BUYING INVESTMENT PROPERTY IN THE U.S.A. Have you thought about investing for your future, maybe your retirement or even just improving your lifestyle now? Do you see people around you, your friends or relatives or workmates who are doing the things that you want to do? They’re travelling a lot or have lovely houses or fantastic cars. Would you like to have your lifestyle improve but the thing standing in your way is that you’ve got no extra income? In Australia, basically when most people buy investment properties they’re buying them for the future because in Australia you can’t really get very much of an income after your expenses are taken out. The prices of the properties are so high and you generally have to have a mortgage because who has half a million dollars just sitting around? So you have to have a mortgage and then you are in a situation where you’re not going to get very much return because most (if not all) of what you get in rent is going to go back into the property to the mortgage and other expenses. So, its not a very viable proposition for an income that you can create right now, that can take you into retirement but also can give you the lifestyle that you want right now. A lot of people buy investment properties in Australia to help them for their retirement but really what they’re relying on is that the value of the property they bought will actually increase in those years until their retirement. So the rent they’re getting is not doing anything except paying, (or partially paying) off the mortgage. It’s not doing anything else, it’s not creating income for them. So the cashflow is just going straight back into expenses, and they’re relying solely on the property going up in value over a period of time to make money for them. That’s not a bad thing as the increase in the value of the property can lead to an increase in equity, which may allow you the freedom to other things with that money.
But basically if you’re talking about a retirement income stream, then property in Australia is really not going to do it for you, because you’re going to get to the end of the line and then you’re either going to:
a) sell it, which means you’ve got a finite amount of money from it (possibly subject to a multitude of taxes) or b) you’re going to keep it, which means that that investment has not actually done anything much for you in real terms. So for me, in all the many property investments I’ve owned I’ve always wanted cashflow to improve my life right now. I don’t want to have to wait until retirement to enjoy the benefits of investing. I want to have a better lifestyle NOW and at the same time build up assets using the rental income to create a better retirement. Not an ordinary retirement but a retirement where I can have the freedom to do what I want.
In Australia you’re not going to get this cashflow very often, if at all. The returns in Australia are extremely low and you have to pay a lot of money to get a return at all.
Everybody knows that property in Australia is amongst the most expensive in the world and that there only a few countries where property is more expensive in the world . In not just in the capital cities either, it’s everywhere. If you’re very lucky you might get a r positive cashflow, but that’s very unlikely.
That’s why investing in real estate in Australia is not exactly ideal. And yet so many people do it. In Australia there’s basically only 2 forms of investment, shares or real estate.
So, unless you’re incredibly savvy and know everything about upcoming areas and real estate trends, or you are prepared to put a lot of work into renovating a property and reselling it, then basically you’re not really going to get much back, especially in the short term.
So, even if you bite the bullet and buy in Australia it’s not only problematic in terms of the return on your income it’s also incredibly expensive to set it up as well.
So you’re probably going to have to get a loan. That means you’re going to have to jump through all sorts of hoops to get that loan, provide a lot of personal information and wait a long time for a decision and then do mountains of paperwork. Doing business with the banks involves lots of administration and this is all costly.
And when you apply for a mortgage you will need a large deposit, in most cases 20%, which is a lot of money. If you’re buying a house for $500,000, this means a deposit of $100,000.
Add to that the stamp duty (which is higher for an investment property than a private residence), and can be from $10,000 to $20,000 depending on what state you’re buying in. Then add on legal fees and the set up fees for your mortgage and the costs just keep adding up.
This is very difficult for a lot of people, especially young people buying their first home. We hear about this problem so often in the media, the issue of housing affordability and first home buyers not being able to afford anything.
Not only do you have huge expenses involved in the purchase itself but enormous amounts of red tape, which seems to make the whole thing drag on forever.
Imagine a scenario where you didn’t have to deal with a bank at all and you could pay CASH for the property because it was so affordable, and you didn’t have to pay ANY stamp duty.
In the USA there is NO STAMP DUTY at all and that will save you many thousands of dollars.
It is so much easier to do this whole process in the U.S.A, than it is in Australia especially if you don’t have to have a mortgage.
When I bought my first property in the U.S. it settled within a week of signing the contract with the agent, it was so easy and fast.
This is already the case with many Australians who have real estate portfolios in the U.S. and have a reliable passive income from their property for life.
Metropole Property Strategists director Michael Yardney says if you want to earn $100,000 a year from real estate investments (in Australia) after tax and other costs, you’ll need at least $4 million of properties without mortgages. Anthony Keane, Personal finance writer, News Corp Australia Network September 8, 2017 10:30pm
In the U.S.A. if you want to earn $100,000 a year from real estate investments after tax and other costs, you’ll only need maybe 9 or 10 properties at around $50,000 each or a total of about $500,000 without mortgages.
Hmmmm…..$4 million vs. $500,000. Why would you buy in Australia?