What are the 7 mistakes Australian investors make when buying U.S. property?
24/7 Wall St. evaluated data from the IMF, profiles of ultra high net worth (UHNW) individuals, and RealtyTrac. The findings ranked Australians as one of the top 10 international buyers of property in the USA last year. Australians represented 11% of prospective international buyers (3rd highest). This represents an increase in interest of over 121%.
Let’s look at seven common mistakes Australian property investors make, and how to overcome them…
- Rushing In
It’s easy to get caught up in a frenzy, and to gloss over the less fun details when investing overseas. The US is really big. And there are many properties and vendors.
Some investors are happy buying into pretty off-the-plan developments, in a well-known cities, with the promise of mediocre yields.
While watching the numbers, reading the fine print, and taking a little time to learn about new processes might not be as appealing as making it to the next international yacht show or formula 1 racing event, it will ensure that you can continue to enjoy those luxuries.
- Waiting Too Long
In the reverse; there are some Australian investors self-sabotaging their financial futures and investment portfolios by dragging their feet. Being trapped in ‘analysis paralysis’ can certainly freeze, if not at least dampen cash flow and wealth building.
In contrast to the dramatic rise in interest in purchasing American property noted above; The US National Association of Realtors 2014 report tallying International Home Buying Activity virtually fails to mention Australians by name at all. ‘Asia/Oceania’ buyers are all lumped together in annual statistics. Although this group made up 32% of international clients purchasing in the US, it suggests many have yet to make the move.
- Relying on the Media’s ‘Hotspot of the Day’
Relying on the press’s ‘hotspot of the day’ to make a long term investment decisions has obvious flaws.
Australian investors need to look at the real figures, at a local level.
Did you know that Miami, Florida is ranked at having the highest poverty rate in America according to the US Census Bureau.
It also boasts a single high rise tower which houses over 2% of the world’s billionaires.
Despite these ultra wealthy individuals a huge percentage of the local population lives on less than $11 per day (USD).
Unfortunately you are never going to hear the truth in most luxury travel magazines, real estate marketing pitches, or top 10 places to buy now lists.
Make sure you do some serious research, or work with a transparent and reputable property investment advisor.
- Emotional Investing
The above mistakes can often be symptoms of emotional investing. Emotional investing can be very costly. Giving money to a charity, pampering yourself with the latest Gucci loafers, or purchasing your dream vacation home (in an area prone to earthquakes or hurricanes) isn’t really investing.
Warren Buffett is describes it best: “Investment is best when it is most businesslike.”
Investing can be fun and exciting. But always make decisions based on the hard numbers; not fancy pictures or ego. Invest soundly first. Then your investments will pay for all the luxury and disposable spending, and good causes you want to support.
- Failing to Understand the Process
Buying property in the US is a little bit different to anywhere else. The terminology is different, and the insurances required are different.
The legal side of mortgaging property and holding ownership even differs between states in the US. No one will have any idea what ‘Strata Title’ means and there may be fewer benefits to buying new versus existing properties in the United States.
This is no doubt why converting existing US homes into rental properties has been the focus of the world’s largest hedge funds and why America’s second largest home builder just announced that it is turning to building apartments and single family homes for rent, instead of for sale.
Investing in the US is not difficult, but it is different. Get some guidance on the process and you’ll enjoy stress free, and more profitable investing.
- Fragmented Processes
Efficiency is important in any investment process. This may be even more important when investing in new territory. Too many try to navigate this process alone. They end up trying to work with bankers, attorneys, insurance agents, visa advisors, real estate appraisers, vendors, and property management firms that have no connection, and can’t work together in sync.
Savvy property investors know that the net profitability of any investment relies heavily on taxes. There can be taxes on income derived from investing in US property. Yet, there are also a wide range of legal tax breaks, write-offs, and deductions for those that are aware of them.
Between LLCs, tax deferring investment vehicles, and better accounting, taxes can be greatly minimised and returns maximised.
Matt’s passion for property investing and his intimate knowledge of the US property market has resulted in him building a business where he assisting others to build equity, income, and wealth through US real estate. For more information on Invest USA get in touch with Matt here.
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