16 Apr What to watch out for when investing in the USA – Reed Goossens
There have been some horror stories about people who have been lured into investing in property in the USA. Reed Goossens who specializes in selling US properties to Aussies explains how NOT to get it wrong.
Kevin: One of the common questions I’m asked through the show is whether or not it’s wise to invest overseas, and no doubt in that conversation, we’ll always talk about the U.S.A. market – a very hot market in recent times. I am going to talk now to my next guest, Reed Goossens, who is an expert in this field, buying in the U.S.A., and has a website called RSNPropertyGroup.com. I will give you that website again a little bit later if you want to know a little bit more about it. He joins me.
Reed, thank you very much for spending some time with us today.
Reed: Thanks a lot, Kevin. Good day. It’s great to be here on this show.
Kevin: I just wanted to know what investors need to be aware of if they want to invest in the U.S.A. property market?
Reed: As International investors, the biggest thing you need to be aware of is obviously the way in which you structure deals in the United States. Being educated on your deal structure, being educated on how you can get your capital into the U.S.A. market, and just being aware that you can’t just walk over there and start buying properties left, right, and center at the flip of a switch. There’s some back-end stuff that needs to happen before investing.
But by and large, the international investors come to the United States for a couple of reasons. That’s capital preservation – they look to get their money out of the particular country that they are in – and they look for a good yield. The U.S.A. offers both those things, and it’s a stable government. And, also having the investment in the green buck. The American dollar is very, very enticing for many international investors from across the globe.
Kevin: I do want to ask you about a lot of that back-end stuff before we finish this interview, but at the top level, are there any areas or types of properties to avoid if you are looking at investing in the U.S.A. market?
Reed: When I first moved there, as you know and probably as a lot of your listeners know, there were the turnkey $50,000 to $100,000 properties that on paper could earn $600 or $700 a month. Those types of properties, I would definitely steer clear off. Turnkey in general, if you your listeners aren’t aware of it, the profits are stripped out once you as an investor get that turnkey property.
So, trying to make sure you’re understanding what you’re buying and understanding the numbers behind what you are buying. Just because it’s on paper and it looks good on paper, it might not necessarily mean how it reflects when you are actually operating the property.
Word of caution is if you are looking at any turnkey properties in the United States, then don’t get blindsided by the fact that something is worth $50,000 all in and you can rent it out for $700 a month and think you’ll get a cash flow of $300 to $400 dollars a month. Just take it with a pinch of salt and make sure you understand what you are buying and understand all the associated costs with running that property, particularly from far off, from abroad.
Kevin: Yes, you can’t beat getting your boots on the ground. For that reason, do you think investors should travel to the States to see properties before they buy?
Reed: 100%. I always, always recommend my investors, whether they are investing with me or if they just have questions or if they are investing with someone else, get to the United States, get some boots on the ground, get a feel for what you are investing in. And then you’ll be making a more educated decision.
Kevin: Let’s talk about loans and financing. Are Aussie lenders warm to the prospect of investing in the U.S.A. or do we need to get to an American lender?
Reed: I haven’t come across any banks in Australia that will lend. HSBC does have a program for high-net-worth individuals where they can leverage existing portfolios in their country of origin – i.e. Australia – but that has to be worth I think it’s about $1 million. The average investor going to United States will probably buy their properties all cash or they’ll invest with a partner on the ground who can get leverage, which is what RSN Property Group does.
But in general, you also could do some other lending but the interest rates are a typically little bit higher, and that’s from private individuals who will probably lend you between 7% and 8%, maybe 60% loan-to-value on a property. Again, there are not a lot of options there for international investors, but if people are interested, the options that are available, I can definitely talk to them offline if they want to reach out.
Kevin: And we will give you the website again in just a moment to do just that.
How different is the loan and purchasing process from what we’re used to here?
Reed: Look, it’s pretty similar – with different names for different things. You have a title company that is involved, making sure that the background on the property, there’s nothing owed on the property, there are no liens against the property, making sure that is all clear.
You do the same sort of things. You have to get building inspections. The bank will inspect if everything is all clear. You get a clean title, you go to the closing table, you close the property, the transfer of title, the deed is into your name, the bank brings the funding to the table if you’re getting bank financing, and then off you go. You’re off to the races in terms of having a lots of new assets that will either cash flow for you or you’re using it for a particular tax haven or capital preservation.
So, very similar because it is a Western country, obviously very similar to Australia. And again, there are slight nuances, but in general, it’s the same sort of process.
Kevin: Being the same sort of process, could you do it with an Australian solicitor, or should you use an American solicitor.
Reed: No, always use your American solicitors, just because of the state laws. They vary from state to state, so if you’re buying something in Texas, there might be slightly different state laws compared to if you are buying in, say, California. I always recommend to try to get an attorney who is boots on the ground in that particular state, who is very knowledgeable about those state laws.
Kevin: When we get into an investment property in the States, as an example, what rights can be made about having the property maintained and well managed?
Reed: There are couple of options there. You can get a third-party property manager, which is good. They are usually doing a very good job, but you also have to remember what they’re getting paid – going back to that turnkey property model. If they’re only getting any 5% or 6% on your gross income, they may not prioritize your property as highly as something else.
But if you’re partnering with someone who is boots on the ground in that market, that is probably the best option to do, or have someone who is part of your team who can go past the property and make sure things are running smoothly every now and then, so that you get a peace of mind.
Kevin: What are the standard fees for managing a property?
Reed: It depends. If you’re in the single-family market, probably 7% to 8% of the gross income. If you are in the commercial space, large multi family, which is what I’m in, you’re probably looking at more than 3.5% to 4%, but you’re talking about 100 plus units there.
Kevin: The website is RSNPropertyGroup.com. No doubt, there is a lot of information there for you if you want to find out a bit more. But Just before I let you go, Reed, can you please tell us if there are any research tools that you’d recommend an investor could use to help them understand a bit more about the American market?
Reed: Yes. In general, there are couple of great property reports that are being released by CBRE, which is one of the big commercial firms. In terms of your specific market wherever you’re investing, try to get your hands on one of their market reports. It’s pretty easy. If you Google “CBRE market reports,” they will come up with a bunch of options. You can type in whatever market you are investing in, whether it be California or Texas or whatever it might be.
There is also REIS.com. That’s another good source of market information boiled down to help the investor, whether you be a local investor in the United States or an international investor looking to invest in the United States, just to digest a little bit better. They talk about population growth, job growth, and GDP growth, and they’re the factors you want to consider when investing in any market in the United States.
Kevin: Yes, it’s a very strong analytic company, I think, REIS, isn’t it?
So those two websites: REIS and CBRE. Is that Coldwell Banker Real Estate?
Kevin: And, of course, you can go to Reed’s website, RSNPropertyGroup.com.
Reed, thank you so much. It’s an interesting subject, one that we shouldn’t ignore. I appreciate you giving your time to explain it in a lot more detail. Thanks, mate.
Reed: Thanks a lot, Kevin. Have a great day.