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

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  • Profile photo of Nigel KibelNigel Kibel
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    Its alright freckle I expected your comments I notice in another post you are predicting that China will disappear off the face of the earth as well. If any of the Doomsday predictions of your happen I guess we are all screwed. 

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    Profile photo of FreckleFreckle
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    Nigel Kibel wrote:
    Its alright freckle I expected your comments I notice in another post you are predicting that China will disappear off the face of the earth as well. If any of the Doomsday predictions of your happen I guess we are all screwed. 

    How does exaggeration help your argument? Diverting attention to other discussions doesn't help your cause much either.

    The reality is that the US economy is not recovering by any metric and that the FEDs seemingly serious attempt to taper is starting to bite. There are pockets of the US that are surviving for the time being but only because the economically desperate are migrating to better off states. This can last only so long before even those states are exposed to the challenges in a deleveraging world. 

    I would be more optimistic if there was something tangible and sustainable driving economies but a tapped out middle class underpinned by prolific printing and surviving on debt creation aka subprime student and auto loans to the moon isn't giving me any hope to say the least. To add to its problems there's a very good chance the US will get its clock cleaned over the Ukraine debacle. 

    Anyone who thinks the US economy is recovering and will strengthen over the coming years is in lala land.

    Profile photo of FreckleFreckle
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    Nigel Kibel wrote:
    If any of the Doomsday predictions of your happen I guess we are all screwed. 

    Seems McKnight is alluding to the same kinds of things I am …….particularly the Aussie market…

    **********************************************************************************************************************************

    Hi Freckle,

    Glenn Stevens, RBA Governor, has given this timely warning to property investors:

    "It is important for both investors and owner-occupiers to understand that a cyclical upswing in housing prices when interest rates are low cannot continue indefinitely."

    Paraphrasing – if you're investing for speculative market-driven growth don't be fooled into thinking the current increase in house prices can continue indefinitely.

    I certainly agree. The research I revealed at my recent market update points to the Aussie property market being close to, or just past, the cyclical peak of the current cycle.

    So what about a property crash (prices falling by 50%+)? This has been raised in the press recently by visiting US demographer Harry Dent, and has long been floated by Aussie economist Steve Keen.

    Yesterday, Glenn Stevens had this to say on the matter:

    "You can never be 100 per cent sure. But the price to income ratio has been around four times … for about 10 years, so a very long-running bubble, if it is a bubble. Most do not last that long."

    Freckle, the takeaway here is that risk has noticeably increased for property investors in respect to price growth / stability and interest rates. You should be reassessing your investing strategy and property portfolios accordingly.

    *********************************************************************************************************************

    I've alluded to on other threads that the smart money has been consolidating their positions and scaling leverage accordingly in anticipation of a possible/probable correction. Meanwhile many of those whose livelihoods hinge on property services continue to talk the market up on little else other than industry and MSM sponsored hype.

    Profile photo of EngeloRumoraEngeloRumora
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    I wouldn't mind the Aussie market tanking.

    Might actually consider coming back home haha

    Even if it did go down it still wouldn;t be as affordable as the US market but then again you never know.

    The average Sydney 3 bed 1 bathroom home going for $150,000?

    Wouldn't that be nice for who ever is currently on the sidelines lollol

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    Profile photo of Nigel KibelNigel Kibel
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    I do agree with you about Australia I am increasingly worried about the Australian economy. However I still believe there is more upside in the US markets.

    In Australia I have been trying to put development projects together by getting investors to buy directly into them. What I am finding is that many of these sites sell for well above what they are worth. With the lower end of the market is still needs to be affordable. So it will be interesting to watch. If at the end of the year or early next year the RBA run up rates by around 2% we could have large falls especially around city apartments and outer area houses

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    Profile photo of FreckleFreckle
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    Nigel Kibel wrote:
    However I still believe there is more upside in the US markets.

    And let me guess they'd be…. don't tell me … don't tell me… Florida and Texas ….right!!……jeez I'm good ;-)

    Profile photo of Nigel KibelNigel Kibel
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    You are good Freckle  lol

    However if in America you can buy properties with strong rental demand and you have positive cash flow what is the risk

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    Profile photo of jayhinrichsjayhinrichs
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    Nigel  its seems that the Aussies have turned off on buying US properties….. bAsed on the traffic on this site from what it used to be and what it is now.. If we corralated that to purchases in the US I would suspect that bizz for those selling Aussies US property is off by 50 to 80% of what it was a few years back.. Have you seen that in the interest you have for your deals.. or is it still really strong.?

    Profile photo of EngeloRumoraEngeloRumora
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    There is definitely no were near as many posts as there was before.

    Maybe because of the low Aussie dollar?

    or everyone is following each other and buying into the booming Aussie market?

    One this is for sure tho the bigger pockets forum is going nuts and pretty much impossible to keep up with all of the daily posts lollol

    Thanks for reading.

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    Profile photo of streamlineinvestingstreamlineinvesting
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    I am not sure why all the focus has gone off the US at the moment (well for the past few months at least anyway). I know I am still heavily looking into and actively investing in the US markets to try and build my portfolio over there as much as possible while the buying is good (and I believe it is still very good for the time being).

    I know at least in the areas I am buying that prices have gone up by about 20% since I started a couple of years ago. I do not believe this to be a "true" increase in value in the area, more of just an artificial increase due to all the property investors snapping up properties in the area creating a short term demand. And although there is a strong reduction in the Australian investor in the area, the US investor is more active then ever. I believe finance is becoming easier to obtain over there so smart (hopefully to be proven in the long term) investors are sinking their dollars into the market.

    Regardless, even with the increase in value the returns from rent are still significantly  higher than anything I have seen in Australia (apart from some spectacular deal) so I continue to keep putting my hard earned into the US Market.

    I would say the low Australian dollar may have something to do it with it but would only be a small factor, I guess because the dollar really has not dropped that much, it is sitting at 93 US cents at the moment, about 10% down from it's peak but given it is expected to drop significantly further down to about 80 US Cents, you would think it would still be lucrative for the Australian investor to get their dollars into the US. 

    I think it is just not popular now, like a couple years ago it seemed to be the "cool" thing to do, buy a property in the US, make your millions and do whatever. But now there is just less exposure on it in the media so the masses have stopped flocking to it. Also there are a few articles every now and then about horror investing stories from Australian investors who got burned by trusting the wrong US people, definitely a deterrent to stop people even looking into the idea of US Investing. Probably a good thing for the few Australians left who do still continue to invest in the market.

    Profile photo of EngeloRumoraEngeloRumora
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    Once the market starts moving more rapidly in the US the whole world will know about and we will see all mum and dad investors world wide jumping on board.

    I am very much looking forward to that moment.

    Thanks

    EngeloRumora | Ohio Cashflow
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    Profile photo of Nigel KibelNigel Kibel
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    Hi Jay

    I am still;l getting plenty of enquiry however many investors were only buying cheap property. Perhaps some of those buyers have gone. However I am getting lots of buyers who want to buy commercial property and apartment complexes. The reason is that  we can fund properties at 60% so you can now get strong leverage. In my view America is better to buy in now than it was before. When you consider increased growth and strong cash flow America is a great place to invest.

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    Profile photo of RedwoodRedwood
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    G'day Nigel, the point around:

    "In my view America is better to buy in now than it was before. When you consider increased growth and strong cash flow America is a great place to invest." 

    If I was your client, how would you sell this to me? Not being a pain in the arse, however, i'm interested. Both Jay and Engelo know how objective I am here, however, increased growth and strong cash flow – i'd need more to get my blood going.

    I know the most important thing is working with a trusted advisor.

    Cheers, Ivan

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    Profile photo of streamlineinvestingstreamlineinvesting
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    I think one of the biggest things that turned investors off was the dream returns that always seemed to be promised simply did not come. So all confidence was lost in the market.

    Unfortunately some times being brutally honest does not make you the best salesperson so unless you are willing to stretch the truth you will be unlikely to win over people who are only 50% sure about investing in the US.

    That being said, if I did present my "true" returns from what I have invested in over in the states, I think you would see very strong returns. Returns much stronger than you could expect in Australia. But for some reason, people are more comfortable to receive 5% yields in Australia rather than 10% yields in the US. I guess they are just too hesitant to part with their money when it is on the other side of the world. I guess they are also of the belief that property prices will continue to rise at the rates they have over the past 15 years or so, so any investment you make is a sure thing!

    But I believe my investments over in the US are median, nothing spectacular, definitely not poor, and something that is definitely achievable for any investor. So here I sit with about a 10% net yield after all expenses are taken out, and that does not even take into account the capital gains of the property. If you promised returns like that to any investor then I would say you would win just about all of them over. Unfortunately when you promise 20% yields and return ONLY 10% yields, it makes you look like a fraud and all confidence is lost in the market.

    Just my impressions anyway.

    Profile photo of EngeloRumoraEngeloRumora
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    I always like to tell investors that unless you can get a guaranteed double net return anywhere overseas you might as well stay safe and invest back home.

    Its just not worth the risk.

    Thanks and have a great day.

    EngeloRumora | Ohio Cashflow
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    Profile photo of Nigel KibelNigel Kibel
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    I try and show clients real examples. What I find exciting is that even though prices are higher than they were 2 years ago the big difference today is that on commercial property which includes apartment complexes we can borrow 60% as non-recourse loan. That means that the loan is only based on the asset. I am talking about loans from  commercial banks at rates around 5%. So from my point of view this is very attractive especially when you look at the cash on cash returns.

    We recently brought an office building with fantastic returns and by the time it is fully let the net returns will be around 17% with a cash on cash of around 35%. Now I am not saying that all deals are this good. But if you can buy an apartment complex for $350,000 with a cash on cash return of 14% it a great deal compared to anything you can buy in Australia.

    My clients are generally already experienced investors and in most cases have purchased in America before. They are generally looking for good opportunities with both cash flow and growth. I generally will not deal with someone who is buying in America because they cannot afford Australia. I explain that if you are going to invest in America then you need to build a separate income stream.

    I think there are great opportunities in the United States however due diligence is everything and the quality of people you deal with on the ground will make all the difference. 

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    Profile photo of Ziv Nakajima-MagenZiv Nakajima-Magen
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    Mark Coburn wrote:

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

    Ouch! And I thought our 15-20% scenario in Japan was bad!

    How's the cashflow in France?

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    Profile photo of jayhinrichsjayhinrichs
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    Nice to see some conversation with regard to the US market… From my perspective STream line hit it on the head.. returns were advertsed Aussie relied on them they did not materialize and you had upset folks.

    From a US Dude what I saw was a huge amount of aussies coming to the US with absolutly no clue as to the Socio demographic of our country.. and just thinking a 20k house would perform like a 100k house.. which as many Aussie learned is not the case…

    In addition the Aussie bent to just focus on %cash flow return is a flawed approach in the US.. there is so much more to this market than that.

    When I started TWH I had a few Aussie resellers tell me it was the best model they had ever seen for safety and return IE risk reward.. But when I did  few presentations I soon realized that the aussie investor just did not understand how we did this..

    So some have done well others i fear that bought the cheapest detroit Ghetto property probably lost all their money.

    ONe thing I want to be clear on though.. Is it was not all US spuikers where were plenty of Aussie spruiker preying on their brothers and sisters and some if not most were just as bad or worse than any US counter part.. the US spruiker at least was worried bout going to Jail.. the Aussie just ran around defrauding his fellow countrymen with inpunity

    Profile photo of worldinvestorworldinvestor
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    Hi All

    I started investing in Atlanta over 2 years ago, but I stopped buying when I could no longer achieve 20% gross yields, at that time I realised as a landlord it was not going to be fun, lots of slippage for example higher maintenance tenants, property management fees higher and other associated risks.

    I believe that various property markets in Australia such as Sydney and Perth started rising 2 years ago after 7-10 years of no growth so investors have started jumping into these markets, with historically low interest rates and the power of leverage it is a no brainer.

    As far as investing in US for me personally been great, my 8 properties (investment of $500,000 Au) have pretty much doubled and still got income sitting in my US bank accounts, my plan is to pull the pin over the next 12 months and bring back $1M and continue reinvesting in Australia.

    I believe the ship has sailed in US and unless you got in early I would not bother as the positive cash flow will turn into negative as the current yields are way to low IMO. Its time to play in your own backyard as there are great opportunities to make serious $ in Australia, Brisbane market is now starting to rise.

     

    WI:)

     

    Profile photo of EngeloRumoraEngeloRumora
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    Thanks for your post World Investor,

    Well done on your Atalanta porftolio.

    I believe I have seen quite a few of your posts on Somersoft.

    I am seeing some great opportunities available in the Midwest at the moment. Low priced properties in solid areas offering some fantastic returns.

    Market hasn’t really moved much in the Midwest.

    Great deals can be found in every market even if its booming or busting.

    Atlanta has seen quite a bit of growth and well done on getting in 2 years ago.

    I hope the Aussie $ stays low until you get all of your funds back home. I believe its at 94 cents today. It was under 90 not too long ago.

    All the best :)

    EngeloRumora | Ohio Cashflow
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