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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,
🙂
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!
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.
Quick update!
I’m currently sitting in a lovely cafe out the front of my hotel enjoying a great breakfast with an unimaginably terrible, terrible latte – that’s the USA and coffee though!
I’ve been very busy the past couple of weeks whilst I’ve been over here and I can’t wait to share with you what
I’ve learnt.
When I return I’ll rewriting articles on…
> Finding the right attorney to set up an LLC
> LLC structure and maintenance (I.e. A good accountant)
> How to set up an EIN
> How to set up an ITIN (painstainlly awful)
> How to get a US physical mailing address
> Setting up a US bank account
> Realtors – how to find a good one
> How to get out and see houses and the suburbs
> A suggested two-week timeline of what you need to do while you are here
> How best to transfer large foreign currency payments
> Access to finance – still in the process of working it all out
Thanks for your patience and I will update again soon!
All the best,
Anthony
Booked & raring to go
So it is done!
After spending a small fortune on flights, transfers & accommodation (tip: book early) I am ready to head over to the US. I will be spending approximately 4-5 days in Dallas, Texas and 9 days in Atlanta, Georgia in the middle two weeks of July this year. I’ve tried to choose locations in these cities close to public transportation & central from a convenience point of view.
Who do I need to speak to / what do I need to do?
I think for this, it is best to create a list & timeline of jobs I need to complete in order to get the most of my trip. I’m sure i’ll come up with a more comprehensive plan in the next week or so but in summary here is what i’m thinking…
Who to meet with (several of each, in each city);
*Realtor
*Property Manager
*Tax accountant
*Attorney (solicitor?)
*Bank representative
*Handy men / renovation companies etc.
Timeline of jobs/meetings;
1. Set up a US mailing address (will be done before I leave Australia)
2. Set up a US bank account
3. Set up a US phone number and account
4. Meet with various Realtors
5. Meet with various Property managers
6. Repeat process for Tax accountant, attorney, renovation companies
7. Establish a company if advise of tax account is leaning towards this
8. Inspect properties (is going to be a little difficult without access to a car, i’m still working on the best way to achieve this).
9. If time permits – tourist tour of city.
Am I on the right track here?
So much to think about, I think i’m way over my head at this point. Wish me luck…
Where to buy?
Quite obviously one of the key questions to investing in property in the US is where to buy or what area to focus on. Below is a list of options I have complied from the various buyers agents and other investors located in Australia…
Ecco – Various locations, Michigan
US Prime property – Memphis
My USA property – Kansas City, Dallas, Atlanta, Miami et. al.
888 US Real Estate – Kansas City, Atlanta
Housebuyers USA – Phoenix, Kansas City, Pontiac, Memphis, Atlanta
Cash flow gold – Detroit / Michigan
Property in USA for Australians – Phoenix, Kansas City, Memphis
Steve McKnight – Fort Lauderdale (Florida)
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Many of these buyers agents purchase in different areas throughout the states, as a single investor it is important for me to focus on one particular area and stick with it. Over the coming few days I will attempt to provide preliminary research on the following US cities/areas;
Dallas/Fort Worth (DFW), Texas
- Why? From my initial observations I understand the market in the DFW area has not bottomed out as significantly as other parts of the US. From a simple convenience point of view, direct flights in to Dallas with Qantas makes this more attractive, particularly with little time off from my current job. I’m hoping there are still great cash-flow deals available in the area.
- Why? Seems many buyers agents are focusing on the area. Initial observations saw a large drop in prices through to the end of 2010. With increased investment opportunity, it seems the first half of 2011 has seen the property market stabilise, though still presents an opportunity as a buyers market.
- Why? With a sheer number of Australian investors focussing on the Kansas City area, this city definitely warrants further investigation. Unfortunately, if this market is already flooded with international investors it might prove difficult taking the “slow and steady” wins the race attitude.
- Why? Miami has seen some of the biggest drops in real estate values compared with the rest of the country. An over supply of housing means this market would likely continue to fall in the near future – whether this statement is also applicable to small value investment properties is yet to be seen. From a convenience standpoint, as a key tourist destination, access to and around Miami shouldn’t be a problem. Plus I love dexter.
Welcome.
Welcome to my blog.
At present, I am in the process of organising a trip to the USA for the eventual purchase of cash-flow positive property. As an Australian, I have been brought up with the belief that ‘owning your own home’ will ensure financial success, happiness, security etc. Unfortunately, as a firm believer in cash-flow positive property, investing in Australian property is simply too expensive and exhaustingly difficult. Thus, we arrive at the USA.
This blog is dedicated to sharing my property purchase experience & research that I do along the way. I need a medium to share and dissect this research, so hopefully talking about it will help me to understand better.
I’d appreciate and encourage any questions that you may have so feel free to send them through.
Thanks for reading,
Anthony
myusapropertynightmare 