Parity....!

OK, it's all very exciting in my corner of the world, as I eagerly await an SMS from Ozforex to let me know that we've reached parity... C'mon Aussie! C'mon! C'mon!

I'll be transfering around $60,000 today, so I want that money to be working its butt off. Currently, the Ozforex quote is 0.9922 AUD to 1 USD. Am I being greedy to wait?

Although my heart goes out to millions of Americans, who are really feeling more than just a pinch, I have to say I'm excited that the Aussie dollar is getting more bang for its literal buck! We've been the poor cousin for so long.

More pennies in the pudding as $A jumps
Gabrielle Costa
December 23, 2010 - 8:04AM

Let's go!

Lessons learned when buying a USA property sight-unseen.

Well, I've stirred up a hornet's nest in Florida. The seller has stamped his foot and said no to a reduced price. I suppose I can understand his frustration, after he's attempted to fix things up.

From my point of view, he did the wrong thing by advertising the incorrect HOA fees but I've come around a bit today after checking out other for-sales - it seems he put in the one bedroom, one bathroom HOA fee, instead of the 2 bedroom, 2 bathroom. I don't know whether it was deliberate or not on his part, but I've decided to put it to one side.

Even with the increased HOA, we will be able to meet our ongoing costs and, when we sell, we will hopefully make enough of a profit to replace the money we've redrawn on our mortgage, make up for the lost interest payments and knock off a fair chunk of our debt on our house in Australia. Remember, this is a 5-10 year plan (no get rich quick for us).

So, it looks as though we're going to closing on 31 December, with the original price. Other costs, including legal, company establishment, title company and inspection fees have totalled around $5000-$6000.

How we've saved money:

- Buying directly from the owner (save real estate commission fees)
- Buying in the USA (no stamp duty fees)
- Using OzForex for the money transfer (saves about $1500 in better exchange rate and lower transfer fees than the banks)

Here's how I'd do it, if I was to do it again with my new-found wisdom:

Step 1: Get an accountant's advice before even looking at buying property overseas - I did this and would recommend it to you too - everyone is in a different position. It would be wise to seek advice on your financial position and how you would best set up the deal - as an individual or under the company structure. Don't follow blindly - get advice.

Step 2 - Research. I researched the US property market for about 12 months and was confident when I dived in. That confidence has flailed about a bit over the last month, but I think that the research certainly made some difference. In saying that, I don't know whether you will have 12 months to ponder, with the market strengthening again in the US. Interest rates are rising over there, which is a sure sign that they think they're on the road to recovery.

Step 3: Check the facts with the condominium complex and with the county appraiser - if I had checked first, I would have found the HOA fees were wrong and been able to verify the taxes. The appraiser's site also gives details of how much the owner paid for the property and when. Here's the site for Orange Country Appraiser. I could have made a more informed decision to pursue the deal or not at that stage, before spending any money. In this case, I have been lucky, because it's turned out to be OK - but it could have gone the other way too.

Step 4: Get a property inspector involved prior to engaging a lawyer. If the inspection is OK, go ahead. If you're not happy with the inspection, don't waste any further time and money. The inspection will cost around $300 - better to waste $300 if you need to walk away than invest in legal as well, which might also go down the gurgler if you decide to pull out.

Step 5: If you're still right to move forward, engage your own lawyer. Make sure he or she is approved by the bar association in the state you're buying the property.

Step 6: Set up an OzForex account so that you can transfer money overseas (without lots of fees and with the added advantage of a better exchange rate).

Patience is NOT a virtue

OK - no more time for patience.

While you read this post, repeat this mantra: HURRY! HURRY! RUSH! RUSH! QUICK! HURRY! RUSH!

Today is Tuesday, 21 December, 2010. There are exactly 10 days until we're at Friday, 31 December, 2010. 10 days left in the year. 10 days until closing. 10 days to squeeze in the following:

1. Letter to go from Australia to USA to Russia, back to USA and back to Australia - thank God for email. With the time difference, it still takes longer than you'd imagine, let me tell ya!

2. HOPEFULLY, the seller will agree with the new terms, which have changed the closing date and, more importantly, have cut around $4000 off the selling price....

3. New closing documents to be prepared.

4. Meet with accountant.

5. Arrange money transfer.

6. All parties (from Australia, USA, Russia) to sign closing documents and POST to USA - Let's hope FedEx is as fast as they say.

7. Hold Christmas Eve party for friends at our place.

8. Hold Christmas lunch for family at our place.

9. Wait for an AGE while everyone has two bloody public holidays Mon/Tues.....

10. Reinspection of property

11. Close on the deal.

12. Drink copious quantities of champagne.

Batter up!

Is it time to play hard ball?

The reinspection was conducted on Friday and things were not fixed! Strangely enough, it was the seller that arranged the inspection time. Why??? At $200 a pop for re-inspections, that gives me the wonks, as my mother would say.

Further bad news is that I was right on one account in the previous post - the HOA fees are actually quite a bit higher than what was advertised. Advertised: $146; Actual: $306. That's quite a difference when we're talking monthly expenses. He must have done this kind of maths when he worked out those advertised fees:




So, with that in mind, it's time to get a bit tougher.

I don't want the seller to lose out, but I certainly don't want to lose out either.

My lawyer took a call from me this morning (Saturday evening, his time) because he's an angel. He is going to draft a new agreement. The price is going to be lower. The new closing date is going to be 31 December. Of course, we are running a risk that the seller may walk away but, in the end, we have to do what's going to be best for us and, hopefully, still good for him (although my opinion of him is dwindling, let me give you the tip!)

Well, we'll see what happens early next week. Things could go from bad to worse, or we could be celebrating in style on New Year's Eve. Let's hope it's the latter.

Patience is a virtue. Patience is a virtue. Patience is a virtue.

Crunch time - will Harvey find a problem with the HOA documents?

Well, I'm waiting for Harvey Birdman's opinion on the rules of the Home Owners' Association. The documents are now with my attorney and will be reviewed by morning! These are my fears:

1. The HOA fees are going to be a lot higher than what the seller advertised
2. The rules will be too restrictive on rental agreements

They're the major concerns. But... my dear husband always says 99% of the stuff you worry about never happens. Let's hope that's true now!... And let's also hope, while we're at it, that no other unexpected little gremlin pops up either.

Fingers crossed, peeps!

The Dreaded US Bank Account

Well, I've finally worked a way around the bank account issue.

You see, after I formed an Limited Liability Company (LLC) to own the property (and to avoid enormous taxes as an individual), I found that it's literally impossible to get a bank account in the name of the company, without physically being in America.

This has caused much angst. So after going around and around, I've found that we can have a notarised agreement between the LLC and me, as an individual, appointing me as the collection agent for the LLC. Tricky huh? So, I can open a personal US bank account, through HSBC (without being there in person) and then have all the rent paid to that account, as the authorised 'agent'. HA!

Where there's a will, there's a way.

This is, of course, costing us a fee with the attorney - but it's much less than the cost of a ticket to Orlando!!

For Florida Property Managers

This condo will be rented fully furnished. It is 1150 sq ft and has two bedrooms and two bathrooms. The apartment is on the first floor in a gated community in the Metro West district, with pool and clubhouse facilities.

Please contact me if you are interested in managing this property.

Slowly, slowly catchy monkey.... Closing on Florida Condo next week!

Well, f-i-n-a-l-l-y.

The contract has now been signed by one of the brothers who own it, who acts as President of their company. (I have a sneaking suspicion that he may reside in Russia). Oh, what a cosmopolitan deal this is. That certainly could explain the delay in getting it from one continent, to another to another....

Tick tock, tick tock.

Now, all that's left to do is the re-inspection when brother two lets us know the condo is ready.

The bank account is still bothering me - a call to HSBC today will, hopefully, sort that out.

All quiet on the Western Front

God, I hate waiting. I know it's Sunday, but the problem is, tomorrow will still be Sunday in the States....

We haven't heard back from the seller about whether or not he's going to accept the new conditions of the contract. That's taken some time now and it's beginning to worry me, to be honest. I can't work out why he would take such a long time to sign that contract or at least make a counter-offer. Oh well, another 30 hours or so and I might be a bit wiser...I'm just hoping something dodgy isn't going on.

Rentometer

How cool is this? Rentometer gives you an indication of how much your US property will rent for, giving you comparison data for the surrounding area.

http://www.rentometer.com

Devastating news

Just kidding! I am just monitoring the hits on my page views - it seems 'bad news' headlines pick up more readers. Sucker!

Anyway, the GOOD NEWS is that I've just saved myself $1300 by arranging money transfers via OzForex, rather than my bank. Check out my comments on the post about XE Accounts here.

I've hit a snag

Although I set up a US limited liability company (LLC), I've hit a wall when it comes to opening a bank account. If you can't be there, in person, it seems the only alternative is to open an 'off-shore' account. Transferring money is going to be quite expensive if I use that method, so I'm on the hunt for another viable solution....

Property Sale - Contract Signed

Well, late last night I had a discussion with my lawyer. We made some changes to the standard contract, including a clause which requires that the seller repair or replace the items that were found to be 'defective' or 'marginal' in the inspector's report.

So now, having signed and delivered the contract,  we wait to see if the seller will agree to the terms.

Patience is a virtue. Patience is a virtue. Patience is a virtue.

Too good to be true?

It's often said that if it looks too good to be true, it probably is.

So, I contracted a fantastic guy from National Property Inspections, who has been absolute GOLD. He was really worried that I was being led down the garden path by an unscrupulous seller, looking for some mug to buy his crappy condo. So he was really thorough and gave me an honest opinion about the area and the rental market. He's exactly what I needed - my own Inspector Rex.

He went out to the property last week and checked and photographed EVERYTHING! We now have a 35-page report, with every detail, from a missing disposal unit under the kitchen sink to a missing light fitting on the porch. There were a few other things that I wouldn't have been able to pick up from the photos - the shelving in the pantry hasn't been fitted yet and the oven wasn't working...... are you starting to see the light about getting an inspection? The dishwasher wasn't connected and the air-conditioning needs a service.

When I first read the report, I have to admit, I was a bit disappointed. The pictures look so great, but there are things that aren't exactly perfect about the place.... I did some calculations and worked out an estimate on how much it will cost to have it 'perfected'. All-in-all, the problems are minor and superficial. There are no issues with the building structure, the electrics or the plumbing, so those big cost items are clean and clear.

Basically, I've gone back with an offer - the seller can either fix the items Inspector Rex found to be 'defective' or he can take a lower price.

Either way, it's going to be too good, but absolutely true.

By the way, I still haven't parted with the money for the deposit. If Inspector Rex and Harvey Birdman can't see any problems, I'll sign, seal and deliver.

Today's lesson: the inspector and the lawyer are absolute MUSTS. Don't leave home without them.

Now I'm excited - Property to be inspected today!

Well, the last 12 hours have been s...l...o...w...

I've just been waiting for some news. The lawyer has been changing a few things on the contract, which I'm really grateful for - definitely worth getting a lawyer. (Now there's something you don't hear every day!)

In about two hours, it will be 10am in Florida, which means our new patch is going to be getting a quite undignified inspection - its plumbing will be peered at, its wires will be examined and its whole body will be felt and tested for defects. That poor condo is going to be feeling rather exposed, to say the least!

Anyway, hopefully she's spick and span and we'll be proud to sign her papers tomorrow morning! That is, of course, if we EVER get the HOA Disclosure, which is still on its way.

Patience is a virtue. Patience is a virtue. Patience is a virtue.

Rental Markets for Investers in US Property

The rental market is a real concern, when we're looking to have a reasonable cash flow. Some areas of the US have huge vacancy rates, as people have moved out, looking for work in other cities. The average vacancy rate is around 10% across the country, with Florida recording 13.2% for the third quarter of 2010.

13.2% seems a bit high. However, in the third quarter last year, it was over 18% and hasn't actually been as low as 13% since before the financial crisis. So, I think we can make the assumption that the rental market is pretty 'normal' now in Florida, considering that a large number of condos are on the short-term market for holiday makers, which naturally pushes Florida's vacancy rate up.

The states that are coming in behind Florida, with higher vacancy rates, are Michigan, Indiana, Arizona, South Carolina, Texas and Mississippi.

The state with the lowest vacancy rates is.... Alaska! Brrrr!

Where do I get my info? The US Census data - http://www.census.gov/hhes/www/housing/hvs/rates/index.html

US Attorney at Law - Real Estate

I have my own Harvey Birdman!

At a very reasonable fee, I'm getting peace of mind - or is that piece of mind? It's certainly a piece of his mind - the lawyer will be reviewing the contract, making any comments or revisions, checking the title and survey and reviewing the settlement statement and closing documents. It's a solid double-check on the Title Agent.

I think that's a pretty good deal.

XE Foreign Currency Transactions - Banks can buzz off!

OK - to wire transfer from an Australian Bank to a US Bank, including currency conversion costs $$$.

Saving myself the pain of all those bank fees, I signed up for a free foreign exchange account. Here's how it works:

http://www.ozforex.com.au/how-to-send-money-online.asp (OzForex - for amounts over AUD2000 - these guys are really helpful)

http://www.xe.com/fx/how.php (no minimum)

HOA Fees & US Property Tax

Checking all those peripheral fees and charges.....

The title agent (like our Settlement agent in Australia) didn't send me enough information! I won't be signing a contract today until she sends me the HOA Disclosure Summary.

Home Owner Association (HOA) fees are something to look into before buying an apartment/condo. They are the equivalent to our Body Corporate fees in Australia. It's really important to make sure you have a copy of the property's HOA Disclosure Summary. This will give you the details of your costs in the upkeep of the property. HOA fees in America generally cover outside building and garden maintenance, and any other common area maintenance (club house, pool etc). They usually also cover building insurance, but not your internal building insurance (personal property, liability etc - which is another cost to look into). Although the current owner has told me what the HOA fees are, I'm not trusting that - I definitely need a copy of that disclosure summary.

Another yearly fee will be property tax (equivalent to our rates). The property tax paid the year before purchase may not be the same in the next year. A change of ownership or property improvements triggers reassessments on the property that could result in higher property taxes. The County Appraiser's Office deals with valuations so that's my next stop - to check the rate of taxes for next year.

I have engaged a professional property inspector, who will check all the electrics, plumbing, building etc. The cost of that service will be $300.

Forming a US Limited Liability Company

Praise the Lord for 24 Hour Tax Chat!

OK, so I've just formed a US Company - what else would I be doing on a Sunday afternoon?

Basically, the tax is horrendous if you buy as an individual (30% tax on the GROSS income). By forming a LLC, the company is taxed in America, between 10% and 35% on the NETT income (after expenses). Then, in Australia, we are just taxed on the gap, if our tax rate is higher than the tax rate in America. So, basically, the most we will pay is the Australian tax rate on the 'profit' we make - exactly as it would be here!

The cost to form the company was about $1600, which includes the company formation, bank account, US address and mail forwarding, plus 12 months' tax advice, preparation of tax returns and monthly bookkeeping - not a bad deal. I'm sure we'll save more than $1600 in the first year, just with the tax advantages.

Do I need some kind of disclaimer at the bottom of these posts?

Disclaimer: If you take my word for any of this without talking to a proper tax agent or lawyer, you need your head read.

Ugh - the time difference...

I know that it seems so obvious but until you've actually attempted to get something done on the other side of the world, you probably haven't given much thought about just how frustrating a 13 hour time difference actually is.

Think about it... when it's 10pm here, it's 9am there... when it's midday in Perth, it's 11 at night in Florida. There is not one window of time that is convenient for both parties. Therefore, every email is more like traditional post.... It certainly slows down the process and, let's face it, I'm not really the world's most patient person.

The biggest struggle is that I keep thinking I have a finite time to complete the transaction. I need to relax and go with the flow a bit here, otherwise I could make some costly mistakes. At the end of the day, I've got to remind myself that it will take as long as it takes.

Oh my God - I jumped into a USA real estate investment!

After at least twelve months of dreaming and flicking through real estate pages, I made the leap to buy a property in the USA. Yesterday morning, at around 8 am, I put in an online bid for a Condo in Florida. Mine was the winning figure. Hoorah!

I am now on such a steep learning curve - it's like climbing Everest. So, I'm going to journal all the of things I should have known before I took that step off the precipice and into the vast unknown of foreign ownership. So, people, stop swooning over photographs on the net of far off places and fabulous investment opportunities. Take the ride with me, before jumping solo. No doubt, you'll know a lot more than you did before you came to this site....

In the last day, I have discovered a few things, but I'm still not very wise. There's a huge amount to learn and I only have two weeks before the deal closes. That means, I'm going to have to learn fast and be smart about finding the right people to advise me.

At the moment, these are the key issues I face:

• I haven't seen the apartment with my own eyes. That's scary just in saying it! So, one of the first things I need to do is get a Professional Inspection.
•  In America, they use Closing Companies, similar to our Settlement Agents here in Australia. However, unlike Australia, the Closing Company has been selected by the seller. I need to pay a deposit of $10,000 to an escrow account (like a trust) and then wire the remainder after inspections etc have all been satisfactorily completed.
• Like anyone else, I'm very wary of scams and I want to protect myself. Therefore, I will be hiring a US Property Lawyer to review the contract for me and check that everything is OK - before I sign  or send any money. I have contacted a number of lawyers who are registered with the Florida Bar and am awaiting a response....
• The property is fully furnished and has been completed by an interior designer, with lots of extra homely bits and pieces. I really have to think about whether it's suitable as-is, for a long lease arrangement, or whether it needs clearing out. 
• That brings me to Property Management. Unlike Australia, property management seems to be a bit of a mixed bag in America. Some property managers still collect the rent in person.  I have to find out if the property manager on-site is any good and, if not, I'll have to look further afield...
• On the subject of money, I'm not a full bottle on Taxation. I've had a quick look at it seems that as a foreign investor, I'm going to be lumped with a 30% tax on the GROSS income in America. That's something that I need to look into a bit further, as I think there might be better ways of setting up the ownership, that will help with that tax burden. 

Useful Links:

USA tax for foreign investors

Property Lawyers (Florida Bar Association)

Just Answer - legal questions answered online
Florida Association of Building Inspectors