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  • Profile photo of British BuyerBritish Buyer
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    anelxander wrote:

    I liked your post bevk, very good information about Las Vegas!

    Steve I have a question for you. I am interested in buying a house in Miami too, and I was speaking to a Lawyer who does all the process to get the LLC and he told me that:
     
    1. If I put the property on my name and later I transfer it to an LLC before selling it, that change is gonna be very expensive and that some stamps should be paid.
    2. If the tenant sues me (as a landlord) it doesn't affect my other assets.
    3. He suggested to get a Homeowners Content Insurance, which also protects the tenant in the situation of a lawsuit. I'm not sure if it works the same as the LLC does.
    4. About finance, he just said: some bankslend to LLC's others don't.

    Have you given any information about the transfer of the property to an LLC?

    Cheers

    Alex

    Hi Alex

    I have to admit I've been a bit lax in following up on LLC's.  I guess my greatest obsession is finding a nice home for myself right now.

    Everything that lawyer told you sounds spot on.  The unknown factor is the amount of "stamp" duty.  I have been advised by a bank I was talking to that the cost for transferring a home worth $300K from your name to an LLC is about $1850.

    I have also been advised to buy "landlord insurance" as protection against being sued.

    One reason I'm not rushing on the LLC issue is because the first home I buy is just for myself, not for renting out.

    I think that once I have a lot of money invested in US property I'd want to start putting them in LLC's, since there's more to lose when you get sued.

    I'm not vaguely worried about being sued for the value of my Chinese properties, since no US court would have jurisdiction in China.

    Profile photo of British BuyerBritish Buyer
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    bevk wrote:
    Wow, this has been an excellent read – Thanks BB and others.
    I really like your "go for it" attitude.
    Although I'm still in Australia, I have been doing masses of research and have found the property websites mentioned above in previous posts to be an great source of information.

    I am currently looking at Las Vegas for potential purchases and actually called a well-known agency there today. I ended up getting through to an agent who came across professionally and knowledgable. All I really wanted was to pick her brain about it all and she was very obliging. I spent 10-15 mins on the phone with her and gained a lot of info. For example, Nevada is a very pro-landlord state, compared to some of the others. This is a definite key point for us. BB, you should find out about this, as Florida may be more pro-tenant than landlord.

    Our budget is a bit different to yours BB, as we are looking at homes priced between $30-45K cash. We expect them to be tenanted, otherwise we won't purchase. From what the agent told me, an average $40K condo in Las Vegas would rent for approx $700-$1200 per month. Even at the base rental, this would provide approx 21% yield (not taking fees into account). At the higher rental, we would get a yield of approx 36%. Holding just 4 properties this way would generate about $20K-30K income per year after fees. Of course it would work out much higher if we purchased SFH and avoided the HO duties.

    In our strategy, we are not investing for capital growth and that's why we don't really mind if they are not beach front or even on the coast at all. CG will probably come around in the fullness of time, but the way we see it is each rental is like a personal ATM – it will chuck money at us month in and month out (for the most part), year in, year out for as long as we hold them.

    Thanks for your updates on your trip, it is fanscinating to see how you are getting on.

    To others, don't feel daunted by the fact that you are not over there and don't be afraid to make a call to an agency in the States. Call one of the well known ones and pick their brains, especially on areas such as pro-landlord issues. With so many properties lying dormant on the market, it will give them something to do and they will be jumping at the chance to speak to any potential buyer :)

    HI BEV

    My thoughts on Las Vegas:

    advantage 1: closer to Aus (and in my case, China) than the east coast of the US.  You may even get a direct flight!  Although expect a stopover in LA.

    advantage 2: it is either first or second (I don't remember offhand) on the Case-Schiller list for greatest price declines, and ditto for the RealtyTrac list of highest foreclosures (I do remember than Miami was just below LV on these lists).

    advantage 3: you can get a good looking unit in the price range you're talking of (ie. something that you would feel "proud" to be the owner of)

    So why didn't I go to LV?

    I was scared off simply by the fact the city is entirely dependent on tourism, and has too much excess housing supply, which made me worried about finding tenants.  This fear was re-inforced by a blog I read written by a European man (Swiss, I think) who bought an REO in LV but still hadn't rented it out during his most recent posts (about 6 months after buying).

    I also preferred Miami because of the lifestyle potential should I end up living here.

    Best of luck
    Steve

    Profile photo of British BuyerBritish Buyer
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    jeff2tract wrote:
    British Buyer Your thoughts are very interesting ,I am thinking on why you would be concentrating on condo's? with the HOA fees eating into your ROI, why not stick to SFH. I noticed in your last email that a return of 6.86% on a condo. I can get 6% by leaving my money in Australian banks and not have the hassle of dealing with having to rent out a unit and all the other worries. You are correct in saying that it is a BAD investment Jeff

    Hi Jeff

    The answer to your question lies in my previous posts, but assuming you're a busy man with no time to look it up, I'll do you the favour.

    There are 3 kinds of condos worth investing in in Miami:

    A. On the beach.  Very expensive ($150K to 500K for one bed, one bathroom).  Rental return is appalling (perhaps 1% to 3%).  The prices are very high simply because this is where the only investors are investing.  These investors are from Russia, Brazil, Canada, Switzerland etc. and they have cash, and they want a place they can show off to their friends.  The max. you can rent these condos out for is $1,500 a month.  And HOA fees are sky-high ($500 to $900)

    B. Condos with waterfront views because they're on a waterway, or on the intercoastal (the lagoon between downtown Miami and the island that Miami Beach is on).  These sell from 60K to 120K.  Buyers are usually yuppies from Miami, who're just looking to have a quiet place to call their own, with a nice view.  Rental return is bad: about 5 to 7%, because you can only rent them out for $800 to $900.  HOA fees come in a wide range ($300 to $500)

    C. Condos in nice areas, but with no water view.  Because you can also rent them out for $800 (1 bed 1 bath), and because you can buy them for 25K to 35K, the rental return is 10% up to maybe 18%. HOA fees usually between $150 and $300)

    All rental return prices I stated are after paying HOA fees and property taxes.

    From what I've been told, it's very easy to rent out a condo if you're asking $800, no matter it has a view or not.  If you want to rent it out same day, just put $750.  But if you've bought an expensive condo on the beach, it takes some time to rent out at $1,500 (or some I'm told).

    All prices I stated are only REO prices.  Short sale prices are 20% higher, and regular sale prices about 30% higher.

    Obviously option C looks good from a rental return perspective, but A and B may have higher capital gains opportunities if the market booms one day (perhaps investors will flock to Miami looking for water view condos).  Also, A and B give the possibility of getting a mortgage (because the prices are higher).

    Jeff, if you put your money in an Aus bank and get 6% hassle free return, you'll get no capital gains, and relative to the US$ you'll have lost 30% when the commodity cycle ends and your currency goes back to US$0.70

    The reason I've been talking so much about condos recently (as opposed to Single Family Homes) is not necessarily because the rental returns are much higher (though I imagine Option C will outperform SFHs), but simply because controlling a condo from far away is much much easier.  In addition, you probably won't need a property management company, which will eat up 10% of your gross rental income on a SFH. 

    Also, a SFH has so much more that can go wrong: roof leaking, hurricane damage, flooding, tree falls over and kills someone or damages neighbour's house, pipes get clogged, garden goes wild without a garden service etc. etc.)

    Profile photo of British BuyerBritish Buyer
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    I just got an e-mail from someone interested in the Miami market, asking why properties are listed on Trulia for $1,000K

    These prices do not appear on the MLS site, and they are in no way real (obviously!)

    They may be the price that the bank will set the first bid of the auction at after they've foreclosed.  In other words, these properties are not short sales, and they're not REOs, but are heading for the auction on the courthouse steps.

    One other possibility is that the person listing these properties (realtytrac.com) is trying to attract your attention, and get you to sign up for their service. 

    Do not waste your money signing up for realtytrac.  I already tried that, and cancelled my subscription as soon as I realised that the "extra" info they were providing was adding more confusion than clarity.

    Profile photo of British BuyerBritish Buyer
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    Today I looked at condos that I'd estimate are about 7.5 times cheaper than the equivalent in China's only city with tropical beaches: Sanya, on Hainan Island.

    For example, I saw a south-facing, 80 square metre, 7th floor, 2 bedroom 2bathroom, with balcony looking down at a pool and a waterway (where you could conceivably moor your yacht alongside all the others) with an unobstructed view to downtown Miami in the distance, and the islands to your east.  The asking price was $70K.  The entrance hall looks smart, the gym a bit small but fully equipped.  The HOA fees were reasonable (about $400 per month).  The area is safe, and the street its on very beautiful.

    The only thing making the comparison with China difficult, is that this building is from 1973, whereas in China all highrises are new.  However, the Miami buildings have been well-cared for (because the HOA fee is so high).

    Despite the above condo looking cheap at the price, it's a bad investment as a rental return.  You could only rent out for $1,000, which probably only leaves about $400 per month profit, or $4,800 per year, which is a rental return of 6.86%

    Profile photo of British BuyerBritish Buyer
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    HI CHUI

    To find this years property tax on that condo, use this government site:

    http://gisims2.miamidade.gov/MyHome/propmap.asp

    Just type in the address (if you have it).  You'll see this year's assessed price (ie. assessed by the tax dept.), so to get the property tax multiply by 2%.

    It's a great site, because it will also show you all the previous sales history on the property.

    Profile photo of British BuyerBritish Buyer
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    I just received an e-mail from someone asking if it's possible (or how easy is it) to buy a property in Miami (particularly an REO) without flying here.

    I haven't looked into this yet, but I understand the buying process, so here's what I currently THINK the answer is (but will have to check up on it)

    The first offer made on your behalf by the realtor (even when you're in Miami sitting at her side) is done by signing the forms on which you make your offer, and she then e-mails the bank a scanned version.  No more signing is required until about 1 month later, on the Closing Day.  During that one month period (which is referred to as the Inspection Period) you are supposed to be having the property checked out (physically by a building company), and legally (by doing a title search to check there are no outstanding liens against the property).  Liens can include:

    1. money is owed by the property since the old owner didn't pay his property tax or his HOA fees
    2. lawsuits against the property since the old owner had renovations done, but didn't pay the renovation company
    3. fines against the property because the person did illegal alterations that violated the building code

    Banks are not supposed to sell REOs until they've personally seen to all the liens (ie. done their own title search, and paid all the fines).  However, it can happen that when the bank was doing its search, a particular liens hadn't come out yet, so this is why it's good to do your own follow-up title search.

    The realty co. provides both these services for a small fee (I think about $250 each).

    if you decide, about 10 days into the inspection period, that you want to go ahead with the purchase, you should immediately sign the Closing Contract (which the realtor would e-mail to you) and send the original by DHL, so that it's ready on Closing Day.  The realtor would then receive the keys on your behalf.

    I just mentioned the whole process, from making an offer up to Closing Day, is about 30 days.  That seems to be the norm, but both sides (ie. the buyer and the seller) have a fair amount of leeway because the contract leaves a space to fill in what closing date you prefer.  Obviously, you can't write a ridiculous date (eg. 2 months after making an offer).  You could if you wanted to, but when the bank is reviewing all it's offers, they will see your strange request and probably not consider your offer.

    Profile photo of British BuyerBritish Buyer
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    HI KEVIN

    (I just received an e-mail from Kevin asking my thoughts on LLC's and asset protection.  Since it's a relevant topic, I've decided to reply on the forum for all to see).

    My current thinking is that LLC's serve no purpose other than when you sell (if your property is in an LLC you don't get any money withheld by the buyer).

    LLC's only other advantages are:
    1. get around rent withholding (but if your agent is collecting your rent, the buyer won't even know you're a foreigner)
    2. protection against lawsuits (but for this you should just purchase landlord's insurance)

    The major disadvantage of having your property in an LLC is that you've drastically reduced the number of lenders who might now, or in the future, give you a loan on that property (the majority of lenders don't like to lend to an LLC).

    So to get around having $ withheld when you sell, while not ruling out lenders who'll lend only to private individuals, it seems to me the best way is not to use an LLC until the last moment (just put it in an LLC a month before you sell).

    That's the advice I've received from a guy who seemed very on the ball.

    Profile photo of British BuyerBritish Buyer
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    Hi

    I've had a surprising number of people contact me (via e-mail) requesting advice and info pertaining to investing in the Miami property market for both capital gains and rental returns.

    Also, a lot of people have requested more info on lenders willing to make loans to foreign investors.

    As I just mentioned in a previous post, I'm working with my realtor to create something that I'm starting to think of as "Steve's List".

    Although it won't be anywhere near as heroic as Schindler's, it will at least be as altruistic, and should prove to be extremely useful to anyone trying to pick up a cheap REOs in Miami.

    This list will be divided into 2 sections:

    1. REO condos priced 20K to 40K that have just hit the market, and will give good rental returns (10% to upwards rental return after paying HOA and Prop. Tax).  The condos these buildings are in will all have been checked by myself and my realtor, will all be in good areas, and will all have pools and gyms.

    2. REO Single Family Homes that have just hit the market, that are priced between about 120K and 350K (so as to ensure that they are expensive enough to be  in good areas, but not too cheap so as to rule out financing opportunities), and that should offer about 6 to 8% rental returns, and very good capital gains opportunities.

    This list will be automatically generated by setting up parameters using the MLS listing for Miami (ie. if condos, according to buildings I've already checked out, or if SFHs, according to areas I've already visited). 

    My realtor will automatically receive daily updates (from the Miami MLS listings) to add to this list.  I shall make this list available to the public (free of charge).   However, I won't publicly display the list, so as to reduce the number of people making concurrent bids, and thereby working at odds with each other. 

    If you're interested in access to the list, you just need to e-mail me.  Once you've located an REO that interests you, you can make contact with my realtor and make bids of your own, according to the price asked by the bank.  There would be absolutely no fee charged by my realtor since she makes her commission (3%) from the seller (ie. the bank).

    In addition, my realtor belongs to a realty co. that has a subsidiary that deals with financing for purchases by foreigners, so you can ask her what her company's best interest rate is for the property you're interested in.  If you don't visit Miami you will probably need to use this kind of service.  If you are able to visit you can just do the rounds of the banks that have Foreign Lender Programs.

    Not a bad deal for you guys, no matter you decide to visit Miami or not. 

    Only one condition, if you make any great purchases, you need to treat me to a meal next time we're both in MIami at the same time!

    Profile photo of British BuyerBritish Buyer
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    Chui wrote:
    Steve,

    British Buyer wrote:
    IF YOU BUY A 1 BED 1 BATH CONDO FOR 30K, IN A NICE AREA (NEAR THE INTERCOASTAL WATERWAY) BUT WITHOUT A WATER VIEW, YOUR HOA FEE WILL BE $250 PER MONTH.

    TO THIS $250 YOU ADD THE $9 FOR PROPERTY TAXES. 

    30k would be the purchase price, not necessarily the assessed value. I saw some pretty horrific property taxes on Zillow for some cheaper dinghy-looking SFR in Miami.

    Chui

    I forgot to mention that if you want to find the most recent assessed price for any property in Miami (ie. the amount of property tax you'll pay) go to this government website:

    http://gisims2.miamidade.gov/MyHome/propmap.asp

    Under Select Item, choose Address, and type in any address

    It's a great site because it also shows you the price history of every property.

    It seems it's hard to find an REO in Miami that isn't for sale at less than 30% of the 2006 high!

    Profile photo of British BuyerBritish Buyer
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    Chui wrote:
    Steve,

    British Buyer wrote:
    IF YOU BUY A 1 BED 1 BATH CONDO FOR 30K, IN A NICE AREA (NEAR THE INTERCOASTAL WATERWAY) BUT WITHOUT A WATER VIEW, YOUR HOA FEE WILL BE $250 PER MONTH.

    TO THIS $250 YOU ADD THE $9 FOR PROPERTY TAXES. 

    30k would be the purchase price, not necessarily the assessed value. I saw some pretty horrific property taxes on Zillow for some cheaper dinghy-looking SFR in Miami.

    Hi Chui

    since finding my "dream home" (the waterfront REO SFH I put in a cash offer for $281K for) I haven't made any new offers.  I'm still nervously awaiting the outcome.

    However, I've been staying busy.

    I've started compiling a list of condo buildings in good areas (they're all on the east coast of the city near the intercoastal waterway) where it's possible to pick up 30K REO's (but you have to wait until they hit the market, and pounce as soon as they do).  My list only includes:

    1. buildings I've visited myself and chatted to tenants/owners, and checked out the entrance hall, the elevators, the gardens, and the parking
    2. HOA no higher than $300 per month
    3. tenants all middle-class and professional (which generally goes without saying because the minimum monthly rental for a 1 bed 1 bath is $800)
    4. have a well-equipped gym
    5 have a clean pool

    Why am I making this list?

    My current strategy is as follows:

    Buy the waterfront SFH (my dream home) and failing that, get a different SFH that's also an REO.  This home will cost over $200K, so I'll easily get financing. 

    I'll then return to China.  Since I really trust my current realtor, and also because I have my "Steve's List" of condo buildings I've visited personally and on the basis of which my realtor has set up an automatic search,  every time a 30K REO comes onto the market, she'll help me to put in a cash offer, so that I can buy even in absentia.

    Over the next few months to a year I'll buy up as many of these condos as time allows, using cash, and then my realtor will help me to rent them out.  She already does that for all her international clients, and I see her all day working on this while I'm driving her around to view REO condos.  Because I'll rent out the condos unfurnished (which is the norm in Miami) I won't need a property management company.

    I'll then hold on to all my rental condos, and continue adding to the portfolio, until the market turns.  When it does, I'll already have a credit history (because of my mortgage on the SFH) and I'll either start flipping the condos, or just get cash-out financing on them.  I've checked with a few mortgage brokers and they're sure that financing on investment properties in the 50K range (that's what my 30K condos will be worth by then) will return as soon as prices start to rise (back in the "good ol' days of pre-crisis" you could easily get financing for 50K condos).

    Profile photo of British BuyerBritish Buyer
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    bumskins wrote:

    British Buyer, what are your current thoughts on the foreclosure fraud issues mentioned of past ? (or possibly even current?) Are you now satisified that banks have done proper(bullet-tight) due-dilligence on the properties they are listing/have relisted? If not what do you intend to do to protect yourself.

    Also what are people's thoughts & feelings about the US & QE2? Will this affect the timing of when you decide to buy?

    I'm seeing and learning so much every day, and as a result my knowledge and understanding constantly evolve, so it's easy to forget what my previous concerns were.

    I now do not think that the Foreclosure Fiasco was a serious problem.  It seems the media just blew it all out of proportion, and the big banks (the ones most concerned about their reputation) played along, pretending to halt foreclosures while they cleaned up their books. 

    I have certainly been seeing new REOs coming onto the market while I'm here.  Unfortunately I wasn't here earlier this year, so I can't make a comparison.  However, no agents I've met have mentioned noticing a foreclosure moratorium.

    One very interesting event that took place this week was as follows (sometimes I get rather verbose, and I know lots of people don't have time to go through all the postings I've made, so I'm going to CAPS LOCK AND BOLD this next comment since it's pretty important and I want it to stand out for all to see):

    ON NOVEMBER 1 (6 DAYS AGO) THE MIAMI GOVERNMENT CAME OUT WITH THEIR NEW TAX ASSESSMENTS FOR EVERY SINGLE PROPERTY IN MIAMI
    (Miami property taxes are calculated at roughly 2% of the estimated property value, but because properties were overvalued during the bubble, property taxes over the past few years have been too high for comfort as they've still been reflecting previous bubble-prices).

    ACCORDING TO THE LATEST GOVERNMENT TAX ASSESSMENT, GENERALLY SPEAKING 2010 PROPERTY TAXES ARE ABOUT 30% CHEAPER THAN 2009 TAXES.

    THIS IS VERY SIGNIFICANT FOR MIAMI PROPERTY IN THE LONG RUN.  APPARENTLY THE MIAMI GOV. HAS REALISED THAT THE HIGH PROPERTY TAXES WERE ONE OF THE MAIN IMPEDIMENTS TO LOCALS BUYING PROPERTY, SO THEY'VE REDUCED PROPERTY TAXES WHILE RAISING OTHER TAXES.

    The single greatest impediment to enticing people to buy property was the fact that taxes were too high, and as a result people preferred to rent than to buy.

    That is no longer the case.  A lot of renters (people I've spoken to yesterday and today while visiting condos for sale) have told me they are already looking to buy, since it's now cheaper to buy and pay your property tax + HOA fees than it is to rent.

    Here I need to add some more very important info.

    THERE IS SOMETHING CALLED THE HOMESTEAD EXEMPTION.  IT MEANS THAT THE FIRST 25K OF YOUR PROPERTY'S VALUE IS TAX-FREE, SO LONG AS YOU, THE OWNER, LIVE IN IT.

    SO IF YOU BUY A CONDO FOR 30K, YOU'LL ONLY BE TAXED 2% OF THE EXCESS 5K, WHICH IS ONLY $100 PER YEAR, OR ABOUT $9 PER MONTH.

    NOW LET'S DO THE MATHS TO FIND OUT WHY IT'S CHEAPER TO BUY THAN TO RENT.

    IF YOU BUY A 1 BED 1 BATH CONDO FOR 30K, IN A NICE AREA (NEAR THE INTERCOASTAL WATERWAY) BUT WITHOUT A WATER VIEW, YOUR HOA FEE WILL BE $250 PER MONTH.

    TO THIS $250 YOU ADD THE $9 FOR PROPERTY TAXES.  TOTAL = $259 PER MONTH

    IF YOU GET A LOAN AT ABOUT 4% INTEREST (FOR US CITIZENS) YOUR INTEREST WILL BE $143 (30-YEAR FIXED LOAN ON 30K AT 4%)

    SO YOUR TOTAL MONTHLY COST WILL BE $259 + $143 = $402

    COMPARE THIS TO THE COST OF RENTING, WHICH IS $850!

    THIS IS WHY I'M CONVINCED LOCALS ARE GOING TO START SNAPPING UP THESE CHEAP CONDOS SHORTLY.

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    snappytom wrote:
    British Buyer wrote:

    Why is it that you're concentrating on the west coast of Florida?

    Whilst living in the US we did go to Clearwater for a vacation once and thought it was a nice place.

    (What I say now though is based purely upon speculation and an image of Miami gained from tv/movies.) I think Miami is more a "cool people" destination. What I mean by that is it is somewhere people go to hang out on the beach and look good, go out to night clubs, drive along the beach in there fancy cars, etc. My days of doing that are long gone (mid 30's with 2 kids < 3).

     As the property we are after will mostly be used by my wife and kids whilst I am away, we want  a destination which is a bit more relaxed. Also, it is less then 2 hours to drive to Disney from there which gives a good option of something to do with the kids where as it is 4 hrs from Miami.

    Whilst I haven't researched the Miami area, I have a feeling the value for money I can get on the west is slightly better (canal water front, close to beach, 3+ bed, acceptable condition) for ~$300k because it doesn't have the "cool" premium you get in Miami.

    I understand your thinking.  I too am not one for buying a red Ferrari and cruising the drag.

    However, if you're looking for something quieter, on the northern side of Miami Beach is the last little seaside suburb, known as Surfside.  You can get a cottage there for about 300K to 350K, and you're just a couple of blocks to the beach, and you're also just a short bridge from the city (and just 5 minutes from the millionaire-hangout of Bal Harbour).

    Then again, it's a long drive to Orlando!

    cheers
    Steve

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    Since I'm now starting to look into the rental return market while I wait to hear back about my waterside REO (since it's the weekend I have to wait until at least Monday), let me give any novice investors out there a quick  PROPERTY INVESTING 101 lesson.

    It's called the 1% rule.

    Basically, when you're looking at single-family homes that you plan to rent out, don't touch anything in which:

    THE MONTHLY RENT you can get for it IS LESS THAN 1% OF THE SALES PRICE.

    For example, yesterday I looked at a few beautiful single family homes priced around 200K.  Problem is, you could only rent them out for about $1,800 a month.  Using the 1% RULE, these are bad investments (the monthly rent divided by the total price is only 0.9%, ie. 1.8 divided by 200).  Bad investment unless you're just hoping to make capital gains.  I say it's a bad investment because don't forget that you'll still have to pay property taxes (about $300), and flood and hazard insurance ($300) bringing your rental income down to $1,200 per month.  That is an annual rental income of 14.4K, which in turn is a rental return of 7.2% (but because it is a SFH you will have to do a fair amount of maintenance, and have a garden service as well, which will further cut into your profit).

    CONCLUSION: Using the 1% rule in the Miami SFH market means that if you find a home where the rent is at least 1% of the total price, you'll make upwards of 7% rental return.

    Here's how the Miami rental market for condos is working:

    The lowest average amount a single person, or a couple, can pay for a 1-bed condo or a studio is $850. If we we were using the 1% RULE, we'd have found an condo at a cost of $85K.

    Because it's a condo, you then need to factor in that you'll lose about half of your income of $850 paying for HOA and property taxes.  That leaves $425 per month, which is a total annual income of $5,100.   Since we paid 85K, that's a rental return of only 6%.

    CONCLUSION: When you're looking at condos to buy-to-let, don't use the 1% rule.  Go for a  2% rule (since it looks possible to find such deals).  Here's an example of a 2% rule condo:

    If the monthly rent is $850, but you only paid 42.5K, your annual rental income of $5,100 divided by $42,500 gives you a rental income of 12%.  And because it's an unfurnished condo, you have low maintenance costs.  Another good thing about condos is that the HOA fees include your insurance (to the building, not to the interior of your unit).  In addition, since it's Miami, most buildings have a pool and/or gym, which is an attraction to the renter.

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    white_goodman wrote:
    British Buyer wrote:
    That's an amazing interest rate you've been offered.  I guess it's because you have an SSN and credit history.  The lowest I've been offered is 4.63%.  Perhaps your rate will be even lower, what with Bernanke's controversial quantitative easing plan just starting to hit the market.

    their is still literature and talk from Fed members for a slight increase in rates, i cant imagine it actually rising till June and this new round of treasury buying is done…

    regarding condos, if i had 35k would i be able to get a loan to buy one then a second one shortly after or is it straight cash? is HOA bodies going belly up a significant risk from what youve gathered BB?

    HI THERE

    You have just pinpointed the major dilemma when deciding how to invest your $$ in this market.

    Both single family homes and condos priced about $100K and up can get financing (70% LTV), although it's easier to get financing for a SFH, simply because if it's a condo the bank needs you to get a questionaire filled out by the HOA to state the following:
    1. They have cash reserves
    2. More than 50% of units have been sold

    But the place to make the highest rental returns is the condo market priced 15K to 50K, and no banks, no matter you are a US citizen or a foreigner, will lend on that amount.  This means you must go to the hard money market, where you'll be charged rates upwards of 9%, which will eat away your profits.

    One thing I'm intending to look into today is the multifamily home market.  There are many "buildings" (ranging from duplex to 10-units) in the 100K to 400K market.  I will first find out if it's possible to get financing on them, and if so I'll go and see some.

    Yesterday, while in the realtor's office, everybody congratulated a client and his realtor for just closing an REO deal (happens every time I visit, so the market is very much alive and kicking).  I went over to chat to the client (the buyer) but he couldn't speak a word of English.  My realtor (who is originally from Ecuador) helped me with translation.

    The buyer is from Argentina.  He is a realtor in Buenos Aires.  He heard that Miami is super-cheap, so he got together some investors with cash, and flew over to take a look.  His impression was "the cheapest areas in Buenos Aires are more expensive than Miami's expensive areas".

    So he put in an offer on an 8-unit multifamily REO, paying cash.  He told me he is sure he can get local cash-out financing with about 5.7% interest and an LTV of 70%. 

    Back to your question: "is HOA bodies going belly up a significant risk from what youve gathered BB?"

    I see no such risk with older buildings (anything built before 2005), simply because the older buildings are cheaper, which means they're fuller, so the HOAs get their necessary income.  I have heard repeatedly, and seen with my own eyes, that the rental market is hot.  People need places to rent badly, since NOBODY local is buying property to live in.  For US citizens right now, it seems that buying property is about as popular as eating broken glass. 

    Using logic, I don't think that any of these established buildings would have HOA problems because the owners are either:
    1. living in them, so they pay HOA fees
    2. living in them but about to lose the place, in which case they're trying to do a short sale and will still pay HOA fees since they can't do a short if there are liens on the property
    3. banks (after a foreclosure) – they don't have to pay the HOA fees during this period, but once they put it on the market it'll be snapped up by investors, who'll then pay their HOA fees.

    One property I've been watching for 3 months already (via Trulia) is a waterside condo that has great views.  Units sell for $50K to 80K, but every time an REO hits the market they go for 30K to 40K.  There were some REOs in the building that came out before I arrived in Miami, but they all had DOM's (days on the market) of just 5 or 6 days (ie. they were snapped up immediately). 
    There haven't been any REO's in that building since I arrived, so I haven't had a chance to make any offers.

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    snappytom wrote:
    British Buyer wrote:
    Hi SNAPPYTOM

    I'm interested to hear what interest rate you've been offered.

    And what will the property taxes be like on the west coast of Florida?

    Steve,

    I got 3.625% with 15 year fixed loan. I am wondering if the new "stimulus" offering by the government is going to change rates and this may go down by the time I come to purchase.

    Tax ranges from 1.8 – 2.1% depending upon which section of the coast you are on.

    Will be over for  a few days in 2 weeks. Have my agent booked out for 3 days so we can see as many properties as possible.

    Hope fully we find something otherwise it will be just to confirm areas we'd be happy with and make sure the agent is legit.

    snappytom

    Hi there SnappyTom

    Although today was my first day to look into the condo rental return market, I came across a few surprises (namely that it seems you can get good rental returns despite condos having high HOA fees).

    If you're interested in Miami by any chance, I can highly recommend anywhere along Miami Beach (in terms of natural beauty).  But I doubt rental returns on this island will be much above 5% if you have an ocean view (simply because you pay a premium for the location).

    That's an amazing interest rate you've been offered.  I guess it's because you have an SSN and credit history.  The lowest I've been offered is 4.63%.  Perhaps your rate will be even lower, what with Bernanke's controversial quantitative easing plan just starting to hit the market.

    Why is it that you're concentrating on the west coast of Florida?

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    MORE ON MIAMI RENTAL RETURNS

    From talking to my realtor, I discovered today that people who invest in condos in Miami usually don't use property management companies.  Because condos are rented out unfurnished, once you've purchased one you just give it to your realtor to rent it out.  Your realtor will charge you a one-off fee to find a tenant, and from then on all the income is your own.

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    DISCLAIMER CONCERNING RENTAL RETURNS IN MIAMI

    In the previous post, I gave the rental statistics for 4 individual condos purchased recently in Miami.

    The above was all hearsay, since I have not met the owners of any of these condos, nor have I visited any of them.  The info I related was told to me by my realtor and her colleague at my prompting.  I have no reason to doubt the validity of the figures, and did some preliminary research of the properties they mentioned (using the MLS site, checking up on sales price, renting figures, HOA fees and property taxes) and I therefore came to the conclusion that what I was told was most likely true.

    Having said that, nothing is 100% until you've seen it, done it, and pocketed the $.

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    Late in the afternoon I found myself in the realtor's office going through MLS listings for REO single-family homes to go see tomorrow. 

    My realtor, on a whim (probably because I've been trying to teach her about my investment strategies in the property market in China) asked another realtor colleague of hers, who was passing by on the way to toilet, if he had any info on rental properties.

    The man stopped and said "Wow, that's exactly what a client of his from New York asked him earlier this year", so he helped the client to buy 3 condos with cash (all for 50K), which he then helped him rent out (he says he got tenants for them "within days").  I asked him what the rental return was.  He said maybe "How do you work that out?".  I made him sit down and go through the numbers, ie. monthly rent of $900, minus HOA fees of $350, minus Property tax of $110, which gives a monthly profit of $440, which is rental income of 10.56%

    And that was for 3 properties purchased for a man who didn't even bother travelling to Florida, and found by a realtor with absolutely no experience in rental return properties.

    What I've noticed here is that no realtors understand the concept of rental return.  Everyone is just paying cash for luxury condos on the beach (wealthy investors from South America, Canada, Europe and Russia).

    My realtor then related a story to me of a friend of hers (another realtor) who bought an REO condo in North Miami for 25K, planning to rent it out.  I made her call up her friend and find out the numbers (it has a pool and gym, and is in a so-so area).   This is what she discovered:

    Her friend rents it out for $950 / month (2 bedrooms, 2 bathrooms)
    HOA is $350 per month
    Tax is $100
    Monthly profit is $500
    Annual profit is $6,000
    Rental return is 25%  !!!!!!!!!!!!!!!!!

    This is an actual case, in progress, easily rented out (waiting no longer than a week for a tenant).  Whether it was a lucky purchase (since it was an REO) remains to be seen.  But that is a phenomenal return.

    By the way, all the 4 cases I've mentioned above are rented out WITHOUT ANY FURNITURE WHATSOEVER.  I don't know how you guys in Aus rent things out, but in China landlords have to fully furnish, including flat-screen TV's, washing machines, driers etc.

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    Today has been another day of trying to stay busy so as to keep my mind off the waterfront REO I'm waiting to hear back from.

    My realtor and I went all around the area between Brickell and Coral Gables (ie. north and south of Coral Way).  This is a nice middle-class area, so long as you don't stay too far north.  I saw a total of 9 REO single-family homes, priced between $100K to $250K.  3 of them looked perfectly decent to live in myself (if I decide to move to Miami next year with my family), ie. the ones priced at $145K, $179K, and $250K.  All of them are in great condition inside (I think the banks do renovation work before selling them) and have only been put on the market a week or two ago.  The most expensive one had the biggest garden, although the $179K was a double story with a big enough garden to have a pool and some grass left over.  The $145K was also beautiful and had a nice-sized garden, and I would probably have put an offer right away, but when I went to ask the neighbour about it he told me this long interesting story:

    The house was sold to somebody (let's call him Mr. Crook) in 2006 for 430K.  Mr. Crook (as his name implies) had sinister motives for buying the house.  In the hurricane of that year, he collected his insurance money for the damage to his roof.  He then only cosmetically repaired the roof, and used the leftover money to expand the house by converting the garage into a studio.  He didn't bother to apply for permission to do this alteration. 

    In 2007 he then sold the house for $630K to his nephew (who had no bad marks yet on his credit record).  The idiotic bank agreed to this sale (an extra 200K in just one year) since the market was gaining, and because he'd added value to the house (the bank didn't realise the new studio was an illegal alteration).  So the bank let Mr. Crook's nephew (although they'd didn't realise the two were relatives) buy the house for $630K, with only a 3% downpayment, ie. 19K (which obviously came from Mr. Crook).

    So Mr. Crook profited 200K minus the 19K he gave his nephey as a downpayment.  Mr. Crook & nephew promptly ran away (with their 181K profit) leaving the dumb bank with a loss of $611K ($630K minus 19K).

    The bank is now trying to sell for 145K.  Actually, they put it on the market 2 months ago at 150K, and immediately found a buyer for that price.  The buyer then retracted his offer (you can legally pull out and get back your full deposit during the inspection period) when he found out that :
    A. The roof still needs to undergo a major repair
    B. The studio (ex-garage) is illegal and is awaiting a hearing by the building dept.

    The roof isn't such a big problem (according to the neighbour) because maximum outlay would be 20K to totally redo it.

    But the illegal alteration is as yet a big question mark.

    Hence the bank has dropped the price from 159K to 145K.

    What's the lesson: if you really like a particular home, do your due diligence, even if that means ringing the neighbour's doorbell!

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