Source: Wealth Creator Magazine Sep/Oct 2006

Investment strategy

There has been an explosion in the past five years as investors chased properties that would, after all costs (mortgage, insurance, management and repairs), put dollars in their pockets.
enewsletter signup:
Why subscribe?View archive

Surfin' USA

Source: Wealth Creator Magazine Sep/Oct 2006

Investing in the USA

Seasoned property investors employ a number of strategies in the pursuit of healthy returns. Some chase capital growth, others cash flow, whilst others buy homes below their real value. All three strategies have proved successful for Australian investors over the years.

Yet, what if these three strategies could be combined in the one investment property? This would be a very powerful investment indeed. The USA presents opportunities we haven't seen for many years in Australia due to our record market boom. An increasing number of Australian investors are crossing the Pacific and investing in the USA where they are finding that, from the property investing perspective, America still is the land of opportunity.

Cash flow

Investing for cash flow has been a popular investment strategy for Australians. There has been an explosion in the past five years as investors chased properties that would, after all costs (mortgage, insurance, management and repairs), put dollars in their pockets. As the market rose in price the returns dropped and many investors moved off-shore to New Zealand to make the most of its opportunities. Today the opportunity to buy quality properties has almost extinguished, due to the rise in house price, while rental price growth has lagged behind.

Increasing numbers are now discovering what a small number of Aussie investors have known for many years: the USA has many markets where it's possible to buy homes that produce cash flow. In Texas for example, it's possible to buy properties showing 13%-to-18% plus gross returns and in areas experiencing strong economic and population growth. In other areas that have struggled economically, such as Buffalo in New York State, returns over 20% gross can be found.

Capital gains

Pursuing capital growth remains for most Australians the preferred strategy to create wealth from real estate investing. Investors in Australia chasing capital gains are realistic that markets aren't likely to be moving up in the near future. Even recent market darling Perth appears to be ending its growth cycle. History tells us the next rise will be some years away.

There are many markets in the USA which have experienced solid gains and like Australia are now facing the real possibility of negative growth. Cities such as Los Angeles, San Diego and Las Vegas have risen dramatically.

While parts of the country are at risk, other areas are expecting home price appreciation in the coming years. Texas is one state which historically has shown consistent growth, Houston, Texas (population 5 million), has averaged 6.4% growth annually over the past five years and you need to go back to the early 1980s for a year when prices declined.

Kelly Kenne from Integrity Property Solutions in San Antonio, Texas says prices in her city, "are still affordable and have tremendous growth potential due to the strength of the economy backed by the opening of the Toyota plant".

When Fortune Magazine (Dec 2005), ranked the USA's 100 biggest cities by predicted capital growth for the next two years, San Antonio came as the number one city. Texan cities feature strongly in the report with Houston ranked number nine.

Buy below market

In his book Rich Dad, Poor Dad, Robert Kiyosaki makes the comment "the profit is made when you buy not when you sell." If you can buy a property below its true value you don't have to wait years for the market to work for you; you have existing equity from day one.

Here in Australia it's not easy to buy below market. In the USA the ability to buy homes below market is an everyday reality. The USA has an incredibly high foreclosure rate on real estate, running at about 20 times higher than Australia. Benny Risner, from West Houston Mortgage Company, specialises in the foreclosure market. There are fantastic opportunities for those who understand the foreclosure system to buy properties at a healthy discount when buying either as foreclosure or pre-foreclosure." It's not a market for the novice and Mr Risner warns that the uneducated risk getting burnt. But with the support of those who know, substantial money can be made.

So the USA really is the land of opportunity for property investors, but education is the key. There are horror stories about people buying 'bargains' through eBay. Research and proper due diligence can lead to a rewarding investing experience.

 

Written by

Westan Johnson Co-founded Property Investing New Zealand Ltd, a NZ based company which sources properties in the US and NZ. He also co-founded the Australian based International Property Consulting, which sources international investments.
www.iproperty.com.au