Forum Replies Created
Hi bardon,
I have heard similar stories regarding vacancies. I know of 2 Aussies who bought earlier this year and their properties have been vacant since day one. We are talking a vacancy of 6 months here. What sort of cashflow is that? I am sceptical when anyone offers rental gauarantees. If the investment is so great, there shouldn’t be a need to back it up with a rental gauarantee. The purchase price is normally marked up to cover the rental gauarantee anyway.
Regards,
OziHi Mic,
Thanks for the update on the Buffalo market. Do you mind sharing details on some of the deals you have purchased for yourself in Buffalo? I am interested to see just how profitable these properties are. I’m not saying they aren’t, just curious. From my research, I couldn’t quite see the HUGE cashflows everyone was talking about. I guess to be able to reasonably assess the performance of your purchases, you would need to have owned the properties for some time (maybe 6-12 months). If you, or anyone else who has purchased in Buffalo, would be happy to share a break down of ownership costs, net cashflows, pitfalls, unexpected costs, maintenance, etc… I would love to hear about it. I don’t want to see projected returns either as these aren’t always accurate and sometimes over estimated.
Regards,
OziUmm… doesn’t HUD stand for ‘Housing and Urban Development’, i.e. the Department of Housing and Urban Development? The official website is http://www.hud.gov
Regards,
OziThanks for the comments everyone. I will pass this information on to her and hopefully she can get out of this mess without too much trouble.
I hope she has a good solicitor.
Regards,
OziThanks for the PM Cameron.
Simon, I agree with you totally! I just hope she can walk away without losing the deposit. Any tips on how she should approach this? I know that the solicitor will be who she needs to speak to, and she will be doing this. But from your experiences, are you able to just say that you no longer have the finances necessary to meet the required down payment? Will they need proof? Is this a good enough reason? I’m guessing it isn’t.
Regards,
OziHi Cameron,
Thanks for responding. I will need to check how many floors the building is. I am not sure the exact size of the apartment, but know it is less than 50sq. I will find out tonight.
What is the interest rate on the 95% LVR? What other criteria must be met in order to obtain such a high LVR?
Regards,
OziHi again,
Just to add to my post, it turns out the apartments are completed and settlement was meant to be last week, not next year as previously stated.
Regards,
OziHi Westan,
I had the print out of the article at home, but have managed to find it online. Sorry for the mix up in states/cities
The ordering which I quoted was from memory and rough (I read this article several months ago).The link below has the “correct” listings:
“2005 AMERICA’S 50 HOTTEST CITIES: Nashville Climbs to the Top of America’s Hottest Cities”
and
My memory isn’t so bad, is it? [biggrin]
Regards,
OziHi World Changer,
I know an aussie investor who has moved to the US recently to source properties for aussie investors in Tennesee. I have sent you a PM with their details. From what I’ve heard, there is huge growth projected for Tennesee in the near future. From memory (don’t quote me on this), Tennessee was listed as the number 1 place in the US for new businesses to grow. I think Texas came in at 8th. Rochester was 43rd and Buffalo was around 48th.
Good luck.
Regards,
OziThats an outstanding achievement Amanda! Congratulations!
What was the appraised/market value of the property when you purchased it? Just wondering whether most of the profits were made in the purchase or in the reno.
Regards,
OziHi longshanks,
How do you plan to self manage a property interstate? A bit risky plus could be a headache if you ask me. How far are you from the property?
Regards,
OziThanks for the comments Rick, Bardon and Piggy. Also, don’t forget about heating costs too! If your home is vacant over winter, you will need to winterise the pipes, or keep the heat running, or risk your pipes cracking (more costs!). Heating bills can run very high over the winters there.
Regards,
OziHi Redwing,
The link you posted doesn’t work. Try http://www.navra.com.au/
Anyone know if he’ll be touring Melbourne anytime soon? I would be interested attending his course.
Regards,
OziI’m buying.
Hi Westan,
I guess my calculations were a bit rough, so I’ve gone to my spreadsheet for check these numbers [biggrin]
You mention the taxes are around $1600. Does this include water and garbage, or is it just the city, sewer and county taxes? I’ll assume it’s all inclusive. But bare in mind taxes vary from property to property. They are based on the properties assessed value which are sometimes way off the actual value.
Purchase price: $40,000.00
Rent/year: $8,000
Vacancy rate: 10%
Adjusted yearly rent: $7,200.00Closing costs
Deposit: $8,000.00 (20%)
Legal fees: $1,100.00
Building inspection: $275.00
Appraisal: $300.00
Mortgage setup costs: $4,500.00
Total closing costs: $14,175.00Annual costs
Management fee: $720.00 (10%)
Letting fee: $666.67 (1 months rent)
Taxes: $1,600.00
Insurance $400.00
Maintenance $360.00 (5%)
Mortgage interest $2,560.00 (8% interest rate)
Total annual costs: $6,306.67Total net cash flow: $893.36
CoCR: 6.30%
Gross yield 20.00%
As you can see, with a mortgage, would you be happy with this return? This was my point. And the above figures only allow for a 10% vacancy and 5% of collected rents for maintenance (which is a bit low in my opinion).
I was over in NY 3 weeks ago and this is one of the reasons I decided not to buy. I just couldn’t make the numbers work. Sure, these properties may be positive cashflow but for the amount of risk involved I just wasn’t comfortable with the return. I know these returns no longer exist in Aus and NZ, which is where a bit of creativity comes into play [grad]
Please correct me if I have over estimated the above figures, but I think they are close to reality.
People should also realise the “other costs”, such as cross-border accounting, setting up structures in the US, ongoing compliancing costs for these structures + accounting, etc… If you were to buy 1 or 2 of these properties, I really don’t see it as being profitable. If your plan is to have a significant portfolio in the USA, then the numbers start to look better.
I am not trying to be a wet blanket here, just voicing my opinions as these were all issues I faced recently while I was over in the US. I think there are some good buys over there, it all depends on your comfort levels and which strategies you use to make these investments work for you. Personally, if I was to buy over there I would want a greater return on my money given the risks involved.
Regards,
OziOriginally posted by westan:Today Buffalo offers the opportunity to buy very high yeilding properties at a very cheap price. For example a 20% gross returning property even after all costs still shows incredible cash flow.
Hi Westan,
20% may look good at a first glance, but once you factor in taxes (which are very high!), property management, insurance, etc there is not much left over. Sure it may appear to be positive cashflow on paper, but we haven’t even factored in maintenance and other little suprises that tend to popup occasional, such as tenant defaults and tenant damage. With a $40,000 property, you can imagine the property is most likely anywhere from 80-100 years old and your yearly maintenance costs can really chew into your cashflow. You may net around $3,000 a year on a $40,000 property, but your on-going costs can quite easily exceed this. I think that a lot of the investors diving in fail to realise this as they are sucked in by the high yields.
With these cheaper properties you will also find that financing is extremely difficult, possibly even impossible and not worth the hassle! For the ridiculously high mortgage setup costs and high interest rates, its questionable as is why you would bother.
I am not saying “don’t buy in Buffalo”, just be cautious and very selective as to which properties you choose. Make sure you buy in a good area and only buy properties that are good solid investments that won’t be needing ongoing maintenance. You can’t eliminate the risk, but purchasing right will help reduce it.
Regards,
OziTry searching for “Invercargill”. Also have a look at the forum on http://www.propertytalk.com (it’s a kiwi website).
Rikky, that article doesn’t say much. There is more to Invercargill and the city does have potential in the long term. Maybe Westan can add to this?
I agree though, there won’t be massive growth in the short term.
Regards,
OziHi all,
I am a software developer [thumbsdownanim
It seemed like a good field to get into a few years back while at uni, and I was told the money was good too. But I now realise just how much I hate it! The thought of waking up each morning and coming into work, knowing that i’ll be scratching my head for most of the day wondering what the hell is all this crap [weird]Anyway, I’ve decided its time to move on… i’m not sure where to head from here, so if anyone has any career moves, hints, tips, or thoughts, please let me know. One thing is certain, I don’t want to be programming in my next role [specool]
Oh, a valuable bit of advice for those of you still at school, or for parents to offer their kids: choose a career which you will enjoy, and don’t just blindly get into something because people keep telling you the money is good [grad]
Regards,
OziHi Michael,
I thought that may be the case. Thanks for clarifying.
jman, sorry for hijacking your thread [comp]
regards
OziHi Michael,
Thank you for the advice. I agree that selling may not be all that profitable in today’s market.
In regards to refinancing, would you say that valuers generally appraise properties much lower than what they are really worth in a flat market, compared to a booming market?
For example: $200,000 property (purchase price). Assume we spend $10,000 on renovations. After renovations, would this property appraise for more in a booming market compared to a flat market? (for simplicity, assume there has been no appreciation in value since purchase and the time we reno – this is probably not realistic).
I am just trying to understand how valuers work here. My guess is that in a flat market, even after renovations the appraisal won’t reflect the true value of the property, it may be a little lower. Whereas in a booming market, the appraisel may be a lot closer to it’s true value.
Any comments?
Regards,
Ozi
The ordering which I quoted was from memory and rough (I read this article several months ago).
