• Category Archives US Property Investing
  • 2nd US Property Purchase

    During my recent trip to Fort Myers I was fortunate enough to be able to acquire a new property while I was over there. Given I was only in Fort Myers for 8 days, I did not really expect to get lucky enough to get a property in such a short time frame. My main goal was to just get a first hand feel for the area and a bit more knowledge about the town so that down the line I would have more of an idea of what areas to look for properties and hopefully gain a bit more of an understanding as a whole of the town of Fort Myers.

    While I was there I would have looked at approximately 12 properties, and countless others online through the listings, all of them had some sort of flaw, either they were too far away from town, too much damage had been done to the property, the area was not reliable, property was over priced, and the list seemed to go on. It was very difficult to find a property that I was comfortable with. I am always careful to make sure I do not get desperate in this sort of situation, it is easy to lose patience waiting for the right property and in the end just take any property that is available for fear of missing out. Unfortunately this is a bad trap to fall into, it is important to wait for the right property to come along.

    I may have rushed into this recent property purchase a bit too much, but I just had a good feel about the property, it already had an existing tenant and they were desperate to be able to stay there, they were paying good rent (I will get into the figures later) and the area I was comfortable with. I went with my property manager Judith and she could first hand say she was happy with the area given she used to live within a stone’s throw away from this place. I met the tenant (at least one of them) and she seemed very nice, I could tell she had been taking good care of the property while she has been there (over 12 months). All in all I only looked at the property for about 20 minutes while walking through the place, I talked to the lady for about another 15 minutes and that was enough to sell me on the property, I soon became the new owner of 1115 Lovely Lane, North Fort Myers.

    Details on the property –

    2 Bedroom and 2 Bathroom (initially it was 3 bedroom, but a wall had been removed between two to make 1 larger bedroom)

    Price I paid was $79,900 (to be honest it was a bit higher than I was looking for, but if the value is there then no point missing out)

    Monthly rent is currently $800 per month.

    The property also had a pool out the back with a deck for an entertaining area (did not see this on any other property, was surprised given how common it is in Australia).

     

    There were some slight complications with the closing of the sale, basically the banks were screwing me around (more on that in another post) but in the end it all worked out well. I was a bit lucky that the listing agent worked for the same company as my property agent, so they were able to hold on to the property a bit easier for our benefit.

    All in all I was very happy, the whole deal seemed to go a lot smoother than our first property. From offer to closing I believe it was about 2 weeks in total, and it would have been a lot less had the banks not messed us around.


  • Inflated Property Returns

    I was talking to someone recently about our property in Florida, and was saying how the expenses were higher than we first imagined, and in turn our return is a bit less than what we were hoping for. Initially I was hoping for a net yield of around 8.00%, I thought this might be a bit optimistic but going through the numbers before purchasing a property, it seemed like a realistic value.

    But after obtaining our property in Florida and seeing first hand the expenses, it seems that despite being fairly conservative in our initial assumptions, the return is still less than what we initially hoped for. However, if you rearrange the numbers a little, the investment looks better and perhaps even a bit more realistic as well. See below for the initial and subsequent calculations which show net yield returns.

    Initial Calculations

    The Net Yield of 0.56% is less than desirable, and if we were told we would be getting this return then I don’t know if we would have taken the leap to invest in the US as the hassle would just not be worth it. Although I did not include any capital gains on the property (as our plan is for cash flow) this can be  disregarded as the cash flow target simply has not been met.

    But by making some adjustments to the calculations, like shifting some of the expenses to the capital (moving the cost of the A/C unit and the whitegoods under capital expenditure), the numbers start to look much better. This is realistic as these expenses are not a yearly expense and you would hope that a new A/C unit would last a few years at least, the same with the white goods. Further, you can remove the cost of PI  insurance (as this expense is not dedicated to this single property and will cover all properties under the LLC) and include it as part of the LLC’s general overheads.

    Adjusted Calculations

    As you can see by adjusting the calculations to perhaps more realistic figures, we have now obtained our 8.00% Net Yield that we were hoping. It is important to note that both situations are essentially identical with all expenses included in both examples (with the exception of PI Insurance), yet it is simply a different way of
    calculating that gives you a very different result.

    I think this is a good sign to be careful when seeing advertisements purporting unbelievable returns. You should always look through the numbers yourself and satisfy yourself that what is being advertised is achievable. You should also always check whether the returns are ‘gross’ or ‘net’ yield and what expenses have been considered.


  • Renovations in Huntdale

    Over the last couple of weeks, we have had quite an interesting moments with our property on Huntdale Street in Florida. After losing our first tenant, the property was left vacant for about six weeks, it was getting pretty disappointing and our worst fears seemed to be coming true. We were always worried that our property would simply remain vacant for months, even years and not provide us the income we desired.We received an email from our property manager on an early Sunday morning after another disappointing day of prospective tenants looking at our property. She basically listed a few items that needed to be rectified to improve the profile of the property. All of the recommendations were simple and cheap, basically just repaint some of the worn areas in the house, repair some doors, put up some covers on the AC unit and a few other items like that. It was only going to cost us about $600 for everything, so we figured it would be worth the investment. Not only would it most likely allow us to get a tenant a lot quicker than normal, there is also the possibility of receiving a higher rental return, not to mention the higher value of the property itself. All in all it was a good decision to provide the necessary renovations to the property.

    So after reading this email, we received another one from our property manager, not more than two hours after the first one, saying she had some prospective tenants who wanted to move in on the 1st November, and have already covered the moving costs to get into the property. So everything sounded great for us, however they did mention there were some requirements that we had to cover as the landlord to get these people into our property. Not only were we required to rectify the items our property manager had covered previously, but also a couple of additional requirements. The main one being was to replace the carpet in the living room and one of the bedrooms with tiles. If you have read our previous posts, you will see that this was brought up as an option earlier on in the piece, when we were first renovating the property, the carpet was worn and well past it’s prime so we did look at replacing with tiles, but in the end we just stuck with giving it a good clean.

    Cleaning the carpet was apparently good enough for the first tenant we had, although they did have a couple complaints about it over the couple of months they were there. But we knew not to make the same mistake twice, and this time we immediately agreed to get the tiles into the property. Not only will it make the property immediately more appealing, it will also be easier to maintain in the future so it should allow us to save costs in the long run. Also again there will be the increased capital value of the property immediately.

    After all the renovations, the final cost was only $1,600, I could not believe it was so cheap for the amount of work that was done, but it only took a week to perform the changes, and by looking at the photos, the place really does look amazing. And what is most important, the tenant is very happy with the changes.

    So in the space of a couple hours, we were looking very disheartened and disappointed, and that soon turned to almost jubilation and now we have a really good feeling that this tenant will be just what we are looking for, a nice reliable, and most importantly, long term tenant.

    Disclaimer: By viewing this website, you acknowledge that it is for informational purposes only and does not imply any contractual agreement, promises of returns or legal expertise. All investors should consult with legal representation and appropriate accountants before making any investment and should ensure that individual due diligence is done. Any information provided here is for educational purposes only and should not be taken as financial advice.


  • How to Choose the Right Property Manager

    So, you’ve just purchased your property. You’re over the moon that you’ve finally made the leap into the property market and can now start reaping the rewards. Well, unfortunately the hard work is not over. The number one, most critical decision outside of when to buy and sell a property is choosing a suitable property manager.

    A property manager’s role is broad and can cover anything from choosing a tenant, collecting rent, carrying out repairs, and providing sensible advice on management decisions. A good property manager will do this and more, covering all of the little, but very important things as well. These should include, but are not limited to:

    • Find prospective tenants
    • Check a potential tenant’s criminal record
    • Prepare the lease documentation
    • Advertising
    • Maintenance
    • Take initiative with undertaking repairs under a nominated dollar value
    • Organise bond documentation
    • Pay authorised account and statutory charges
    • Undertake regular property inspections and provide good feedback back to the landlord
    • Check a potential tenant’s credit history
    • Give you up to date advice on rentals and the property market
    • Administer rent reviews
    • Pass on the rent payments to you promptly
    • Provide regular statements
    • Handle arrears

    So, how do you choose a good property manager? There are a number of ways that good property managers can be found. It’s rare that the best one for you will be the buyer’s agent. It’s much more common to find good property managers through word of mouth, looking through investment forums etc. Here are some tips for finding a good property manager:

    • Always contact the property manager’s current and previous clients to get a bit of perspective on his or her character
    • Have a clear contract set up with your property manager which outlines all the services that will be provided
    • Generally, try and steer clear of really cheap property managers as it’s likely the services will be of a much lower quality and will end up costing you more money in the long-run
    • Try and gauge the reputation of the company that the property manager works for by looking on the internet and contacting other professionals in the industry
    • Find a property manager that specialised in the types of properties that you are planning on buying

    Here are some other articles that you might be interested in:

    Advice on American Real Estate Agents

    American Real Estate Listing System

    If you have any questions or comments feel free to contact us.