It was a fascinating time being here for the US elections.  If you aren’t American you have no idea how involved, passionate and well, frankly, bizarre the yanks are about their politicians.

I personally thought Obama would get back in purely because I could;t see America, which calls itself a Christian nation voting in a Mormon but it appears Romneys defeat is almost the end of the world.

Honestly if I showed you many of the tv shows here covering post election news you would think Armageddon had occurred, and we lost!

However the real news is:

What impact does the election have on US real estate investing?

Well firstly Obamas win means the nation was not as concerned about things as many thought so that is a good thing for market sentiment.

Secondly the uncertainty over who would win is now over, which is good.

Thirdly and surprisingly the markets, which one could argue are fundamentally Republican didn’t bat an eyelid. I was sure the dollar would tank post election and basically it was yawn city.

I think the biggest single thing we should take from the election as investors is that business as usual means a longer recession and recovery keeping prices down and yields up. And that is GREAT news.

Make no mistake the USA will have inflation coming, big time!

But as the current government was either too afraid or lacking insight to tackle the US problem this means n oohing is likely to change in the next little while.  We can expect more socialism, attacking the rich and trying to force the poor out of their mindset.  We know from 9 years of Helen in NZ that this will fail and it will keep house values down whilst the attacks on the rich and investors will cause rents to rise.

The other thing that is a major change here is hedge funds have suddenly realized that they can avoid the issues they helped create by going berserk with real estate notes and actually own the real estate. So for the first time in recent history real estate investment is going to be popular in America. And that should mean upward pressure on prices and rents as large professional organizations hit this market and “make it” perform.

There is still an enormous backlog of inventory owned by banks which will also keep prices subdued for a while. (What you read about most of the foreclosures being finished is nonsense, in Memphis anyway).

SUMMARY:

Real estate today in the USA is still depressed in value, yields are high and all the early indicators are showing some shoots of improvement. Obama’s return probably means a 2 to 3 year window of great buying instead of a much shorter window if things had changed in government.

Investing now means we maximize the currency benefits, pick up most/all the upside and get in position to enjoy inflation.

In other words NOW is the time to get in if you haven’t and you want at least 10 to 20 properties to really set yourself up here.

We are primarily buying to order for clients now and we are delivering super high grade stock at C class yields by being physically here to run deals down.

I don’t know exactly how long it will last but it is here RIGHT NOW.

Just one example of a recent purchase:

Northwind Dr Memphis 3300 square foot home

Purchase price $52,000

Value $100,000 plus ( next door property, much smaller, currently on market for $104,000)

Rent minimum $1000 probably closer to $1095

Net yield at minimum rent = 13%

At likely rent = 14% net return after all expenses

A typical wholesaler would sell this in the high 70′s to 80,000 range or retail it to a home owner for 100K plus.

But our client can own it for under 60K all in:

All brick in Lake Windermere

Possibly the largest Lounge I have ever seen

If you’d like more info on the USA or want to order some cash flow just EMAIL ME

Git ‘er done ~ Dean

When you invest in another country it is difficult, ( I would say almost impossible), to not overlay your own countries rules on that investment. I have seen this a lot in the USA where foreign investors assume that tenants are the same as their own country.

The USA investment strategy involves 3 components, rental income, currency movements and equity.

Equity growth is a bonus in the USA but it is something we expect to see due to the massive collapse in values here.  It must always be considered a bonus in one sense but it is a genuine part of any current investment strategy here.

Currency movement is a significant thing right now with the greenback at historic lows.  There are significant gains likely by putting money into the USA now/recently as the currency curves move as they inevitably will.

And thirdly of course rental income.  This is the most obvious and sometimes the most problematic part of the equation because getting tenants to pay their rent is much more of a challenge than in most countries. And this is where the cultural shift makes it so frustrating.  In Memphis we have a 95% collection rate on rents, sometimes even 100% but that is through a lot of hard work by a lot of people.  In the USA not paying rent is often called a national sport.  It is the first thing many people stop paying.  And because bankruptcy is a non event over here many people will file to delay their eviction.

So this is a brave new world that non Americans will never understand.  As a result vacancy and non payment of rent can and will be a problem sometimes.  And if you are unlucky it will catch you early on in your investing and really upset you.

There are no real solutions to this problem, it just is what it is.  Being in better locations will help somewhat but the bottom line is this is a nother culture.

The secret is to get your properties paid off as fast as possible then you can roll with the punches if the cashflow is a bit choppy sometimes. Another safe base level approach is to work on a minimum of 10 properties, 20 is even better then your cashflow evens out.

When I look at all 3 profit centres the USA is unbeatable, and even with some variations in rental incomeit is still an outstanding market to be in but make no mistake

IT IS NOT NEW ZEALAND, AUSTRALIA OR ASIA, their world is different.

FOOTNOTE:  One thing I am learning specifically about Memphis is that if you are willing to sacrifice some yield on paper we can get into better neighborhoods, traditionally not investment areas where tenants and rent payments are significantly improved.  But it takes some work to uncover them and you won’t generally find them sitting around.  That’s why I go and find them for you

Lagrange is a good example of this, close to the University in an area normally too expensive to find yield with same tenants for nearly 20 years.  THATS how to reduce risk and improve cash flow!!

Git er done ~ Dean

As  I spend more time personally on the ground in the USA I am learning that the way to get the best opportunities is to hunt them down myself.

This week I secured a property that would never be considered a “doable” investment area because the current values are simply too high.

And that’s where the opportunities for you come in.

Just have a look at this:

The Location

Point B on the above map is the University of Memphis.  The area is known as the “university” and is expensive and highly sought after real estate for owners and renters.

Point A is LaGrange Cove. It is 1.4 miles from the campus and is quality rental real estate for staff and students of the university.  Average house prices in this area are 100,000 so the yields are generally unacceptable to rental investors.

The Deal

We have secured the entire cove which consists of eight 2 bed 1 bath homes all rented by professionals associated with the university.  In a city where it is common for tenants to leave after 12 months these homes have had the same tenants for 25, 22, 18 and 12 years.  I mean that just doesn’t happen in Memphis so you get an appreciation of the quality of the area.  These homes are known as “zero lot line” homes which simply means they are in sets of two with 1 common firewall. What we would call two townhouses.  There are only 8 available.  they ALL had new HVAC systems 2 years ago and all feature vaulted ceilings, fireplaces and decks.

The numbers

The properties are seriously under rented at $625 per month.  No rent increases in last 5 years.  Rents should be at around $700 per month but I have done the numbers on $625 so as to not oversell this opportunity. REmember that a typical property in this location would be producing a net return of around 5% because this area is too expensive to cash flow.

Rent = $625 X 12 = $7500

Total expenses including taxes, vacancy, insurance, PM fees and maintenance = $3025

Net return after ALL expenses = $4476 or $86 per week

Comparable Sales:  There are several sales in the last 12 months in the area and 2 of them are 2 bed homes so relevant to show you the value of the properties we have secured.

708 S GREER ST in MEMPHIS, TN 38111 (Distance: 0.13 miles)
Residential – Single Family, Bedrooms: 2, Bathrooms: 1
Sale price: $58,000, Sale date: 05/17/2012, Year built: 1950

575 S REESE ST in MEMPHIS, TN 38111 (Distance: 0.17 miles)
Residential – Single Family, Bedrooms: 2, Bathrooms: 2
Sale price: $119,000, Sale date: 01/23/2012, Year built: 1924

3248 SOUTHERN AVE in MEMPHIS, TN 38111 (Distance: 0.17 miles)
Residential – Single Family, Bedrooms: 2, Bathrooms: 2
Sale price: $63,600, Sale date: 08/29/2011, Year built: 1982

580 ALEXANDER ST in MEMPHIS, TN 38111 (Distance: 0.14 miles)
Residential – Single Family, Bedrooms: 3, Bathrooms: 1
Sale price: $130,000, Sale date: 07/12/2011, Year built: 1920

3250 SPOTTSWOOD AVE in MEMPHIS, TN 38111 (Distance: 0.14 miles)
Bedrooms: 3, Bathrooms: 2
Sale price: $92,261, Sale date: 04/27/2012, Year built: 1932

581 S HOLMES ST in MEMPHIS, TN 38111 (Distance: 0.17 miles)
Residential – Single Family, Bedrooms: 3, Bathrooms: 1
Sale price: $136,650, Sale date: 03/10/2012, Year built: 1950

Now most homes in the area, icluding the above sales are older, higher maintenance homes. Our homes are built in the 80′s so newer than all those sales and all in fully maintained condition

How much?

Purchase Price = $44,500 Yes FULL PURCHASE PRICE only $44,500

True Net return AT CURRENT RENTS today = 10.1%

True net return after rents increased to market = 11.8% IN UNIVERSITY DISTRICT!!

And they look like this!

There are only 8 so please contact me immediately if you would like to reserve one of them.

All are currently rented long term and 50% finance is available, book yours today!

Git er done ~ Dean

I received an article yesterday from a US marketing company. I guess you would call them competitors of mine, and I am not knocking them or even naming them, but the gist of the article makes me mad because it is putting sales ahead of facts.

The gist of the article is and I quote:

“Taking a look at the hard data it is crystal clear that the U.S. housing market in once again firing on all cylinders on a nationwide level. We are seeing all of the important numbers move in the right direction and the final piece of the puzzle – home sales volume, has finally kicked into place, confirming a recovery is truly under way.”

So just for the sake of clarity, this is patent nonsense.  There are some markets that are doing OK, 1 or 2 markets that appear to be recovering and some smaller markets like Memphis, that didn’t have a big bust and don’t have a massive over supply of houses that are displaying good numbers.

But the banks have simply not released a lot of the “overhang inventory” and it is not included in the stats we see.  As a leading economist rightly said:

“There are millions of homes either still tied up in the legal process surrounding foreclosure or which at some stage will be in foreclosure (mortgage delinquencies, while declining, are still very high), and these units are not yet recorded as available for sale,” said Josh Shapiro, chief U.S. economist at MFR. “The huge supply overhang of existing homes promises to keep pressure on prices and to weigh on demand for new homes and hence on housing starts.”

So whilst it is without doubt the right time to get into the US market you must be in the right city, at the right price and take a long term view.

As you see here the delinquent loans are GROWING and the biggest round of foreclosures are probably still to come.  I personally believe based on being here in the US that we have probably reached bottom price wise. Memphis is definitely improving in price but it is one of a tiny handful of cities that has specific things going for it.

So my warning is do not buy anywhere just because it is cheap and any marketer trying to put you into a city that doe snot have STRONG employment and population numbers is lyin to y’all.

Git ‘er done ~ Dean.

Of all the things I have learned in my life, not allowing past regret and failure to control my future has been the most life changing!

PS: I still have one of my wholesale homes owned by the perfectionist landlord available, was my favourite of the 6 and is still available. EMAIL ME for more info