Are you considering buying an investment property in the US but you're afraid you might buy a lemon or you're worried about being seduced by a smooth sales rep or real estate agent?
Blogger : Anh-Lan Nguyen, property consultant, Top Property Deals USA
What can you do to increase your chances of securing a solid investment in the US without having to set foot in the land of burgers and sodas?
Investing in the US property market is pretty trendy and hot at the moment.
You’ve probably seen many success stories of savvy and brave investors who took advantage of the extreme price fall after the GFC and purchased US properties for close to nothing.
On the other hand, you may have also heard horror stories of foreign investors buying properties that turned into a nightmare, and which probably deterred a chunk of more conservative investors from investing overseas altogether.
You know that investing in the US is a once-in-a-lifetime opportunity that you want to be part of but don’t know how.
How can you do it all on your own or without having to leave your home country? How can you reduce your risks and ensure that you find a real deal?
Since 2012, I have successfully bought several US properties from Australia for myself.
Is it luck or careful decision? A bit of both. All my properties have been performing extremely well, with some doubling in value in just two years.
The key to success is to build a good and trustworthy local team that you can rely on.
At the very least, you need to have in your team a local property manager, accountant, legal attorney and real estate agent who can bring local expertise and tell you things that only locals know.
If you don’t have the time or the knowledge to build your own team, the best solution is to partner with or rely on someone or an organisation that you can trust, who/which already has a team and a network of reliable contacts.
Whether you are planning to find a property on your own or go through a third party, here are some tips you can follow to increase your chances of buying a solid investment and to avoid being scammed.
It’s not an exhaustive list, but it can get you started.
1. Check market price and validate property value
Property prices in the US are significantly lower than property prices in Australia. Don’t be fooled by just the cheap price.
- Check recent prices for which properties sold in the area to have an idea of current market price.
- Ask to see comparables (these can usually be provided by a real estate agent)
- If you do not have comparables, check free websites such as Zillow and Trulia for property estimates. But beware, those websites are not always accurate – well, they are free after all, but it’s better than nothing.
- Check your property’s county website for its sales history. You can see the names of previous owners so it’s good to check how much the previous seller got for it. The information is free; it’s just not easy to find. You have to search a bit.
- Call a local insurance company and ask for a quote. They should be able to tell you the replacement value of the property you are about to buy. You may also be able to find other useful info like whether it's in a flood zone etc. If the replacement value is lower than your property price, it’s a big red flag for you – unless you are buying a big piece of land.
2. Check the neighbourhood
You don’t want to buy in a deserted area or where the level of crime is so high that no one wants to rent or manage your property – which can be quite common in some states.
- If you can’t go to see the house and suburb yourself, have someone local do it for you. Ask friends, friends of friends, relatives who might know anyone living in the area or close by. Do they feel safe just driving around the neighbourhood?
- Don’t trust everything the real estate agent or sales rep is telling you. Check the facts if you can. I was once told that the area/suburb was not too bad, that it wasn’t the best but it was OK. When I asked a female friend to go check, she told me she wouldn’t even dare go walking there alone.
- Call a few local property managers and ask them about your property and the area. They should be able to tell you immediately whether it’s a good or bad area.
Last year, I met an investor who had just bought a property in a low-income neighbourhood in one of the northern US states. He was having a problem with his current property manager so he asked me for help.
After a bit of research and calling, we find out that no property manager wanted to manage his property because it was in an extremely rough area, except for one… A big red flag!
3. Check references and do your research
You can avoid a lot of surprises by just doing a few simple checks and not blindly trusting a referred contact. Whenever possible, research the topic as much as you can.
The more you know, the better prepared you are and the more confident you will be when buying a property overseas…
- Ask for existing client references and do some simple online research for reviews whenever you are considering a new partnership or using a third-party service. Is there a website? Are there a lot of good reviews? Bad reviews? Can I easily check references of existing clients?
- I was once referred to a mortgage broker who could supposedly get me financing in the US through a trusted contact. That broker failed to get me financing, then rarely responded to any of my attempts to contact them afterwards. I did a bit of research just to find out if people may have been scammed by him. I asked my trusted contact how she knew the broker. She told me someone simply gave her the contact details and she didn’t know that broker at all. If I had known, I would have done proper checks. It was too late by then. Not asking that simple question cost me over $1,000.
- Get as much information as you can. There are lots of free or low-cost resources out there – you just need to know where to look: free seminars, overviews, property investment blogs, magazines forums and websites, local meet ups, etc. Ask a lot of questions if you are going using a third party to help you with securing a US property.