Why having a team when investing is important?

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 a 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 Brisbane, 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 buyer’s agent in that area to work for you, wouldn’t you agree?

Same with the US. There are a few people who are important you find good ones and people you can rely on.  Without this, it can be almost “pot luck” to make sure you have a good deal.  You can only do so much due diligence from afar, without walking the property, knowing the neighbourhood, checking comparable values in the region, etc, you are gambling at best…

Even here in Australia, you are going to need an accountant you can trust, foreign exchange company to enable you to convert funds to USD (don’t use the big banks, they will gouge you with fees!) possibly even a solicitor or notary (like a Justice of the Peace for US documents to witness signatures etc)

In the US it’s even more important… You will need Realtors, Wholesalers possibly, home inspection companies, Title company, general contractors, insurance agents, property managers (oh my, an important one!) US tax agents to lodge tax returns for you; the list goes on…

A lot of this you will need later throughout the process and won’t need some of these suppliers until you have purchased a property, but it’s good to understand the process of finding them when the time comes.

It’s also a good idea to set up a US phone number.  Now this doesn’t have to be getting a plan or SIM with a US phone provider, but there are some companies that offer this on VOIP methods, Skype is one of the best.  It can make it easier for the US team to contact you as often, they can be put off with calling overseas numbers.

Without building this team, this support network, you are really gambling on your investments.  You might come across a good deal, good property, but its also likely there will be issues you were not able to see from halfway across the world.

Investing globally is not any harder than locally, just takes a different approach to get it right.  You need to be able to find and trust others instead of always relying on yourself.  I always look at investing as a business, the treat is as such and it will treat you well.  Become that leader, that manager of people and your business and investments will thrive…

The Renting Revolution – Why more Americans are turning to Renting…

In the U.S., the attitude towards renting versus homeownership has been changing for years now. With this year’s tax reform shifting and reducing some of the benefits of owning a home, we’re seeing more and more change in the narrative around purchasing a home versus renting debate. And everything points to good news for real estate investors.

Historically, owning a home was a crucial part of the American dream as it is here in Australia. As a mark of success, you hadn’t “made it” until you owned a home. Even recently, homeownership was still a goal, and the only reason the real estate market was lagging was due to financial woes in other areas that caused first-time homebuyers to put off their home purchases.

Renting, by and large, has been seen as an inferior option, often touted as simply throwing one’s money away year after year, versus actually investing in a long-term asset.

But we’re seeing the conversation change.

Freedom and Flexibility of Renting

Traditional wisdom tells us not to buy a home unless we plan to live somewhere for five years or more. Renters are understanding more and more about the commitment of buying a home and how it can affect their lifestyle. Today, people are less inclined to commit to careers for 20 or 30 years, are more likely to work from home, and value mobility and flexibility. People now are more mobile than ever and actively choose to rent because it fits their lifestyle.

When we look at modern millennials (who are now in their 20’s and mid-30’s) we see people who are highly connected, community-minded, and…not all that interested in buying a home, even if they were able to save for the down payment.

Realising How Costly Home Ownership Really Is…

Over the past several months, Forbes has published several articles on the shifting opinions on renting and homeownership in the US. In one such article, it points out just how costly homeownership really is in a variety of ways. Typically, most Americans have only considered the mortgage payment and compared it to their rent payment when comparing what it costs to be a homeowner versus being a renter. We make the same mistakes here in Australia too.

But the article points out this is not an apples-to-apples comparison.

Homeowners have to worry about many one-time costs like closing fees, Realtor fees, mortgage origination fees, and lawyers’ fees, on top of costs like buying new furniture, moving, and purchasing equipment associated with homeownership, like lawnmowers.

Then there are the ongoing costs: property taxes, mortgage interest payments, utilities, insurance, possible homeowner’s association fees (like our body corporate fees, and more.

While many are quick to argue that a rent payment is flushing money down the toilet, the costs associated with buying, owning, and selling a personal residence are high for most Americans today.

When you take into account the increasingly transient lifestyle of modern families and the uncertainty on the return on investment in owning a home, choosing to buy over renting for its own sake just doesn’t make sense to an increasing percentage of the population. There are far better investments to make than a personal home.

A Renter’s Explosion

The rise of the renter is not just in debate or in public sentiment. It’s very tangible. In the United States between 2006 and 2016, the number of people renting versus owning increased by 5% nationwide. In 22 of the 100 largest cities in the US, “rentership” (if that’s a word?) beat homeownership. See below the top 22 cities in the US where renting has overtaking homeownership! This data is a few years old now, but in fact, it has only got stronger in rental terms…I will source the recent data and post it next week!

4 Steps to a Successful Start in US Real Estate Investing

So you took the plunge. You’re officially a real estate investor! First of all, congratulations. You’ve begun your journey towards financial security — and freedom — for life. If you’re like most new investors, you likely feel nervous along with excited. After all, you made a massive financial commitment. What if it doesn’t work out? What if you do something wrong? You don’t want to ruin your investment! Further, it’s even scarier as its halfway across the world!

If you want to lay the successful groundwork for your investing future, here are a few things every investor must do (besides have Star Dynamic help them on their journey!).

  1. Cultivate your relationships.

Nothing is more valuable to an investor than their relationships with their service providers.  Whether than be realtors, property managers, contractors, title companies or anyone, its these relationships that will allow you to get the most out of your suppliers and your investments

  • Read, read, and read some more.

Never underestimate the value in continuing your education. In real estate investment, the learning curve can be steep. While this is mitigated through knowledgeable and experienced support, it doesn’t absolve you from learning everything you can about your new venture. 

From understanding different investment strategies to becoming acquainted with your investment markets, reading up is hugely beneficial.  Never stop learning, studying strategies, options.  Make sure you have a plan B for your investment should something not go according to plan.

  • Think about the next steps.

One of the biggest mistakes we see inexperienced investors make is failing to plan ahead. If you know you want to invest, that’s great — but it’s not enough to sustain a long-term vision for financial freedom. As the owner and investor, you take control of the trajectory of your investing future. 

What does that look like, exactly? For many, it means setting goals when and where you want to expand your portfolio. It means thinking about both short-term and long-term steps and how to achieve them. This is where you are the most proactive and involved — in shaping the growth and direction of your investment portfolio. 

  • Practice engagement.

Passive investors, above all other kinds of investors, can struggle with engagement. It takes intention and determination to engage with your portfolio and the people who make it all happen. During your first year, be particularly proactive in your engagement of others. Make connections with other investors, both those with more experience and those in your same boat.  Join groups to discuss investing, particularly in the areas you are in; Facebook groups, attend workshops on investing, particularly US strategies; ask questions; be involved.  (check out our Inner Circle coming soon!)

Engagement doesn’t just mean you initiate conversations and relationships with others. It also means you value reports and information surrounding your investments and their markets. Be an engaged investor.

If you follow these principles in your first year of investing and beyond, you are bound for success as a global investor.

For more information on this, and our US Property Investors Inner Circle, contact us now.

Assessed Values vs Actual Market Value

Assessing the value of a home when putting it on the market is affected by a number of factors. There are two numbers to consider when selling: assessed value versus market value.  

In some cases, assessed value and market value may be similar. But in general, the assessed value will be lower than the market value. Each of these two numbers will be used in different ways throughout the course of the selling process. Knowing the difference can help you get a great deal. 

Assessed Value 

Understanding assessed value starts with understanding who is assessing the property and why. Counties (similar to councils here in Australia) employ assessors to place a value on a home in order to levy property taxes on it. The assessor looks at what similar properties in the area are selling for. They also assess the value of any recent improvements, any income you may be making from the property (such as renting out rooms), and the replacement cost of the property if it were to burn down in a fire. An assessor is usually a real estate professional, so they are fully aware of the many aspects that go into the sale of a home.  

Once the assessor comes up with a number, they will multiply that number by an “assessment rate” – a certain percentage in that tax jurisdiction. The percentage is usually 80% to 90%. So for example, if the assessor determines the market value of your home at $500,000 and your local assessment rate is 90%, then the assessed value of your home will be $450,000. 

That sum will then be used by your local government to calculate your property taxes. The higher your home’s assessed value, the more you’ll pay in taxes (again, same as our council rates here in AU) 

Market Value 

The market value of a home is based on market conditions – that is, what buyers are willing to pay for a home, and what a seller is willing to accept. Websites like Trulia and Zillow will help give you an idea of how your home compares to others that have been sold recently, but you need to be very careful with these “estimates”.  Often these estimates are SOLELY based on recent sales and do not take into account condition of the homes, which in the US can vary greatly.  

Other factors will also go into determining market value. The main one is location. How desirable is the area? Are there lots of schools and amenities in the area? 

In terms of the house itself, factors will include the exterior condition of the home, style, availability of public utilities and so on. It will also include the number of rooms and their sizes, appliances, heating systems, energy efficiency and so on. 

Supply and demand will also drive up market value. If there is a seller’s market, anyone seeing your house as their dream home might be willing to offer more. Or alternatively if the property is an excellent investment, you can demand a higher price. 

Its also this market value that you can use to your advantage.  If selling on land contract (or vendor terms as here in Australia) you can ask higher than market value possibly.  If wanting a quick sale, under-cutting the market value can work in your favour. 

Investing in US apartments…Good Strategy or Not

In my opinion, investing in Apartments in the US has always been a good strategy for cashflow. I would like to preface though, by stating what I mean here as a strategy is buying Apartment Buildings…not single units or Condos (condominiums).  Condos often have very high Home Owner Association fees (HOA’s) equivalent to Body Corporate fees here in Australia.  These fees will often eat into your rental returns SIGNIFICANTLY and can often be a disaster for your portfolio 

Apartments are almost a hybrid of residential and commercial real estate. In the US, anything over 4 apartments in a building is classified as a commercial investment, but still driven by residential trends and demographics. Growth or appreciation of apartment buildings can be more linked to the Net Operating Income (NOI) of the building, more like the CAP rate of a commercial property. As much as capital growth in residential, particularly in a large number of US markets is not something you bank on, in apartment buildings, it can be something you have more control over. 

For instance, if the rental returns in an area are rising or if you are able to rehab/renovate some units to increase the rental return, then the overall value of the apartment building will also increase, regardless of whether residential property is softening in the market or not. It’s kind of having the best of both worlds in one investment. If the market in a region is booming and more and more people are buying homes, then house prices appreciate, and often apartments can “rise with the flow”. If markets are softening, becoming more of a buyers market than a sellers market, people get nervous, start selling and renting for a while. Rents can often increase as the demand for rentals rise, which can then increase the NOI of the building and hence, its value. Win – Win! 

Now, there are factors though, you need to take into account when looking at apartment buildings as an investment:  

1. Management 

There is more management involved. Apartment buildings are not for the “passive” investors, or those that want to sit, and forget their portfolios and let them be. With the higher number of tenants involved in one building there is always a lot more management needed, even if you have a property manager in place. 

2. Vacancy 

You always need to factor in a vacancy rate for your portfolio, apartments particularly. One of the major advantages of apartments over houses, is that if you own 1 house and the tenant leaves, you now have a 100% vacancy rate on your portfolio until you are able to tenant the property again. If you have a one 7-apartment building for instance and one tenant leaves, that’s only a 14% vacancy rate. But understand, there is a good chance, particularly if you have a couple of apartment blocks that there will always be a couple of units vacant at any one time. 

3. Affordability 

Apartments can be much more expensive to purchase upfront, and costs such as property management, maintenance, insurance etc can also be higher as these are often treated as commercial investments if 4+ units. Need to ensure you factor in these costs when determining your returns and cash flow. Which brings me to the last point… 

4. Returns 

Returns on apartments can often be higher than single family or multi-family homes. Given the higher management and increased costs, the returns though can be better. If a particular area is giving 7-8% ROI in Single Family Residences (SFR’s) you may find apartment buildings can be 12%+, sometimes even higher! 

If you are looking at a passive rental portfolio, and not afraid of the increase management and costs/affordability of apartment buildings, they can make an excellent addition to a portfolio. We have clients realising returns of over 17% on some apartment buildings and have seen EBIT’s (earnings before Interest and Tax) of over 25% possible – making sure to factor in increases in costs, maintenance and a vacancy rate. 

If this is something you are interested in adding to your portfolio, book a call with us today! 

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.