My US Property Experience

I remember being back in Uni around 2009 and watching from afar the US Housing Collapse, I was only 20 or so years old and I had never seen anything like it before. In my mind, it was hard to imagine, didn’t property prices only go up? How could they possibly ever go down? It just made no sense to me, how were these properties that were worth $150,000 a couple of years ago in 2007, now only be selling for $30,000. How can you buy entire apartment blocks for $50,000? I mean I know there are bad areas, but surely an area cannot be THAT bad that you would lose money for those sorts of deals?

Anyway, if you have been living under a rock, or maybe you are too young to remember what happened, I recommend a movie called “The Big Short” which explains the dodgy lending practices that were happening, which in the end sparked the massive collapse.

So first of all, I found out that some areas were really THAT bad, they were basically gang warzones and even if they were giving houses away for free it just would not be worth it. I am talking about the really bad areas in Detroit, Baltimore etc. But even if I did not look into these areas, surely there were some areas that were still decent, and had experienced significant drops in property value, that may be great investments?

Unfortunately there was a dilemma, I was still at University, I was a poor student with just about no money to my name. Even if house prices were only $40,000, it was still way too much money for me, and getting finance was out of the question. My family were not interested and immediately saw it as too risky so had no interest in loaning me any money. That was okay, I would prefer not to get a loan from family anyway. So instead, I had to wait, just sit and wait until I had enough money to be able to dive into the US Market.

While I was waiting, I regularly participated on some US Property Investing forums which were specific to Australian investors. However, the majority of them seemed to be Australian citizens that now lived over in the US. Not to mention there were a few horror stories of people buying places without knowing the area only, thinking they were onto a winner when it turned out they bought a lemon. It took a lot of a assurance to finally make the decision, but one of the main difficulties was it was hard to learn from other people with the same experience. That is one of the main differences I have noticed with the FIRE community, there is a lot more support in the FIRE community and it is a lot easier to learn from others than it was with US property.

Fast forward a couple years, I had graduated university, and had been employed for a couple years. I was living in a share house and was able to put away a lot of my income into savings which was nice to see it grow over the months to something significant. Remember, at this time I had no idea what FIRE was, I didn’t know exactly what I was saving for, but I just had this feeling that I needed to use this money for something. And at this stage I just knew I wanted to save up for some US Property.

1^st Property

So house prices were still pretty low in 2012 and after saving up a whopping sum of $25,000, my friend and I decided to take the big step and spend our $50,000 on a house (actually only $44,900 but we had to do some renovations). Not even a deposit, a full house, 3 bedroom, 2 bathroom on a quarter acre block. And it was not even in the middle of nowhere, it was in Florida, in a county of approximately 700,000 people. Not to mention it was only a short drive to the Gulf of Mexico. See picture below for the actual property we first bought back in 2012 (this was after some renovations, but as you can see it is a perfectly nice property). This specific property also sold for $133,000 in 2007. So there was a massive drop in price when we picked it up in 2012.

At this stage I should also mention that the USD was ridiculously weak at this time and 1 AUD was buying approximately 1.05 USD – it was really a perfect storm, weak dollar, rock bottom house prices. So it did not even cost us $44,900 to purchase, it was actually only $42,500 – bargain right!

That was our first property, and it went well, we found a tenant quickly and pretty soon it was rented out for $700 per month (around 19% gross rental yield).

2^nd and 3^rd Property

After a couple years of saving up and the confidence I had from the first property I decided to actually go to the US and check out the area (so maybe it was a rookie mistake purchasing site unseen, but it worked out for me – probably do not recommend it though). So at the end of 2013 and start of 2014 I ended up purchasing two more properties. One of them for $80,000 cash, and the other I was able to get a mortgage as long as I provided a 30% down payment. I was able to use saved up rent from the first property to cover some of the deposit, but I did have to put in an extra $20,000 AU to cover the $30,000 deposit (the purchase price of this property was $82,000).

These two properties rented out for $1,000 – $1,100 per month while I had them. The interest rate of the mortgage was less than 3.00% with mortgage repayments around $400 per month.

4^th Property

Towards the end of 2015 my friend was keen to reinvest the rental returns from our first property into one more. So again, I went back over to the US and started searching for properties. I was able to find one for $80,000 again, with an existing tenant paying $900 per month and was able to obtain finance for the property. We were able to use our existing rent we had received to cover the down payment, and the rent received easily covered the mortgage (mortgage repayments were around $350 per month) – it was basically a free house!

Difficulties

Obviously the whole experience was not perfect, and it would not be honest of me to gloss over any difficulties we had during the US investing experience. So I will talk about the main problems we experienced:

• Banking – The banking system over in the US is really outdated, they still use Cheques!? How weird is that. Transferring money is difficult, setting up direct debits is difficult. Online banking is clunky and not user friendly. One specific time there was an issue with mortgage repayments and they stopped being direct debited for some reason, and they decided to notify us by mail (not by email, mail) – so it took weeks for us to actually realise the mortgage repayments had stopped, and by the time we realised the bank was actually close to foreclosing on the property. Needless to say it was a very stressful situation, and if they just sent an email at the start it would have not been an issue at all.
• Tenants – Not unique to the US, but we did have a couple “interesting” tenants. One of them decided not to pay rent for a couple of months, and didn’t take too kindly to being asked to leave and decided to trash the house before finally leaving. So that was a few thousand of dollars to repair. Every other tenant we had was fine through the whole time, but this one was just nasty. We did have another tenant who couldn’t afford to pay, and it was unfortunate but we had to remove them from the property, but they did go peacefully without causing any issues
• Tax Returns – Not really a big issue, but Tax in the US is difficult to understand at the start. It is not any more complicated than Australian tax, but just being a completely foreign format of doing it, it made it more difficult doing it from afar. Not to mention that the US is quite backwards in terms of online tax returns, which made it more difficult to fill out. Eventually we were able to find a tax agent, who was decent enough, not amazing, but at least he was able to get the job done.
• Public Notary – Somewhat small thing as well, but a lot of documents in the US require a Public Notary to witness signatures. Now, over in the US a Public Notary is basically the equivalent of a Justice of the Peace, and they are readily available. Unfortunately, they would not accept a JP witness for these documents and were very specific to requiring a Public Notary witness. Well they do exist in Australia, but they are not cheap, typically Lawyers that charge around $80 – $100 per signature they needed to witness (and it was normally up to 5 signatures). So what would normally be the mundane activity of obtaining a JP witness, turned into around $400-$500 expense each time. Overall we needed to use a Public Notary 6 times (2 times for buying properties with a loan and 4 times with selling) – so it added up

Time to Sell

Anyway, at the end of 2018 my friend and I talked about it and we decided it would suit our investment strategy to sell the houses and bring the money back to Australia for further investments here. The USD was strong again (compared to the AUD anyway), house prices seemed to have plateaued somewhat so we figured it was a good time.

It ended up taking a while to sell all the properties, COVID definitely did not help, but towards the end of 2020 it was finally all finished.

Summary

So now that the backstory is out of the way, on to the fun stuff – the numbers –

Property 1 – Purchase Price: $44,000 – Sold Price: $130,000 – Owned 8.4 years

Property 2 – Purchase Price: $82,000 – Sold Price: $175,000 – Owned 6 years

Property 3 – Purchase Price: $79,900 – Sold Price: $168,000 – Owned 6.8 years

Property 4 – Purchase Price: $84,400 – Sold Price: $125,500 – Owned 3 years

Average Capital Appreciation of the properties combined was approximately 12% per annum (pretty handy!)

The total money I had to invest for the properties was $125,000

After all costs, expenses, taxes, foreign exchange fees etc – I will be left with approximately $511,000

So in 8 short years I was able to turn $125,000 into $511,000 – which is approximately 18.2% per annum return.

I am very fortunate to be in the situation I am now, and I owe a lot of that to the decisions I made back in 2012. It was a risky choice to invest over in the US, a lot of friends and family warned me against it. In their mind it was just too much, it was not worth it, I would be scammed, I would lose all my money. Whatever negative feeling they had about it I would hear it. Only after a couple of years of doing it, by the time I bought the 3^rd property did people start to realise that maybe this was a good thing I was doing, maybe it wasn’t a scam, maybe it was a solid investment.

Overall, I am very happy with the outcome (obviously) but it was not without several stressful times which I will not go into here, but if anyone does have any questions – feel free to ask. I am happy to provide any information or clarification about my experiences in the US.