a number of potential pitfalls including buying over the internet sight unseen, finding a trustworthy property manager, ensuring the property is in a location that potential renters like, local tax laws, and a tough market which might make it impossible to recoup your money if you need to sell.
''Some of the properties being offered are in ghettos and you need a bullet-proof vest and an armoured Humvee to collect the rent in there,'' Mr Jenman says.
''Tenants also have more rights in the US and if they don't clear the garbage up, it can be the landlord that gets fined - there are a lot more legal issues.''
Sydney woman Kathy Graffiti bought three properties in upstate New York in 2005 and estimates she has lost between $300,000 and $400,000 on her investment.
She bought two properties in Rochester and one in Buffalo for a total of $250,000, expecting rental yields of between 22-23 per cent.
The rental income stopped in 2007 and Ms Graffiti was forced to sell two of the properties at a significant loss. She has been offered $10,000 for the third property.
She regrets not having done her research into the areas before going ahead with the purchase.
''The areas I bought in were depressed and the quality of tenants was not very high,'' she said.
Property Planning Australia's Mark Armstrong advises potential buyers to do their own ''on-the-ground'' research.
Mr Selleck warned of a further 3 million foreclosures during 2011.
Fantastic opportunity ... Sydney accountant Rubens Locaputo has invested in US property. Photo: Simon Alekna 
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