09 Aug Getting USA property is the easy part – Bushy Martin
You learn something new every day. In this interview I learn that Bushy Martin has been investing in property in the US for a few years. He has learnt a lot and can help others who want to do the same. It is always cheaper to learn from others mistakes.
Kevin: My guest this time in the show is a man we’ve had in the show in the past. I learned something about him I didn’t know in the lead up to this interview, and that’s the topic of this conversation, and that’s about investing in the U.S.A. Bushy Martin joins me. Bushy is from KnowHow and is also the author behind The Freedom Formula, which we’ve spoken about in the show.
G’day, Bushy. How are you doing?
Bushy: Hi, Kevin. Great to see you again, mate, and I really appreciate the opportunity to have a chat.
Kevin: Pleasure. I want to talk to you about this because I didn’t know that you’d invested in the States, in property in America. Is this a recent thing?
Bushy: No, we’ve had them for a few years now, Kevin. We always look at where the opportunities are, and after the GFC, obviously, property in the States fell through the floor in terms of value. So, we had a good look at it for a couple of years, and we had a lot of our investors knocking on our door saying “We’ve got to buy in the States, we’ve got to buy in the States.”
And we said “Hold your horses, let’s just settle it down. We’ll be the guinea pigs, we’ll jump on a plane, we’ll go over and we’ll suss it all out. We’ll look at the investment principles over there, we’ll make sure the process works, we’ll have a look at the quality of the people on the ground, and then lastly, we’ll look at the property and we’ll dive in and buy a few properties and see how they go. And if it shapes up all right, then and only then will we suggest that other people follow us on the route.” That was about 2011, I guess.
Kevin: Yes, you have a few years under your belt now. How has it been in hindsight?
Bushy: There’s a massive difference between how it looked on paper and how it presented initially. Getting the properties was actually the easy part, Kevin, and when you looked at the numbers, they stacked up really well.
It was chump change to get into the properties. We bought a couple of properties for between $30,000 and $50,000 in U.S. dollars. At the time we bought them, the Australian dollar was $1.05, so that was pretty good buying. The rental yields were massive, between 21% and 30% on paper. You’re not paying stamp duty. There are a whole bunch of things that look really good.
But I must say buying the properties was the easy part. The actual experience beyond that has been interesting to say the least.
Kevin: Experience in what? Getting it ready to rent, or getting it rented and keeping it rented?
Bushy: Yes, exactly right. I think the biggest challenge we’ve had is our expectations around the level of professionalism from people in the property industry.
Kevin: These are like letting agents?
Bushy: Yes, absolutely. We treat property as an elite team sport, Kevin, so we make sure that we eyeball and identify good players on the ground. We’re talking buyer’s agents, we’re talking building inspectors, we’re talking accountants, lawyers, and most importantly, the property managers. And the area that’s really let us down has been the property management.
We’re used to very good quality property management here in Australia, but the standards and levels over there are a long way short. So, very average tenants, extended periods of vacancy, very lax in terms of rental collection. It’s a very reactive exercise over there versus the proactive approach that we see here in Australia.
The other thing that caught us a little bit is the extremes of weather have really upped the ante in relation to maintenance costs. Burst hot water pipes are a regular exercise, replacing them and all of that. Flooding of basements that you wouldn’t expect, just because of the extreme seasonal changes. There are a whole bunch of things there that we wouldn’t have envisaged.
We certainly put contingency on things, but we certainly didn’t anticipate that sort of poor level.
Kevin: Yes. In the other show that we do, Real Estate Uncut, which is shortened to RE Uncut, that’s aimed straight at real estate agents, and I know through that show, Bushy, that there are a number of operators out of Australia who are now living in America and training agents over there how to manage property – or how we do it in this part of the world.
I do think that we are the leaders in that area. I think our levels of service are quite exceptional.
Bushy: Absolutely 100% agree, Kevin. After experiencing both, we are poles apart. In fact, I think we set the standard internationally. I guess we always picture America as the pinnacle of everything, just the way it’s presented, but our experience with that has been very different. There’s a massive difference between the walk and the talk in the States, Kevin. Big on promise and a bit average on delivery, I would have to say.
Kevin: That is changing, though, isn’t it?
Bushy: Yes, it is changing. It’s certainly improving quite a bit. In fact, after two years with the properties, we flew back unannounced, inspected the properties, changed the keys, sacked everyone and started again.
And we even added in an independent project manager who we paid an hourly rate for to make sure that what we’re being told is the truth and we had some independent eyes and ears on the ground to do some inspections and to give us the truth on exactly what was going on. So, when you add all those costs in, it suddenly doesn’t look anywhere near as good as what it needs to be.
I guess the other thing, too, is we’ve been fortunate in that we bought pretty much at the bottom of the market, and the intention was to buy at the bottom and then all we had to do was improve to the point where it equaled its long-term average and you’d effectively doubled the value of your property. But you’d be hard pressed to do that now. There’s actually very little capital growth in the States generally. If anyone is looking to invest in the States, I would only focus on a cashflow strategy.
The other challenge with it, Kevin, is to buy the property in the States, you must have an American bank account, and you can only get an American bank account if you’re physically there in person to be able to sign the documentation. So, you can’t buy remotely; you have to jump on a plane and go over and do it. When you add those costs into the equation, then suddenly, the real yields are a lot lower than what the expectations are.
Kevin: Yes. Mate, you promised me the good, the bad, and the ugly. We’re out of time. I think we’ve seen pretty much what it is. There’s a note of caution about it always. Always check it out for yourself.
My guest has been Bushy Martin from KnowHow. What’s the website if anyone wants to reach out to you?
Bushy: Thanks, Kevin. It’s www.khgroup.com.au.
Kevin: And of course, that wonderful book called The Freedom Formula. All the details are on that website, no doubt. I’d be disappointed if they weren’t, Bushy.
Bushy: They’re all there, and I really appreciate the opportunity to have a chat with you.
Kevin: Yes, it’s a great book. I’ve still got it. It’s one of those books that you’d keep on the coffee table, I can guarantee you. It’s a great book, tremendous read, and looks pretty good too, I have to say. You scrub up all right.
Bushy: It’s amazing what they can do with Photoshop, Kevin.
Kevin: Fair enough, mate. Good on you. Okay, Bushy, thanks for your time, mate. That website, again, is www.khgroup.com.au. Thanks, Bushy. Talk again soon, mate.
Bushy: Thanks, Kevin.