Invest in NZ - not in US properties is my mantra

[halfempty]

I was actually wondering if Peter was going to say who he was referring to his comment...

"it irritates me to see the almost unconscious conflation of "property educators/promotors" ... a case of wolves in sheep's clothing popularised by spruikers Richmastery and still practiced today by their offspring, former confederates, apprentices and accomplices."

I've asked him but he seems to have gone silent?

[Rosco]

Main reasons to investigate US further

- Where can you buy a property in NZ for $60k
- Where can you buy a property in NZ that is cashflow positive (and really positive once include repairs etc) and actually can pay off the full loan in under 10 years?

So my quick worse case. Say purchase for $60k, and market crashes further by 50% and now only worth $30k. Cashflow positive, so still could pay loans etc, and would still have paid of 50% mortgage, plus 50% of cash introduced, so property would owe investor nothing after 10 years. So asset $30k, debt $0k. For a worst case example it isn't too bad.

BIG THING TO INVESTIGATE - rents!! If no rent, vancancy, bad collection, or not as high as expected then ruins the whole cashflow positive picture!

Ross

[donna]

Oh yeah Ross and you forgot to mention what you post in another thread.....

Originally Posted by Rosco


One of the really interesting points I got from the seminar was that US banks and lenders are non recourse. So if you run away and don't pay, they don't have a guarantee and can't chase you. They just take over the property and ruin your US credit rating! Not sure if this would affect your NZ rating too, but very different to NZ where guarantee's are compulsory.



Ross

Geez I wonder if lots of Kiwis will now jump in with Dean Letfus and get US properties - cos they can do a runner if it doesn't work out!

cheers,

Donna

[Rosco]

Donna,

I'm saying this is an "interesting point". I was quite surprised to hear this about the US mortgage market, and I think a lot of other investors would find it interesting. I'm not saying that investors should do a runner, but it is interesting to know the risks.

Ross

[TheLiberalLeft]

In the UK's last downturn, plenty of people in negative equity literally dropped the keys to their front door off at the bank and walked away, so I think it may be the same there as in the US.

[damage]

Difference in the UK is that the banks will chase you for your money whereas in the US they dont to a certain extent.

Even if you could buy a property for $60k in the US, you would have to ask why are they valued so low. At that point you'd suspect the area was resided by poor demographic in which case actually receiveing the rent could be an issue. How are you going to chase down outstanding rent from NZ?

[TheLiberalLeft]

And inhabited by people named Chuck, Randy & Fanny, so you have to wonder don't you?

[Rosco]

I give up. I'm obviously not getting my point or information across very well, or get my point across as I intended. This will be my final post on this thread or the other US Property thread.

I'm not suggesting that investors rush out to buy US Properties. I'm not suggesting that anyone buys a US Property through Massive Action or any other promotor.

In my personal opinion, if investors are looking at buying investment properties in the future and they are looking for cashflow, then they should investigate and gather some more knowledge and information about US Properties as it is possible to obtain a much better yield. It is also possible to obtain a US Property that can repay your cash input and your loan in under 10 years, leaving you with a debt free investment.

I would advise any investor to be extremely careful about investing away from area's that they know well. I know of investors from the North Island who purchased in Invercargill without seeing the property, and it ended up being right next to the sewerage ponds or plant. Obviously the US is a lot further away than Invercargill, so it is very difficult to become familiar with the area's, and these kind of risks are very real.
The US also has different rules and regulations, different common practices, different currency and different terms that make investing in property in the US different to NZ.

Two of the major risks as I see them are
1) rent - making sure there is a tenant, they actually pay and that the rent is realistic and sustainable
2) The US housing market/econonmy - What will happen to US house prices, the US dollar, unemployment and the general ecomony is a big guessing game. It is possible that the US dollar continues to devalue, and it is possible that the US house prices continue to decrease. If the US dollar was to devalue obviously any return coming back to NZ could be a lot smaller!

If I was personally going to invest in the US, it would be with $30,000 that I could afford to lose. I also wouldn't try to "get rich quick", or "get rich overnight", instead I would only look at 1-3 properties and maybe be able to build up to an investment in the US over 10 years that was giving me $20k passive income per year. At this stage I'm still sitting on the fence and learning more.

As previously stated I have never spoken to Dean (on phone or in person - including last night, where I didn't get a chance to talk to him). I'm not promoting Dean, Massive Action or their product. I'm merely interested in learning more about the US property market and rental investment opportunities. I have never received, (or are due to receive) any commissions or fees from Dean or Massive Action. I do not have any relationship with Dean (apart from a PM today asking for his email address so that I can get some more information), so I don't think I am biased, or in favour of Dean/Massive Action. I have nothing to gain from suggesting that property investors find out more about US Properties, except for small accounting fees (note US tax return would normally be done by US accountant, so only small work required to bring in US details into NZ tax return) if a client of ours was to purchase a US Property, and to my knowledge we have never been referred a client from Dean/Massive Action.


I hope this clarrifies my position

Ross

[donna]

Yep it's sounding more attractive - and of course when it turns to custard - do a runner.....hopefully as an investor you've gotten your investment back in rent payments - umm even made a bit of money too. I guess this was probably discussed too i.e. your investment paid back and then some within xx months/years.

So the entry point is low (or 'affordable') and there's a wonderful 'escape' route - there will be Kiwis jumping into this scheme and the 'property promoters' will make a fair whack of bucks in fees as a result.

It's definitely not for me!

Cheers,

Donna

[jaxy]

Seems the US housing problems go on. Second mortgages are now a problem. Here is an interesting article.

Second Mortgage Misery: The Latest Housing Headache Yet Another Wave Of Bad Loans Is Approaching Critical Mass
Another wave of mortgage defaults, separate from those directly caused by the subprime mortgage crisis may be ready to hit the market. And this time the problem area is the second mortgage, or home equity loan market.

Those who used the equity in their home as a cash cow to finance lavish lifestyles and dream vacations seem to be increasingly unable to pay for their previous fun. According to The Wall Street Journal: "Almost 40% of homeowners who took out second mortgages—extracting cash from their residences to cover everything from vacations to medical bills—are underwater on their loans, more than twice the rate of owners who didn't take out such loans."

According to a report due out this morning from real estate data firm Core Logic Inc. 38% of those with second mortgages are underwater, while only 18% of those with single mortgages are under water. The report does not shed light as to how the money from second mortgages was spent, but clearly some of it was spent on luxuries, while other may have been spent on necessary items such as college tuition for children. According to the Journal, home equity loans make up about 10% of the U.S. mortgage market.

According to the Journal, second mortgages are "weighing" down the mortgage market beyond what is already known, at a time when the recovery is increasingly difficult. According to the National Association of Realtors "The inventory of unsold homes will take 9.2 months to sell, the National Association of Realtors said recently, about 50% higher than what is considered a healthy level," reported The Wall Street Journal. Yet, it may we much worse than than. An unconfirmed source told us that a well placed Fannie Mae source had told him a few weeks ago that the situation is so bad right now that it could take seven or eight years to clean up the present housing mess.

The Journal further reports: "CoreLogic found that borrowers with second mortgages had deeper levels of negative equity—an average of $83,000 compared with $52,000—than borrowers without second mortgages. In many cases, borrowers withdrew cash from their properties using home-equity loans or lines of credit, a type of second mortgage. The CoreLogic report doesn't include cash-out refinancing, a common practice during the boom, where borrowers opted to extract cash while refinancing their first mortgage."

The amount of money involved, though, is likely to be significant. The Journal reported, based on Federal Reserve data that "homeowners took out a total of $2.69 trillion from their homes at the height of the housing boom between 2004 and 2006. That tally includes cash-out refinancings." According to Core Logic, reports the Journal: "the percentage of underwater homeowners declined slightly in the first quarter. About 10.9 million Americans who borrowed to buy their homes, or 22.7% of all homeowners with a mortgage nationwide, were underwater in the first quarter, down from 11.1 million, or 23.1%, in the fourth quarter of 2010." Yet, there is more: "The modest decline wasn't a sign of an improving market. Rather, the change reflected completed foreclosures, which reduced the total number of homeowners in the market, CoreLogic said."

In other words there are still large numbers of people out there who are likely to default on their second mortgage, perhaps adding to the number of vacant homes that will flood the market at some point. And that means that banks, whose books are full of second mortgages may have more losses in the future.

Here's the bottom line. According to the Journal: "Nearly three-quarters of roughly $950 billion in home-equity loans outstanding were held by commercial banks at the end of last year, according to Federal Reserve data. More than 40% of that debt is on the books of the nation's four largest banks: Wells Fargo & Co., Bank of America Corp., J.P. Morgan Chase & Co., and Citigroup Inc. Requiring big writedowns on those loans could burn through banks' capital."

Conclusion

The banking system has a new set of worries on its books, second mortgages. While they were able to pass on risk to investors on first mortgages via bonds and CDOs, there is no such market for home equity loans.

And what's more important is that the big banks may be on the hook for billions of dollars worth of losses that they are not currently reporting.

[damage]

you'd be an absolute fool to even think about investing in US properties.
I am shocked that some people on this forum have ever entertained the idea.

Rosco with the numbers you're quoting it, the old saying comes to mind "if it seems to good to be true it probably is"
You've got to ask why are the property values so low, yet the yeilds so high?

[Shane D]

Just to add a little balance to the topic of this thread.

Some examples below of some pretty nice houses for sale in Atlanta. You have to get past the delivery of the Aussie presenter though.

I must admit I have not done enough research on the location etc. But these videos are enough to suggest to me that investing in america MAY/COULD have some potential. I would NOT even dream of investing in ANY property without first going to the City and doing extensive research on location, demographics, population growth, employment prospects in the area etc.

Just some food for thought below

$54,000 foreclosure price

$59,000 foreclosure price

Shane

[donna]

edit your post Shane and hover of the icon next to 'quote' icon it will say 'insert video - click and just copy in the URL

[Shane D]

edit your post Shane and hover of the icon next to 'quote' icon it will say 'insert video - click and just copy in the URL

Donna,

Thanks, that cleaned up the post a little.

Not exactly the result I was looking for though. I was trying to embed the actual video into the post so you can watch the video without having to transferred over to youtube.

Shane

[donna]

when you edit your post and click on the icon for 'insert video' a box appears and you paste the video url and that then enbeds it where your cursor is in the post.