I’ve been studying the USA property market for some time now; there are lots of amazing opportunities with rental returns ranging from 10% to 20% of the total property value (e.g. between $50k to $100k rental income on a $500,000 property.)
For Australian property investors this is something new. The usual reaction from my American friends, whenever I tell them that Australians lose money on an investment property to get tax breaks, is “ That’s crazy!”
Of course, the Aussie market has a steady capital growth and unlike the USA, didn’t crash after the subprime fallout in 2007.
But still, the yanks think it’s a crazy system to lose cash flow and wait for capital growth.
However, the Aussie investor can get in on the USA market and use the positive cash flow to help ease the burden of the income loss created by negative gearing.
Here’s what I’ve discovered from my research:
- Single family home can generate rental income of 10% to 15% per year of the property value (so it’s more if you use leverage).
- Multi-family homes (a block of apartments) can generate upwards of 20% annual income (of property value).
- Renovated or rehabbed properties can generate 30% increase in value (after costs), plus the 10% to 15% ongoing rental income (of the increased value).
Key points of difference
The main differences between the USA market and Australia is this:
- Australian landlords rely on capital growth to increase wealth, whereas in the USA, capital growth is secondary to rental returns.
- Debt reduction is easier in the USA. The added cash flow helps reduce debt creating equity and the ability to purchase more property, faster.
- In Australia, apartments are sold individually, some are owned by investors and others are owner occupied. In the USA, apartment blocks are called multi-family homes and the entire block is owned by an investor, with all apartments rented. (Note: the term condo is used when the apartment is owned by an individual, not by an investor.)
- Finance is cheaper in the USA and easier to obtain.
- Raising of capital has less restrictions in the USA.
With these differences, creating a portfolio of cash flow positive property in the USA is an easier task than it is in Australia. This doesn’t make Australian property investing ineffective, it’s simply means the strategy is different.
Using USA cash flow positive properties to ease the burden of your negatively geared Australian properties is something worth considering.
My plan is to build a very large USA portfolio that is a mix of all 3 methods above (single, multi and renos/rehabs).
If you’d like to invest with me, register your details below and I’ll send you the documentation once it is ready. In the meantime, feel free to reach out and ask any questions in the comments below or privately here.
And you don’t have to worry about any tenant issues, after all I’m an Aussie, all I have to say is, “that’s not a knife…”
Tony “Dundee” Melvin 😃