Canadians Snap Up U.S. Properties

[Thomas Beyer]

[quote user=Rickson9]At a price of $60k is an operating yield of 6-7% before taxes. At a price of $80k is an operating yield of 4-5% before taxes. Both I feel are too slim.
Why ?



a 10 year treasury yields not even 2%/year !



Where are better investments ? Or do you seriously expect prices to drop again in the US ?

 

[Rickson9]

[quote user=ThomasBeyer][quote user=Rickson9]At a price of $60k is an operating yield of 6-7% before taxes. At a price of $80k is an operating yield of 4-5% before taxes. Both I feel are too slim.
Why ?



a 10 year treasury yields not even 2%/year !



Where are better investments ? Or do you seriously expect prices to drop again in the US ?





That's a good question.



I guess the short answer is I don't know.



The long winded answer is that I usually look for a yield above 10% before I do anything.



My view of investing has been jaded based on when I started.



When I started investing it was the mid-90s and Toronto was just recovering from a real estate downturn - so I bought Toronto real estate.



Since that time, I've always been fortunate to have crashes/downturns appear like clock-work. The next was the tech bust of 2002, then the U.S. real estate meltdown in 2007 followed by the U.S. credit crunch of 2008. So I've always done better just keeping my money in my pocket because sooner or later (usually sooner) a crash happens and I can deploy capital at high (10%+) rates of return.



It's likely a form of cognitive bias/Confirmation bias/Gambler`s Fallacy.



I've been conditioned to pass on sub-10% yields and wait for yields of 10%++ or greater since they've been happening to me since I graduated from university. So it's not that I 'expect' a downturn, it's just that that's what the market has given me - over and over and over again.



I understand that my expectations are high, but I seem to have been born during a period with more opportunity than most 20 year cycles that I've read about in history.

 

[Thomas Beyer]

[quote user=Rickson9]I've been conditioned to pass on sub-10% yields and wait for yields of 10%++ or greater since they've been happening to me since I graduated from university.
fair enough .. and the next crash is caused by:



a) one or more Euro nations crumbling

b) US debt ceiling negotiations fail

c) another 9/11 like terrorist attack

d) another Enron-like fraud in a huge company

e) another run on the bank like Northern Rock

f) US-China trade war

g) a sizable US state, city or municipality going broke / being unable to re-finance its huge debt

h) Saudi-Arabia leadership revolt with huge oil shipment shutdown

i) ...



So, your strategy is probably sound as another event may happen in the next 3-5 years ... atypical thinking for a young man (high 20's / low 30's ?) but nevertheless very sound reasoning !



Why did you not buy levered US assets as you could sell some now for a huge gain, and would have likely made more than 10% cash-on-cash [like we typically do with W-Canadian levered apartment buildings] ?

 

[Lucas]

Thanks for the reply...



It looks like I missed the boat.



Do you have any experience with/knowledge pertaining to multi-family in Phoenix. You mentioned that you were negotiating a bulk purchase in Phoenix...do you think there are still opportunities with those or should I scrap the idea Phoenix idea and keep looking?



I would prefer to buy a couple units with cash and with 10%+ yield after expenses. Based on your numbers, I see an operating profit of $315/month. Therefore, I'd need to buy for 37k to make it worth it. Is this still possible? OR is it possible to buy a distressed condo for 33k and put 4k of reno's into it? If not in Phoenix, is the above scenario possible in Atlanta? Or possibly another city??



Thanks again for sharing your experiences...obviously, for me, its very valuable!



Lucas

 

[Thomas Beyer]

[quote user=Lucas]10%+ yield
that exists in smaller US cities, in smaller non-institutional assets, many with with deferred maintenance and location risk.



CAP rates in the very few US cities we look at, for renovated apartment buildings, at are very similar to Canada, in the 5% range for pristine assets in good locations to 6.5% for an average asset in an average location, slightly higher but close to Canada.



However, what IS available in the US are a lot more distressed buildings, due to location, owner neglect or financing issues (or a combination of all three). You can make more money in the US in these distressed assets once you know a market very well and what type of assets trade at what values, what financing can be obtained initially and on re-finance after renovations.



Given that Texas, for example, population-wise is as big as Canada, and the Dallas area [where we own a large asset and are looking] is as big as the entire population west of Toronto's Pearson airport (10,000,000+), once cannot give a "US" or even TX or even Dallas opinion. It has to be far more specialized. Even Atlanta, GA is huge, like AB+BC+SK .. so even within one city's metroplex one must specilize.



People have drowned in rivers one foot deep on average !



So, don't look at averages, look at very specific assets in very specific location with very specific state laws and local quirks.

 

[Rickson9]

[quote user=ThomasBeyer]So, your strategy is probably sound as another event may happen in the next 3-5 years ... atypical thinking for a young man (high 20's / low 30's ?) but nevertheless very sound reasoning!


Thanks. I was in my mid-20s when I took advantage of the first crash in the mid-90s. Been through the other crashes I mentioned over the last 15 years, so a bit older than that.



[quote user=ThomasBeyer]Why did you not buy levered US assets as you could sell some now for a huge gain, and would have likely made more than 10% cash-on-cash [like we typically do with W-Canadian levered apartment buildings]?




Another good question. I'm not sure I have an answer. It probably stems from my limited success in the stock market. I buy a stock and it continues to compound so I don't sell. I don't even know what I would do with the money because the rate of compound is higher than what I can find elsewhere with the cash (especially after paying transactional costs/taxes).



As my U.S. real estate yields continue to be crushed downwards by increasing prices, I may reach a point where I want to sell. But I don't know. Probably unlikely. I could just as easily pull the money out by slapping mortgages on them.



The short answer is that I don't know what I would do with the money. I already have a difficult time sensibly allocating the money that I have.

 

[Rickson9]

[quote user=Lucas]Do you have any experience with/knowledge pertaining to multi-family in Phoenix. You mentioned that you were negotiating a bulk purchase in Phoenix...do you think there are still opportunities with those or should I scrap the idea Phoenix idea and keep looking?



I would prefer to buy a couple units with cash and with 10%+ yield after expenses. Based on your numbers, I see an operating profit of $315/month. Therefore, I'd need to buy for 37k to make it worth it. Is this still possible? OR is it possible to buy a distressed condo for 33k and put 4k of reno's into it? If not in Phoenix, is the above scenario possible in Atlanta? Or possibly another city??



Thomas is correct that it is difficult to characterize an entire city, especially one the size of Phoenix.



I can only speak for myself, and from what I've seen, I can't find anything that would yield the numbers that you're talking about.



Even the ones with the lower yields that we talked about before are difficult to find and usually involve multiple bidders.



I can't speak to other cities because I haven't researched them remotely as much as I did with Phoenix. I'm sure there are opportunities for somebody who is determined, but that isn't me.



I need deals to be easy to find. This is why I only invest during market downturns. There are no buyers - only sellers. It makes things 1000x easier for me.



The 2008/2009 stock market crash is an excellent example. This was when the TFSAs were introduced. I immediately opened a trading account and filled my portfolios with FOSL and BKE. Nobody was buying stock. Everybody was selling. Earning yields went through the roof as prices fell. It was just free money. There was very little work required and very high returns to be taken.



Sure, I may be able to find a deal in a healthy/normal market, but it would require a lot of work for very little return imho. Why should I bother doing a lot of work for a 'normal/typical' yield when I can just wait a few years until some catastrophe happens and get a fantastic yield with almost no work? A normal market is a very strong disincentive for me.



Right now, in the markets that I have some limited knowledge, everything is 'normal'.



Until the next panic attack...



Good luck!

 

[Lucas]

I appreciate your insight. I understand that in order to be really successful in Real Estate (as well as pretty much anything else), I have to specialize. The whole point of me approaching Rickson with these inquiries was to gain some insight on his success in these areas.



As well, I was hoping other US investors would step up and give their opinions. I, like Rickson, want the deals to be fairly obvious for me to take the time to specialize.



The US is a huge market and I'm just doing some high level research to see if there is any city that I'd like to consider seriously.



Thanks for the CAP comparison.



Lucas

 

[Thomas Beyer]

[quote user=Lucas]any city that I'd like to consider seriously.


Any city with decent economics, a "right to work" legislation environment, a resource based economy (coal, gas, oil, ...), a pro-landlord environment, and one that you can access in one plane ride without changing planes. Houston or Dallas area comes to mind, but also some other cities in states such as ND, GA, LO, UT, NM, PA



This forum is very Canada focused, so it is the wrong forum for further US research !

 

[Lucas]

[quote user=ThomasBeyer]Any city with decent economics, a "right to work" legislation environment, a resource based economy (coal, gas, oil, ...), a pro-landlord environment, and one that you can access in one plane ride without changing planes. Houston or Dallas area comes to mind, but also some other cities in states such as ND, GA, LO, UT, NM, PA


These criteria go without saying for me...I like the point about one plane ride. I'm not as concerned about a "resource based" economy either...why is that particular type of economy better than another (i.e. tech, tourism, military, manufacturing etc...)? If the return is good, who cares where the tenants or buyers are getting their money. The only reason I can see why resource based is better is because its not as trending and maybe is a little more resilient??



[quote user=ThomasBeyer]This forum is very Canada focused, so it is the wrong forum for further US research !


I think that this is the appropriate forum...I believe we are discussing Real Estate.

 

[Thomas Beyer]

[quote user=Lucas]I think that this is the appropriate forum...I believe we are discussing Real Estate.
yes, but very few folks here have intimate US real estate experience.



[quote user=Lucas] (i.e. tech, tourism, military, manufacturing etc...)
Because military bases might be closed or downsized due to large US deficit, and tourism is fickle.



Manufacturing may make sense if the industries are growing. Resource based economies are inflation protected and benefit from it. With a huge deficit, the only solution the US has is to use quantitative easing i.e. erosion of the value of money. Thus, any REAL srtuff will go up in value: coal, oil, gas, gold, copper, nickel, land, corn, .. and real estate deriving income from such !

 

[Lucas]

Haha! Your strategy is calculated, if not a little morbid At least your honest about it and it does make sense.



Historically, I've been a more "hands on" investor so hearing your strategy is interesting.



Lucas

 

[Lucas]

I was replying to Rickson.

 

[Lucas]

[quote user=ThomasBeyer]yes, but very few folks here have intimate US real estate experience.




Good call on that...



[quote user=ThomasBeyer]Manufacturing may make sense if the industries are growing. Resource based economies are inflation protected and benefit from it. With a huge deficit, the only solution the US has is to use quantitative easing i.e. erosion of the value of money. Thus, any REAL srtuff will go up in value: coal, oil, gas, gold, copper, nickel, land, corn, .. and real estate deriving income from such !


Good points. Pretty big picture though. Maybe when you are considering holding for 20 years. In my experience, oil towns are not immune to downturns either...In fact, when oil companies are not making insane money they completely put the brakes on and very quickly and indiscriminately layoff staff...which often has a disastrous effect on the Real Estate market that relies heavily on those employers (i.e. it dies!!).



From what I've seen, there are opportunities in almost any type of market or economy if you are well-researched and not afraid to act.



Lucas

 

[Rickson9]

[quote user=ThomasBeyer]yes, but very few folks here have intimate US real estate experience.


Despite their lack of "intimate US real estate experience" (let alone success), they appear to have many unfounded opinions.



I provide whatever little experience and knowledge I have about a small segment of Phoenix RE to help bring some clarity to whomever is interested.



[quote user=ThomasBeyer]Manufacturing may make sense if the industries are growing. Resource based economies are inflation protected and benefit from it. With a huge deficit, the only solution the US has is to use quantitative easing i.e. erosion of the value of money. Thus, any REAL srtuff will go up in value: coal, oil, gas, gold, copper, nickel, land, corn, .. and real estate deriving income from such !





Until the resource runs out or cost factors/global competition/alternative sources make it uneconomical to mine/harvest, and the local RE market is decimated... which has never happened before...

 

[Rickson9]

A nice way to make a few million dollars... distressed markets are my favorite markets...



Transwestern today announced it brokered the sale of The Canyons, a 629-unit community at 19940 North 23[sup]rd[/sup] Avenue in Phoenix. An entity formed by Alliance Residential Co. purchased the property for $50 million, or approximately $80,000 per unit. It was sold by Denver-based Continental Realty Advisors, which purchased the property in 2010 for $45.5 million and infused $1.3 million
of capital into The Canyons, while boosting its occupancy rate from 63
percent in 2010 to a remarkable 94 percent at the time of the
transaction's closing.



"This sale marks a truly positive transition in the fortunes of The
Canyons," said Drowns. "It had been purchased in 2006 for more than $80 million...



http://www.prnewswire.com/news-releases/phoenix-multifamily-sector-continues-to-grow-with-50-million-sale-of-the-canyons-a-629-unit-community-187195861.html

 

[Hutchym]

Hi all,



There were a few good articles in the Canadian papers recently on purchasing USA property through REITS. Because Canadians, in many instances, need 50% down for properties in US so many canadians cannot afford. Maybe REITS are a good way to get in on the action.



There are a couple that have come out in the past months that specialize in US sunbelt freehold homes. Silver Bay Realty, SBY, for instance was one of the last to have its IPO. Does anyone have any thoughts on this companies future?



Mike

 

[Thomas Beyer]

[quote user=Hutchym]Because Canadians, in many instances, need 50% down for properties in US so many canadians cannot afford. Maybe REITS are a good way to get in on the action.
REITs in general, regardless of US or Canada, are a good way to get into real estate the easy and liquid way, as long as one understands that they trade like stocks, thus fluctuate with general market sentiment.



If you buy a US income property [as opposed to a property for personal use] it makes no difference if the money is "Canadian" or Russian or British or American as the buyer is a US corporation or LLC in most instances.

 

[Rickson9]

As Prices Rise, Rental Home Investors Seek New Markets



Phoenix, which has led the nation with rapid home-price gains, is among the first markets to see investors' interest cool.



The
percentage of Phoenix homes bought by investors fell to 28% in November
after cresting at almost 36% in August and is now on a "clear downward"
trend says Mike Orr, real estate expert at the W.P. Carey School of
Business at Arizona State University.



Meanwhile, major investors are stepping up purchases elsewhere,
especially in Southeastern cities such as Atlanta and Tampa. Home
shoppers there are now seeing the multiple offers, bidding wars and
shrinking supplies of homes for sale that occurred in Phoenix as
investors swooped in.



"The Phoenix-like phenomenon has migrated to
other markets," says Sam Khater, economist for CoreLogic. It says
Phoenix home prices were up 24% in November year-over-year, vs. 7.4% for
the nation.



Like many of the big investors, Blackstone started investing in
Phoenix. It next moved into California, then Atlanta, Tampa, Orlando,
Chicago, Las Vegas and Charlotte.



Blackstone has accelerated its
buying because home prices have risen faster than it expected, says
Jonathan Gray, Blackstone's head of real estate. In some markets, the
window to buy before prices rise too much "is closing faster" than in
others, he says.
Colony, for instance, has slowed purchases in Phoenix.



Investors "are a significant force in the market right now," says Mike Prewett, president of Southern REO Associates, Atlanta.



Prewett
estimates that investors are buying 40% of foreclosed homes in the
Atlanta area, triple the level of a year ago. Almost all foreclosures
for sale draw multiple offers, often 10 or more, Prewett says.



Tampa, too, has seen an uptick, Realtors say.



A
year ago, $125,000 homes in foreclosure could have been purchased "all
day long," says Brad Monroe, managing broker for Prudential Tropical
Realty in Tampa. "Now, there's 16 offers on each one of them within two
days," many from cash-paying investors.



In his report, analyst Paolone also warned that too many investors
shopping in the same areas will drive prices up and eat into rental
returns.



Burns says that's already happening in some places.
Single-family rentals that returned 10% annually three years ago may be
now running closer to 6%. That's too low for some investors, he says. (edit: "exactly my experience as outlined in this thread" - Rickson9)



http://www.usatoday.com/story/money/business/2013/01/21/rental-housing-investors/1851187/

 

[jonathanb]

Rickson,



Is it unlikely to hope and wait that enough investors will leave the Phoenix market to bring back your desired returns.... or are you moving onto greener pastures...



Jon