Canadians Snap Up U.S. Properties

[bizaro86]

[quote user=Darr]

Hi Michael- what took you so long in joining this thread? I refer to the EIA`s website quite a bit where I have hyperlinked it a few posts ago (going back 5) on this discussion thread. I agree that some of the smaller oil producing nation mentioned may not export as much to the US (Libya being a case in point), but does supply its European or other allies.



http://petroleuminsights.blogspot.ca/2012/09/us-crude-oil-imports-from-top-15.html#.UJLV0Ya8Bp5


The original topic was the impact of inflation and the USD on US Real Estate but it developed a life of its own as some posts tend to do on occasion. On that note, I would be very interested to read your views on Iran's oil before going back to the heart of the topic.


I've been in this one for awhile, my first post in this thread was July 2010! Actually, I've been too busy working on producing oil here in Canada to comment on the US recently.



While you are correct that oil is a worldwide market and so production disruptions do affect prices worldwide, the US is a bit of a special case regionally. So even though Libya exporting less (which hurts it's big customer Italy very much, this is an under-reported factor in the Euro trouble reporting on Italy imo), it affects only Brent prices not WTI prices. As you know, landlocked WTI has traded at a significant discount to Brent recently for the first time ever, which is keeping energy prices in the US lower than world prices even in the face of international geopolitical events. The US is much less dependent on OPEC oil than it used to be, which gives it much more flexibility.



As for how energy affects US real estate it will be regional. Houston/Dallas/OKC/N. Dakota all benefit from US domestic energy production, and low natural gas prices are holding home heating and electricity prices down, which is disinflationary. It also frees up discretionary income which may be capitalized into real estate prices.



Trade deficits are inflationary if governments print money to fund them, so the improving US balance of payments in energy should help the US dollar recover.



As to Iran, I wouldn't like to make predictions about what crazy people with nuclear weapons may do. If they decide to choke off the Straight of Hormuz the US and the Sunni nations will declare war on Iran, which wouldn't be good for anyone, and would spike oil prices. In general though the oil markets can withstand lower production coming from Iran as they've underinvested in new production and are embargoed from new technology. Obviously all bets are off in a nuclear war...



Regards,



Michael

 

[dvelecka]

I recently was told that the US wants to make it much harder for Canadians to invest in US real estate through tax ramifications and so on. If the property is rented, there are a number of stipulations that must be fulfilled, including but not limited too:



- the owner must obtain US ID numbers

- If a US tax return is not filled, 30% of the gross rent must be remitted

- State tax issues.. may be required income tax return in addition to the federal return

- If investing through a Canadian company, complicated interest allocation rules may restrict interest deductability on the US return. The company may also be subject to US branch profits tax.

 

[Thomas Beyer]

[quote user=dvelecka] I recently was told that the US wants to make it much harder for Canadians to invest in US real estate through tax ramifications and so on. If the property is rented, there are a number of stipulations that must be fulfilled, including but not limited too:



- the owner must obtain US ID numbers

- If a US tax return is not filled, 30% of the gross rent must be remitted

- State tax issues.. may be required income tax return in addition to the federal return

- If investing through a Canadian company, complicated interest allocation rules may restrict interest deductability on the US return. The company may also be subject to US branch profits tax.
Much, if not all, of this is in place today, i.e. file taxes as a US non-resident "alien" or file as a corporation, and pay your share of taxes, if due.



Bond interest rate can be denied too if inappropriately high, in an attempt to move expenses and profits offshore, etc. ...



Similar to non-residents investing in Canada !



Where is the problem here ?

 

[Rickson9]

[quote user=dvelecka] I recently was told that the US wants to make it much harder for Canadians to invest in US real estate through tax ramifications and so on. If the property is rented, there are a number of stipulations that must be fulfilled, including but not limited too:



- the owner must obtain US ID numbers

- If a US tax return is not filled, 30% of the gross rent must be remitted

- State tax issues.. may be required income tax return in addition to the federal return

- If investing through a Canadian company, complicated interest allocation rules may restrict interest deductability on the US return. The company may also be subject to US branch profits tax.




As Thomas says, most of this stuff has been in place for years. Are you new to investing?

 

[dvelecka]

Sorry I had ment to add to this. I also wanted to mention that cheap does not always mean that it is a good deal. And while housing prices are around 60% lower than pre-crisis times, investors can loose tens of thousands of dollars in the long run. Moreover, it's more than a numbers game.Though forecasts may seem favorable, there is no predicting the future and telling where the market will go. Furthermore, getting the right mortgage is key, and since most US banks don't recognize canadian credit history, this can mean major rate hikes for borrowers.

 

[Rickson9]

Are you trolling? I can't tell. Giving you the benefit of doubt that your comment is genuine... Your comment about cheap, good deals, forecasting etc. is about as obvious as saying that the lack of light is dark. So... Not very useful.



Also, for anybody with recent experience with buying U.S. investment property (or who has actually read this thread) knows that needing a mortgage puts you at the back of the line as virtually all purchases have been all cash. Nobody who has invested significant amounts in distressed U.S. real estate has a mortgage.



Future rate hikes (or lack thereof) are irrelevant to me. Anyway I think I just responded to a bot or troll. Oh well.

 

[dvelecka]

I'm sorry but I have to disagree with you. This is a public forum, everyone was entitled to their own opinions. With that being said, I have a number of friends who are investing in US property, whether it be for recreational purchases or as investments and the ones who have purchased properties as an investment are not very happy with their decision. It's just not an investment if you are seeking long-term sustainable wealth. Going back to the fundamentals of real estate investment- location is key (and when you are investing in the US, your going to be looking for safe areas, or green zones where you are safe from crime) but not only that, the economy is distressed. How are you going to see positive cash-flows from your income property and cover overhead expenses if there is low output, GDP, employment growth etc. etc. etc.? Not to mention, IF obamacare is passed, I can guarantee you that you will see huge spending cuts in all other industries... how do you expect the economy to function when all government spending will be going towards healthcare? Yes, in the US you can find cheap, good deals etc. in the housing market. But I was by no means saying that it was feasible. And no, not a bot or troll, just an ordinary person wanting too, without complete judgement, participate in this forum

 

[Rickson9]

[quote user=dvelecka] I'm sorry but I have to disagree with you. This is a public forum, everyone was entitled to their own opinions. With that being said, I have a number of friends who are investing in US property, whether it be for recreational purchases or as investments and the ones who have purchased properties as an investment are not very happy with their decision.


This is vague. Please provide information about their purchases for evaluation as I did in this thread. Adjectives can't be evaluated financially. At least I haven't been able to do it.



[quote user=dvelecka]It's just not an investment if you are seeking long-term sustainable wealth. Going back to the fundamentals of real estate investment- location is key (and when you are investing in the US, your going to be looking for safe areas, or green zones where you are safe from crime) but not only that, the economy is distressed. How are you going to see positive cash-flows from your income property and cover overhead expenses if there is low output, GDP, employment growth etc. etc. etc.?


I've described how I see positive cash flows in this thread. The "low output, GDP, employment growth etc. etc." has had no financial impact on me. Fingers crossed. I've had no problem finding tenants, collecting rent and seeing positive cash flow. I have also seen the value of my Phoenix real estate portfolio increase by almost 35% in the last year. I admit that it is difficult for me not to be biased when my accounts are flush with rent money.



So, from direct personal experience, I would have to say that I can't agree with your assessment. But that's just me.



[quote user=dvelecka]Not to mention, IF obamacare is passed, I can guarantee you that you will see huge spending cuts in all other industries... how do you expect the economy to function when all government spending will be going towards healthcare? Yes, in the US you can find cheap, good deals etc. in the housing market. But I was by no means saying that it was feasible. And no, not a bot or troll, just an ordinary person wanting too, without complete judgement, participate in this forum





For better or worse you are talking about broad maco-economic concerns that have had little to no relevance to my small handful of investment properties; and I have been successfully collecting rent for almost 3 years in Phoenix. If you think this will end, give me a percentage drop and date and I'll report back at that time to let you know how my rentals are doing.



On the one hand either you are correct and I will be punished by my decision to invest in Phoenix real estate, or the hedge funds (who have purchased over 3000 units in the last year) and myself are correct and I will make a lot of money. Either way, I will continue to update this thread to see how it all pans out.



Again, being biased, I have a strong feeling that I will be far wealthier a year from now because of my decision of buying in Phoenix when I did.



Best regards.

 

[Rickson9]

The following is a small sampling of residential Phoenix property for sale. As readers can see, the yields have absolutely COLLAPSED (in half). Investors have fled. There is no profit left on the bone.



https://docs.google.com/open?id=0Bwb1PD4476rPdjlPRDFudW9nYWs

 

[Thomas Beyer]

[quote user=Rickson9]There is no profit left on the bone.
oh brother.



Much room for upside plus a decent rental yield. What is not to like [except the likely weaker US $s thus less Can $] ?



For those that also like to benefit from US real estate income and gains, there are now US and Canadian REITs that invest in those assets : http://business.financialpost.com/2012/11/10/no-better-time-to-buy-reits-now-invest-in-foreclosed-u-s-homes/

 

[Rickson9]

October Home Prices Rise. Rents Rise.



Phoenix continued to be the turnaround market, with home listing
prices up 24.9% from a year ago. In addition, Cape Coral-Fort Myers,
Fla., and San Jose, Calif., saw their prices rise 15.7% and 12.7%,
respectively.



Phoenix is one of the so-called Sand States that faced a run-up in
prices and a dramatic surge in new home construction before the market
bust in 2008. While those factors pushed prices down after 2008, the
market is experiencing a turnaround as investors snatch up Phoenix area properties with hopes of turning
them into rentals. While investors drove sales for much of the year, a
study from Arizona State University recently warned that investors are losing interest in the market.



http://www.housingwire.com/news/october-home-prices-rise-29-rents-soar-above-5



Housing Supply Rises In Phoenix



The supply of houses for sale in the Phoenix market increased 24%
over the past three months as investor interest in the market waned,
according to the W. P. Carey School of Business at Arizona State University.
With bargains becoming tougher to find and other state`s housing
market attracting potential homebuyers, investor interest is trending
downward, the report said.



http://housingwire.com/content/phoenix-housing-market-sees-supply-increase-and-investor-decline

 

[Rickson9]

Currently in negotiations with a seller of 10 bulk condos in a single 2 story building (103 condo complex). Built in 1972, all units renovated in 2007. C class area. All units are 855 sq ft, 2 bed 1.5 bath units. Gross rents of $69,000 per year according to rent roll. Currently 100% rented according to selling agent/rent roll. HOA of $135 per unit per month covers water, sewer, trash, common area maintenance, common area insurance, and roof repairs. Looking to close a deal at $400k cash. Comments welcome. Thanks for reading.

 

[bizaro86]

[quote user=Rickson9]Currently in negotiations with a seller of 10 bulk condos in a single 2 story building (103 condo complex). Built in 1972, all units renovated in 2007. C class area. All units are 855 sq ft, 2 bed 1.5 bath units. Gross rents of $69,000 per year according to rent roll. Currently 100% rented according to selling agent/rent roll. HOA of $135 per unit per month covers water, sewer, trash, common area maintenance, common area insurance, and roof repairs. Looking to close a deal at $400k cash. Comments welcome. Thanks for reading.





That doesn't meet your criteria of a purchase price being 5x gross rents, but a 17.25% gross yield is still excellent, imo. If you're calculating the net directly, $135 hoa seems low to me for a 2 bedroom unit, but my experience is all in Calgary. Granting that heating would normally be included in Calgary HOA fees, they're typically ~$350 for a unit of similar specifications/age. If I was purchasing I would seriously investigate whether that level of fees is sustainable. I also don't buy in class C areas, but then I've bought at 9%-11% gross rental yields, so you're getting compensated for the area.



Regards,



Michael

 

[Rickson9]

[quote user=bizaro86]That doesn't meet your criteria of a purchase price being 5x gross rents, but a 17.25% gross yield is still excellent, imo.


That might break the deal. I'm not happy at the price.



[quote user=bizaro86]If you're calculating the net directly, $135 hoa seems low to me for a 2 bedroom unit, but my experience is all in Calgary. Granting that heating would normally be included in Calgary HOA fees, they're typically ~$350 for a unit of similar specifications/age. If I was purchasing I would seriously investigate whether that level of fees is sustainable. I also don't buy in class C areas, but then I've bought at 9%-11% gross rental yields, so you're getting compensated for the area.


Thanks for the remaining comments. I've also asked the following:



1. What is the status of the condo's capital replacement fund?

2. Is the condo corp subject to any litigation?

3. What is the environmental status of the lands?

4. How many of the units in the building are rented?

5. Will the Seller do a vendor take back?

6. separate insurance for each unit or a single insurance policy covering all?

7. When do the leases end? Each one of them.



Of course if the seller won't accept $400k, then it's all moot.

 

[bizaro86]

Will owning that many units subject you to any additional disclosure requirements if and when you were to sell them?

 

[Rickson9]

[quote user=bizaro86] Will owning that many units subject you to any additional disclosure requirements if and when you were to sell them?




Yes. Not sure how I should factor this in since, historically, I haven't sold anything. Good point though.



The price has me half way out the door... but it's not terrible so my other foot is still in...



My standards are tainted...




Edit: Seller will only sell at $400k if I can close before 2013. Need to decide.

 

[Rickson9]

Decided against the purchase after inspections. Bought another single family detached home instead.



Agent said that the only reason I got it was due to cash offer and that there was a lull on Christmas eve/day. Yes I was making offers on Christmas eve/day between bites of turkey. That's how I roll.



After boxing day 15 bids came in, but it was too late for them. My earnest money had been accepted.



Sidebar: I'm involved in investing in U.S. stocks and U.S. real estate and have noticed some similarities. For one, most critics of my methods have made no money in U.S. stocks and/or U.S. real estate. Yet they have strong opinions about investing in U.S. stocks and/or U.S. real estate?



How can an individual with absolutely no track record of success feel that they have anything meaningful to say?



Notice this thread, for example. How many of the "doom and gloom" posters in the first few pages are still here? How many of them invested in U.S. real estate? People are funny.

 

[Rickson9]

U.S. Home Prices Surge



"For nine straight months, national home prices have been in the positive, and the gains are only getting larger. The latest reading for November shows a 7.4 percent jump from a year ago, according to CoreLogic...This is the largest year-over-year jump since 2006 when we were at the height of the housing boom.



"Arizona, Nevada and California are seeing big home price gains, as
investors there continue to inhale properties to take advantage of the
very lucrative rental market."



http://finance.yahoo.com/news/us-home-prices-surge-despite-161714252.html



PS: Closing this week on what is likely to be my last property in Phoenix, AZ. Former owner needs 10 days before her new home is ready. Will pay me $30 a day in rent and provided $400 damage deposit. Done via escrow. Never say never.

 

[Lucas]

Hi Rickson,



I've been following this thread for sometime now. The information is very good. Thanks for posting your experiences.



I have been interested in investing in the US market for awhile now but haven't acted (I may be too late but c'est la vie...). I have a few properties here in the Edmonton area.



What are your thoughts currently on 2 bed, 2 bath condos in Phoenix?

What are your thoughts on the Atlanta GA real estate market?



I was in touch with another REIN member/Investor who buys distressed properties in Phoenix, sells them to investors and manages them...He said renovated 2 bed/2 bath condos in decent areas can be purchased between 60 and 80k and rented for 750 to 800/month...HOA fees of 160 to 170/month.



Is this accurate? If not, what numbers are you currently seeing?



Thanks again for your insights!



Lucas

 

[Rickson9]

[quote user=Lucas]What are your thoughts currently on 2 bed, 2 bath condos in Phoenix?


The prices are too high to make it worth my while. If one were to buy now, it would be mostly for appreciation. It doesn't make too much sense on a cash flow basis.



[quote user=Lucas]What are your thoughts on the Atlanta GA real estate market?


I only spent a month looking in Atlanta GA. Unfortunately when I started looking there were already bidding wars for the best properties and I wasn't as keen on learning a new geographic real estate market.



I was more keen on Phoenix, AZ because I was one of the few who were picking over the rubble. It lit a fire under my butt. But when I came into Atlanta GA the vultures were already fighting for scraps, including the giant hedge funds, so that kind of deterred me.



I am more motivated in both stocks and real estate when everybody wants to sell. When everybody is looking to buy, I get discouraged easily. I don't want to fight anybody over a stock or property - I just want to take it without opposition.



[quote user=Lucas]I was in touch with another REIN member/Investor who buys distressed properties in Phoenix, sells them to investors and manages them...He said renovated 2 bed/2 bath condos in decent areas can be purchased between 60 and 80k and rented for 750 to 800/month...HOA fees of 160 to 170/month.



Is this accurate? If not, what numbers are you currently seeing?


Those monthly numbers are about right.



$750 / month rent



$175 HOA

$30 insurance

$55 PM

$40 property taxes

add vacancy/fix/repair

add legal

add banking

add accounting



Approximately +$300-$350 operating profit per month per 2 bed 2 condo assuming reasonable vacancy or $3600-$4200 a year. 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.



Also, keep in mind that I'm finding it increasingly difficult to buy a 2 bed 2 bath condo in a decent area of Phoenix, AZ due to bidding wars. I see a lot of product in less than desirable areas, which don't interest me.



From my understanding, investors have cleared way for more local buying. Inventory is low which is boosting prices, and further driving investors away.