Forums / Property Investing / Overseas Deals / leverage in Australia versus ‘all cash’ in the US

Viewing 20 posts - 1 through 20 (of 49 total)
  • Profile photo of burritoburrito
    Participant
    @burrito
    Join Date: 2014
    Post Count: 1

    Hi everyone,

    I have got an investment property in Australia and I am thinking about buying a second one in the US.

    Before doing so, I would like to get some insights from people on this forum about the benefits of investing in the US with this example.

    Let's say I have got $100,000 available:

    – in Australia, I can easily borrow $400,000 at 5% (interest only) and buy a property at $500,000. Then, a conservative assumption would be to get a 5% capital growth per year, that makes $25,000 for the first year. Regarding the rent, I could assume to get a $500 rent per week (= a 5.2% gross yield) which would cover the interests. I agree that there are other costs involved but for simplicity, I would assume that the rents cover the financing costs.

    – in the US, if I don't borrow money, I will simply buy directly a home at $100,000.

       – rents: from what I understand on this forum, I can expect to get a 10% return which makes $10,000

       – capital growth: let's be optimistic and assume a capital growth of 10%, that makes $10,000 for the first year

    In the end, I get a $25,000 benefit for Australia and a $20,000 for the US. My assumptions being very rough, we could say that this is actually very similar but that summarizes my thinking and would be more than happy to be challenged on it!!

    Are my assumptions correct? or does it simply mean that an investment in the US is worth only if using financing?

    Thanks

    Profile photo of FreckleFreckle
    Blocked
    @freckle
    Join Date: 2012
    Post Count: 1,681

    You are extremely over optimistic on the US projections and probably under estimating your leverage on the AU side. You can make figures do what ever you want but reality will bring you back to earth or beak you if you want to use pie-in-the-sky projections.

    A word of advice. Don't just look at the US market (or any foreign market for that matter) as if it's an extension of the AU market and use the same type of modeling. They're as different as chalk and cheese and many a foreign investor has found that the hard way.

    Profile photo of jayhinrichsjayhinrichs
    Participant
    @jayhinrichs
    Join Date: 2011
    Post Count: 1,177

    Is 5% annual appreciation in OZ year after year a reality???  Or does the market move in more of a peak and valley.  10% annual appreciation year after year in the US is overly aggressive in my mind.. our markets depending on area either are flat line  ( most of the mid west for example) or see wild swings like up 25% one year flat the next.  Our PDX market ( portland Or) had a nice 13% gain in 2013.. that followed devaluation from 08 to the bottom which was end to middle of 2012. Most US investors are looking at cash flow and appreciation is a bonus. IN 04  it was negative gear and appreciation.  profit on rental houses also is tougher for individuals because of the flood of investors buying.. MOst that make profit on rentals right now in the US are the marketing companies and turn key guys that have highly advanced and well funded sales arms….IE they create their own market.

    I see the OZ market very much like where I grew up in San Francisco Bay area… I bought a house in Palo Alto  ( think STanford University)  in 1985 for 170k  900 sq ft. on 6k sq ft lot 3bd one bath built post WW11  Sold it in 92 for 450.. that house just sold last year for 1.565.000  to be fair they did update kitchen and added 400 sq ft.  So housing now in Palo Alto sells right at $1000.00 a foot.. and that house even today would rent at maybe 1k per week.

    So the point of the above is it all depends when you buy in the RE cycle. Now that Google, Facebook etc moved into Palo Alto that house could be 2 million in a year or two…

    then you go to Alanta and 1.5 mil buys you a mansion like those you see in Hollywood Movies… So really depends on when where etc here in the US.

    Profile photo of FreckleFreckle
    Blocked
    @freckle
    Join Date: 2012
    Post Count: 1,681
    jayhinrichs wrote:

    So the point of the above is it all depends when you buy in the RE cycle. Now that Google, Facebook etc moved into Palo Alto that house could be 2 million in a year or two…

    then you go to Alanta and 1.5 mil buys you a mansion like those you see in Hollywood Movies… So really depends on when where etc here in the US.

    Go to France and buy a real mansion with for just a few mill

    Profile photo of wilko1wilko1
    Participant
    @wilko1
    Join Date: 2010
    Post Count: 510

    1.2 mil extra and i get those Bars to prevent burglaries and trap me inside in case it burns down.

    I cannot believe those are actual prices.

    Is one in EURO's and the other in US at the very least ?

    Profile photo of Nigel KibelNigel Kibel
    Participant
    @nigel-kibel
    Join Date: 2005
    Post Count: 1,425

    Generally you will not be able too borrow so single family homes

    However you can buy an apartment complex and obtain a loan of between 60-70% on a non recourse loan in other words the loan is based on the asset.

    These type of loans were not available to foreign nationals 12 months ago. However many commercial banks are now offering these loans

    Nigel Kibel | Property Know How
    http://propertyknowhow.com.au
    Email Me | Phone Me

    We have just launched a new website join our membership today

    Profile photo of BoughtWithEquityBoughtWithEquity
    Participant
    @boughtwithequity
    Join Date: 2013
    Post Count: 68

    What works in one part of the world, may not in another part.  A 10% return in the US is about unheard of except in pro formas….at least in Atlanta where my group works.  We are able to offer investor partners a 10% return guaranteed for 18 months on rented and renovated housing.  Examine each model and seller or investor partners carefully to understand the pitfalls & returns of each.  You'll find a more realistic return for many US investors to be in the 3% range and many bank on appreciation to ramp up expected returns.  As Jay mentioned….appreciation is just a bonus…if you get it…super but don't count on it.  We are able to offer bank & private lender financing on our rented properties which usually sell for $65k to $120k and our lenders will usually go 50% on these.  I don't know what lenders are doing in other markets but this is in greater Atlanta.  Lenders like our product because we only do shared housing so we have constant revenue, minimal vacancy and maximum return.  Whatever you do in the US, make sure you have a solid team with boots on the ground as it will mean the difference between success and failure.  In some cases, like ours, you could be a front end investor partners and earn 10% plus half of the profits when it sells which translates into a return north of 20%.  With our model, it makes more sense to NOT own real estate….at least not for very long.  It took me over 20 years to arrive at this conclusion but the returns speak for themselves.  Happy Investing!

    Profile photo of EngeloRumoraEngeloRumora
    Participant
    @engelorumora
    Join Date: 2010
    Post Count: 618

    I think you should not invest in the US if your hoping the property will go up in value.

    Hoping is not a strategy, its a prediction.

    Look at the numbers in a particular deal and if they make sense and suit your end strategy then I would proceed with the investment.

    As Freckle mentioned the US market is completely different from the Australian and its not for everyone.

    Personally I had huge debt in Australia and am happy to say that I have sold out of my entire portfolio in Aus and have no intentions of buying more property in the unforeseen future.

    Do very thorough due diligence when buying in the US and spend time asking numerous questions. This will eliminate all operators looking for a quick profit and not a long term relationship.

    Just my 2 Euro's worth hahahaha

    Thanks and have a great day.

    EngeloRumora | Ohio Cashflow
    http://ohiocashflow.com/
    Email Me | Phone Me

    "Make a PASSION an OBSESSION and you'll never work a day in your life"

    Profile photo of EngeloRumoraEngeloRumora
    Participant
    @engelorumora
    Join Date: 2010
    Post Count: 618

    Oui Oui

    How far from Paris?

    There are come amazing Chateau's within 3 hr drives from Paris.

    Vive la France haha

    EngeloRumora | Ohio Cashflow
    http://ohiocashflow.com/
    Email Me | Phone Me

    "Make a PASSION an OBSESSION and you'll never work a day in your life"

    Profile photo of nyc88nyc88
    Participant
    @nyc88
    Join Date: 2011
    Post Count: 29
    engelorumora wrote:
    I think you should not invest in the US if your hoping the property will go up in value.

    Hoping is not a strategy, its a prediction.

    Look at the numbers in a particular deal and if they make sense and suit your end strategy then I would proceed with the investment.

    As Freckle mentioned the US market is completely different from the Australian and its not for everyone.

    Personally I had huge debt in Australia and am happy to say that I have sold out of my entire portfolio in Aus and have no intentions of buying more property in the unforeseen future.

    Do very thorough due diligence when buying in the US and spend time asking numerous questions. This will eliminate all operators looking for a quick profit and not a long term relationship.

    Just my 2 Euro's worth hahahaha

    Thanks and have a great day.

    Hi Engelo, thanks for your posts and sharing your experiences. I do recall reading several your posts back in 2011 in when you purchased something like 3-4 properties in Sydney, Mildura and Albury within 12 months (or was it as shorter time period?) and I recall, at that time, many forumites, including myself, were impressed with your achievements. 

    I'm curious (and if you don't mind me asking) – why have you sold out your entire portfolio in Australia? I'm surprised to hear that (I've also been away from this forum for a while now and haven't caught up with my reading). You mentioned that you had huge debt, however, I thought your American properties made decent cashflows? Of course, there are plenty other reasons why people sell. 

    Just curious.

    best regards, nyc88

    Profile photo of Mark CoburnMark Coburn
    Participant
    @mark-coburn
    Join Date: 2006
    Post Count: 181
    engelorumora wrote:
    Oui Oui

    How far from Paris?

    There are come amazing Chateau's within 3 hr drives from Paris.

    Vive la France haha

    The 30-40% purchase costs in France will adjust your desire to buy there. (hence the prices of French property)

    Mark Coburn | Coburn & Co - Investment Advisors & Buyer's Agents
    http://coburnandco.com.au
    Email Me | Phone Me

    |Ph: 0405 243 547 | Property Investment Advisors |Mortgage Brokers|

    Profile photo of Richard TaylorRichard Taylor
    Participant
    @qlds007
    Join Date: 2003
    Post Count: 12,010

    Although the 100% financing in France can be attractive on new properties as a non resident.

    Cheers

    Yours in Finance

    Richard Taylor | Mortgage Broker helping investors build their wealth thru property
    http://www.mortgagecapitalaustralia.com.au
    Email Me | Phone Me

    0-40 Properties in a decade with a unencumbered portfolio value in excess of $40M. Ask me for a copy of my API Interview.

    Profile photo of EngeloRumoraEngeloRumora
    Participant
    @engelorumora
    Join Date: 2010
    Post Count: 618

    Hi nyc88,

    Thanks for your post and I am privileged that you can remember my posts dating back to 2011.

    I did accumulate quite a few properties in a short space of time. I believe it was 7 months.

    At the time of building my Australian portfolio I only had 1 property in the US and as I pretty much moved myself and my whole life to Kansas City in September 2012 I fell in love with the numbers the US market had to offer. It was a "no brainer" to start selling out of all Aussie investments and move the funds here. It was also good timing as the AUD was super high. I predict the AUD will keep dropping.

    It is much better IMO to build a portfolio with high cash-flowing properties with no debt. Fortunate to be able to do that here in the US due to lower priced properties.

    Then later on potentially look at using some finance to continue buying and speed up the process of building the porftolio.

    If there are any hiccups with the finance properties (and there always will be) the cash-flow from the cash foundation properties can be used to cover any losses without interupstion to one's lifestyle.

    Thanks for reading and have a great day.

    EngeloRumora | Ohio Cashflow
    http://ohiocashflow.com/
    Email Me | Phone Me

    "Make a PASSION an OBSESSION and you'll never work a day in your life"

    Profile photo of EngeloRumoraEngeloRumora
    Participant
    @engelorumora
    Join Date: 2010
    Post Count: 618

    100% finance????

    Serious?

    EngeloRumora | Ohio Cashflow
    http://ohiocashflow.com/
    Email Me | Phone Me

    "Make a PASSION an OBSESSION and you'll never work a day in your life"

    Profile photo of RedwoodRedwood
    Participant
    @redwood
    Join Date: 2013
    Post Count: 340
    engelorumora wrote:
    100% finance????

    Serious?

    Their president has a wife and 6 mistresses, what do you expect.

    Redwood | REDWOOD | SMSF | PROPERTY | FINANCE
    http://redwoodadvisory.com.au
    Email Me | Phone Me

    SMSF - PROPERTY INVESTMENT - WEALTH CREATION AND FINANCE SOLUTIONS

    Profile photo of EngeloRumoraEngeloRumora
    Participant
    @engelorumora
    Join Date: 2010
    Post Count: 618

    haha

    EngeloRumora | Ohio Cashflow
    http://ohiocashflow.com/
    Email Me | Phone Me

    "Make a PASSION an OBSESSION and you'll never work a day in your life"

    Profile photo of Don NicolussiDon Nicolussi
    Participant
    @don
    Join Date: 2005
    Post Count: 1,086

    Hi Burrito – having read through the thread there is just one thing I wanted to ad. Buying one property is not really a valid strategy. Nigel has been on the forum for many many years like myself so perhaps have a chat to him about non recourse borrowing. There is little point buying just one home.

    It would be good to consider strategies to build a portfolio.

    Could you buy 10 income streams over the course of 3 years with the right structures & research.

    Here are my only rules to long distance investing: Visit, visit, & visit. Become a local. Read their news. Bird dog the purchases but do the rest yourself.

    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

    Profile photo of EngeloRumoraEngeloRumora
    Participant
    @engelorumora
    Join Date: 2010
    Post Count: 618

    Agreed Don,

    Trust is built over time and not over night.

    There is no need to jump into the US market.

    It isn't going anywhere in my opinion for at least another 3 – 5 years.

    Once it start to pick up I am sure the whole world be know about it.

    The current gains on the East and West coats are just baby steps.

    Thanks for reading.

    EngeloRumora | Ohio Cashflow
    http://ohiocashflow.com/
    Email Me | Phone Me

    "Make a PASSION an OBSESSION and you'll never work a day in your life"

    Profile photo of Nigel KibelNigel Kibel
    Participant
    @nigel-kibel
    Join Date: 2005
    Post Count: 1,425

    I believe that it is a great time to buy in the United States. The economy is recovering and there is no doubt that both prices and rental demand are on the rise.

    If we look at commercial property and that can include apartment complexes you can fund the property with 40% down and borrow 60% as non-recourse finance. hat means that the loan is only based on the asset. At the end of the day the banks consider that this is a low risk. You are putting up a 40% deposit in a rising market. From an investors point of view you could buy a property in America tat you could not buy in Australia because from day one these deals are positive cash flow. We recently brought an office building that will return 35% cash on cash. The net return on many apartment buildings will return anywhere from 12-17% and the cash on cash returns to be far higher. I believe America will be a great market to invest in over the next few years. At one point it may have been a little cheaper but the ability to leverage is a game changer.

    Nigel Kibel | Property Know How
    http://propertyknowhow.com.au
    Email Me | Phone Me

    We have just launched a new website join our membership today

    Profile photo of FreckleFreckle
    Blocked
    @freckle
    Join Date: 2012
    Post Count: 1,681
    Nigel Kibel wrote:
    I believe that it is a great time to buy in the United States. The economy is recovering and there is no doubt that both prices and rental demand are on the rise.

    You have to stop reading the "Onion" Nigel. All publicly released data is really satire to amuse the masses. When politicians and their agents tell you the economy is recovering they're not serious. We all know its not recovering but conning ourselves makes us feel better.

Viewing 20 posts - 1 through 20 (of 49 total)

You must be logged in to reply to this topic.