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I'm opening a new thread as there's quite bit of discussion on US property investing here on PT, and I've got some experience in this area. I'm happy to chime in if it helps people out.
I'm putting out an open invite for people to ask me questions. If you have specific questions, I can give specific answers. If I don't know, I can probably find out the answer. If I get swamped with a lot of questions in the thread or by PM, I apologize now if I can't reply in a timely manner... I'm really, really, really busy these days!
Some background -- I'm a Canadian-born immigrant to NZ... my fiancee is from NZ, and we're back in Canada for a number of years. I've been over to the US probably in the neighbourhood of perhaps 500 - 600 times (never cared to keep track...) since about 1996. Over the course of the last 13 years I've been quite actively going to the US at various times. Prior to '96 I'd been over a good number of times, but at a much lower rate and I was usually going with the family or with a school group (I was just a kid). Again at a quick guess-timate, I think I've been to something like 30 - 35 out of 50 states at various times for various reasons. I've got a lot of friends in the US from times past, present, and hopefully more in the future.
From first-hand experience, I've come to know a fair amount about their politics, economics, "face-to-face" culture (as compared to their media culture), etc. I'm really quite comfortable on the ground in the US. It's like my 2nd... no... 3rd... no... 4th home. (counting Canada, NZ, and Australia way back)
Out of those 4 countries, the US is by far the most divergent from the British Commonwealth model of law, politics, and economics. It's a far more of a dog-eat-dog every-man-for-himself type marketplace, because that's what the underlying laws were designed to create.
Understanding and playing by these rules allows you to do things that you just can't do in Commonwealth-based countries. In my view, these rules also contribute significantly to the massive and dramatic mood swings that the US economy is prone to, as it tries to balance raw, largely un-ballasted, shifts in Supply and Demand.
If I can sum up the key economic difference in my own view;
In the Commonwealth league, we tend to have laws that try to find and keep an even balance between the interests of the general population (socialism) and the interests of business and investors (capitalism). The US is much more slanted in favour of the interests of capitalism. (Just look at the whole fight at the moment over the concept of the universal healthcare as a prime example!) I personally tend to believe that this difference originates from the "Subjects of the Crown are to be protected by their Sovereign". The US, on the other hand, was a country envisioned and founded by capitalists with a specific intention to create a purely capitalist republic. Wealthy, educated, politically and economically powerful men drafted the Constitution to represent their particular view of how things should be run, and thus they set the economic playing field for the USA with a strong capitalist slant.
So tying this all back to property --
This sort of foundation for the overall marketplace gives rise to a property market where if you don't pay your mortgage, the bank has pretty close to unlimited and unfettered discretion on how, when, and for how much it will dispose of your house. In most provinces in Canada and all of NZ, lenders have to attempt to balance their interests with the interests of the soon-to-be former owner of the property. They must market the property openly to the public and secure as close to "fair market value" as possible... and paying any surplus above and beyond the bad debts back to the homeowner. (though I've never ONCE heard of a homeowner getting paid back their equity by a bank though! I'm also not surrounding myself with people who are losing their houses, either, so who knows...?)
When you have unlimited discretion on how you dispose of valuable assets... you tend to make a lot of friends. Friends (private and corporate) with deep pockets who would like to make those pockets even deeper. This is why the US foreclosure with a sign on the lawn is more often than not a big waste of time. It's either a picked-over floor sweeping, or a house where the bank hopes to recover some extra money to help make up for the ones they sold in a bulk package of 50 houses taking a substantial loss on the value of their mortgage book. It's also too late to work with the homeowner to set up a short sale... the bank is in (mostly unregulated) control of the property. Short sales are also difficult, time consuming, and rarely successful (relatively speaking) to set up.
Now... I don't mean to condescend with where I'm about to take this post -- I simply don't know the overall level of experience of all the people who may care to read this, and want to ensure I don't gloss over information that is critical for novice investors to understand, or experienced investors considering getting into the US. I say this with only the intention of reinforcing the standard caveats that every investor should know off by heart. Sooo -- before talking about all the upsides, I want to first talk about the less glamourous side of investing in the US (or anywhere or that matter) ie: doing your homework and laying a good, solid foundation to build your empire on! I'm not going to give only "the good half of the story", as I have experienced it, because the US is not some magical fantasy land somewhere over the rainbow where it's all sunshine, lollypops and there are puppies wagging their tails on every street corner. It can either be a great place to invest and make lot of money once you know the intricacies and the rules, or it can be a vicious beast that will chew you up and spit you out, keeping your shirt and shoes as souvenirs. Remember which way their playing field is slanted. It's still investing, and just like any other type of investment it requires a disciplined approach for success. So -- let me take a bit of the gloss off. (and hopefully not discourage...)
Success in the US property market all comes down to a handful of things that are the same for property investing anywhere;
A ) Local Knowledge is CRITICAL (I'm not that guy buying the Brooklyn Bridge or swampland in Florida! Always know exactly What and Where the property is, and all factors around it.)
B) "Eyes & Ears on the ground" are CRITICAL (I have bought properties sight-unseen before, but I had trustworthy eyes look them over for me first... ALWAYS!)
C) long term property management with integrity is CRITICAL (there are a fair number of fly-by-night property managers out there)
D) being able to manage repairs and renos is CRITICAL (in truth, about 90% of properties you get at a discount WILL need work... and again, there are a lot of fly-by-night contractors and not a lot you can do if you get burned by one from half a world away.)
E) running your numbers based on proven numbers (ie: actual rent being received NOW) or very conservative numbers is... you guessed it... CRITICAL!
The most critical of all, not to downplay any of the others, because they're all deal-breakers, are Local Knowledge and "Eyes and Ears". To illustrate what I mean by local knowledge; there are areas where you might want to do "California stops" (ie: roll slowly through stop signs, but don't stop completely if there is no cross-traffic. it reduces the risk of getting car-jacked or robbed.) while just two or three streets away it can be perfectly safe, with stable or increasing property values and rents, and urban rejuvenation works taking place. In some cities it's literally a street-by-street type thing, and the lines between good and bad areas are often much sharper than in NZ where neighbourhoods tend to blur into each other, and property values change more gradually from area to area.
The old saying "You don't have to invest near where you live because that is probably not be where the best deals are" is true enough -- definitely invest where the best deals are -- but never, ever, EVER invest blindly without honest eyes and ears on the ground to give you the critical info you need to know, or you're just gambling. You may as well go play the pokies if you invest without thoroughly investigating every property to this degree, because at least you can enjoy a cold beer while you lose all your money!
Sorry that this isn't really all glorious optimistic hype and hyperbole... but that's just my off-the-cuff take on how to stay on the safer side for the most part. You can never afford to ignore the fundamental rules of good-old investing due diligence just because you're looking in a new area with somewhat different factors at play.
I've taken the time, plus my years of circumstantial experience in the US, to set up relationships over a period of time. I've gotten to trust the people I now work with, heard what others in the industry have to say about them, and so on. I took it slow... lots of research then baby steps at first. There were lots of incidental problems that needed to be sorted out (as in any newly acquired property investment) -- tradespeople who weren't performing, etc. that would have been a nightmare if I didn't have the proper groundwork established first to handle those situations.
I want to reiterate for emphasis that I investigated, researched, cross-confirmed, met with countless people (contractors, agents, lawyers, investors, etc) and so on... until I was comfortable putting a single dollar down on real estate in the US.
Now -- if I haven't scared you off with my long-winded caveat -- I have to say that I haven't even touched on the benefits of the US market. Safety first though... as always. There's no need to get people all wound-up by only telling half the story.
Unfortunately, the AWESOME side of investing in the US will have to wait though. ----- I've got plenty of other work to attend to that I've been putting off to write all this, and then a Maori kapa haka group are in town. Our local chapter of Kiwi Expats Association (KEA) is hosting them tonight. Should be great!
I will leave you with one teaser about the upside though. With the right sort of deal you can get 30% - 40% gross yields that leave you with 12% - 40% pre-tax NET cashflow (real money you can SPEND) after expenses and allowances for vacancy and maintenance are deducted. That's all I'll say for now though!
To be continued when I have more time...
If anyone else here currently invests in the US would like to chime in as well, the floor is always open...
I'm putting out an open invite for people to ask me questions. If you have specific questions, I can give specific answers. If I don't know, I can probably find out the answer. If I get swamped with a lot of questions in the thread or by PM, I apologize now if I can't reply in a timely manner... I'm really, really, really busy these days!
Some background -- I'm a Canadian-born immigrant to NZ... my fiancee is from NZ, and we're back in Canada for a number of years. I've been over to the US probably in the neighbourhood of perhaps 500 - 600 times (never cared to keep track...) since about 1996. Over the course of the last 13 years I've been quite actively going to the US at various times. Prior to '96 I'd been over a good number of times, but at a much lower rate and I was usually going with the family or with a school group (I was just a kid). Again at a quick guess-timate, I think I've been to something like 30 - 35 out of 50 states at various times for various reasons. I've got a lot of friends in the US from times past, present, and hopefully more in the future.
From first-hand experience, I've come to know a fair amount about their politics, economics, "face-to-face" culture (as compared to their media culture), etc. I'm really quite comfortable on the ground in the US. It's like my 2nd... no... 3rd... no... 4th home. (counting Canada, NZ, and Australia way back)
Out of those 4 countries, the US is by far the most divergent from the British Commonwealth model of law, politics, and economics. It's a far more of a dog-eat-dog every-man-for-himself type marketplace, because that's what the underlying laws were designed to create.
Understanding and playing by these rules allows you to do things that you just can't do in Commonwealth-based countries. In my view, these rules also contribute significantly to the massive and dramatic mood swings that the US economy is prone to, as it tries to balance raw, largely un-ballasted, shifts in Supply and Demand.
If I can sum up the key economic difference in my own view;
In the Commonwealth league, we tend to have laws that try to find and keep an even balance between the interests of the general population (socialism) and the interests of business and investors (capitalism). The US is much more slanted in favour of the interests of capitalism. (Just look at the whole fight at the moment over the concept of the universal healthcare as a prime example!) I personally tend to believe that this difference originates from the "Subjects of the Crown are to be protected by their Sovereign". The US, on the other hand, was a country envisioned and founded by capitalists with a specific intention to create a purely capitalist republic. Wealthy, educated, politically and economically powerful men drafted the Constitution to represent their particular view of how things should be run, and thus they set the economic playing field for the USA with a strong capitalist slant.
So tying this all back to property --
This sort of foundation for the overall marketplace gives rise to a property market where if you don't pay your mortgage, the bank has pretty close to unlimited and unfettered discretion on how, when, and for how much it will dispose of your house. In most provinces in Canada and all of NZ, lenders have to attempt to balance their interests with the interests of the soon-to-be former owner of the property. They must market the property openly to the public and secure as close to "fair market value" as possible... and paying any surplus above and beyond the bad debts back to the homeowner. (though I've never ONCE heard of a homeowner getting paid back their equity by a bank though! I'm also not surrounding myself with people who are losing their houses, either, so who knows...?)
When you have unlimited discretion on how you dispose of valuable assets... you tend to make a lot of friends. Friends (private and corporate) with deep pockets who would like to make those pockets even deeper. This is why the US foreclosure with a sign on the lawn is more often than not a big waste of time. It's either a picked-over floor sweeping, or a house where the bank hopes to recover some extra money to help make up for the ones they sold in a bulk package of 50 houses taking a substantial loss on the value of their mortgage book. It's also too late to work with the homeowner to set up a short sale... the bank is in (mostly unregulated) control of the property. Short sales are also difficult, time consuming, and rarely successful (relatively speaking) to set up.
Now... I don't mean to condescend with where I'm about to take this post -- I simply don't know the overall level of experience of all the people who may care to read this, and want to ensure I don't gloss over information that is critical for novice investors to understand, or experienced investors considering getting into the US. I say this with only the intention of reinforcing the standard caveats that every investor should know off by heart. Sooo -- before talking about all the upsides, I want to first talk about the less glamourous side of investing in the US (or anywhere or that matter) ie: doing your homework and laying a good, solid foundation to build your empire on! I'm not going to give only "the good half of the story", as I have experienced it, because the US is not some magical fantasy land somewhere over the rainbow where it's all sunshine, lollypops and there are puppies wagging their tails on every street corner. It can either be a great place to invest and make lot of money once you know the intricacies and the rules, or it can be a vicious beast that will chew you up and spit you out, keeping your shirt and shoes as souvenirs. Remember which way their playing field is slanted. It's still investing, and just like any other type of investment it requires a disciplined approach for success. So -- let me take a bit of the gloss off. (and hopefully not discourage...)
Success in the US property market all comes down to a handful of things that are the same for property investing anywhere;
A ) Local Knowledge is CRITICAL (I'm not that guy buying the Brooklyn Bridge or swampland in Florida! Always know exactly What and Where the property is, and all factors around it.)
B) "Eyes & Ears on the ground" are CRITICAL (I have bought properties sight-unseen before, but I had trustworthy eyes look them over for me first... ALWAYS!)
C) long term property management with integrity is CRITICAL (there are a fair number of fly-by-night property managers out there)
D) being able to manage repairs and renos is CRITICAL (in truth, about 90% of properties you get at a discount WILL need work... and again, there are a lot of fly-by-night contractors and not a lot you can do if you get burned by one from half a world away.)
E) running your numbers based on proven numbers (ie: actual rent being received NOW) or very conservative numbers is... you guessed it... CRITICAL!
The most critical of all, not to downplay any of the others, because they're all deal-breakers, are Local Knowledge and "Eyes and Ears". To illustrate what I mean by local knowledge; there are areas where you might want to do "California stops" (ie: roll slowly through stop signs, but don't stop completely if there is no cross-traffic. it reduces the risk of getting car-jacked or robbed.) while just two or three streets away it can be perfectly safe, with stable or increasing property values and rents, and urban rejuvenation works taking place. In some cities it's literally a street-by-street type thing, and the lines between good and bad areas are often much sharper than in NZ where neighbourhoods tend to blur into each other, and property values change more gradually from area to area.
The old saying "You don't have to invest near where you live because that is probably not be where the best deals are" is true enough -- definitely invest where the best deals are -- but never, ever, EVER invest blindly without honest eyes and ears on the ground to give you the critical info you need to know, or you're just gambling. You may as well go play the pokies if you invest without thoroughly investigating every property to this degree, because at least you can enjoy a cold beer while you lose all your money!
Sorry that this isn't really all glorious optimistic hype and hyperbole... but that's just my off-the-cuff take on how to stay on the safer side for the most part. You can never afford to ignore the fundamental rules of good-old investing due diligence just because you're looking in a new area with somewhat different factors at play.
I've taken the time, plus my years of circumstantial experience in the US, to set up relationships over a period of time. I've gotten to trust the people I now work with, heard what others in the industry have to say about them, and so on. I took it slow... lots of research then baby steps at first. There were lots of incidental problems that needed to be sorted out (as in any newly acquired property investment) -- tradespeople who weren't performing, etc. that would have been a nightmare if I didn't have the proper groundwork established first to handle those situations.
I want to reiterate for emphasis that I investigated, researched, cross-confirmed, met with countless people (contractors, agents, lawyers, investors, etc) and so on... until I was comfortable putting a single dollar down on real estate in the US.
Now -- if I haven't scared you off with my long-winded caveat -- I have to say that I haven't even touched on the benefits of the US market. Safety first though... as always. There's no need to get people all wound-up by only telling half the story.
Unfortunately, the AWESOME side of investing in the US will have to wait though. ----- I've got plenty of other work to attend to that I've been putting off to write all this, and then a Maori kapa haka group are in town. Our local chapter of Kiwi Expats Association (KEA) is hosting them tonight. Should be great!
I will leave you with one teaser about the upside though. With the right sort of deal you can get 30% - 40% gross yields that leave you with 12% - 40% pre-tax NET cashflow (real money you can SPEND) after expenses and allowances for vacancy and maintenance are deducted. That's all I'll say for now though!
To be continued when I have more time...
If anyone else here currently invests in the US would like to chime in as well, the floor is always open...
(for "sunbelt" of course!)
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