Buying in the US
I’m constantly getting emails about buying investment property in the US. I’m attracted as any landlord would be to the idea of buying into a residential market that has seen values trashed over the last 5 years. Property prices must be near their bottom and clearly there are some real bargains out in the US.
Many of the properties being offered seem to be as cheap as chips or should I say ‘french fries’? Detached properties with land and 3 or 4 bedrooms for as little as £25,000 with projected rental yields of 15-25%+. Sureley that’s a fantastic proposition by any landlords standard.
However, despite these attractive numbers there are several reasons why I WONT be buying in the USA any time soon:
1. Fundamentally, the US real estate market is not like the UK. They have lots of land and NO Green Belt. This means that there is a history of a scorched earth policy when it comes to urban settlements. If an area or town becomes unpopular. People move out and move on leaving a neighbourhood or even a whole town empty and abandoned leaving the poor and dispossessed behind. Not great news if you happen to own one of the properties that is left.
2. Location, location, location…..we all know that it’s all about location when it comes to investing in property and the only way to find the best locations is research, research, research! So have you really got the time to spend weeks and months out in the States ensuring that you are buying in the right spot. I haven’t.
3. Remember, you are not the only person looking for a bargain. America is the cradle of modern capitalism. There are loads of landlords in the US doing exactly what you are trying to do. Why do you think that you can beat them at their own game? In my view there is a lot to be said for home advantage; which is why I only buy in areas I know well.
4. Maintenance. I’m having enough problems trying to sort out a new boiler for a property just down the road. Can you imagine the difficulties if you have problems with a tenanted property a 9 hour flight away? Yes you will probably have to get a letting agent, but all this costs and can you trust them? I like to be able to go to a property and be able to see physically what the issues are and have heard endless horror stories of foreign letting agents.
5. Ultimately, like any scheme that somebody offers to me I always think. "If it’s so good why are you offering it to me?" Why not be investing in these properties yourself. You have to wonder don’t you?
For those brave landlords who go ahead and invest in the US, good luck to you!
I’m sure there is money to be made in the US residential investment market. If you do decide to buy; my advice is only invest in a good area not necessarily in one that has the highest rental yield. Remember it’s all about research, research, research.
Finally, think very carefully before buying from one of the property sourcing companies; that is unless you want a potential ghetto crib and a gangster for a tenant.
As always we welcome your views so do post a comment.
Buyers need to know that in some states rental is prohibited to protect the local hotal trade if your thinking of holiday letts. You cant rent a property in all counties of Florida for example so check with a solicitor.
Why we are buying properties in the USA.
When investing in property, cash flow is king. Capital appreciation, whilst profitable, should never be relied upon. When you invest in any property you can control your yield – Simply make money when you buy (equity within the property) and have strong monthly cash flow. Neither of these are achieved investing in the UK markets right now but are available in some US markets.
I agree that our target markets in the USA such as Detroit, Memphis and Orlando have seen unprecedented falls in value over the last five years as much as 70% in some cases. Like any market it is at this point in the cycle when investors make more money than in any other.
Consider some of the emerging European markets of the last 10 years that saw huge capital rises in a short period of time and yet so many investors lost huge amounts of money, but how? The reason is that investors bought for the wrong reasons. They relied on capital rises and financing with no consideration to cash flow – the back bone of any property investment. Subsequently, they couldn’t keep up monthly repayments and couldn’t find anyone to rent their property.
The USA markets are different. They are not emerging markets. They are well established, urban residential areas with a large population of locals who all need a place to live. Rental demand is strong, and there is also a healthy balance of owner occupiers and renters. There are no promises of 100% capital rises, only steady, sensible, organic rises over a medium period whilst all the while giving a high return to the investor of over 13% and also limiting the investors exposure as prices are so low.
The key to successfully investing in the USA is knowing where and what to buy and having the right team in place to manage your investment. Get this right, and your investments will achieve returns far superior to anything you can achieve in the rest of the world.
And it’s well worth it.
Property Secrets Ltd