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).
myusapropertynightmare 
Given that historically the Aussie Dollar sits at around 75 cents (or below), i would assume that purchasing property with the dollar any higher than 85 cents would be financially beneficial in the long run. US Property Investment should be a long term strategy… assuming you will make “quick” money in the short term is extremely risky and unrealistic. Further to that, i would assume the potential of earning a 20% Net Return in US property with a relatively small outlay (from $40k) would be well worth the calculated risk compared to a 6% Gross Return from the bank as you mention…
My belief is that it is a matter of WHEN and not IF the US economy recovers, our dollar will speedily drop back to its normal levels. An economy of 21mill cannot continue to outperform an economy in excess of 300 mill forever!
MY STRATEGY: Invest in the right areas, with the right people managing your property, expect a mid to long term investment and know the risks, and you potentially have the opportunity to make some great returns even at a “low” aussie dollar of 95cents!
I agree with buying for cash flow and long term .Buying in right areas and right markets , with the right teams is the key to investing …..
With the affects of the European economy leaning on the fall of the euro. Real estate in the united states is a pretty safe bet. With all the forclosers and excess houses on the market it is a buyers market with huge returns both cash flow and long term capital gains. I was young when the market crashed in the 1980’s and have always read how lucrative it was then. The house market is as low as it can get, and rental money is were its at. I have been investing since it crashed in 2008. I was hoping the market would recover in less than 5 years and it has been slow with there being so many houses still on the market. After the forclosers and all the government housing has been put back into the hands of small business owners. I feel the market will even out and prices will return to normal. The rental aspect can be the residual income or cash flow until the market goes back up. I have just started reading this forums and admired your blog. Good information for people entering the US market.