Common risks for Aussies investing in international property market

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Diversification is a key to reducing your investment portfolio risk in the hopes of increasing your overall profits. It’s common for Australians to invest in the domestic market but the idea of international can often be daunting.

 

Investing in international property markets comes with unique risks that can affect the performance of an investment. Let’s explore some common risks that Australians should be aware of when investing in the international property market.

Currency Fluctuations

One of the most significant risks of investing in international property is currency fluctuations. When investing in foreign property, Australians must convert their money into the local currency of the country they are investing in. If the value of the Australian dollar decreases against the local currency, this can negatively affect the return on investment.

 

Legal and Regulatory Risks

Every country has its own legal and regulatory framework, which can differ significantly from those in Australia. This can make it challenging for Australians to understand and navigate the legal and regulatory requirements of investing in foreign property. Failure to comply with local regulations can result in fines or legal disputes that can negatively impact the investment.

 

Political Risk

Investing in foreign property also comes with political risks. Political instability or changes in government policies can impact property values, rental yields, and the overall performance of an investment. Australians investing in international property must keep a close eye on political developments in the countries they are investing in.

 

Market Volatility

Like any investment, international property values can fluctuate based on market conditions. Changes in supply and demand, interest rates, and economic conditions can all impact property values and rental yields. Australians must conduct thorough research and due diligence before investing in foreign property to understand market trends and potential risks.

 

Property Management Risks

Investing in international property also comes with property management risks. If the investor is not physically present in the country, they will need to rely on a property manager or agent to handle the day-to-day operations of the property. Finding a reliable property manager or agent can be challenging, and failure to do so can result in costly mistakes.

 

Cultural Differences

Investing in foreign property also means navigating cultural differences. This can include differences in language, customs, and business practices, which can make it challenging for Australians to negotiate deals or resolve disputes.

 

The U.S. property market is one of the best markets for Australian’s to venture into for many different reasons. If you would like to chat about this further and find out how to reduce your international investment risks – set up a free chat with us today.

Why the US is an easy market to invest in for Australians

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Some may ask why we are so excited for fellow Australians to tap into the U.S. property market. Apart from my own shift from the Australian to the U.S. property market that has made such a difference to my life, it is also one of the best international markets to invest in without too much confusion.

Investing in the US market has become an increasingly popular option for Australians, and for good reason. With a stable political and economic environment, the U.S. is seen as a safe haven for investors looking to diversify their portfolio.

In this blog, we’ll explore some of the reasons why the U.S. market is an easy market to invest in for Australians.

 

Similar Language and Culture

One of the most significant advantages of investing in the U.S. market is that Australians already speak the same language and share many cultural similarities with Americans. This shared language and culture make it easier for Australians to understand the U.S. market and its nuances, which can help them make more informed investment decisions.

 

Accessible Market

The U.S. market is one of the most accessible markets in the world, with a plethora of investment opportunities available to investors of all sizes. This accessibility is thanks in part to the U.S.’s open economy and relatively low barriers to entry, which make it easy for Australian investors to invest in U.S.-based companies.

 

Strong Economy

The U.S. economy is one of the strongest in the world. The country is home to many of the world’s largest and most profitable companies, including Amazon, Apple, and Microsoft, all of which offer attractive investment opportunities. Additionally, the U.S. economy has a long track record of resilience, making it a stable and reliable market for investors.

 

Diversification

Investing in the U.S. market allows Australian investors to diversify their portfolio, which can help to reduce overall investment risk. By investing in U.S.-based companies, Australians can spread their investments across a range of industries and sectors, which can help to protect against market volatility.

 

Strong Legal and Regulatory Framework

The U.S. has a strong legal and regulatory framework in place, which provides investors with a high level of protection. This framework includes regulations designed to promote transparency and prevent fraud, which can give investors peace of mind when investing in the U.S. market.

 

Easy Access to Information

Thanks to the internet and advancements in technology, it has never been easier for Australians to access information about the U.S. market. From financial news websites to online investment platforms, there are many resources available to help investors stay up to date with the latest market trends and developments.

 

If investing in the U.S. market is of interest, it might be worth having a chat with us. There are many different options available from completing your own course all the way through to having someone manage it.
What better way than to find out from us.

Set up a free chat today.

U.S. bank collapses and the impact on the property market for foreigners.

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There’s been quite a bit happening in the last week in the U.S. financial markets with the 2nd largest banking collapse in the history of the U.S. – Silicon Valley Bank (SVB).

 

With around USD212 billion in assets and funds, SVB was the 16th largest bank in the States. As their name suggests, Silicon Valley Bank specifically targeted tech start-ups and the venture capital investors and firms that support these.

 

What happened with Silicon Valley Bank?

Silicon Valley Bank (SVB) was essential a bank targeting tech start-ups, and the venture capital investors that fund them.  The pandemic and particularly post pandemic period has been very tough on a lot of tech companies (particularly new start-ups) and crypto and we have seen both shares in these companies and crypto values plunge in the past 12 – 18 months.  This put a large strain on several tech companies who then needed to recall any cash reserves they may have had, and/or the investors invested in these start-ups try to recoup cash to cover expenses.

This left SVB with very low reserves, so the bank then went out to market to attempt to raise capital to boost reserves, which was unsuccessful.  This activity has spooked the market somewhat and started to create a ‘bank run’ on the bank.

What is a ‘bank run’?

Essentially a ‘bank run’ is when many customers all try to withdraw their funds within a short period of time.  Or, as possible in the case of SVB, even just a few customers withdrawing large amounts can be problematic.

Banks will generally only hold around 10% of deposited capital in liquid reserves, with the rest being lent out or used for investment returns as profits for the bank. This is how banks earn their profits.  By paying customers a small amount of interest on their deposit, they then use these funds for investments or loans and earn a higher rate, the difference being their profit margin.

What did the bank do?

With the capital raise unsuccessful, the only option SVB had left, was to sell a large number of 10-year Treasury bonds they had purchased as an investment.  For those that are not familiar with bonds, these are essentially IOUs purchased from the government or central bank.  They pay you a yield on each bond based on the current interest rate, for the term of the bond – generally 5-10 years, at which point the government buys them back.  Essentially lending money to the government for a fixed period at a fixed rate.  Generally, a safe investment…. right?

Issue was, the bonds they owned at pandemic interest rate levels of around 2%, are significantly lower than current bonds that can be purchased from the Fed at around 4%+ yields, so they needed to sell early at a greatly reduced price to entice buyers, hence realising a massive loss…

Shareholders and customers got wind of this, and a massive bank run ensued until the U.S. Government stepped in…

 

What is covered by the U.S. Government?

 

Small financial institutions in the U.S. are not necessarily covered by government regulations, but most reasonable sized banks that adhere to the federal banking regulations and have a reasonable credit rating, are.  The U.S. Government has what is called the Federal Deposit Insurance Commission scheme (FDIC). This guarantees all deposits in any bank with FDIC up to US$250,000 are safe.

 

What the government has also done is stepped in and said that they’re going to guarantee all funds and Silicon Valley Bank to all their deposits or the clients. Note: this does NOT cover the bank itself, or the shareholders/ bondholders of the bank.

 

What was the cause?

 

While the poor performance of tech shares, and crypto values of recent times certainly started the issues SVB had, their large exposure in Treasury bonds also is being looked at. Truthfully, such a large exposure in long term fixed bonds, ‘banking’ on the interest rates to stay low, was certainly a mistake.  Whether the bank had sufficient regulations in place to manage and monitor such a risky investment decision is being questioned, but likely all too little too late now.

 

The underlying current volatility in economic & financial markets globally is certainly putting a strain on the economy and that’s when we can start to see cracks appearing.  While I do not believe this is solely the cause for the failure of SVB, the strain of the current economic times has brought to head several questionable decisions made by the bank.

 

 

How does this impact the U.S. Residential market?

 

This has been no impact directly on the US. housing sector. With the bank being predominately a tech industry bank, it’s not likely to have an effect.  Most residential mortgages are held with large nationals, which, while not happy with the U.S. government tipping into the banking fund to bail out the bank, are largely unaffected.

 

One of the things that the U.S. Government or the Federal Reserve Bank may do though, is pause on interest rate rises. There’s a very good chance now that they may let the dust settle first before they look at any additional rises. There was forecasted a rise for March, which I believe is now unlikely.  Again, it may even change their entire policy moving forward altogether, although unlikely. A lot will depend on how much impact they see this collapse and the smaller banks also collapsing is having on the financial sector.

 

 

Where to from here?

 

All I can suggest is diversification  is probably one of the best things you can do. The adage – “Don’t have all your eggs in one basket” comes to mind.   This volatility is impacting global markets and even here in Oz, our housing market, rental market, job market is all affected.  Diversification is the best method of hedging against any market volatility.

 

 

I will certainly watch this space going forward and let you know any further developments.  If diversifying your property portfolio is something you are considering, or even looking at investing in property

Essential Things to Know Before Investing in Your First Renovation House

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Investing in a house you plan to renovate can be highly lucrative if done correctly. It can also be costly if you don’t have all your facts and plans firmly in place before you start. Understanding how the property market works and what renovations will add value to your investment are essential before you begin your search for the investment property.

Buying in the U.S. residential property market makes sense because the buy-in costs are lower than purchasing Australian or New Zealand residences. However, buying as an overseas investor adds another element to understand.

A renovated residential property can increase in value by up to a few hundred thousand dollars, depending on the initial investment costs. Most renovated properties can sell for at least $100,000 above the initial price. If you keep your renovation costs to a strict budget, you can expect to recoup $40,000 to $60,000 in profit.

Area Is Important
Purchasing the right renovation property is essential, and one of the critical selection criteria for your investment project should be area. Location is always important when buying real estate, but your selected place will directly impact your profits.

Some of the critical things to consider when thinking about which area to buy a renovation property in include:
• Worst property in a good street,
• Growth areas and popular suburbs,
• Economic stability and growth in the region and the
• Location of the house itself.
Let’s look at each of these factors briefly.

Choosing the worst property in an excellent street to renovate is often cited as the best option. However, it depends on the worst property. If the house is not structurally sound or is a wrong property for reasons you cannot change with a renovation, it won’t matter how much you renovate it; buyers won’t pay a premium when you sell. Instead, look at properties on popular streets with nothing major wrong with them and that a renovation will change how they appear on the market.

When considering which suburbs, look for growth areas and suburbs that are growing in popularity. There are always areas where it becomes fashionable to live, so these suburbs experience growth in value faster than other areas. Choosing a renovation property in a trendy suburb can help you to increase your profits.

Economic stability and growth in the region are essential. If the whole town relies on one industry or a large factory, what will happen to your investment if the sector fails or the factory closes down? Ensure you buy a property in an area or region with good economic stability and a part where growth is happening. Purchasing a residential property isn’t a wise choice if businesses are closing down in the area. More people will want to live there if enterprises open up and expand in the area.

Finally, the location of the house itself will be a deciding factor. Consider the proximity to local facilities, including schools, access to public transport, and shops. Then look at the negatives of the house itself. Does it have easements or a right of way that impact this house but won’t affect neighbouring places? Is the property next to something undesirable to live next to? Is the property built on a hill?

Considering these factors about potential renovation properties, you’ll have far better ideas and information about the best investment property to buy.

Strategy
Before you choose a property and start transforming it, you need a strong investment strategy. Your investment strategy considers your budget, timeframe, whether you employ a property manager, and how soon you want to access the profits from your investment.

Planning your budget includes not only budgeting for the initial buy-in price of the property. It also allows for all the turnover costs, including currency exchange rates, finance charges, solicitor’s fees, and charges for property turnover by local authorities. Your budget will include planned renovation costs and should indicate the expected sale price at the end of the process.

Your strategy will provide a realistic timeframe for purchase, renovation, and completion of sale. Planning your system includes the settlement periods at either end of the purchase and sale, plus allowing realistic timeframes to market the property.

When planning your strategy, you’ll need to know when to ask for advice or help from others. Especially if you are completing a renovation in a U.S. property, you’ll need to rely on local knowledge and expert assistance to work on your behalf and for your benefit. You may need to employ a property manager to manage the renovations and liaise between you as the owner and the tradespeople working for you.

Your strategy should consider where you will find your expert help and include the costs in the budget.

Setting a strategy for one property will impact your other investments, cash flow, and availability of funds, so you need to know how this renovation project fits in with your overall investment strategy.

Framework
A good framework can help you decide on the best investment property for your circumstances. The framework provides the details for buying a suitable property, checking that you have completed all the required paperwork, paid all taxes, and sorted out the legal requirements, including hiring tradespersons in the U.S. A framework can include checklists that give you the answers you need when comparing properties.

Just like the house’s framework provides the structural strength to hold up the roof and walls, your framework will hold up your investment portfolio and give you confidence in your decisions. The framework will provide checklists and details for the renovation project management and will help you when you decide to sell the finished house.

Where to go Next?
Once you have decided to buy a renovation property in the U.S., you’ll need time to work out your investment strategy and find the proper framework to suit your needs. Luckily, you do not have to do this all on your own. Plenty of investors have tested the waters in the U.S. property market before you and know where the shallows and shoals to avoid are.

Completing a course to understand the advantages of investing in the U.S. property market could help immensely. Aligning yourself with a company of investors and market experts can help you to gain the knowledge and experience you need to ensure your renovation property is a success. Choose a course that enables you to talk directly with mentors and experts and helps you plan and execute your strategy and framework in property investment.

A robust framework, expert advice, a well-thought-out strategy, and local area knowledge will help you to achieve your investment dreams. To discover more about formulating strategy, plans, and a good framework for investing in property in the U.S., you can read our blog on Why Invest in the U.S.

Flip Houses Like an Expert from TV

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You’ve seen the television shows – Americans love a good house flip. Flipping a house means buying a property for a low price compared to other properties in the local market. Usually, it will be cheaper because it needs renovations. Once the renovations are complete, you can sell the house for a profit.

 

You might not know that Australian and New Zealand investors can flip properties in the U.S. and make a good profit. It is entirely possible to flip a house just like they do on Flip or Flop, Flipping 101, and Property Brothers.

 

The shows might make you believe that they are there everyday – but in fact, they are barely there and they don’t need to be. They are able to manage the entire process from anywhere at anytime using tried-and-tested processes, systems and techniques that you can adopt too.

 

The reason I say this is because investing in U.S. property can be easier than buying property in Australia or New Zealand, as there is usually a lower buy-in price.

 

Why Flipping a House is Great for Cash Flow

Buying a property in the U.S. can be very affordable, especially at the lower end of the property market. It’s easy to grab a property in the U.S. for less than a downpayment in Australian or New Zealand.

 

A typical example will be buying a house valued at $100,000 USD. You then renovate the home for $40,000, including a new kitchen, new bathroom fittings, painting, and new carpet. This approach results in a typical 20% ROI which are numbers we don’t typically see here.

 

You now have a chunk of cash to invest into your next flip property or provide a deposit towards an Australian or New Zealand home. Flipping a property means you can access the cash or equity in the property much sooner than if you wait for the property value to increase naturally over many years.

 

How Americans Make Money By Flipping Houses

 

Flipping houses is becoming a popular way to make money in the U.S., but you must know what you are doing. Otherwise, your flip may become a flop. It’s one of the reasons why there are so many popular television shows about flipping property.

 

The best flippers know how to manage a team, understand the market, and work to a budget and time restraints. All of this can be done from afar or even abroad. This is why our Fix and Flip Academy focuses on predominately on these skills rather than the ‘what to change’ aspects of property flipping.

 

How to Make Flipping Houses Work For You

There are several steps to getting your flip right. You want to find the right property, usually in a growth area or an up-and-coming trendy suburb. The adage of buying the worst house on the best street is primarily factual, providing that the home has firm foundations and won’t cost you a fortune to repair and renovate. However, sometimes you are better off buying a slightly better property with an excellent structural base.

 

Plan your renovations and stick to your budget. When flipping a house, you do not intend to live in it, so your choices are about what will appeal to potential buyers. Paying slightly more for luxurious finishes like fancy taps can sometimes pay big dividends when it comes to the sale price. Some properties don’t need complete renovations, but a good quality paint job and new finishes can brighten any house, adding thousands to the price.

 

Doing your research, including learning from others who have successfully flipped houses in the U.S., will help you to choose the right home to flip and manage the renovations from overseas. Building a trustworthy team is a make-or-break when it comes to flipping.

 

Communication is critical when purchasing, renovating and then flipping your U.S. property. Working with someone in a different timezone can be tricky, so it is always great to look for onshore resources who specialise in your investment country. This way they can help you understand the market over there and also the practical side of running it from over here. Think about avenues such as membership groups, property coaching or a course. Having experts who know how to achieve your financial goals in your corner makes all the difference. You can train yourself to learn more about the U.S. property market.

 

When your property is ready to sell, you’ll need to create excellent marketing to achieve the highest price. It would be best if you had a real estate agent you could trust to sell your property well. If you are part of the Fix and Flip Academy, you will have instant access to our boots on ground directory which is full of used, trusted and creditable professionals.

 

It is possible for investors from Australia and New Zealand to successfully buy, fix, and flip property in the U.S. Savvy investors know when to get help. Flipping a property in the U.S. can provide you with a decent profit in a few months instead of waiting several years for your investment to appreciate. Star Dynamic’s Fix and Flip Academy offers all the support you’ll need to flip U.S. properties successfully. You’ll receive full training in how to use a U.S. property to make money.