U.S. is a fantastic place for investments, it is truly the Land of Opportunities. Over the recent 10 years, Australian investors had been flooding into U.S. , despite of the weakness in AUD, many investors had actually used the low interest loan to invest in American properties.
The yield in U.S. real estate is far greater than Australia, it is common to see rental yield above 8% in established markets, and in smaller markets, rental yield can exceed 13% even 15%.
The U.S. real estate market is recovering strongly, but the rental has also kept up the pace. I had invested in a condo in Dallas, Texas, the rental had increased from $450 to $550 over 12 months period, and likely to reach $650 by the end of 2013, not a bad return considering the investment amount was $38,000.
In this article, we would like to share some of the strategies we use for research when selecting investment properties in the U.S.
Agents are able to sell other properties
Unlike in Australia, where the agents can only sell their listing properties, agents in the U.S. can access to any property either listed by themselves or others, this provides agents and property buyers a much wider choice and opportunities. You do not need to “stick” with the listing agent, you can find multiple agents to help you finding the properties.
Use companies to hold the property title
It is common to form a company in the U.S. to invest and hold properties, which is something unique to foreign investors. This is due to liabilities issue, if something happens to a property, then the total liabilities are limited to the assets held in the company (eg. just one property), and you are not personally liable for the loss or damage.
Property tax is higher
The tax system is completely in the U.S. – personal tax rate is significantly lower in the U.S., schools are funded by local property tax instead of state or federal taxes. As the result, property tax is relatively higher in the U.S. You maybe surprised to see a property that is $40,000 needs to pay $1,000 property tax, it is because of the difference in the tax system.
Yes, there are properties around $30,000 or $40,000
I recently purchased 2 houses for a total of $74,000 in Ohio, the rental return is $650 per month, my net return is 13.5% per year. These are 3 bedroom houses in a regional city with population around 600,000 (approx. same population as Geelong or Newcastle as comparison).
You can’t use Australian standard to apply on the price in the U.S., here in Dallas, Texas, the average cost for a 4 bedroom house in a good area is s around $200,000, and we can also find nice 4 bedroom houses at around $120,000 in medium income areas. Yet, Dallas is a huge city with population over 7 million across the Dallas-Fort Worth Metroplex, which is same size as Sydney + Melbourne.
Average American families pay off their mortgage within 5 years comfortably; many American families have multiple investments. Do not think $35,000 or $40,000 is impossible, you have to change your mentality when comes to investing in U.S.
Check out websites like Trulia and Zillow to get started, and you will realize how affordable U.S. properties are, maybe with the exception of New York City.
Property Search Strategy 1: Invest near Universities
There are thousands of universities and colleges in the U.S., some are reputable in certain fields, such as medical school or dental schools. I live near University of Texas, Dallas (UTD) which is renowned for its telecommunications degrees. As the result, thousands of international students arrive every year from Taiwan, China, Korea, India and Middle East to learn about telecommunications.
The rental market is therefore, very strong from international students, but not from families. You can look for properties near universities in selective areas, most universities in U.S. provide free buses to universities, follow the bus route and you can find good rental properties to invest.
Property Search Strategy 2: Near military bases
Military is a big business in the U.S., there are hundreds of military training bases and installations across the U.S. – American soldiers are well paid, well disciplined and they can often earn university degrees through military.
This means, many training bases also have universities inside their bases, which create further jobs and rental market.
Although most bases are away from major metropolitan areas, these cities/towns are often great places to invest due to under supply situation. Many military families will end up relocating to these locations, and they prefer to rent as army offices are often transferred to other bases. Some good examples include San Diego in California and a small city called Watertown in state of New York.
Property Search Strategy 3: Follow hospitals
American hospitals are mostly private hospitals, they are building hospitals everywhere, many include children hospitals or owned by universities (University Hospitals) which include training schools inside hospitals.
Hospitals create significant number of jobs, on average, they can create 1,000 to 2,000 jobs, most are highly paid jobs with stable income. While searching for properties, look for nearby hospitals and see if these hospitals are expanding, the rental market will increase follow the completion of the hospital.
Property Search Strategy 4: Use Great Schools Rating for assessment
Americans love statistics and transparency, if you look at property listing sites, they will include school information. American families love to rate their schools, especially when the school is underperforming.
Great Schools is a website that can be used for reference – pay attention on 3 items: first the score, which measures the school performance against the state average, second, look at parents reviews and comments, 3rd, look at the % of families that are disadvantaged.
You should also able to see number of students in the school district and determine if the population is growing in this district, which will affect on the rental market.
About RWP Global, Inc.
This is the new series jointly developed between RWP Global, Inc and Quarter Media. RWP Global is a Dallas, Texas business and real estate consulting firm.
RWP Global is established by Mr. Thomas Su, a former editor of The Chinese Investor.
Thomas had moved to North America many years ago and is now based in North Dallas, Texas. Thomas had established a global consulting and investment company, assisting international investors to invest in business and real estate opportunities in the U.S, as well as offering immigration & business consulting services.
RWP Global is seeking for investors interested the syndicates – the syndicates are investing in properties in Ohio, Texas, Georgia and Florida. If you are interested, please send an e-mail to firstname.lastname@example.org , and we will send you information for you to see opportunities as we come across in the U.S.