When we first started looking at properties in the US, our first reaction was of amazement, simply due to the amount of properties that were for sale. Not only just by the sheer bulk of properties, but the amount of properties available under $50,000. Even though we had narrowed our search down to Lee County area in Florida, which includes Fort Myers, Lehigh Acres and Cape Coral, there were still hundreds of properties listed for sale.Looking at information on Lee County, the population is approximately 620,000. Yet there is more houses for sale in this area than there is in the whole of Sydney, which has a population closer to 4,000,000. I guess when we saw data like this, it just shows the crisis the area was in.
So our initial thoughts would be that finding a property would not be a problem at all, there almost seems like there is an unlimited supply of houses, so when we are ready we can simply go in, put an offer in, get accepted and be done with the search and start investing. I think I was also falsely optimistic when I purchased my first house in Sydney. I only really looked for a couple weekends, went to approximately 6 open inspections of houses, submitted one offer and it was accepted. So I started to think that there was nothing stressful at all about trying to find a house.
Once we started to dig a little deeper in the Lee County houses, we soon found why there were so many houses listed for sale, basically 90% of them were just not worth the money, even for $50,000 they were just dead investments, either they had Chinese dry wall issues all throughout, or they were trashed inside by the previous owners leaving the property needing tens of thousands of remedial works. Quite often houses had termite damage, or simply the properties were just too far away for anyone to want to live there. A lot of the properties were also in undesirable areas, such as areas with a strong gang presence, typically Mexican gangs in this area.
So here we are now, looking at hundreds and hundreds of houses, where only 10% are of any good, still sound like there is not much of a problem. With discussion between the property manager and ourselves, we can find out if a house is worth it or not. Unfortunately, as I have discussed in a different post, there is a difficulty with communicating with our property manager in Florida, with the time zones making it very hard to have an effective and efficient talk. These delays meant that the properties we saw that met our desired criteria had just about always been sold before we had the chance of putting an offer in. The good properties seem to get snapped up very quickly, normally within hours of being put up for listing, seems professional investors keep a very close eye on new listings, and are ready to act fast. It made it very hard to compete with people like this, I imagine it would have been a lot easier if we had been in Florida in person and been able to work physically together with our property manager when trying to find a property.
As you can see, with things going very fast, it is important that you have everything ready when you start placing offers on houses, this turned out to be quite annoying for us, as we had $40,000 sitting in our Interactive Brokers account, in US Dollars, waiting to be used to buy a house. This would have been fine, except we initially put the money into the account in December 2011, we did not end up purchasing a property late April 2012, so there was effectively 5 months of money doing nothing for us. This money was taken out of my home loan offset account, which meant I was forced to pay extra interest. At a 7% interest rate, this equated to an extra $1,200 or so, a significant amount.
So although we did not end up getting a property until April 2012, we did start putting offers in on properties from December 2011, at first we were very hesitant and thorough, making sure we read through all the offer documents and making sure we understood everything, over time we were able to trust our property manager more and in the end we almost signed the offer papers without even reading them. There is a cooling out period in the offers, typically 10 days, so we were able to withdraw the offers if they were accepted, and we had a better chance to be able to look through the property.
At the start, we also only made sure we had one offer in at any one time, if we submitted offers on more than one property, if they were both accepted, we would be responsible to purchase the properties, well actually I guess we could cancel one of them during the cooling off period, but it was still dangerous to offer on more than one property just in case. But soon we found that the waiting time between submitting an offer and being notified if you were successful or not, was weeks, so it was just wasting our time. So we ended up quite often having offers on up to 5 properties concurrently. We also found that short sales tended to be even slower, and would quite often sit with the banks for months before they accepted or rejected the offer.
In the end the property we purchased ended up being a short sale. I cannot remember the exact timeline of how everything went, but from memory it was something like this –
January 5th 2012 – Initial offer submitted at $42,900
January 10th 2012 – Offer accepted by owner of the house
January 20th 2012 – Bank counteroffers with $44,000
January 31st 2012 – We re-offer the asking price of $44,000
March 10th 2012 – Bank reject our offer for the property
March 25th 2012 – Bank changes decision and says offer is back on the table
April 3rd 2012 – Bank accepts offer for $44,000
April 28th 2012 – Money transferred into title account, house is officially ours!
As you can see from the above, there were a couple of months between initial submission of the offer, and the final purchase of the property. Being a short sale, the bank seems to slow down the process to a snail’s pace. Which to be honest I do not understand, you would think a bank is trying to get as much money as they can, and although they are accepting a loss on the property as the sale price would not match the existing loan, it is still better than holding on to the property.
Anyway, in summary, I believe we submitted offers on about 20 properties, and approximately 16 of those were rejected by the owner or the bank, 3 or so would have been withdrawn by us due to issues found during a more stringent inspection, and lucky last was accepted and is now officially ours.