US property

[daletournier]

Cruising related as we all need an income.

This forum has high participation from US residents therefore I'd like to throw this out there.

Where would you purchase income returning real estate in the US? and why?

Capital gain is secondary to rental return, that said I'm interested in real estate that can me sold easily enough if I choose to sell.

All views and thoughts appreciated, I'm sure there's some financial savvy cruisers here.

Cheers Dale.

[daletournier]

I've accidentally started two threads the same , can a mod please delete this one, thanks.

[belizesailor]

Ive owned/bought/sold rental properties in the USA the entire time since leaving the USA in 2004.

Regardless of which market, here are some suggestions specific to an absentee owner/investor based on my experience.

Local knowledge is key to real estate investing. Ideally invest in a market you know and work with an agent who specializes in rental properties and has in depth local knowledge. The more connected that agent is locally the better. Dont waste your time with an agent who has little or no investment property experience.

The market area should be mature enough to have good related services such as Property Management (PM), contractors, investor oriented real estate agents, etc. There are some great potential markets out there, but many are not mature enough to have these services (esp good PM), as an absentee owner this is a problem.

Think in terms of building a team you can work with in that market (PM, agent, key contractors).

The single most important thing to do is contract with a high quality professional PM company (not a one man show or uncle Bob). This is critical because you are not there and they are your eyes & ears. Ive made the mistake of using individuals or lower quality PM companies and it has caused me a lot of hassle and expense. I now work with only one very high quality PM company...wow, what a difference!

Have a plan. Before purchasing a property have a plan specific to that property. What can be done to improve the valuation of the property? What is your exit strategy? Tax strategy for both income & cap gains?, Etc...

Multifamily properties cash flow WAY better than single family. And you have multiple revenue producing tenants, whereas single family is either 100% occuppied or 100% vacant.

Leverage. Financing an income producing property makes a lot of sense, but high debt service can be big trouble when times are tough. I dont like more than 60% LTV (loan to value). Low LTV levels have saved my bacon several times.

Even with all the above in place, rental properties can be a hassle from time to time. Real estate related investments like private equity or REITs can offer similar returns without the hassles.

[john61ct]

https://howmuch.net/articles/cities-...-the-most-jobs

[skipmac]

Very good information from Belizesailor on all points. To add my two cents.

#1 Location, location, location!!!!! As he said, know the market. A neighborhood can be going up or down and you need to know the locale to have a feel for long term forecasts for the area, not just for the value of the property but the ability to bring in tenants.

#2. A really, really good property manager. My mother-in-law managed rental property for absentee owners and even with close attention still had a couple of nightmares. Sometimes even the best managers can get burned. She rented one house to a nice middle-class couple; husband a bank manager, wife a high school teacher and they left the house a wreck. Damage deposit didn't even come close to covering the costs of repair.

#3. Check local regulations. Some states have laws that favor tenants rights so much that it's almost impossible to evict them even if they are not paying the rent for months. Kenomac has some experience in this and may chime in on the thread.

[belizesailor]

Originally Posted by john61ct

https://howmuch.net/articles/cities-...-the-most-jobs

Wow, Lake Charles, LA tops the list...whodda thunk!

Highest jobs growth during period of study, but lower end jobs.

[belizesailor]

Interesting contrast I became aware of as a result of recent travels down under.

Im most familiar w the Austin, TX market as I used to live there and have bought/sold/currently own rental properties there. Its a great market (and a great place to live). Just last year I was lamenting with other brokers/investors how hard it was to find good buys in the Austin market...then I spent a little time in Sydney...holy moly! The Sydney market is radically upside down. Property valuations are extremely high compared to rent revenue.

Example, we stayed a few nights in a small 2 bedroom flat via AirBnB in an upscale area of Sydney. Rents for units like this one were around AUS$2,600/month, but valuation is about AUS$1.2M. Wow, no way to make good cash-on-cash return on those numbers!

By contrast Austin is a dream! With a bit of effort you can still find properties there where valuation is supported by rents.

Sydney is an awesome city, but I dont see how the real estate market there is sustainable. I expect to see a really ugly correction there in the not too distant future.

[Bob Morane]

Originally Posted by belizesailor

Interesting contrast I became aware of as a result of recent travels down under.

Im most familiar w the Austin, TX market as I used to live there and have bought/sold/currently own rental properties there. Its a great market (and a great place to live). Just last year I was lamenting with other brokers/investors how hard it was to find good buys in the Austin market...then I spent a little time in Sydney...holy moly! The Sydney market is radically upside down. Property valuations are extremely high compared to rent revenue.

Example, we stayed a few nights in a small 2 bedroom flat via AirBnB in an upscale area of Sydney. Rents for units like this one were around AUS$2,600/month, but valuation is about AUS$1.2M. Wow, no way to make good cash-on-cash return on those numbers!

By contrast Austin is a dream! With a bit of effort you can still find properties there where valuation is supported by rents.

Sydney is an awesome city, but I dont see how the real estate market there is sustainable. I expect to see a really ugly correction there in the not too distant future.

The correction started 12 months ago and is slowly creeping up, especially in Sydney and Melbourne.
The current market down under is the result of several years of loose credit regulations and shallow income verifications, tax credits on capital gains, and last but not least, the heresy of IOLs (Interest-Only loans).

Whether we will have a crash or a soft landing is up to debate. Even a soft landing will take years to unwind the current housing bubble to reasonable prices relative to incomes and rents.

Either way, bad timing to invest in Oz IMO.
The US has better Price to Income Ratio and better renting yields anyway.

[valhalla360]

I would stay away from becoming a landlord remotely when you are just starting out. You aren't going to know what a good PM looks like and they will eat up a good chunk of the potential profits. Plus you will constantly be wondering if the tenants are destroying you house.

[daletournier]

Thanks to all that have replied.

As an Australian I've been watching this craziness for years, some how Australia thinks it "different" and fundamentals don't apply to us.

As Bob said its due to loose credit and tax incentives over the years, it's coming to an end. The Royal banking commission has and will continue to have a major effect on availability of credit. I follow the data and many would be surprised at the extent this has had on credit availability.

The real eye opener to me has been the perception that many in our country have about getting rich. I was always looking for cash flow, capital gain was a bonus if it happened. A deal had to make sense NOW, meaning the return had to throw of cash. If it didn't throw of positive cash then I saw it as a liability, not an asset.

Yet, many I know in the 35-45 age group have known nothing but, byu something and it goes up, no effort either mental or physical required, money just comes. And this stupid "real estate doubles every year crap!!" Australia hasn't had a recession for 28 years this has lead to major complacency.

I've actually sold my business, got completely out of debt and live with in my means as I'm 100% convinced the current situation in Australia is unsustainable and will end badly. We have the first or second highest household debt to income ratio in the world. When to greater percentage of a societies income is channelled to servicing debt bad things happen, public household debt has greater consequences on a nations prosperity than government debt. The economy needs people (us) to consume.

Debt is simply bringing future prosperity to now, a debt to be repaid in the future by others.

Australias economy is propped up by mining, housing and banking, they are tightly intertwined a major housing downturn will effect our economy greatly.

I hope there is a soft landing, my bet is it will be quite rough.

[daletournier]

Originally Posted by valhalla360

I would stay away from becoming a landlord remotely when you are just starting out. You aren't going to know what a good PM looks like and they will eat up a good chunk of the potential profits. Plus you will constantly be wondering if the tenants are destroying you house.

Hi Valhalla, I've been a landlord for quite a few years, a couple of rentals are what keep me cruising. Due to unforseen circumstances I'm selling my share in a commercial building, I need to replace the cash flow at some stage.

I only understand Australia not the US, just starting to investigate. I wanted to invest in the US years ago but the timing never worked out.

Thanks for your input.

[arsenelupiga]

this guy is often right in predictions.

he has done large historic study of property prices in cities over millenias. And reckons there is on average around 60 years swing up followed by 30 years swing down. As current property upswing started in new world around 1955, after doldrums of great depression, this is now 63 years old uptrend.

https://www.armstrongeconomics.com/

you may want to rethink your one-sided investment strategy if you like sailing. 30 years downturn will lock you to land for good.

[daletournier]

I'm familiar with Martin Armstrong and don't think much of him, BUT I do concur that there maybe some truth in what he says. The world is drowning in non producing debt, it's not just Australia.

I focus on income not capital gain, prices can go up and down but as long as income keeps coming in, the world is ok . A speculator is different from a cash flow investor IMO. Paper wealth will most likely take a big hit in future years.

I believe that during a downturn solid income producing real estate, fundamentally sound businesses that sell stuff people need and no debt (specifically in a deflationary environment) put one in a good position. Precious metals also have a place.

Thanks for your input.

[valhalla360]

Originally Posted by arsenelupiga

this guy is often right in predictions.

he has done large historic study of property prices in cities over millenias. And reckons there is on average around 60 years swing up followed by 30 years swing down. As current property upswing started in new world around 1955, after doldrums of great depression, this is now 63 years old uptrend.

https://www.armstrongeconomics.com/

you may want to rethink your one-sided investment strategy if you like sailing. 30 years downturn will lock you to land for good.

He might be right...he might be wrong...

But when you are talking about a 90yr cycle, a tiny sample of only 3 cycles takes you back to around 1750...I seriously doubt the mechanics are the same as they were in 1750.

[a64pilot]

At least is the US, my belief is that Real Estate is past its income potential, that is it’s not as good an investment as it used to be.
I know several will point to markets that are “Special” and don’t follow the rest of the Country, but as a whole I think the money to be made in it, has been made.
I don’t know what to buy though, that’s my problem

I think your observations on Australia are rather astute, I’ve felt the same in the US for decades, but can’t explain it. In the US the Federal government has propped up Real Estate values for decades, and I don’t understand why. I used to think it was because it was just about the last remaining American product, most housing materials are US made or were anyway.
It’s beyond my comprehension.

I lost my behind with one bad renter, renting my house out while I was stationed in Germany. It’s like bad weather, it’s going to happen, you just don’t know when. People that haven’t had it happen, scoff at the idea, it’s not going to happen to them, then it does, and that trashed cash flow and any money you have made for years.
Myself, I was just trying to cover taxes was all, or I would have been hurt worse than I was.