25 Feb 2013
Investors Profile: Why I have not purchased US property yet
Australian Andrew Gardiner, founder of Spondor, has extensively researched the US property market but is yet to buy his first US real estate investment. Find out why he has held back on his purchases and what could make him finally buy.
How do you choose where to potentially invest in the US?
I have extensively researched the US property market, from sea to shining sea and every town in between. I’ve traveled for the past few years in search of investment opportunities with an open mind, and a love for America’s beauty and philosophy.
Yet I have not ended up buying a square inch — so far.
From an environmental point of view, I am wary of areas that are prone to blizzards, hurricanes and tornadoes. The extra annual costs of maintenance and building and the higher insurance premiums make these areas less than attractive to me.
I also research the tenant and landlord laws of a state I am interested in. While this is not an overriding reason, as a landlord, it is easier to control property in the more tenant-friendly states.
Finally, I research the states’ economies, as well as their current job and population trends. I closely examine local and state taxes. The local authorities levy taxes for the provision of essential services and the schools. The states, typically, levy income taxes and some sort of sales tax. As a buyer I must be aware of these costs – and what they mean to the overall return from a purchase.
Did you physically visit the location of prospective properties?
I always look at a property that I intend to purchase in person. By staying in the town/city and walking the streets, I get a real feel for the market. Locals are happy to talk to me and I get introduced to new leads.
A drive of the local area gives me a real perspective for the likely growth of the area, the economic conditions, the occupants’ pride; all sorts of other factors that cannot be derived from afar.
By only looking at a website, properties could seem solid, in a good location and financially sound. In person, they were to be avoided. I found a ‘renovator’s delight’ that was so described because most of the sliding doors of the 18-unit complex had been stolen. I also saw a beach side complex that looked great on the numbers, but the local paper told me it was in an area controlled by local drug lords and unlikely to attract rent-paying tenants.
What tools did you use to do your research? What was the most effective and ineffective?
I use the web as an effective starting tool to research properties for sale, pricing trends, employment trends, and all manner of data that gives me a feel for the area I am interested in.
The most effective tool is, however, being on the ground and talking to the locals.
The owner of a home-stay where I stayed for a week gave local knowledge of where to buy, what to buy, the relevant price ranges and a personal introduction to a real estate agent that the home owner knew and trusted. That agent drove me around the city, showed me properties for sale, properties that had sold (and for how much) and gave me an insight to the market that cannot be obtained from the web.
The most ineffective tool are the ‘foreclosure’ sites. These sites are typically pay-for-use and provide outdated data that have most likely been rejected by buyers who are in contact with the banks and the foreclosure agents.
Did you hire experts or have contacts on the ground to help you?
I try and ‘work’ an area that I am interested in and develop contacts. I stay in regular contact with the local agents. If my agent was not the listing agent, I would ask them to be my ‘buyer’s’ agent. I would make sure my agent is to be paid.
Has the process been a smooth one? Why or why not?
Arranging finance is the biggest single issue with buying in the US.
As a prospective buyer from overseas with no credit history in the US, I’ve knocked on US banks’ doors, asking for finance based on my credit record. However, even with my stellar, long-time overseas credit history, I’ve had no luck.
My lack of borrowing capacity in the US means that an all-cash purchase is probably required. I am wary of this, as I would then end up a few percentage points behind the local investor and I would also have to endure exchange rate risks.
Any other tips and advice?
It may be obvious, but a prospective buyer should always be satisfied that the purchase makes sense on their figures. Most of the time, the list price on a property for sale in the US will bear no resemblance to the market value. A buyer who reduces the wanted sale price by 25% may still have overpaid.
Also, a prospective buyer should be respectful. The US is a vast collection of different people and cultures. Overall, the people I’ve met are very friendly and business-smart. If a prospective buyer takes the time to listen, they can reap the rewards of new contacts and friendships – and potentially some great investments in property.