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In the above post I made a mistake and calculated interest on the property value of the property when in fact it should only be on $110,000, not $150,000. Anyway in the end rent received would be $52,500 and interest would be $38,500 so that makes $14,000 extra, and also I think I made a mistake in the sums where I got $45,000 and it is supposed to be $55,000. Guess I was just in a rush and made some clumsy mistakes.
In the end the Australian example actually works out better off by $11,000 after 5 years time, but as I said, there are a lot of variables so it is important to just do your research.
I think the best thing to do is to just calculate it all out and try and see if it is worth it, investing in the USA or investing in Australia. Taking into account a wide range of things such as forecasting the AUD/USD conversion in the future, capital gains, interest rates etc etc, and by using a spreadsheet to be able to change variables and see the worst case scenario and see what the best option is, it is probably the best way to figure out what is best for you.
Looking at it from my current situation, capital of around 50,000 AUD to invest, current AUD = 1.07 USD as stated above. Assume to invest everything for a property in the USA, have 53,500 USD so minus fees and such obtain a property for 45,000 USD. Net rental yields (taking into account vacancy and all necessary fees and taxes) of 9% which is seemingly likely as long as you invest in a good area and have a good property manager. Assume 10% capital growth over the next 5 years. And assume the dollar goes to AUD = 1.20 USD (I personally think it would peak at 1.15 and go back down but just as a worse case).
Total value at the end – Property value = 45,000 x 1.1 = USD 49,500. Rent received = 45,000 x 5 x 9% = USD 20,250. Total value = 49,500 + 20,250 = USD 69,750. Converting to AUD 69750/1.2 = 58,125 AUD.
Similarly investing in a property in rural Australia (where yields are typically the best), say 150,000 AUD property value with 7% net rental yield (after all necessary fees and vacancy, taxes etc) Interest rate of 7%. Loan of 110,000 AUD including fees and purchasing costs. Capital gain of 10% over 5 years (quite high in my opinion but anyway).
Total value at the end – Property value = 150,000 x 1.1 = 165,000 AUD. Rent received and Interest cancel each other out in this instance (I do realise that increase in property value would increase rent, however it is a simple example and I did not do this in the US example either). Currently still a loan of 110,000 AUD. Total value = 165,000 – 110,000 = 45,000 AUD.
As you can see in the above example US is ahead by about $13,000 after 5 years, obviously I have made a lot of assumptions, but I find if you make a spreadsheet with these assumptions as variables, you can do your research and become more accurate with your assumptions and then you can accurately model the different situations. Then the only true variables you would have left (capital appreciation and AUD/USD forecast) you can play around with and test out a whole bunch of scenarios and find out which direction is most likely best for you.
Yes the land is in Culburra, I couldn't think of the suburb when I was first typing it up and my friend just told me it was near Nowra.
jclimie,
I think I am in a similar position to you, I am ready to invest in the US but of course am worried about everything I hear regarding the unstable economy and weak dollar. This is why I am not putting all my eggs in one basket when I do invest over there, just in case everything does go pear shaped. Basically looking at getting a property around $50k mark and buying it outright with some savings. Worst possible outcome I have is the house becomes worth $0, and I lost $50k, not ideal of course but I could bounce back from it. If I went all out and invested in a $300k place with a $250k mortgage, and the property became worth next to nothing, then I would definitely be in struggle street.
So while limiting the investment in USA I am hopefully going to try and purchase something cheap in Australia, in rural NSW, seem some nice positively geared properties out there which do look enticing, and also have seen some development oppurtunities in some towns which also look like they could turn a decent profit, lots of decisions with not much money at the moment unfortunately.
I bought my PPOR in Seven Hills at the end of 2009 and I feel it was a great choice for me. The area is definitely up and coming, new AFL team is based down the road, as well as a new cricket team and plenty of new transport facilities proposed for the Blacktown area.
I would go for the townhouse as well, mainly for the lower strata fees. However make sure you do find one in a good area, there is a high crime ratio in the western suburbs as I am sure you are aware of. One of the reasons the woman sold the place I got was because it was broken into and she got nervous in the area, there were other reasons, but I don't think she was ever too comfortable in the area.
Just a question, if you could buy it from the partnership, wouldn't there be a lot of fees that would have to be paid? Stamp duty, attorney fees? Probably a few other things I am not thinking of at the moment. Just seems like it may be cheaper if you could transfer the name on the title instead of just buying it off the partnership?
It is pretty hard to gather what exactly you need to gain this financial freedom that you want. I guess some things that you may need to answer would be:
How much is your current house worth?
How much do you save on average a month?
What are your current repayments on your business loan?And probably a few other questions as well.
You can just make a spreadsheet with a few assumptions such as capital appreciation, net rental yield, monthly savings etc and you see if your properties can be positively geared in 8 years, it should definitely be achieveable, but it does depend on a variety of things.
I cannot speak for Carlton, but I have lived my life in the western suburbs of Sydney, and currently own a house in Seven Hills, which is a few suburbs along from Auburn (the other side of Parramatta). These suburbs do tend to have a bad reputation, which is understandable, there are a few problems here, but I do not think it is that much worse than other areas.
One thing I have noticed is that even within the suburb, there are good and bad parts, good streets and bad streets, where I live in Seven Hills is perfectly fine, in fact I really like living here, a lot more than when I lived in Mascot (supposedly a much more desireable suburb than Seven Hills) but I know that if I live in a 'dodgy' street then it would be different. I guess you need to have a look closely at the suburb and determine if you are in one of the better areas.
As a lot of people will tell you, property value travels in cycles, up and down, over periods of time. 2000-2006 was simply an up cycle and at the moment we are basically in a flat cycle (although it may go down if compared to inflation). Basically, property prices wil go up again some time in the future, however they may go down significantly in the first place. Timing is everything.
There is always oppurtunity to make money out of property investing given any cycle, it is just a lot easier when everything is going up, basically whatever strategy will work in turning a profit if property values skyrocket as they did over those 6 or so years.
To make money these days you simply have to be more creative, perhaps more riskier, such as property development, renovation, or just going for an area which you think will develop significantly over the next decade or so.
Most of the time you cannot expect to see great returns in a couple years, and long term gain is what you should be looking to achieve.
I have not been successful in setting up a US account with Citibank from Australia. They all seem to require you to visit in person to set it up. Will have to get someone on my behalf to set it up in the name of the LLC that is based over there.
You can maybe try Bank of America, they have an office in Sydney I believe, have not tried it myself but could be worth a shot.
ummester wrote:Personally, I don't think the rate of house price growth (which averages to around 10% PA from 1999 til now) can continue. The long term average is in line with inflation (around 3% PA) and I believe that average will be reached again either via stagnation or correction.I agree with this point, and I also believe that property prices will stagnate over the next few years or so, maybe decline a bit (hopefully not crash) I think we all realise that 10% gains year upon year are simply not sustainable for a long period of time, and it is surprising that is has lasted this long.
Renting does become an increasingly appealing option if the prices will stagnate allowing you to save up for a larger deposit over a couple years
There was a good article I read months ago, couldn't tell you the name of anything anymore sorry, has slipped my mind. Basically the guy in the story bought a house where he wanted to live when he was older, out in the suburbs, lots of bedrooms for the future family, nice sized yard, near schools etc etc. But in the present, he wanted to live near work, in the city, near his friends. So basically continued renting and just bought the house he was going to live in some time in the future. It worked for him as the rent he earned from the property was far greater than the rent he paid where he wanted to live, so he worked out positive that way, and seemed to get the best of both worlds.
I know it is very scary trying to figure out when to buy, and you keep saying just to save a little bit more, which is all well and good, providing house prices don't go up. Say you want to buy a $400,000 property somewhere, and you currently have $20,000 saved up, but you want a 10% deposit. So you spend an extra year saving up $20,000 but in that time property prices have risen 5% so your property has already increased up to $420,000, effectively as much as you have saved, while paying rent $10,000 rent or so at some other place.
Anyway everyones situation is different, but when I chose to purchase a place I just made a pretty simple spreadsheet to try and calculate the difference in buying a place now, or waiting 1 year, or 2 years or 5 years..renting while I was waiting, and at the time it made sense to just buy one now (well that was over a year ago now)
James
Cappy,
I agree with ALF1 and believe you have made too much of a generalisation of your inputs. I see your point of not being able to obtain finance in the USA and so you have to purchase a property outright. However this is only due to a lack of credit raiting, after 12 months or so you should have some sort of credit raiting to be able to obtain this finance for future properties, allowing you to obtain several +cf properties as oppose to negative gearing as you would have to in Australia.
I have made a couple spreadsheets regarding investing in USA and AUS and for me USA has been a clear winner, feel free to email me and I will show you the spreadsheets and you can judge for yourself.
James
Interesting read, to be honest I do not believe there will be a housing crash in Australia, maybe a slight correction where prices may steady for a few (or many) years until they reach a historical average over time. There is no doubt that they are over-priced at the moment.
That being said, I am no expert, I did not do finance or economics at university so there is a lot about that world that I know nothing about. So my opinion is basically just my personal idea. And like any idea it can be wrong, and if I am wrong I will be the first to admit it.
One question Matt, you said early in the post that we were up to Step 4 with banks starting to restrict lending requirements. If your plan does play out, do you have an idea of the time frame before prices to completely collapse? We saw in USA that prices went from highs to lows over a period of about 4 years (that is if they did indeed reach the bottom). Do you expect something similar in Australia , so prices to collapse and hit the bottom of the trench around 2015 or so?
My brother and I did something similar a couple years ago. I was 22 (24 now) at the time and had been working for just under a year, and to ease the burden of a mortgage we bought a place together. It sounds like it is for similar reasons to yourself, we just wanted a place to live in and not have to continue paying for rent.
At the start of the loan he had a fair bit more saved up but I make larger repayments, we do not have separate offset accounts which Richard up there suggested, however that does sound like a very good idea. Instead we just have an agreement, although it is nothing official, that everything is tracked with a spreadsheet, basically every repayment and most household purchases are tracked so at any one time you can see who owes who however much money. The intention is that at the end one of us will owe the other a certain amount of money and we will each own 50% of the house.
It has worked for us so far, but that being said, if I was going to do it all again I am not sure if I would go down this path. Instead I may have continued to rent where I was and simply purchase an investment property and negative gear and hopefully turn over some profit. Or maybe bought say a 3 bedroom place and live in it and rent out the other two rooms to other people.
Obviously each method has ups and downs and it is not always easy to tell which will work out best in your situation as it is such a long term committment.
All the best
James
George,
All the best with your endeavours, it is important to start young, I myself am only 24, however have not started full on investing, but I did purchase my PPOR when I was 22 so I guess you could call it passive investing.
I understand your situation, you have all these plans, all these ideas, and you want to make everything happen right away, just do not have the financial backing and it is holding you back, I am in the same boat at the moment. I have a lot of ideas and plans of what I want to achieve, but in the end it seems it just takes time.
My only suggestion would be to just start small, and invest within your means, at least for the meantime. Angel had good suggestions, going for some place cheap, renovating, doing it up, turning a bit of a profit, getting a credit rating with the banks, there are some decent properties in rural centres around NSW like Goulburn etc where you can get properties for around the $180,000 mark so you may be able to get financing for such a property.
I myself have been looking a lot recently about investing in the US, I know it is a lot riskier and most people I talk to don't even want to hear about investing over there. But something about it just keeps drawing me back to it. I guess maybe it is the fact that I can see 3 bedroom 2 bathroom houses on a quarter acre block that are only 3 years old, for sale for around $35,000, which are a lot nicer than the place I bought in Sydney for $350,000.
Another option to at least get your feet wet would be to attend meet ups with similar like minded people which could perhaps become future business partners so you could share the initial investment, meaning not such a large outlay for you in the first place, which in a way would minimise some risk, however there would be an added risk of more people being involved, but at the start it is always an option.
As for uni, it is definitely not essential, a lot of people have become very successful without a university degree, I myself have a civil engineering degree, it is a good way to get a formal education, but sometimes working in the field you can learn a lot more in a much quicker space of time.
Anyway just some thoughts, hope you keep your excitement for it for years to come
James
Angel,
If you look at the start of Haratio's post it states she could stay with an elderly aunt for free indefinitely. So this negates any rent required for housing herself.
I have a similar situation myself where my grandmother is tossing up the option of living with one of my aunts and renting her place out (5 bedroom house in Five Dock, Sydney). There is no mortgage on the place, it is just mainly because there is no need for her to be in such a large house by herself, and the extra income generated would make living a lot easier for her rather than relying on the pension where she seems to struggle to make ends meet. Couldn't imagine her selling the place either with decades of memories in there as well.
From my grandmother's experience I do not think you would want to rely living on the pension and it would be a great benefit to have some extra money lying around. That being said, just doing some sums, if you could access some super now and get the principal down to $120,000. You should be able to pay off the rest of the mortgage between now and when she retires, that is assuming it is rented out. Then you could sell the property or simply continue renting it out with some weekly cash flow. This is just an idea, there are probably a lot of better ones out there, I am definitely not the best regarding financial planning and there are many tax loopholes/benefits and funny things you can do with money that I do not know about.
There are a lot of options here, hopefully a financial adviser picks up on this and offers you some sound advice.
All the best
James
Congratulations RickH, I really hope it all works out for you
Hi all,
I am in the process of purchasing a property but have hit a minor stumbling block. I need to get an EIN and open a bank account but both are proving difficult as I live in Australia and don;t have current plans to travel to the US.
I have set up an LLC, purchased a certificate of good standing and now need an EIN. Can someone tell me the best way to go about this?
In the EIN application, question 7a asks for the responsible party and 7b asks for an ITIN or EIN number. Isn't this a catch 22 situation? Also, is it possible to open a bank account in the US without being there in person?
Your advice is much appreciated!
Cheers,
LennyMakingTheJump wrote:I'm happy to help. Recently invested in a property in the US, so I'm an unbiased opinion and not trying to sell anything. To repeat the other posters, you can do it!Would you be able to email me, I would just like to hear about your experiences and make sure I have a full understanding of the process of getting a US Property. I think I know as much as I need to know about getting one, but just would like to make sure and ensure there are no little things that come up unexpected. Thanks in advance
