Below is a list of the steps we took to acquire our property in the US. I am not saying it is the best example of how to do things, and most likely not the most streamlined approach, but it worked for us so I do not know why it would not work for anyone else.
Step 1 – Choose an Area
There appears to be opportunities all over the US at the moment, and if you read around, there seems to be dozens of people who are promoting every area. It can be a big decision to make when you choose what area to invest in. However I believe that if you just make a decision, then you will see that there is an opportunity wherever you choose to invest. Also when I say by area, I believe if you first narrow it down to the State you wish to invest in, then it will help a lot of your problems down the line. We ended up settling on Florida for our State to invest in, although we ended up investing in the Fort Myers area, we did not narrow our search upon later in process. For more information on why we chose to invest in Florida, please see this ARTICLE.
Step 2 – Set up an LLC (Limited Liability Company)
This is the main reason why I feel it is important to pick a state you want to invest in first, because an LLC is registered by the state. And I believe if you set up an LLC in a different state to where you purchase then it can become fairly difficult, however I have no experience with this as our LLC was set up in Florida and we purchased in Florida so it was a fairly smooth transition. For more information on setting up an LLC, then please read this ARTICLEwhich outlines the steps we took to set up our LLC and any recommendations we had.
Step 3 – Acquire an EIN (Employer Identification Number)
Our next step was to acquire an EIN for the LLC, this number is basically a tax number for the IRS (Internal Revenue Service), so pretty much the equivalent of an ACN for the ATO in Australia. I have been told by others that one of the members of the LLC need to have either an ITIN (Individual Tax Identification Number) or a SSN (Social Security Number), however please note that neither me or my business partner have an ITIN or SSN and yet we were able to acquire an EIN for our LLC. For more information on acquiring an EIN, please see this ARTICLE.
Step 4 – Find a Specific Area
Once you have everything set up, you need to narrow down your search to find a specific area you want to invest in. Ideally you want to narrow your search down to a county, which normally encompasses a city and surrounding areas, or maybe a couple smaller towns. We ended up settling on Lee County, I am not sure why exactly, but we saw a lot of good opportunities in the city with low house pricing, and decent rental returns. Please see this ARTICLEwhich explains why we came up with investing in Lee County and some information on the area.
Step 5 – Find a Property Agent
This is probably the most important step we had facing investing in the US. As neither of us had ever been to the US, and had no intentions of travelling there due to work restraints, we had to make sure we would find a property agent that we could trust. This can almost decide what area you want to invest in, if you have a good agent then you will most likely be swayed to invest where they work. Alternatively if you have a great area, but cannot find an agent that want to work with, then you will most likely end up taking your money elsewhere. We talked to approximately a dozen agents, and although none of them were outright criminal, most of them we just did not trust. Since they were all born and raised in the US, they just did not seem to understand the concerns we had as an Australian investor. In the end we ended up choosing a property agent who is originally from Australia and invests in the Fort Myers area herself. For our advice on how to find a property agent and our experiences, please read this ARTICLE.
Step 6 – Get money ready
This might sound obvious, but when dealing with things across the other side of the world, transferring money can end up taking longer than expected. There may be delays with depositing money, converting into US Dollars, or sometimes your withdraw limit may be lower than you thought. All these things happened to us and affected our ability to purchase our property. To convert the money from Australian dollars into US Dollars, we used an online broker company called Interactive Brokers. Using Interactive Brokers we were able to deposit money from our Australian accounts, however the maximum limit we were able to do from our accounts was $15,000 at a time, so it took several different deposits to ensure we had enough money into the account. As you can see this took longer than we expected, lucky we had the money ready before we had a property lined up. Converting the money into US Dollars was relatively straight forward and we actually got a great rate using Interactive Brokers. With the money sitting in the Interactive Broker account ready to be placed into the Escrow account, it made the last step to purchasing the house run a whole lot smoother.
Step 7 – Find a Property
This could possibly be the most stressful step in the whole process. It is not that different to finding an investment property in Australia, the only difference was that we had no idea about the area, seeing as we had never visited there before. So this meant we were completely relying on our property agent’s recommendation for our property. This meant there was a significant amount of trust we had in her hands, this is why it is so important to find a great property agent. One of the things that let us gain our trust in our property management was that not only did she invest in the area herself, she also rejected probably 90% of the properties we suggested to her. This showed us that she clearly was not just after our commissions and that she wanted to help us out. With new properties becoming available daily, it is only a matter of time before a property you want comes onto the market, unfortunately a property that you want, is typically a property any investor wants. This means that a good property goes fast, and when I say fast, I mean it can be gone within hours. I believe a lot of this is because the seller’s agent has their own contacts for the property, and they tell the contact before the property becomes officially listed, so as soon as it is put on the site, it is effectively already sold. Persistence is the key, keep searching and eventually a property that suits your investment needs will be there for the taking.
Step 8 – Place an Offer
Once you have found a property you like, same as Australia, get your property agent to submit an offer on your behalf. This does not have to be the advertised price of the property, with your property agent try and submit an offer that reflects the true value of the property. A lot of the time we found that the advertised price was purposely low to get more people interested, and in the end it turned into a bidding war driving the price up to almost double of the listing price. Other times, the advertised price was higher than the selling price. Essentially, the listing price does not reflect the true value of the property, so make sure the offer you submit reflects the true value of the property (or at least as best as you know). If you would like to hear more about our success rate regarding placing offers, and also about the short sale process, please read this ARTICLE.
Step 9 – Organise Inspections
Your offer has been accepted by the seller/bank so now the time has come to perform your inspections to make sure the building is structurally sound. The last thing you want to find is the house is constructed with defective dry wall, or significant termite damage. Luckily there is typically a 5 day inspection period you can use to carry out inspections and withdraw without losing anything more than the couple hundred dollars spent on the inspections. We were lucky that our property manager’s partner is a professional builder and is able to carry out these inspections for us free of charge. Assuming everything goes well then you are up to the final step in the process of acquiring a property.
Step 10 – Celebrate!
This is the final step, you have acquired your property, and although this may seem like the end of a long process, it really is the start. You have now spent all your money, now it is time to make that money back. Our next step was to perform some rehabilitation on the property, approximately $5,000 worth, but this was known when we submitted the offer and factored into our calculations. Next step is to find a tenant and start collected some cash flow.
We will update you more with how our property goes once it starts renting and getting us some decent money back. But hopefully the above outlines some simple guidelines you can follow to purchase a property in the US. Like I said at the start, I am not sure if it is the most effective way to go about things, but it definitely worked for us.
If you have any other questions or comments, feel free to contact us.