The Aussie dollar sell off: time to rethink your US purchase?

 The financial stress in Europe, extreme stock market volatility and the ending of Quantative Easing (QE2) in the US has caused a huge strain on the Aussie dollar in the past few months. Now sitting at just 95.12 cents in the  dollar (click here for latest price), Australian investors are beginning to rethink their US property purchase.

 

What should you do?
Depending on your circumstances, this can be quite a difficult question for you to answer.  If you think the Australian dollar will drop further, then you should buy now and benefit from a falling dollar in the future.  If you are not ready to buy now but worry about a further drop why not leverage your exchange rate concerns by transferring money to the US dollar now?

Of course, if you think this sudden drop in the Aussie is just a ‘short term’ inconvienice, hold out a few months and look at purchasing when the dollar strengthens. Be sure to take in to account the potential loss of income from keeping money here rather than earning a higher return from your investment in the US.

 

My advice…
My strategy (which suits only my circumstances) is simple.  I will continue to purchase US property with a leeway of 10 cents to the dollar. That is, I will continue to save, research & purchase US property unless the dollar drops below 90 US cents.  My strategy is to hold for the long term (~10 years), and ignoring  daily currency fluctuations is fine with this strategy.  Of course, if your strategy is for the short term (3-5 years or less) I would; a) consider even the smallest currency exchange change or b) just not purchase US property at all – why risk it when you can earn a guarenteed 6.5% in the bank!

 

I already own US property, should I sell?
Assuming you put your house on the market tomorrow, you would still be looking at (the very least) a 6-12 month time frame between the final sale, contract exchange & monetary settlement.  Who knows where the dollar will be in 12 months time – you need to be careful.  In the meantime, you are still earning rent each month, why not simply send the money back to Australia when the dollar is weak?

As a site note, perhaps spend some time researching the historical Australia dollar averages – The historical exchange rate for the previous 5 years (Oct 5th 2006 – Oct 5th 2011) saw one Aussie dollar buy, on average, 87.57 US cents (link).

Property update & photos (finally!)

It has been a while since I have posted, and I apologise. Life and work caught up with me! I finally managed to transfer a few files so I could upload some photos of the property – let me know what you think! Purchase details are below.

Property is going well – a slight problem with the tenant (paying his monthly rent two days late) but other than that I haven’t heard a thing – I hope that this is a good sign! As long as the money is there each month I am happy.

I’ll be back to regular posting soon with more information, buyer agent reviews and hopefully more details of my financing and second property purchase (*fingers crossed*).

Until then,

🙂

How to transfer money internationally

 This article specifically relates to transferring money from  Australia to the US using Ozforex.com.au, ClearFX.com or  Tranzfers.com (all of the same company) for the purpose of  purchasing a property.

 

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Why not a bank?

The Ozforex companies listed above are a much better alternative to transferring through your bank.  Fees for each transaction around less than 1 cent per dollar as opposed to the 3-5 cents per dollar a bank would charge.

 

Tranzfers is largely established for UK/Australia transfers.

Ozforex charges a fee unless a minimum of $10,000 is transferred (minimum $2,000 transfer)

Clearfx charges no fees (minimum $2,000 transfer).  Clearfx.com.au is the recommended company to use as you are able to transfer amounts smaller than $10,000 without any fees.

Set up is easy, and can be done online.

 

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How to transfer?

You are ONLY able to transfer money between your Australian-based bank account and a US-based bank account using one of these online companies. There are two options for this to work;

 

1) Set up a US bank account in your own name or company name.  For this, you will generally need to be present in the US to set up due to the US Patriot Act.

If you transfer directly to your US bank account, be warned about incoming wire-transfer fees of around $12 per transfer.  When you eventually purchase a property, you will also be hit with a $25 fedwire transfer fee on each outgoing wire. The bank will set a maximum daily limit of $5,000 and to increase this you will need to be in the US when actually transferring money online (as you will need both a US mobile number AND US-based internet connection when online or it will not work).

This can be very expensive when you need to transfer a large amount of money and is therefore not the recommended option. It is still a good idea though to have a US-based bank account for rent to be transferred in or for the convenience of having a US debit card. 

 

2) Transfer directly to a property title company, your attorney, accountant, insurance company etc. All of these key companies/people have US bank accounts.

The best option is to transfer directly through Clearfx/Ozforex to the property title company after you purchase a property.  There are no incoming/outgoing transfer fees associated with this. When you transfer online, there is a maximum $20,000 daily limit for personal accounts in Australia, so be wary of this.  You can arrange for la arger transfer amount on Clearfx and pay it off over a few days.

nb: It is important when using this option to NOT use a SWIFT code.  A SWIFT code is a code that is used for international transfers to identify which bank to send the funds through to (much like a BSB in Australia).  When Clearfx transfesr the money through to your chosen US-based account, they send the money domestically through their own US-based accounts.  As a lot of companies use small local banks (and those small local banks utilize big US banks to handle their international transfers), if you use a SWIFT code the money is not directed to the correct bank and therefore returned to you – with of course their fee taken out of the funds.

 

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Summary:

• Set up a US bank account for future rental income and/or for the convenience of a US debit card.

• Set up an account with Clearfx.com.au

• After you purchase a property, send money directly to the title company through Clearfx.

• DO NOT use a SWIFT code for the transfer, it is not compulsory to use one and not recommended.

• For any other bills such as account fees, LLC set up etc. – transfer directly through Clearfx as long as it amounts to over $2,000.

My first USA property purchase!

Well approximately one year after seriously thinking about USA property, 6 months of solid research, an over-priced trip to the US and countless printing/scanning/phone calls & emailing – I have finally settled on my first US property purchase!!!

Details? (All in US Dollars)

Purchase Costs
Purchase price: $87,000
Closing costs: $895 (Including $260 in bank-related money transfer costs, grr…)
Insurance: $783 p.a.
Warranty insurance: $420 p.a.

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Rent Details
Rent: $1150/month
Property management: 10% per month
Leasing fee: Free for first tenant ($720 next time it is required)

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Gross Return: 15.86%
Nett Return: ?  I don’t calculate nett return until after each year, who knows what will happen during the year! Hoping 10% will be nice.

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Costs I do not take in to account:
My trip to the USA (Approx. $4,500) – it also doubled as a holiday and hard to justify calculating in to the price each year. I plan on buying multiple properties prior to returning to the US again.

LLC, EIN, ITIN, bank account set up ($2,500) – As a once off fixed cost, it is hard to work in to calculations, I also plan on buying multiple properties under the same LLC.

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*Fingers crossed* it all goes according to plan!

First house was easy to finance. Second I think I can pull off by end of this year/start of next. Third house? I’m going to have trouble here – so I need help – are you interested in buying or forming a partnership in buying in the USA? Let me know, I’m definitely keen to work with someone…

Property purchase update

Just a quick update on my recent property purchase in Dallas, Texas.  Once settlement has been finalised I will post all the details and figures.

 

 Money Transfer Issues
 Settlement is tomorrow however I have had a number of (bank related) issues….

*Bank of America set my maximum transfer limit to $5000 per transaction – each time I transfer out it costs me a $25 fee. I am unable to increase this limit unless i’m physically in the US.  I have so far been very unhappy dealing with Bank of America. It is very easy to put money in to your account, but good luck trying to take it out again. I paid about half of the value of the house through this account and decided to send directly the other half through ClearFX (OzForex)

*OzForex has so far been good however I have now been told that Ozforex sent to the escrow company less than what I was advised – somewhere along the transaction path fees were taken out (accounting to around $75USD) – I’m still yet to work out whether I will now need to pay this shortfall or the escrow company, I am not sure which bank took the fees out. So it may turn out settlement is delayed by a couple of business days until I make up this shortfall (with another $25 Bank of America fedwire transfer fee of course!)

 

Rent update
I was advised that the property is now rented on a 12 month contract – right on settlement – perfect! $1050/month.

 

Insurance – more expensive than anticipated
Quote from insurance agent came in about $150/year more than I was expecting (around $780/year).  Because settlement is so soon, I’m going to go ahead with this company, American Modern, and look for a cheaper/better alternative next year.  It could also be the case that I have no experience paying any bills in the US as it seems you can get a cheaper rate once you establish that you are “excellent” at paying bills on time.  Based on my rough calculations, you can expect to pay around 50-60% more for insurance coverage in the US than you would be paying in Australia.
 
 

Communication
The time difference is a killer!  I fell asleep last night as I was awaiting business hours to start in the US (12am Aussie EST) – but I definitely recommend a US phone number for communication reasons.  Calling your insurance agent, property management company, escrow title company or waiting on hold with the bank for an hour is a lot easier to deal with than 7000 back and forth emails – all unlimited calls for just $19.95 a year – click here for details on how to do this.

 
 

Post-purchase worries
I think I may be suffering from Post-purchase dissonance.
This always happens to me when I buy expensive things though –
hopefully it will all go away once I have confirmation all my money
has been received and settlement has officially occurred!

How to set up a US mailing address

This is easy!  I feel it is also essential regardless of if you are buying on your own or through a buyer’s agent.

A physical mail address is good for a number of reasons;

• You actually get a physical US address
• You require this physical address in order to apply for a US bank account (next help article)
• You can get your bank documents/cards/cheque books & company documents mailed to you
• Depending on the service offered, your mail can be scanned and emailed to you
• Depending on the service offered, you can elect to have the mail forwarded to you in another country
• It is quite cheap, I’ve found good offerings for around $29/month

Your address can be set up quite easily online.   A simple search for “US physical mail address” will yield you literally hundreds of different companies that offer a mail address, mail forwarding service or a combination of both.  Check out a few that I found after a quick search on Google…

usa2me
usamail1
shipito
usglobalmail
usaddressinc
virtualpostmail

my USA property – buyer agent review

Each week I will be doing a very quick review of 1 Australian or US-based property buyer agents – week 1: my USA property.

I tend to shy away with any service or company with an ‘upfront’ fee.  In this case, my USA property is asking for over $3000 just to sign up!  There is no guarentee that they will have a property that suits your budget and investment goals. Furthermore, you only get a chance to see only 8 property examples on their front page.

I’ve read a lot about the lack of communication from my USA property on many online forums, which worries me a bit.  I think my greatest problem with this company is the upfront fee & no guarentee that you would actually get a property you like – who knows how many people they have on their systems applying for each property they send to clients?

The fee added to each property is $3,250.  Have you used my USA property before? If so, let me know your experiences!

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My recommendation: If you are going to use a buyer’s agents – I think you can do better than my USA property.

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Next week: Top Rental Returns

Buy shares now & property update

Just to go completely off topic for a minute, the ASX is down for a fifth straight day almost reaching new 52 week lows.

I just bought nab shares at around $20.40, providing an average dividend return of 7.10%.

If you have some spare cash, consider diversifying into some shares while they are down. You can’t of course be sure that they won’t go any lower – but when a large, stable bank that has been paying a fantastic dividend for years is available on the cheap – i’m buying.

Just a thought 🙂

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On the property front, i’ve just signed the contracts for a property in Texas. Unfortunately, it is seemingly the worst possible timing with the Aussie down quite a bit over the past week; can’t help that though! Once the contract is accepted and the transaction is processed i’ll provide all the details and figures.

Getting a cheap US phone number

After looking at a variety of options, my suggestion is to use a magicJack (link).

magicJack is a USB connector between your phone line & computer. Very easy to set up.  Cost is $19.95 per year and with this you get a dedicated US phone number, voice mail service and most importantly free calls to anyone in the US.  Plug in a headset or just use your computer, simple.

Buy online or whilst in the US for a cheaper option (sells for $49.95 in the US with 1 year fee included).  If you are not heading to the US, expect to pay around double the price for one to be sent to you.

Setting up your LLC, EIN & ITIN

Setting up your LLC.  I don’t intend to go in to the pros and cons of setting up an LLC.  All I can say is that as an Australian investor purchasing property in the US this way of purchasing property (for me) seems to be the most efficient and beneficial structure.  How?  A lot of foreign investors do it themselves online.  I suggest asking your attorney as I did – a company can be set up overnight.  In fact, I was in a rush, it took my attorney a little over two hours for the initial set up.  Again, I would suggesting paying more for an attorney you can meet or talk to – finding someone reliable will make sure he/she keeps up to date with the latest legislation/amendments, company minutes and maintains stringent company documents.  Online you can set up an LLC for around $1000 – $1500. Total cost of LLC set up for me was $2,500.

 

Setting up an EIN.  Employer Identification Number. Remember the part I said about “stress” above? Here it is. Both an EIN and ITIN are essential in US property purchase (assuming you set up an LLC) and the lovely bureaucracy of Uncle Sam, coupled with (sometimes) poorly trained IRS staff and complex IRS documents, makes both of these difficult to set up.  As an example, you can’t set up an ITIN without purchasing a property, you can’t purchase a property without an LLC, you need an LLC to get an EIN, but to get an EIN for your LLC you MUST have an ITIN number.  To get the ITIN number you’ll need to be in the US physically to set up a back account, to get a letter from the bank stating that you require an ITIN number for tax purposes from the IRS – wait; now the bank is saying that it can’t set you up with a bank account without a Social Security Number (SSN) or ITIN. What !!!

The above is an example of what happened to me in my attempt to do both prior to leaving for the US.  Some of the above ‘conditions’ are true but most of what I said above was passed on to me directly from speaking with IRS staff and Wells Fargo & Bank of America staff. Essentially, here’s an easy explanation of what I did after advice from my attorney;

 

1. Set up an LLC (attorney did this)
2. Get all your company documents together
3. Make sure you attorney acts as the ‘Registered agent’ (he/she will understand)
4. Make sure you have your US mailing address set up (see below)
5. CALL the IRS to ask for an EIN – reason; you can’t apply for an EIN using their online service without a SSN or ITIN.
6. If possible, be near a fax machine to receive confirmation (otherwise paperwork can take quite some time to reach you).

Notes:
* To get an EIN is a free service.
* Most IRS staff will turn you down without a SSN or ITIN – you need to be assertive as you DO NOT need either of these to get your EIN number.
*If you are using an online service, they may be able to get an EIN for you – just be careful with costs associated of using an online ‘registered agent’ for your LLC, after 3-6 months there will usually be an ongoing cost for this.

 

Setting up your ITIN.  Setting up your Individual Taxpayer Identification Number (ITIN) is no easy feat.  Don’t be fooled by what might seem like an easy 1-page application form (form w-7) or think the 8-page instruction form will be of any real use to you (IRS instructions).  Your ITIN application is fairly complicated, I have been rejected twice so far.

Use the instruction form provided by the IRS to complete your application. I have been instructed by my US accountant to wait until I purchase a property to apply for my ITIN.  Once I purchase a property, i’ll be able to obtain a letter from my property management company saying that I require an ITIN as I will be receiving property investment income.

If you are in the US and at the bank, you may want to open an interest bearing (business) bank account – the bank can then issue you a letter to the IRS stating you require an ITIN.

You’ll also need to get an ‘Apostille’ on your passport by an authorised public notary (try http://www.notarylocator.com.au if you’re in Australia, similar online services are available for other countries).  To save money, I did this while in the US – free to notarise your passport if you’re a Bank of America customer or around $10/page at any UPS store. Until my application is completely accepted, I won’t post a step-by-step guide on each question in the ITIN form in case information I give is incorrect.