The first US acquisition

PORTFOLIO POINT: Considering buying US property? It’s important to see properties first-hand, and to recruit a team to look after your interests.

Once you’ve formulated a plan for investing in the US and decided where you want to buy, it’s essential to go there yourself and check the area out, according to Sue Shillabeer.

Steve McKnight, CEO of propertyinvesting.com, agrees and points out that one of the big benefits of doing so is that you can build a team once you’re on the ground. He says it’s also a good idea to go to the US and buy something yourself rather than going through a company that will buy a property for you, because there’s a risk it can be overvalued.

After eight months of homework, Sue flew to Florida in January to scout for her first American property investment. She says that it was while she was waiting for her individual taxpayer identification number, in the latter half of 2010, that she decided to go and see first-hand the area where she and husband Michael wanted to invest.

“My main objective was to go to Cape Coral and Fort Myers, to get a feel for the area and what was happening. I wouldn’t buy without seeing it for myself, otherwise I wouldn’t know what I’m getting myself into.”

She flew to Orlando, then drove southwest to Cape Coral, to the office of the conveners of the US investment course she and husband Michael had completed in Australia. She had a contact there with whom she’d been liaising after the course.

The Shillabeers had paid a $US29 monthly fee for the right to use the US office and its contact details. They also have their mail sent to the office, where it is sorted and anything of importance is forwarded to them. Sue says that setting up a limited liability company, which they did to buy the property, requires having a base address in America.

One of her main goals in going to the US was to build a team on the ground in Florida to aid the investing process, something she describes as “very important”. It was in the course convenor’s office that she was introduced to a realtor who “took me under his wing”, sue says.

“I met him the next day and he drove me around and showed me houses, then we went back to his office and he set me up on a computer and signed me up for real estate alerts in specified areas and then we started putting offers on properties and having a bit of fun with it.

“I spent quite a lot of time with him and that was priceless.”

The system in the US works a little differently. Unlike Australia, where properties are generally transacted with just a real estate agent who works for the seller (occasionally there is a buyer’s agent), in the US there are usually agents working for both sides.

US realtor Steve O’Brien says: “The seller pays a commission to the selling agent and he usually splits that commission with another agent that brings the buyer to him,” he says. “For a buyer there’s usually no commission paid to the agent.”

He says it should be a priority to find a good realtor in the US because that person will be your guide and someone you can trust to give you honest – and quick – evaluations of properties and areas.

Buyers should talk to a few different agents to determine their experience and make sure it matches your objectives for investing in the US. You should find out the answers to questions such as:

• How long has he/she been in the business?
• Does he/she own their own investment properties now?
• Has he/she worked with foreigners before?
• Does he/she have recommendations for you to help you build a team of experts on the ground?

Before arriving in Florida, Sue had been scanning properties and a had a sheaf of printouts about all those that had caught her eye. “About one out of 20 in the bundle was still on the market, so that shot that idea out the window! I was a little bit naive, but he [the realtor] set me straight.” The realtor brought her up to speed to the local market by taking her to a string of houses – good, bad and in-between.

In addition to finding a realtor, Sue recruited several other professionals to her US investment team and more were added once she returned to Australia, after finding them through her US contacts. The team now includes a lawyer, a property manager, an accountant, a bank manager and a contact for home insurance.

You have to actually go to the US and meet the people whose services you’ll be using and who’ll be helping you face to face, says Sue. It’ll help you build trust in them and give you confidence for your investment. While in Florida, Sue also spent some time with her bank manager, going through the banking processes.

It was on her last day in Florida that Sue signed the contract to buy her first US investment property: she offered $US32,000 for a foreclosure property, a three-bedroom, one-bathroom concrete house on a big block in Fort Myers Shores, near Cape Coral.

“I rushed back to the [realtor’s] office, filled out the contract and then I left; I’d already checked out of the hotel,” Sue says, adding that she didn’t leave until she’d been through the contract page by page with her realtor so she understood everything it contained.

Apart from the acquisition cost of $US32,000, Sue and Michael paid $US1054.95 in settlement costs, which covers government charges and title charges, as well as $US872 for insurance. They also spent $US5000 on renovations, so in total the purchase cost them $US38,926.95. The strong exchange rate at the time mean the figure was lower in Australian dollars.

The property is now rented for $US675 a month, giving positive cash flow.

This article was first published in Australian Property Investor and is reproduced with permission.