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I have been involved in the United States property market since November 2005 when I flew to Texas to buy an apartment building on behalf of a group that I was involved in. That led to a consulting role providing marketing and training in a real estate firm in San Antonio for most of 2006.
Since that time I have been back to America around 4 times a year and have mainly been involved in smaller deals on behalf of clients. However the conclusion I have come to is revisit the first deals that I was involved in namely Commercial property which is made up of apartment complexes, shopping centers ect. The reason that I have done this is because I believe that commercial property represents better long term value.
Since the Global Financial Crisis in 2008, finance, especially to foreign nationals is not available for residential property. What that means is that if you want to buy a property in the United States you have to pay cash. There is a lot of rubbish being sold in the United States.
Now if you think you can get a good property for $20,000 to $50,000, think again. In most cases these properties are located in slums or very low economic areas. So you go to the next level and buy a property between $70,000 and $100,000 what you have to consider is that if you are paying cash in most cases you are paying 6 to 7% interest on that money.
The reality is that if you are going to pay $100,000 in cash you will make more money in Australia. In fact I partner with investors in Australia to build development projects where it produces a high profit on investment. So what are your returns? I often hear of high returns quoted but they are normally gross returns not net. For example in many parts of America there can be very high properties taxes, in Texas the taxes are around 3% annually, so on a $100,000 property that’s around $3000 property management runs at around 10% plus costs to maintain the property. So by the time you add in these costs often your real or net return can be well under 10%
However, when you look at commercial property there are some advantages.
Firstly even as a foreign national you can borrow around 60% on low rates through a bank. Some of the deals I have been looking at are returning around 17% net, that’s after all costs including Property Management, finance and of course property taxes.
The second advantage is that even if you invest with other people you are generally buying into much higher quality properties, which is why the banks are prepared to lend around 60%. ]
Thirdly apart from the cash flow we also believe that there will be strong capital growth over a 5 year period.
The next point is if you buy a single house what happens if you lose a tenant. It means from day one your cash flow takes a 100% hit.
However if you own an Apartment complex, one vacancy short term will not dramatically hurt your cash flow.
Finally you are able to leverage your money in other words if you put down 40% in cash you can borrow the rest allowing you to buy much higher value investments.
However before you invest do your due diligence carefully and remember that the quality of people you work with on the ground will determine whether you succeed or not.
Since that time I have been back to America around 4 times a year and have mainly been involved in smaller deals on behalf of clients. However the conclusion I have come to is revisit the first deals that I was involved in namely Commercial property which is made up of apartment complexes, shopping centers ect. The reason that I have done this is because I believe that commercial property represents better long term value.
Since the Global Financial Crisis in 2008, finance, especially to foreign nationals is not available for residential property. What that means is that if you want to buy a property in the United States you have to pay cash. There is a lot of rubbish being sold in the United States.
Now if you think you can get a good property for $20,000 to $50,000, think again. In most cases these properties are located in slums or very low economic areas. So you go to the next level and buy a property between $70,000 and $100,000 what you have to consider is that if you are paying cash in most cases you are paying 6 to 7% interest on that money.
The reality is that if you are going to pay $100,000 in cash you will make more money in Australia. In fact I partner with investors in Australia to build development projects where it produces a high profit on investment. So what are your returns? I often hear of high returns quoted but they are normally gross returns not net. For example in many parts of America there can be very high properties taxes, in Texas the taxes are around 3% annually, so on a $100,000 property that’s around $3000 property management runs at around 10% plus costs to maintain the property. So by the time you add in these costs often your real or net return can be well under 10%
However, when you look at commercial property there are some advantages.
Firstly even as a foreign national you can borrow around 60% on low rates through a bank. Some of the deals I have been looking at are returning around 17% net, that’s after all costs including Property Management, finance and of course property taxes.
The second advantage is that even if you invest with other people you are generally buying into much higher quality properties, which is why the banks are prepared to lend around 60%. ]
Thirdly apart from the cash flow we also believe that there will be strong capital growth over a 5 year period.
The next point is if you buy a single house what happens if you lose a tenant. It means from day one your cash flow takes a 100% hit.
However if you own an Apartment complex, one vacancy short term will not dramatically hurt your cash flow.
Finally you are able to leverage your money in other words if you put down 40% in cash you can borrow the rest allowing you to buy much higher value investments.
However before you invest do your due diligence carefully and remember that the quality of people you work with on the ground will determine whether you succeed or not.
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