Saturday, April 30, 2011

USA Property and David Koch

Hi All

I came across an interesting article on USA property and utter ignorance to the opportunity that lies in USA investment property - especially from normally trusted and impartial sources such as David & Libby Koch !

So I thought I would attach the article here and you can see my response that I sent to David & Libby Koch

David & Libby Advice (article)

Hi David & Libby (sent 07.04.11)

Having been won over by your usual impartial and balanced views over the years (where it counts) I was exasperated to read your article already biased by the title "warning flag for vultures" !

This title already alienated potential investors by labelling anyone contemplating this ‘vulture’ picking over the dyeing or the dead – the world’s largest economy is dead and the people are worthless !

This could not be further from the truth – these are/should be decisions based on reasonable platform of wanting to seize an opportunity in unprecedented times over the USA property market being rolled back 20 years !

The whole situation is universally borne out of negligence & greed and has now presented an opportunity for general investment concurrent with good research, education and support by such companies as APWS (yes me) and not as you indicated “a friend or relative around the corner” is this how you would recommend buying interstate across Australia ……………. of course not, so why take this stance with the USA property market ?

Your article went on to cite :

  • · Exotic dinner conversation
  • · Maine being the worst state
  • · US property is a great example of why you should not
  • · Property prices still dropping
  • · Property back to 2003 levels – 30 % since GFC
  • · Mortgages under water
  • · Indirect property ownership (managed fund)
  • · Borrowing issues
  • · Complicated paperwork
  • · Income declared
  • · Real estate / Property Mgt
  • · Repairs costs much higher than here
  • · Cheap properties wrong area “dodgy neighbourhoods”
  • · Problems with tenants paying rent
  • · Vacancy rates 13 %
  • · Upkeep
  • · Buy 10 (10 lost tenants, PM, tax & accounting bills)
  • · Prices down again – double dip recession
  • · Houses are at record lows and down 10 %

So with all these negatives and nothing at all of any substance given to the USA market (you seem to have your ‘bear’ hat on and not the using the ‘bull’ hat at any stage to review the opportunity from a 360 perspective) I needed to balance the ‘scorecard’ because you have hung, drawn and quartered this huge opportunity by dismissing the positives in totality with the deliberate exclusion.

· Exotic dinner conversation – isn’t this the case for any investment conversation bragging rights

· Maine being the worst state – has a population of < 1.4 M or .4 of the entire (330 M) population with 23 % vacancy for owner occupier, but one of the lowest rental vacancy rates at under 2.5 % surely as an investor isn’t this more critical than the owner occupier rate, but a good balance as Maine has around 74% owner occupiers – very nice investment balance for investment property and looking at the closed loop – opportunity to sell to either investment or owner occupier buyers ?

· US property is a great example of why you should not – how can this be the case, when so much has been wound back and has historical evidence up to 2006 (pre GFC) that the market was strong and able, this is not a third world country it’s the world’s largest economy and huge population - so I gather if you were asked back in the 80’s & 90’s you would have also missed out on Google & Microsoft start-ups, even though, with property you have a huge amount of historical data to use at this time !!

· Property prices still dropping – when do you have an exact science, yes in states some are but in researched and monitored states there is REAL opportunity due to planning, determination and infrastructure spending, USA property is bouncing along the bottom in the states that I would recommend from research, education and support

· Property back to 2003 levels – 30 % since GFC – gone back 20 years and allows for a rare investment opportunity

· Mortgages under water – reflects the growing demand for rentals as people have been foreclosed, but still need a roof over their heads

· Indirect property ownership (managed fund) why have you dismissed companies such as APWS which are based in Australia and take regular trips to the USA (specific states ) and offer comprehensive & professional support from Australia and in the chosen states with, House inspection, House appraisal, attorney, brokerage, real estate, property management offering ‘turn-key service with turn-key products (IE price you see is the price you pay including all fees (incidentals, GST Australia)

· Borrowing issues yes there are, as the market is in disarray but here in lies the opportunity for cash buyers to buy and then using a ‘buy, hold and build ‘strategy with options for selling via Land Contract or Rent to Buy closes the loop, especially when you invest in strong owner occupier states/ areas as the great American dream is to own your own home. As the American people get back on their feet home ownership will be back on the radar and as a ‘bridge’ peer to peer lending (Australian investors to renters) is a viable attractive option which further netts interest per annum on the outstanding monies – so a house bought for $40 K sold under Land contract for $65 K plus interest would yield $80 + K. The profit yield even greater as costs such as taxes (rates) maintenance etc are then the responsibility of the buyer – you can in theory have sold the house, before you buy it as a secure 'exit strategy'

· Complicated paperwork – USA market is one of the easiest to buy property in and as for complicated forms – yes if you are challenged, this could be the case, but there is more than enough professional support if you chose to go with companies such as APWS to help you through. Accountant in the USA $200 per annum for a tax return as a base line

· Income declared – of course you would but when you can earn a gross profit 24-35% on a $40 K investment and nett yield 12 % ($5 K USD) this by the way is equal in $ to a $450 K house & land – so what is the issue there is a ‘double tax’ treaty in place to ensure tax paid only once

· Real estate / Property Mgt –why is this such an issue, isn’t getting the right professional more important than having two entities to work through – and the added checks & balances having these two critical aspects handled by two professional entities, should add more protection to the purchase and ensuing it is conducted and handled correctly

· Repairs costs much higher than here – not that I’m aware of

· Cheap properties wrong area “dodgy neighbourhoods” not if your research, education and support is correct in the first place, again back to companies such as APWS just like gaining and researching as if you were in the Australian investment market- I have seen, walked through fantastic properties for under $100 K that would rent for $2500 per month and would resell for $400 K at the right time (3- 10 period) exceptional but true I had narrowly missed one such opportunity myself

· Problems with tenants paying rent – just like any other investment property market, but with good property mgrs and good tenant screening can minimise this

· Vacancy rates 13 % - for USA I believe it is more like 9.5 % , but you have 330 M people and once again chose states/ area that are rental demand driven, with owner occupier termination will allow the 'closed loop' of an investment

· Upkeep just like any other you must reinvest and stay on top – as from the initial purchase you would look to spend perhaps more on a property or pay less and repair depending on the opportunity and the individual buyers goals (IE yield or capital growth)

Buy 10 (10 lost tenants, PM, tax & accounting bills) this is the reality for less than a deposit in Australia you can earn 24-35 % gross rental return and net income over a minimum 12 % and you forgot to conclude with your statement that 10 x income, 10 x profit and 10 x the capital growth opportunity

· Prices down again – double dip recession – this is not for all States and your comments are too general in their application

· Houses are at record lows and down another 10 % - thanks Mr Bear and Mr Bull …………………… here in lies an opportunity, with a housing market at 20 year lows and yes could slip further but by how realistically if you are in the right state/ area/ location to begin with, having solid research, the real question is ............... where is the ceiling and when "A pessimist sees the difficulty in every opportunity; an optimist sees the opportunity in every difficulty." - Winston Churchill

Yes I am happy to be interviewed and balance (perspective) the information by phone or face to face !


So you can read that I have responded to this extremely disappointing and poorly compiled information and as yet, I have had no response - will keep you posted !

Enjoy and until next time - be safe !

Kind regards