Hi everyone,
I’m a novice when it comes to investing but like a lot of people here I’ve dipped my toes in the US property market. I’m pretty keen to keep going, but I have to admit i still have a few reservations.
My main concern right now is the outlook for the US economy. I’ve been reading whatever I can about it but I haven’t gained a lot of clarity or certainty yet. For one thing though, it doesn’t look like the USD is expected to bounce back any time soon.
I’m wondering what people think about investing in an economy that is in such a mess. It’s one thing if you’re planning to live in the USA long term, but I am not. I eventually want to bring my USD back to Australia. If the USD continues its decline then that will really chip away at any gains that I make. I have no problem riding it out if I know that things are going to improve, but will they improve? Or will a much weaker USD become the norm?
I know this is the billion dollar question. Nobody can predict what will happen. I just want to hear your thoughts and how you are rationalising throwing yourselves and your money into such a state of turmoil.
Thanks for your time. Happy investing.
My 2 cents worth: Aud to hit $1.20 usd in the short term, $1.35+ longer term outlook. Australia is to become a bit of a safe haven due to mineral/resources wealth, stable government, strong banking system etc. US & Europe to continue their slide due to high debt levels being funded out of Asia & following Japan’s lead of a long term recession. So far Australia has avoided this outcome but it looms 10-20 years away.
Doom & gloom.
Hi JCLIMIE
Have a read of the 2 posts below and hopefully this will help to answer your questions.https://www.propertyinvesting.com/forums/community/opinionated/4336416
https://www.propertyinvesting.com/forums/community/opinionated/4336418
Rollover 1981… world economic collapse
I think the US has a reached a stage where they cannot do anything except print more and more money, and eventually its status as world reserve currency will need to be replaced by a more stable currency, possibly with some sort of gold backing to it. Printing money will give the illusion of prosperity, and things will appear to be going up in nominal terms, but the reality the dollar is losing purchasing power.
Back in the 1980s Paul Vaulker was able to contain inflation and defend the dollar, by raising the Federal fund rate from 11.2% to 20% in June 1981. Times have changed drastically since then. The US is no longer the largest creditor nation, but is now the largest debtor nation in the world. Unemployment levels are at record levels, and these figures are distorted because they do not include people that have given up looking for work. Furthermore, the Federal Reserve is headed by Ben Bernanke, also know as 'Helicopter Ben' who will do whatever it takes to fight deflation, even at the cost of the US$.
Thanks for your input everyone. There’s a lot going on in the US and it doesn’t fill me with confidence. It seems to me the best way forward, if I want to try to find some undervalued gold nuggets in the US, is to hedge my bets by investing in Aus and the US simultaneously. I’d be interested also to hear from anybody who is investing in the US in the moment about what strategies you are using to minimise your risks here.
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 am hedging my bets. Across both property and equities. But I don't consider currency gain/loss as a primary focus in my portfolio. More as a secondary consideration next to buying quality assets, which I treat as businesses.
Equities only in the U.S. For three reasons;
1) I have a good employee share plan and my company is in a growth industry sector that I firmly believe has about 10 years to keep growing in double digits.
2) I earn in $AUD and buy in $USD. And I do believe the $AUD will come back down again in the next 10 years. Don't ask me when, that's a mugs game and I have no idea. I sell some of my company shares into the periodic dips that occur and when I need to re-balance my risk away from investing too much in one asset class/equity. It is like an active dollar-cost averaging method IMO. There are tax complexities that are a bit of a pain, but manageable now I have a decent accountant to help me understand.
3) Property investment in Australia is working just fine for me right now, thank you very much. And I just don't have time or risk profile to tackle the U.S. complexities…….yet. I am always reading and evaluating to find convincing evidence suggesting I should get involved. Hasn't happened yet.Property and Equities in Australia (and globally)
1) I treat my super as a an almost pure long-term equities play with a 25-30 year time horizon. I salary sacrifice as much as I can before hitting the limits or running out of spare cashflow. It just makes good tax sense to do this now rather than later. I also have this managed for me by the best super fund manager I can find, which happens to be a corporate fund from a previous employer. A bit of dumb luck there, to be honest. I have this balanced towards higher global emerging markets risk (e.g. BRIC) and strong exposure to Australian equities (like most Australians). The global component gives a hedge against other global currencies, but it is not a major reason for doing it. More a balance against all my eggs in the small but lucrative Aussie basket. This approach serves well for now, is simplistic to manage and I re-evaluate every 12 months. Have considered SMSF a few times, but remain to be convinced of the effort/cost vs reward. Putting property in there doesn't fit because it would have me totally unbalanced on a single asset class, which is too risky for my liking.
2) I have some direct investment in Australian shares. More as a historical curiosity that I am slowly winding down. Post-tax investment just isn't all that effective compared to the other major arms of my portfolio strategy. Hindsight is a beautiful thing.
3) My most active (and exciting) investment arm is Australian property, primarily with cashflow neutral/positive selections. I am currently working on "manufacturing" extra equity with strata titling and renovation. I keep my overall property above 20% equity, so it is relatively low risk with a 10-15 year "Phase One" horizon. I am researching what Phase 2 should be. Right now I don't know, which is fair enough given the timeframes.I believe my strategy is relatively simple, effective and seems to be working better than I expected. It also suits my current particular circumstances. These may change, at which point, it may have to change.
I am evaluating both trust structures and property development. For asset protection, estate planning, personal interest and faster growth. The first three I am convinced of, the last I am not. Spruikers are everywhere!
So my post deviated significantly from your original question. I strongly believe evaluating currency exchange in isolation of an overall portfolio strategy is not wise.
Hope this helps in some small way.
EmptyvesselMy 2 cents.
I think that as long as the property is cash flow positive (or gives you at least 10%) is good investment and in long term the USD will be back, it may not be as strong as it used to be, but it’s always good to spread your investments. I have a cash flow positive property in Australia and looking into the american market right now, so hopefully I can share my experience when I get something done.
I really appreciate all the information shared by the people in these forums and even the more stupid question can help and teach the more experienced person, so don’t be afraid to ask anything.
Investment is all about risk and unfortunatelly nobody is going to make decisions for you, so do your own research, listen to everyone and make your mind.
Good luck and happy investingMosqui
I was thinking through Bernanke’s plight today.
His role as the Fed’s Chairman as set out in the Federal Reserve Act is to “promote effectively the goals of
1. maximum employment
2. stable prices, and
3. moderate long-term interest rates.”He has a significant problem however….
In order to keep maximum employment (i.e. not lose even more jobs) he must keep interest rates near 0% and keep printing money to fund the huge fiscal deficits and be able to afford to pay the interest on outstanding loans
On the other hand, as long as he continues with these policies, the USD will continue to decline rapidly, leading to increasingly higher prices in US, as their purchasing power diminishes.
Many suggest his policies could even lead to hyperinflation, in which case point 3. “moderating long-term interest rates” would be impossible. Eventually interest rates would have to rise rapidly, just to control hyperinflation.
There is no way that he can effectively manage the US economy to achieve his stated goals.
In the meantime I found this article from Westpac to be a very interesting read… it states that 1/3rd of house purchases in USA are now cash purchases!! It shows clearly just how hard credit is to come by to purchase property there. Until the issue of credit availability is resolved, the US market cannot recover.
http://www.scribd.com/fullscreen/54104096Hi jclimie,
I agree with a few of the posters here on two vital points. Definitely hedge your bets with Australian real estate and look for U.S. properties with high net yields and low capital outlay.
To answer your question, we are investing U.S. property and our current strategy is to buy and hold properties ranging from $50-$90k with investment partners. We also buy some Australian property, although far more expensive, in order to hedge our bets.
With a strong U.S. rental market, high net yields significantly reduce capital risk. This way you are not tied to a large mortgage and over time, income generated from the property is enough to pay it off. So, even if you sell it for what you bought it for in 5-10 years, your overall investment will still do ok.
At the end of the day, do your research and invest in something your comfortable with. While the Australian economy has a far more stable outlook, the barriers are high for real estate investment in terms of price. If you have less capital I would recommend at least looking into a high income producing property in the U.S.
Good luck!
-Kev
"My 2 cents worth: Aud to hit $1.20 usd in the short term, $1.35+ longer term outlook"
A few weeks ago the vibe was it would pull up at 1.05 against the greenback. Maybe you are right!
Don Nicolussi | Mortgage Broker - Home Loan Warehouse
http://homeloanwarehouse.com.au
Email Me | Phone Me"I think of finance as a technology, a way of getting things done." Robert Shiller
Hi Guys,
Not really sure if this is the right place to post so please forgive me if I miss the mark…
I am currently seeking any advice available about investing in property within the US. I have no particular region or state that I am committed to, though I have been advised that some areas around Detroit may be of interest. What I am seeking is the relevant general advice of those who do not have a vested interest in my money. I am dealing with Splash at the moment simply because they were the first to get back to me. They appear to be an agency that purchases, refurbishes and resells foreclosed properties. However I have done no research in relation to them, so stay tuned… Have also been considering other agencies such as housebuyers USA and MyUSAProperty so any feedback of who is good/bad, safe/dangerous etc. would be greatly appreciated.
I am currently looking to invest roughly 20K AUD on something that will look after itself. As a realist I understand that this kind of outlay is not going to see a huge return but I am very interested to hear some opinions.
Need help guys… I’m not a twit it’s just my first time…
Thanks,
Max
Hi Max
Best bet is to start a new thread. Most people will only open this thread to read about the exchange rate.
Exchange rates
I'm finding the Australian exchange rate progress interesting to follow.
You can actually pay a subscription to exchange rate "experts" online who will predict with where the Australian dollar will go against the Greenback. They input all sorts of data to come up with a prediction.
About 3 months ago they predicted with 91% certainty that the Australian dollar will go to about $1.03 before falling under parity then down to US0.90 by mid year (2011).
Epic FAIL
I think one of the major banks have just said they anticipate the Aussie dollar to rise to about US$1.12 by September before sliding back to parity early next year then down to US$0.92 by May 2012. Sorry I cant remember where I read it so no link.
Personally I think there are too many unknowns to give a strong prediction of where we will end up against the Greenback over the coming 12 months to several years. I remember at work about 5 years ago someone boldly predicting we would hit parity with the US dollar. Everyone stopped what they were doing, looked at him, then laughed out loud.
Of particular interest to me is the Chinese economy and their continued willingness to pay top dollar for our resources.Just my thoughts anyway.
Have you been reading this weekend’s Eureka report?
US & Europe massively overextended. China & a few others financing their living beyond their means. Gold up 30%+ in 12 months yet people still flee to the usd not gold in troubled times.
To be honest with you guys, I don't really pay much attention to exchange rates, as they only fiat currencies against other fiat currencies, which are not backed by anything. For instance, both countries may devalue their currencies by 50% and as a result the exchange rate will remain the same, but everyone will lose their purchasing power. When I do my valuations of any assets whether it be in properties or shares, I value them in terms of gold ounces, as this removes the illusion produced by fiat currencies.
What is interesting about this is the 'head and shoulders' and 'dead cat bounce' patterns produced by the chart of the dow valued in terms of gold ounces. With the recent tsunami in Japan affecting the supplies needed by many other manufacturers around the world especially in the US, it will be interesting to see how this affects the reported quarterly earnings of various companies and how the market will react in the middle of this year.
Hi all,
It is cheaper to buy properties there now that the Australian dollar is so strong. But the declining US$ also means that the NET rental return is also shrinking. Time will come when what you expect to be AU$700 in the bank, would be AU$600 instead. An exaggeration but you know what I mean. So as I can see, there are two risks involved here: a shrinking passive return and an underlying asset that may take years to grow in value. (Although I do know that capital gains really depends on what you buy and where.)
Then, I assume that there is forex charges to be considered — when income is banked in your US$ account, and you need to withdraw the money from Oz. All these little charges impacts on net return.
Secondly, about printing money, the US is not the only one doing this. North Korea is printing the green buck by the millions. Not to mention Columbia and Mexico and Iraq and Afghanistan and on and on it goes. There are lots of fake currencies floating around, which I'm pretty sure impacts on the state of the economy.
All investment vehicles carry risks – even cash (just think of the thousands of people who lost their cash when banks collapse or when you're just plain robbed). At the moment, it's still a pass for me.
I believe the returns that are bandied about re US return can be achieved in Australia. It's a matter of creative thinking.
Thanks guys.
Angel
aussie dollars has retreated back to 105 cents to the USD drop of 5 cents in 36 hours. Coinsides with oil dropping 14% in the same time frame and reasonable drop in gold prices.
Minor correction or has it peaked ?
I think a minor correction
Who can really say???
I notice its just regained 2 cents in the past 3 hours back up to US$1.0730
It's one of those apps on my phone that I just can't help but click several times a day to see where we are at against the green back.
I think the right questions to ask are.
Am I going to live or will I live in said house?
Do I want to sell in the short/long term?
Whilst the rental yields might be at 9% or higher what is the vacancy rate and do I expect to get a good rate of return?
Am I using capital or am I taking out a loan from a bank/credit union that is American/Australian/other?
Am I prepared to lose a lot if the US dollar continues to recied?In the end if you think its a house worth living in and you have a green card and the rest of it, regardless if you get a good rental yield it probably is worth it. If you are not going to live in it however then those other questions are of value.
What are all your opinions?
You must be logged in to reply to this topic. If you don't have an account, you can register here.
