Never Underestimate the Time and Cost of a House Flip

Some people want to get into flipping houses because it looks like a fast and profitable way to build an income. It can be. But the biggest mistake that people who get into the business make is they underestimate how much time it’s going to take.

They also underestimate how much it’s going to cost. You have to flip a home quickly if you’re going to make money, but the house doesn’t always cooperate with your timeline.

When you start flipping a house, you may run into defects that are hidden beneath the surface. What looks good on the outside wall might be hiding a myriad of electrical wiring problems behind the drywall.

Hidden problems like that are common in almost every house because people don’t often update things like wiring. It’s expensive to have a home professionally rewired.

A problem like that can add thousands to your budget costs. The same thing can happen if there’s a problem with the plumbing. A slow draining toilet or tub is often dismissed as a possible clog but it’s actually a major plumbing problem such as the pipes in the yard are cracked or full of tree roots.

Then you have to dig up the lawn, replace the pipes and then repair the damage to the lawn. Problems always slow down the renovation schedule as well as add to the cost.

The best way to prepare to be thrown off schedule is to budget more time than you think each step of the renovation will take. This way, you build in a time buffer.

Having to depend on other people in a team to help you get the house ready to go on the market can add to the time and the cost as well. Not everyone shows up when they’re supposed to be on the job.

They might arrive a few hours to a day late or not at all. This can throw you behind if you don’t consider working with others can be a time buster. Plus, you might be given an estimate by someone in the team and then it turns out that it’s more work and material than he anticipated so now he has to tell you it’s going to cost several hundred dollars more.

Weather delays should also be figured into the house flip. If it needs a new roof or you need to put in a new driveway, you can’t do that in the rain or in snow. By budgeting in potential problems and overages, you’ll still be able to get done on time and within your budget.

Give us a call to discuss any of these areas!

Renovation and Décor Tips to Help a House Flip Sell Fast

To sell your investment, you’re going to need it to be inviting both inside and out. When a possible buyer looks at the house, he’s either drawn to it or he isn’t. You need make sure that the exterior of the house makes potential buyers want to stop and have a look inside.

The outside renovation is where you can easily go over budget. Making a home have in inviting exterior isn’t expensive. You need to make sure that it’s clean. If the front door is in bad shape, replace it.

If it’s not, then you can clean or paint it. Take out any dated hardware on the door and replace it. Do the same with any porch fixtures like lights, doorbells or faded shutters.

You can put in landscape quite cheaply and put in some flowers either in a bed or in pots. Put up a mailbox and new house numbers. These are all updates that can make a house look more welcoming.

Inside the house, if the walls are in good shape, paint them. It can be tempting to put your own personal stamp in a home when it comes to choosing colors, but you need think what a buyer would want.

Buyers want colors that are neutral. They can imagine a clean slate to work with to put their own personal touches in the room. Stick to soft colors and choose the same if you need put down new carpeting.

New carpet is cheaper to put down than most other types of flooring when you’re renovating but keep in mind that carpet can be a turn off to some buyers. They want the clean look of laminate or hardwood floors.

The areas that can make or break your renovation budget and ones that can help sell a house are the kitchen and the bathrooms. But that doesn’t mean that you need to completely gut the existing kitchen and start over. You can just update what needs to be spruced up by doing things like painting, putting in a new backsplash or flooring and new appliances. If the cabinets are solid but look worn, you can refinish them or repaint them and still end up with a great looking kitchen.

Countertops do matter – so those need to look high end but not necessarily be high end. Update the bathrooms by putting in new faucets and replacing anything that needs to be replaced.

New hardware can make older cabinets look new. Remember when you’re flipping a house not to fix it up like you’d like it to be. You don’t want to spend a lot more money by putting in top of the line appliances or upgrading things that don’t need to be upgraded.

When it comes to décor, make the most of your homes features such as large windows, fireplaces and furniture. Group your furniture so that the room feels bigger in the living room.

Make sure you use soft lighting. This casts a better glow in the room and makes it look warm and inviting. Recessed lighting is good, but careful not to over capitalize depending on the area the property is in. Simply new light fittings or ceiling fans with lights can suffice.

Other areas that are inexpensive but can make a big difference to the overall appeal of the home, are new switches, electrical outlets and fittings. Quite cheap to replace but makes a huge difference and can have the place looking “new” again!

Go minimal if you stage the house. Have fresh flowers on the table and have it set for dinner with nice dishes. Remember to think of the buyer when decorating the home for staging rather than what your own preferences are.

Don’t be afraid to yell out if you have any questions re any of this, happy to discuss!

Analysis of the RBA’s Rate Cut in Australia – Mark II

My father was a very shrewd businessman, one of the best i knew, and one principle he always taught me was that “you make your money when you BUY something, not when you sell”. Now, I get that you need to sell something to realise the profit, but essentially what he meant was that if you buy anything at the right price, then making a profit once you sell is easy.

So at the risk of sounding all Déjà vu – with another rate cut this week from the RBA in Australia, I wanted to spend a little time analysing this and the impact on our economy from a property investor/developer’s standpoint

I guess for the majority of Aussies, the record interest rate cut to bring our cash rate to a historic 1% will bring one of two emotional responses:

Joy and expectation that the big banks will pass on at least a portion of this cut through to consumers’ loans saving of the mortgage each month;

Or irritation for those savers or retirees who base a larger portion of their income on interest from term deposits, bank bonds etc.

In reality though, to step back and look at the “bigger picture”, I myself, while not surprised at the decision to cut the rate, am concerned at the outlook for the economic future…

Admittedly, even at 1%, we are still higher than most major economies in the world, with some still around 0% and Switzerland still anchored in the negatives.  Only the US and Canada really above us, and even through the US have lifted themselves from the canvas and brushed off, they are staring down the barrel of another cut before year end…

Then there is a famous quote by Albert Einstein, that I feel I am using all too often these days but seems to be a moral to a story right at the moment – “Insanity is doing the same thing over and over and expecting a different result.”  I can only assume the RBA has not heard this quote, and/or not sure if they actual expect a different result?  Even looking at the world economies, and with so many central banks already below us still, it has not had the impact on inflation and growth that years ago it might have.  Why we stayed at rates so low, because the RBA was so focused on the exchange rate rather than our economy, driving our housing prices through the roof for 10 years – is beyond me.  But to now expect that cutting rates through the floor will suddenly make it all better…not sure Mr Lowe…

The concern for us as investors is twofold:

  1. Where to from here?  They are wanting inflation to rise, stimulate growth in the economy but what strategies does the RBA or the federal Gov’t for that matter have to fix this?
  2. Where to put our money to try and ensure good returns still with cuts coming left, right and centre?

While I cannot comment on the first point, not being an economist, my opinion is just that… but on the second, my 2 cents worth… I am happy to be in real estate!  Its right now, where I would be eying my share portfolio (if I HAD a share portfolio) with intense scrutiny wondering what it was going to do next.

Even in markets with the economy floundering, people need to live somewhere.  We need to watch our strategies, and I certainly would not recommend purchasing retail properties right now, with the fear that if prices fall and you are highly leveraged, you could get into trouble.

Bear with me a moment and imagine if you will a strategy :-

We purchase a distressed house for a cash investment (yep – bear with me here!) say for around $50K on the wholesale market.  Put another $20-30K into this to get it back to a nice standard and tenant the property.  As a rental this property is now giving around a $1400 per month income (approx. 15% yield net).  Valuations of the retail price come in at around $90-100K now.  All looking nice (*sips the whisky*)

Now – the “crash” hits – GFC mark II…boom!…  Prices drop 30-40%.  People are losing their homes left and right.  You drop your whisky (shame too…it was an 18 YO Glen Morangie…) and hit the numbers to see the impact…  Your investment is now valuing at around $70K (ooh look, that’s about what it cost you) OK so that’s not too scary.  Maybe even your tenant leaves, but with so many people now losing their homes, rental market is hot right now, and you have prospective tenants lining up at $1600 per month to take your place (now up to around 17% ROI net…) 

Now firstly, with the above scenario I am NOT predicting the next crash or GFC (although I would argue the world is in a financial crisis at the moment with global interest rates…but that’s another blog) and not at all saying this is a good thing.  But I just want to highlight that if you buy real estate right, and have the right strategy, even in tough times (or especially in tough times) you can still have good investments…

Hit us up to chat more about these strategies…

So, other than purchasing properties at retail, through realtors in the states, another good option for the savvy, experienced investor is Wholesalers.

Now in the scheme of real estate in the US, Realtors are essential on the “Retail” side of sales, and Wholesalers are on the “Wholesale” side of sales. Here in Australia, we generally don’t have the wholesale market as much, unless you are a larger developer etc looking at more commercial or larger residential blocks for subdivision

Wholesalers may not be someone you will be able to get access to up front, it might take some time in the market to seek out and find these guys, but can be handy to know a couple.

On the flip side, you must also be careful with wholesalers. They often may not be as reliable or honest as Realtors (that is if you can say all real estate agents are honest?!) but there are a lot less rules and regulations around wholesalers

I would certainly still use my Realtor (at least for a time until you have more experience in the region) to deal with the wholesaler, visit and walk through the properties and negotiate on your behalf, just to help keep the wholesaler all above board so to speak

Generally, you may not know a particular person who is a wholesaler so it is often a matter of finding them. Your realtor may know one – hell some realtors are wholesalers themselves, but I would be careful here, as in that case you would no longer have an “arm’s length” relationship and the realtor may not be working in your best interest and could be getting kickbacks from the wholesaler to sell the properties, just watch out for this.

To find a wholesaler, sometimes Mr Google is your friend 🙂 If you type into a google something along the lines of “buy homes in Cleveland Ohio” for instance, this will bring up a number of listings pertaining to Cleveland. Most will be realtors, but you will find scattered throughout this wholesalers as well. Can be good to get onto a couple of wholesalers mailing lists and they will then send through deals to you.

Our US Property fix and flip course also contains more information so if you’re interested – please give us a call below.

Acquiring Property Deals…

My father was a very shrewd businessman, one of the best i knew, and one principle he always taught me was that “you make your money when you BUY something, not when you sell”. Now, I get that you need to sell something to realise the profit, but essentially what he meant was that if you buy anything at the right price, then making a profit once you sell is easy.

So, other than purchasing properties at retail, through realtors in the states, another good option for the savvy, experienced investor is Wholesalers.

Now in the scheme of real estate in the US, Realtors are essential on the “Retail” side of sales, and Wholesalers are on the “Wholesale” side of sales. Here in Australia, we generally don’t have the wholesale market as much, unless you are a larger developer etc looking at more commercial or larger residential blocks for subdivision

Wholesalers may not be someone you will be able to get access to up front, it might take some time in the market to seek out and find these guys, but can be handy to know a couple.

On the flip side, you must also be careful with wholesalers. They often may not be as reliable or honest as Realtors (that is if you can say all real estate agents are honest?!) but there are a lot less rules and regulations around wholesalers

I would certainly still use my Realtor (at least for a time until you have more experience in the region) to deal with the wholesaler, visit and walk through the properties and negotiate on your behalf, just to help keep the wholesaler all above board so to speak

Generally, you may not know a particular person who is a wholesaler so it is often a matter of finding them. Your realtor may know one – hell some realtors are wholesalers themselves, but I would be careful here, as in that case you would no longer have an “arm’s length” relationship and the realtor may not be working in your best interest and could be getting kickbacks from the wholesaler to sell the properties, just watch out for this.

To find a wholesaler, sometimes Mr Google is your friend 🙂 If you type into a google something along the lines of “buy homes in Cleveland Ohio” for instance, this will bring up a number of listings pertaining to Cleveland. Most will be realtors, but you will find scattered throughout this wholesalers as well. Can be good to get onto a couple of wholesalers mailing lists and they will then send through deals to you.

Our US Property fix and flip course also contains more information so if you’re interested – please give us a call below.

Analysis of the RBA’s Rate Cut in Australia

This week I wanted to give you a quick analysis of the impact in Australia of the rate cut seen recently.  Probably even more so that the election, this is one of the larger impacts on our economy and hence the property investing market. 

The interest rate cut in Australia by the RBA (Reserve Bank of Australia) was the first in almost 3 years!  The last being in August 2016.  Will be interesting to see how quickly and how much is passed through to consumers, but with funding costs easing for the financial institutions as well, they should be in a position to pass this on.  Next question though is how many rate cuts will we see?  It is out of character for the RBA to cut rates once then leave the table, generally we see cuts in 2’s or 3’s.  Financial markets are whispering about 2 cuts this year…bit time will tell. 

Quick analysis of the winners and losers in the market from a rate cut for you: 

Winners 

  1. Businesses 

Rate cut basically means more money in household budgets with mortgages getting cheaper and generally this means people spend more.  It can also mean that commercial loans are a little cheaper, so little more in the business’s back pocket too 

  1. Exporters 

Generally, a rate cut means a lower AUD so this can help exporters.  Interestingly though, the AUD held steady for the hours after the announcement and even firmed a little in the day or two after, so it shows the financial markets already had the rate cut priced in.  Interesting again, to see if this holds, or if the AUD drops in the coming months 

  1. Real Estate Market 

Firstly, the property owners win as the mortgage rates come down a little giving better rental returns and this can also be a driver for the market to start a turn which can drive the equity in the real estate up as well 

For real estate Agents, this can also mean a more positive sentiment in the market, putting a few more people out looking for houses, so some stronger growth for the agents 

On the flip side for Real Estate, it’s not all rosy – with increase in sentiment comes often rising prices which for first home buyers can be difficult.  Suggest to start looking and get in now if you are looking to buy your first home, before the prices jump.  Liberals plan to help with Lenders Mortgage Insurance (LMI) does help though 

  1. Jobs & Wages 

With more money coming into business through rate cuts or consumer spending this does help drive down the unemployment rate and create more jobs.  With more jobs, comes more competition for labour and therefore can increase pressure on wages.  This can be a win/win for employees and job hunters 

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Losers or little/no impact: 

  1. Credit Cards 

It is certainly doubtful we would see any cut to interest rates on credit cards – one of the biggest rorts in this country.  Unfortunately, these rates (including personal loans etc) are not linked to Reserve Bank interest rates 

  1. Savers 

The person, not the store [Symbol]  People who are good at saving can generally lose out here, with interest rates going down, so does interest earnt on savings and bonds etc 

  1. Retirees 

Retirees can see a mixed result.  If they are relying heavily on savings returns and bonds etc, this can go down, with investments in real estate etc, that can go up, so this could go either way depending on how the superannuation fund is structured 

  1. Online Shoppers 

If the AUD does drop, then be careful with that credit card on the late night shopping channels and Amazon!  Exchange rates can make goods imported from overseas more expensive and increase shipping costs 

So out of all that, how did you go?   

At this time, a move to alternative property strategies can be advantageous because particularly in these times of cheap money, people often make mistakes and end up with negatively geared results.  Is frustrating to see… Don’t be this person…  

High cashflow properties are ideal.  Give us a call to book your strategy session NOW! 

5 Types of Property Deals to look for RIGHT now!

What types of property deals are ripe for property Investors right now?

The market is always changing. What worked 5 years ago may not work as well today. Here are 5 niches to explore, test out and find bigger profits in now

Small Multifamily & Mixed Use Properties

Overall yields on single family home rentals have been getting squeezed over the last year or so. To get the same spreads as recent years, many property investors are having to look at multifamily properties or apartments. Mixed use is still a hot item too but need a little more experience in the industry to manage

Vacation Rentals

It’s true that the Airbnb Effect has dramatically driven up asset prices in many areas over the past few years. Yet, if you look, you can still find sweet spots where property prices are low and the potential yields from short term rentals can be massive. Can be a little more difficult for us as overseas investors to ensure we have the right areas though, but definitely worth thinking about as a strategy for the larger, 4-5 bedroom homes.

Empty Nesters

The US is in an interesting moment, coming off of a down period, but with a strong new economy. That means there could be fewer good property deals or foreclosures. Yet, there are all types of reasons for sellers to be motivated. Age can be a big one. With age, homes can end up being too big to manage, or just don’t fit health and mobility needs of seniors. This can be a big reason to be able to pick up off market properties and create more win-wins.

Construction REOs

Construction REOs have been a secret pocket of the distressed property industry. The average homeowner or new investor may not want to take on a home or apartment building that wasn’t 100% completed. That means these deals can have less competition and more bargaining room. You may find houses that just need a little love on interior design and applying for the Certificate of Occupancy. For those interested in more active incomes, these can be a good way to get in and fix up for under market value giving a good rental return or flip for a profit return.

Foreclosures

There are still foreclosures and foreclosure auctions. Check the data and you can find fresh spikes in this activity in different parts of the country. Be flexible and willing to go where the deals are at and you can still find great profits.

f your unsure of how to find these types of deals, or don’t know where to start, fear not … We do!

This is really the backbone of what we do. We source, screen and perform due diligence on hundreds of property deals in the US to narrow down to the ones that work and have teams on the ground to do the legwork for us…

Leverage off our team in place, book a call with us today to discuss how!

An increasing number of Australians, including Millennials, are investing abroad with the United States as the most popular destination.

The United States is the most appealing location for overseas investment, but an expert warns to do your research before entering overseas markets
A COMPETITIVE property market is stripping many of their chance at buying a house, but some creative Aussies have found a way.
FACED with an extremely competitive property market, many Australians have given up on the dream of buying a house.

But some creative property seekers have found a surprising way to become homeowners by looking a little further when it comes to getting into property.

An increasing number of Australians, including Millennials, are investing abroad with the United States as the most popular destination.

There is no denying that the Australian property market is tough to crack. Despite Australian house prices falling 0.2 per cent in June on a national basis, overall prices are still 32.4 per cent higher compared to five years ago.

Figures from the recent Atlas Wealth Management Expat Insights Report — which surveyed 1774 Australian expats in 65 countries — revealed a 29 per cent increase in Australian residents purchasing properties abroad.

Brett Evans, managing director of Atlas Wealth Management — a company that offers financial advice to Australian expats — said this is because Aussies have been priced out of the Australian market and they are trying to get a foot into any property market.

“More recently the demographic of the Australian resident buying an overseas property has changed to a younger investor who either can’t afford a property in Australia and/or feels that they have missed the property boom in Australia and is looking for the next opportunity overseas,” Mr Evans said.

“We believe the increase in the younger demographic is occurring due to the high minimum price point in purchasing Australian property as opposed to the relatively low entry price point overseas.”

The report revealed the group investing the most is 38- 48-year-olds who accounted for 35 per cent of overseas property investment by Australians, followed by investment from Self Managed Super Funds at 20 per cent (down 28 per cent), 58- 68-year-olds at 16 per cent.

It was the younger demographics 28-38 year olds and 18-28 year olds that had the biggest increase, respectively up from six per cent to 10 per cent and from two per cent to four per cent.

According to the survey, the most attractive destination for Aussies is the United States at 48 per cent, followed by Asia (18 per cent), the United Kingdom (17 per cent) and the United Arab Emirates (10 per cent) — with the main appeal being lower entry prices, higher income yields, more diversity and choice of property.

The median house price in Sydney is just shy of $AU900,000, compared to the US where it is roughly $AU250,000.

“In countries like the US there are tax incentives to purchase the property that you live in and this can often be the deciding factor,” Mr Evans said.

The graph shows the median house price of major Australian cities compared to other countries. Source: Atlas Wealth Management Expat Insights Survey August.
The graph shows the median house price of major Australian cities compared to other countries. Source: Atlas Wealth Management Expat Insights Survey August.Source:Supplied

As for the UK, Mr Evans said Aussie investors have been enticed for two reasons.

“The fall in the pound after the Brexit vote and the second has been falling property prices in the UK due to the economic uncertainty that Brexit may bring to the UK.”

Mr Evans warned that even though the above factors can make an international property purchase appealing, changes in either the exchange rate and/or local tax legislation can have the opposite affect.

“These considerations should be at the forefront of any decision-making process when considering investing internationally,” he said.

“For most countries you don’t have to be a resident or citizen to purchase a property but the rules do vary quite wildly, so it’s always best to do your homework.

“You also want to find out whether the country has a Double Taxation Agreement (DTA) to avoid the potential scenario of double taxation on your rental income if you were to rent the property out.”

Respondents cited tax changes as a deterrent from buying property in Australia with 41 per cent saying that wouldn’t buy in Australia because of it. Source: Atlas Wealth Management Expat Insights Survey August.
Respondents cited tax changes as a deterrent from buying property in Australia with 41 per cent saying that wouldn’t buy in Australia because of it. Source: Atlas Wealth Management Expat Insights Survey August.Source:Supplied

When it comes to Aussie expats living abroad, the survey figures showed that 41 per cent who were considering buy property in Australia, have been deterred by recent tax changes.

“In May 2012 the Australian federal government removed the 50 per cent CGT discount on Australian investment properties that are held by nonresidents (including Australian citizens) resulting in them paying 100 per cent capital gains tax on the increase in the value of the property while they live overseas,” Mr Evans said.

Mr Evans said the biggest challenges faced when purchasing a property overseas (apart from finding the right property) is not only finding a suitable property manager to protect your interests, but also understanding and monitoring the market.

“The internet is a great asset, but nothing beats on the ground intelligence when it comes to what the market is doing,” he said.

Of the 58 per cent of Atlas clients who own property overseas, 70 per cent is in their Principle Place of Residence, 25 per cent is for investment purposes and five per cent is retirement planning.

There has been an increase in Aussies purchasing properties abroad.
There has been an increase in Aussies purchasing properties abroad.Source:AAP

WHY INVESTORS AREN’T CONSIDERING AUSTRALIA

Australia is no longer an attractive market for international property investors, whether they are an Australian expat or a foreign citizen, according to Mr Evans.

Last year’s state and federal government reforms enforced steeper charges on foreign purchases, less favourable tax treatment and a cap on new development sales were introduced — resulting in the recent boom foreign buyers to be over.

The state and federal proposed tax legislation — Main Residence Exemption (MRE) for both foreign citizens and Australian citizens moving overseas — is yet to be enacted.

“What this proposal means is that if you were an Australian citizen and purchased a house and lived in it for 15 years (as an example) as a Principal Place of Residence (PPoR) and were to move overseas — if you were to sell that property while living overseas (whether that be in your first week of living overseas or five years in) then you would potentially pay capital gains tax not from the time you moved overseas, but from the date of initial purchase,” Mr Evans said.

“This has resulted in a lot of Australian expats selling their Australian properties before moving overseas.”

Most Australian states have started taxing both Australian expats and foreign citizens who own properties back in Australia.

This proposed legislative changes to the Main Residence Exemption Rule (MRE) was passed in Canberra by the lower house in February and is currently before the senate to vote on when they resit in August.

“The most extreme has been Queensland which does not distinguish between a foreign or an Australian citizen,” Mr Evans said.

“They levy a Absentee tax which is an annual charge of 1.5 per cent of the property value greater than AUD$350,000.

“These state tax taxes are in force now. As an example, if you own property in Queensland then your residency status will be noted as at the 30th of June and the Absentee tax levy will be sent to you.”

Building Your Team

I have a lot of people ask me when looking to get into the US market, what is the first thing you need to do to get started? My answer is always the same…

Build your team on the ground!

This is, I believe the most critical and important step to do and do well. If you are looking to purchase an investment in your neighbourhood, or nearby suburb, or even a nearby town, you are able to visit the property, do the walkthroughs and inspections, query the agents etc yourself. Not such an issue here, you can do your own due diligence and trust yourself. But if you lived in Sydney and wanted to buy a property in Perth, you would need to ensure you get a good agent over there who you can rely on to give you the right information, ask the right questions for you, I would even recommend finding a good buyers agent in that area to work for you!

Same with the US. There are a few people who are important you find good ones and people you can rely on.

1) First and foremost would be a Realtor you can trust. They will be your “boots on the ground”. They will find the houses for you, do the inspections, negotiate on your behalf etc. Finding this person can be difficult; you may know someone already in the States who is a Realtor; have friends or family there that may be able to refer a Realtor they have used; check out and call references that the Agents have (yes often the good agents will have references you can check) etc.

Once you find this person, they may then be able to recommend a good title company once you have found a property, and will likely be able to refer a good home inspection company to do Home Inspection Reports etc for you.

2) Secondly, to do a flip, you will need to find a reliable General Contractor, and this person will be again, critical to your success in the project. Will need to make sure they do good standard of work, and they will often be able to supply to you a folio of previous jobs they have done so you can see. Possibly can even get a referral here too, someone you know might know a good contractor etc

3) Thirdly but certainly not lastly, would be a property Manager if you intend to rent the property. Again the Property Manager (PM) can make or break your investment if they do not manage the tenants well, don’t collect rents, deal with maintenance issues etc. Referrals here and references can be crucial.

On the other hand if you don’t have a solid way to find good contacts in the US for your investing, fear not… We do!

This is really the backbone of what we do. We have sourced, screened and used hundreds of property professionals in the US to narrow down to the ones we have that we trust…

Leverage off our team in place, book a call with us today to discuss how!

Asset Protection Strategies

One of the first steps we do for clients, and I would certainly recommend for anyone investing in Real Estate anywhere, is to discuss with your legal team or accountant about asset protection. Real Estate, albeit one of the more stable and less-risky investments, still comes with its fair share of risk, and as an educated investor, we need to ensure to mitigate as much of these risk as we can.

One way we can do that is to ensure to protect our assets as much as possible, and structures or entities are one way we can do this.

By broad definition – an “asset” is anything useful, desirable or having exchange value. Taking an equally broad view of the definition of “asset protection” then, would be – “steps taking to help protect the asset”.

Two of the more common methods or structures used to protect assets are Limited Liability Companies (LLC’s) or Corporations. Both have their pros and cons, particularly in the area of taxation and I would ensure to talk to your accountant or US Tax agent re these.

A corporation is a legal entity that exists within the contemplation of law, which is separate from its owners, or also known as shareholders. A US corporation is similar to an Australia Pty Ltd Company in this respect. A Corporation can be a good asset protection vehicle in that it shields the shareholders’ personal assets from that of the business or corporations’ assets. This corporate shield can also be referred to as the “Corporate Veil” and is in place provided a number of formalities are followed.

Limited Liability Companies or LLC’s as you will often hear them referred to are another popular method of entities used in investing particularly, within the US. These are non-corporate business entities which by design are substitution for the corporate entity. LLC’s are bound by a number of state based acts and statutes which generally set forth a number of rules that directs LLC operation and governance unless the members (or owners) of the LLC agree otherwise. Since they emerged in the 1990’s they have become one of the most popular form of business entities within the US

We have a great legal team based in the US who handles all of our work and would be happy to refer their details if you need, or if you would like to discuss getting started in US Investing, book a call with us TODAY!

Why the US market for Rentals?

I do get asked a lot about why is the mid-west US market so good for rentals? The answer I believe comes down to two main reasons:

1) First and foremost, affordability! The actual cost of the property is cheaper. As the land value in the mid-west US is very inexpensive and abundant (unlike our land costs on the eastern seaboard of Australia – wow!) the property prices are much more affordable. This enables us to get into the market for much less capital and helps with the return

2) Secondly, the actual rental returns are not tied to the cost to purchase the properties. Rental prices (just like any other commodity) is tied to supply vs demand. If you have a region with massive amounts of vacant properties for rent, you will find the rental rates go down – will be very cheap. If on the other hand, there are not many rental properties available, then rents will be high, rising and more expensive

The mid-west US has some fantastic employment opportunities for job seekers, some fantastic schools and universities for studies and the affordability to live there is very attractive. Many Americans are still scarred by the GFC crash and find purchasing homes harder and the job market harder so they are happier renting than owning. The dream to own your own home with the white picket fence is almost gone now, very few millennial’s are striving for this. Also, even more high income earners are finding it better to rent where they live, and purchase investment properties where they can get the best return!

Click on the graph below to go to a recent article by Maven Money in the US analysing renting vs Owner Occupied properties for higher income families – the results are astounding!

 

If you want to find out more about how to access great deals in this area (or another others) book a call with us TODAY! at the bottom of this page.

If you want to find out more about how to access great rental deals and get excellent passive cashflow, book a call with us TODAY! Below.