The USA property market – Low transaction costs

The USA property market has some other additional benefits compared to Australia.  One of these is the simplicity and low cost of transacting.  In Australia, we have some pretty brutal transaction costs, particular in reference to stamp duty.  Even legal fees can mount up.

In Australia up to 5% of the value of the property can be taken up with transaction fees; a big hit that you don’t get back.  This also applies when you sell; one of the reasons why refinancing has historically been a popular way of extracting capital growth, although since the tightening of bank lending policies this has become much harder, meaning alot of property investors can’t get their hands on the value of the money

The USA on the hand you could expect transaction costs to be minimal due to NO stamp duty and a simple legal process 

About Mark Taylor….

The USA property market – Low transaction costs

The USA property market – The opportunity

The USA property market represents a unique opportunity due to a combination of factors:

• The collapsing of the value of the USA property market and a large amount of foreclosures resulting in very low capital requirements.  Property in the range of USD30,000 to USD100,000.
• Properties can now be bought significantly below replacement value
• Exceptionally low entry transaction costs (no stamp duty!)
• Rental demand and rate remaining strong leading to high yields of  20%+
• Best AUD/USD exchange rates since the AUD floated in 1983
• Low interest rates and the ability to secure US loans as an overseas investor further improve cash on cash returns

About Mark Taylor….

The USA property market – The opportunity

The USA property market – Cashflow positive properties

Obviously the state of the economy and the implosion of the US property market has been well documented.  As a refresher, the abundance of subprime loans which were in layman’s terms poorly secured launch was the catalyst for a global financial meltdown.

In terms of the US property market, it meant massive defaults and a market crash with capital values reducing to 50% to 75% of the peak.  One sign of the state of this is the number of foreclosures, a foreclosure being when a person defaults and the bank fire sells the property in an attempt to get the loan off their balance sheet and recover some value.  Interestingly enough, the number of foreclosures is still increasing and will probably peak in 3 years or so.

One of the contributors to this is that it is relatively easy to default and walk away due to different regulations in this market; combine this with the massive decrease in property values, even people who can cashflow may be better off financially simply walking away.

Meanwhile people still need to live somewhere, hence renting is the only option; this demand means that rental amounts have remained at similar levels, which combine with the low values means for new entrants to the markets, the property is cashflow positive. The actual amounts will depend on the state and the property, but 10% + is more the norm than the exception.  Compare this to Australia where above 5% and you are doing pretty well.

About Mark Taylor….

The USA property market – Cashflow positive properties

Australian Property Market Forecast 2011

By Alex Henderson

Australian Property Market Forecast 2011

My USA Property Journey – Buy Strategy

Thought I would share my USA property journey with you…  It ITHere are certainly a few nuances to buying in the USA!

So first of all the buy strategy:

1) 1st property; Take advantage of the ”1st home” loan (4.5%) for a property in Florida.  My logic is that we can get some capital growth potential whilst taking advantage of the low interest rates which should still ensure positive cash flow.  LVR 60%.  Looking for something in the $100k+range which should get us a solid house with a good standard of tenants

2) 2nd/3rd property in Memphis.  Minimum property value of $40k + which means properties > 1950s and in good condition, fully renovated. Positive cashflow properties on P&I loans which will mean pay off in 3 to 5 years depending if we can top up repayments.

About Mark Taylor….

My USA Property Journey – Buy Strategy