Complicated Taxation....

Well, unlike Australia, the tax year in America is based on the calendar year. While our financial year runs from July to June, theirs runs from January to December. That means, some of these forms need to be in pretty shortly (April).

Anyway, there were a number of forms that needed to be sent to various bodies around the States - four envelopes are making their way around the world as we speak:

Envelope 1 contains:
Form 1065: US Return of Partnership Income
Form 8825: Rental Real Estate Income and Expenses of a Partnership or an S Corporation
Schedule B-1: Information on Partners Owning 50% or More of the Partnership
Schedule K-1: Partner's Share of Income, Deductions, Credits, etc.
Form 4562: Depreciation and Amortization

Envelope 2 contains:
Form 8804: Tax Return for Partnership Withholding Tax (Section 1446)
Form 8805: Foreign Partner's Information Statement of Section 1446 Withholding Tax

Envelopes 3 & 4 each contain:
Form W-7: Application for IRS Individual Taxpayer Identification Number
Certified copy of passport
Form 1040NR: US Non-resident Alien Income Tax Return
Form 8805: Foreign Partner's Information Statement of Section 1446 Withholding Tax

The moral of this story: get yourself a decent tax agent in the US - it's way too complicated to try and figure out on your own.

We have a tenant!

Yes! We have a tenant for the Florida condo. He's signing a 12-month lease and will be paying $925/month.

So, let's just work this through before we get too excited:

Yearly income: $925 x 12 = $11,100

Minus

Yearly expenses:

HOA Fees - $3684
Property Management Fees - $1110
Incidental maintenance - $500
Insurance - $300
Tax - $200
Banking fees - $360
Tax filing - $375
2 months' vacancy - $1850

Nett profit - $2721/year

Well, at least we're still in front, even if it's not by a lot :) Here's hoping that 5 years from now, we'll be seeing a beautiful, big capital gain!

That's the plan :P

SOLD! Port Charlotte, Florida

I just bought a block of land in Port Charlotte! Wow - this will be a gift to my daughter, if it turns out nicely in 10 years - 21st birthday - hopefully it will be worth a few extra dollars then.

Here's what I checked for: utilities, established area, schools, shopping, medical, low crime rate, access to larger centres, roads, airports, etc.

This block has no HOA/POA fees, so we can sit on it for a long time, without it hitting our pocket.

Section 8 Housing in the USA

Here's something that you might consider if you're buying to rent out. Section 8 is like our Housing Commission in Australia. Basically, people who qualify for Section 8 housing (low income families) can rent a property and the rental income is guaranteed by the government.

Check it out at http://www.gosection8.com/

Land - don't get caught with useless plots that aren't buildable!

Assessor Parcels vs buildable lots

The Assessor creates Assessor Parcels for assessment and taxation purposes. These may not be legal, buildable lots. You should always check with the county or city planning departments to verify whether or not a particular Assessor Parcel constitutes a buildable lot.

Dirty Deeds

I'm now on the lookout for USA land but the deeds are confusing. Here's what I've found out:

Warranty Deed - this is really the only type of deed I'm interested in, as a buyer. A warranty deed ensures that the person who's selling the property is the actual owner, that the title is fee of encumbrances and that the seller will defend the title, if someone comes along years later, after the sale, claiming that they had rights on the property.

Special Warranty Deed - this is similar, but only has a limited guarantee - the seller guarantees the time-frame that he/she owned the property. Be careful here - remember, some places are being 'flipped' in a very short time frame. A special warranty deed could prove to be fairly worthless if the seller bought the property as a Quit Claim Deed two weeks ago.

Quit Claim Deed - this is the dirtiest deed of all. No warranties - not even one that the seller has any rights to sell the property. TREAD VERY CAREFULLY!!!!

Real Estate - USA Tax

Today, I've been on the hunt for a CPA in Florida. I came across this website for the Florida Institute of Certified Public Accountants - www.ficpa.org - which lists its members.

I've knocked up a spreadsheet of the expenses we incurred in 2010 and have shot it though to a couple of accountants to give me a quote on how much it will cost to prepare and lodge our tax in the States.

For your information, the total closing costs, including attorney, title agent, inspections, government fees, postage, bank fees etc came to a total of just over $5000, so we got through the whole process, walk in, walk out, for under $71,000.

USA Property Manager!

Yippee - the property manager is on board! We'll be renting the condo for $950 a month. After our monthly HOA fees ($307) and monthly property management fees (10% - $95), we'll be collecting around $548 per month. I'm also paying my lawyer $30 per month to deal with the bank account and make any payments etc, so that brings us to $518 per month.

Yearly, that's $6216 in income. Then we take off insurance, property tax and miscellaneous maintenance.... let's say we're down to $5000 in our hands. It's not a magnificent cash flow at 7.6% but then we need to consider:

1. The likely capital gain over 5-10 years
2. The likely strengthening of the US dollar over the next 5-10 years

Word of warning: let's say we get $5000 in our hand and we've convinced ourselves it's all good, considering points 1 & 2 above. If you're up against the wall with your repayments, it's not worth the risk. See, here's a few more expenses... accounting fees in USA could be a bit of a shock and what if it goes untenanted for a few months? Suddenly, there's nothing in the hand. If you're relying on positive cash-flow with your investment property, I'd have to advise you to rethink. Positive cash flow should be a bonus, if it happens - please don't do it if you'll have to depend on it, because nothing is ever certain. Remember, that's exactly how the USA got into this mess in the first place.

As with any gamble, don't do it if you can't afford to lose it!

Property Management, USA Bank Accounts, Landlord Insurance...

Geez..... and to think I thought I was seeing the light at the end of the tunnel.

Weirdly, the seller still has the key!?? I don't know why. Shouldn't that have been handed over? Anyway, I've got the inspector going back tomorrow and he's going to take it. I'm going to change the locks as well.... just as soon as I can find a property manager!! Who'd have thought it would be so hard?

The bank account is still an issue. Harvey (the lawyer) is going to act as an agent on our behalf and hopefully will be able to set that up for us asap. I have established a Citibank account in Australia and am hoping to get a Citibank account in America - one of very few banks that doesn't charge for moving money across international borders.

With regard to insurance, it doesn't seem that I can get an online quote. I'll be staying up late tonight so that I can phone a few insurance brokers... must be something weird about their laws over there that I can't just sign up for insurance online.

I've listed the property on Trulia. If I get a couple of bites, I can send them on to the property manager.... as soon as I have a property manager, that is....

Lordy!

Done deal! We're USA property owners!

Well, there you have it - done and dusted!

We are the proud new owners of a Florida condo :)

Now, all there is to do is grab hold of a property manager, get insurance, set up a Citibank account in the US, find a tenant...

And you thought it was all over - it's only just begun.

Clink go the champagne glasses!