14 Jun Where to buy and where NOT to buy in the USA – Steve Earl
How often have you heard those horror stories about buying overseas, buying American property? We do know that there is some very, very good buying, but selection criteria becomes absolutely critical: who you deal with, what sort of property you buy, where you buy it, and how it’s going to be managed after you bought it. We answer those questions for you.
Kevin: How often have you heard those horror stories about buying overseas, buying American property? We do know that there is some very, very good buying, but selection criteria becomes absolutely critical: who you deal with, what sort of property you buy, where you buy it, and how it’s going to be managed after you bought it.
Well, we might have the answer for you, because joining me now to talk about this, Steve Earl who has a company DoneForYouRealEstateUSA.com. That’s the website and a lot of great information there for you, too.
Steve, thank you for joining us in the show. You and I had a chat off air. You answered a lot of my questions, which we’re going to go into a little bit more detail now, but thank you very much for joining us.
Steve, the first question I want to ask you about is American real estate: is it still suffering like it was we heard a few years ago?
Steve: As you know there is a big crash in 2008–2009, and generally speaking across the U.S., the market has recovered significantly. Many of the hardest hit areas, like Arizona and Nevada, have actually recovered almost to their pre-crash levels. And then generally across the U.S., things have improved significantly to where the real estate market is in more of the normal part of the cycle right now. So, there’s been quite a recovery over the last six, seven years.
Kevin: Well, that’s good news. We did hear some horror stories. I think it was Detroit where we were seeing a lot of property being advertised or promoted as being very, very cheap. Is that still the case?
Steve: There’s still some of that going on, for sure. There are some groups that are still selling those types of properties, and I’d even suggest to unsuspecting individuals. I’m actually very familiar with those horror stories because back in the day, I purchased many of them. So, I also experienced and learned the hard way, some of those horror stories.
But in the end, it was a good experience that lent itself to myself and my company and the way that we now rolled out our company in such a way that we can help others avoid those types of real significant problems.
Kevin: Tell me a little bit about your company. How does it work, and what areas do you focus on? And how can we, as consumers, say, from another country, be sure that we are not buying a lemon?
Steve: Yes, super critical. As you I’m sure know and your many listeners probably know as well, real estate is very geographically centric – meaning it’s pretty tough to buy outside of your own backyard and be confident that what you’re buying is really good real estate, all the way from knowing that it’s good real estate to how do you find it, how do you manage it, how do you make sure that it’s going to produce a profit for you?
And so as a company, there are a couple of things that we have done to take geography out of the equation and to add a big component of predictability and consistency to the outcome.
Kevin: Could you tell us a bit how that works then?
Steve: The way that that works is we setup a system such that as a company, we’ve identified five different markets in the U.S. that we feel like a really good markets, and our philosophy is based on creating cash flow. Then we take advantage of equity growth when it presents itself. But the key is cash flow.
So we’ve identified by really good markets… There are more than five good markets in the U.S., but we’ve chosen five markets, principally Indiana, Tennessee, Florida, Charlotte, North Carolina. And then we’re also in Arizona and Nevada; we don’t buy so much in those two markets anymore.
We, as a company, we actually go in. We typically buy the properties at auction, we rehab them and get them ready to place a tenant, and then we resell those to our customers. But we have a very specific criteria for our properties.
We don’t buy any low-income housing. We don’t buy luxury-type properties. We don’t do multi-family housing. We do strictly single-family homes in middle-income neighborhoods. The properties that we purchase are median-priced homes – three bed, two bath, two-car-garage type properties.
We do that with a very specific reason, and the reason being that we want the largest group of people to be able to rent those properties to and then in the future to be able to resell those properties, too.
That’s why we stay in that median-home-priced area, and that’s a formula that has worked very well for us over the last eight, nine years. We’ve helped our clients purchase more than 3500 properties. We currently have about 2200 properties under management.
Kevin: A very sound formula and one that sounds very, very familiar to me. So, as I understand it, you buy the property, you rehab it, you then put a tenant in, and then you on-sell it, so we know as an investor that we’re going to be getting an income.
What sort of rental returns are they, and could you give me an idea about some of the purchase prices?
Steve: Yes. Our average purchase price is about $150,000. Our typical cash on cash return almost always falls between 7% and 14% – and that’s cash-on-cash return.
Then when you annualize that… We implement what we call a short-term buy-and-hold strategy, where typically our clients will hold on to a property anywhere from two to five years, and over the course of about five years, the annualized return is closer to in the low 20s percent return on investment. That’s because that includes the appreciation, but the cash-on-cash return is almost always between 7% and 14%.
Kevin: I guess the returns you’re talking about there are fairly contingent on getting finance. How difficult is it for, say, Australians to get finance to buy an American property? How do you go about that?
Steve: Now that part can be just a little bit tricky in terms of getting a loan here in the United States, unless you have income from the U.S. and you’re filing U.S. tax returns. The financing in almost every case will have to happen on your side of the deal.
Kevin: Given that’s the case and assuming therefore that any buyer out of Australia, as an example, or New Zealand can put in place their own finance, what about managing the property after it’s been sold?
Steve: That’s really a great question, actually, and that is the absolute key to any successful real estate investment. It’s kind of the scariest part because once you’ve bought the property and now the rehab is done and you place a tenant, now it’s all about managing that property, maintaining that property, and collecting rent on a regular basis.
We’ve actually become very expert at that. The way that we go back doing this is we actually identify property managers in the areas where we are purchasing properties and create relationships with local boots on the ground – individuals and companies that have a local experience and local employees and local licensing and so on – to manage the properties. And because we are bringing so many clients to the table to this individual property management companies in those particular areas, we have a lot of influence.
I would just point out real quickly that more than 50% of our business was repeat business in 2016. That’s just our clients coming back and buying more properties. It’s something that we take great pride in, and the key to having a repeat customer is not only a good experience but a good financial experience, as well.
Kevin: Yes, great talking to you on a very interesting insight there too, Steve. We’re going to leave it there. Thank you very much for your time, Steve Earl. The company’s called DoneForYouRealEstateUSA.com.
Steve, thank you so much for your time.
Steve: Thanks for having me.