Buying property in the United States has become increasingly attractive to Australian investors. So it's important to know what the real pros and cons of buying there are.
Every great thing has its potential detractors. So beyond the hype; how does buying property in the US stack up? Let’s look at four of the cons. And four of the many potential advantages. Then make your decision…
The Cons of Buying Property in the US
1. It’s Far
Australians will find the United States one of the furthest places away to invest in real estate. It’s not cheap or convenient to hop over to Chicago for the weekend. This may change over time. But for right now it may be a challenge for those that want to manage their own investment properties hands-on. There are closer overseas destinations to investment, but they have to be balanced with safety, value, and income consistency.
2. It’s Really Big
The US property market is big. It’s really, really big! It may be the 4th largest on the planet in terms of land mass. But when you look at inhabitable/ inhabited area it is perhaps one of the top 2. Most Australians are familiar with major US cities like New York, Washington D.C., Orlando, and San Francisco. There is a lot more in between. These cities have continued to draw major investment from global pension and sovereign funds. Now analysts are seeing sophisticated global investors move on to secondary and tertiary markets to find the yields and growth they crave. For individual Australian investors this all means needing to find a trusted guide to help them navigate to the best markets and neighborhoods.
3. The Process is Different
Investing anywhere new means a new process. Investing in London requires one way of doing things. Investing in Hong Kong or Tokyo presents a different method of transaction. The terminology is different. And the accent can be different. Of course the first time you purchased a property at home in Australia it was a new process too.
As with virtually all types of investment, and income there can be taxes associated with increased gains. There may be potential taxes on net rental income from US income properties, as well as capital gains on the resale of assets. Whether Australian investors are liable for taxes, and how much those taxes are will depend how transactions are structured. How funds are put into investments, how title is held, which tax breaks are taken, and how well accounting is performed will all make a significant difference in how much tax is due.
The Pros of Buying Property in the US
1. Australians Are Underestimated
Aussies are underestimated as buyers and investors in America. Americans are focused on Chinese, Canadian, and UK buys and investors. Australian investors aren’t even on their radar. Even a Google search from within America for “Australian property investors in America,” yields pages of .au sites, and perhaps the odd story from BBC World. Well-traveled US property professionals may be aware that our incomes, wealth, and property values are some of the highest in the world. Most aren’t familiar with much else besides Outback steakhouse, poor impressions of “throwing shrimps on the barbie,” and images of the Sydney Opera house. Chinese and Russian buyers in the US are anticipated to have plenty of excess cash and to pay asking price or more for properties. Being underestimated; Australians can have an advantage in negotiations and purchasing properties.
2. It’s Priced Right
America is still on sale. There are many cheap properties in comparison to property prices in other popular international destinations. Though legendary real estate investor, and multi-billionaire Warren Buffett best describes the current opportunity as “quality merchandise, significantly marked down.” What Australian investors should be looking at to make an accurate evaluation is value, security of capital, future outlook of property prices, and rents comparative to purchase price.
3. It’s the Right time
It’s the right time for buying property in the US. Bank data compiler DistressedPro reveals that there are still billions of dollars in distressed mortgage loans and foreclosure properties working their way through the legal pipeline in America. These are present even in New York, Orlando, and Chicago. They are no longer the threat they once were. Now back on strong financial footing, and with the economy and national real estate market advances moderately, but consistently Australian investors can buy US property with confidence and at bargain prices.
The US is far, transactions work a little differently, ownership is held a differently than your house in Australia, and there are many places to invest in the United States. Together this all provides great benefits in diversification. Great investing legends and the wealthiest billionaires don’t stay wealthy, and keep getting wealthier with big gambles on single investments. They do so by diversifying their capital and investment activities. This is a great way to replicate this success.
In conclusion; as with any financial move there are pros and cons of buying properties in the US. The questions is if the pros outweigh the cons for you and your long term financial goals?
A property developer and investor, Matt has experience in both the Australian and US Markets.
After the Global Financial Crisis Matt moved to America to learn about their real estate market and now owns and manages a substantial portfolio of properties.
As founder and managing director of InvestUSA Matt now focuses his energy on educating Foreign Investors on how to invest safely and securely in the United States.