invest in rental property in usa? esp foreign resident?

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Invest in rental property in usa? esp foreign resident?

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amother

Tue, May 08 2012, 9:02 am

I've been toying with the idea of buying foreclosures or cheap homes in the USA and renting them out. I'm not rich or anything - I would be mortgaging my own home, and taking out more loans to do so.

Anybody here done this? I am not an American citizen. I live in Israel where many companies have been popping up lately. They buy foreclosures in places like Detroit or Atlanta, renovate them and then sell them at twice the price to other Israelis. These Israelis buy them because it's still a good investment for them with 10-12% net income per month (after lawyer, property management, insurance).

I'd be curios to hear if anybody's done this and has words of wisdom. I've done lots of research on the net, of course.

Culturedpearls

Tue, May 08 2012, 9:08 am

It's very risky. No one is going to guarantee you rental. Places like Detroit are economically bankrupt with huge unemployment . If the tenants don't pay rent you have very little power & need to enforce them being vacated. This is a lengthy process & in the meantime there's no rent & you need to pay rates.
In general most property investors recommend that one should buy in an area & market they are familiar with.
Not all that glitters is gold.

amother

Tue, May 08 2012, 9:56 am

We own homes and rent them. I don't recommend it unless you can be very on top of the situation and you have money in case of emergencies.

For some bad case examples:
- tenants don't pay. then there are court costs (you aren't in America so you need to pay someone to represent you in court). During holiday season when people have a hard time paying the judge will not evict. It can take 3-4 months to evict a non-paying tenant.
- Between tenants you have to fix up the properties. Paint, new floors, etc.
- You have to expect to have vacancies.
- If you accept section 8 there are yearly inspections and they will find somthing wrong. Even if the house is perfect. 8 years after being rented to section 8 they may decide the outlet is to close to the sink in the bathroom and you don't get paid until it is moved. Your tenant my remove all batteries in the smoke detectors because they are annoying. Unless you hire someone to replace within 48 hours they start withholding payment.
- All houses require money. leaking roofs, broken windows, broken appliances, old boilers, are minor. Some things like roots wrapping around sewer pipes can be huge.
- After buying a house it can sit empty until you fix it over/ rent it out. That is a prime time for the house to be ransacked. Like the copper pipes, boiler, appliances to be stolen.
- Houses that are being foreclosed on may have sat empty for over 1 year. We have seen houses with tremendous mold growth inside of walls or other issues from sitting empty with no heat or air. For us its not worth it to have the house inspected before we pay because we pay so little and
- BEDBUGS! This is huge. In many states landlords are responsible. Even if tenants will not clean up and keep bringing it back in. Its a tremendous expense. As is regular pest control if there are mice, cockroaches, termites, squirrels in the attic.

Right now we probably make $200 profit from each house / month without anything going wrong, but they are small inexpensive houses we bought for around $30K so I don't know if that is so much proof. b'h we have a few houses so when something does go wrong it is mostly covered from the other houses. My dh spends a lot of time at section 8, in court, and fixing things himself. He happens to work in apartment management in the area we own the houses so he can be involved on a day to day basis.

Owning a house is not guaranteed income.

amother

Tue, May 08 2012, 9:58 am

I'm the amother above. I just reread and see that you want to buy, fix and resell.
Just be aware the buyer market in America is really really lousy.
You can fix up a house, have it sit empty for a long time. Grow mold because there is no air conditioner on, get termites, have all the appliances or pipes stolen. I don't think its the right season to buy to resell.

DH just bought a house put in over 10,000 into it and we are waiting for a tenant. Someone broke one of the new windows. Took the boiler, some pipes, and ruined the new wood floors. Its part of it all.

yksraya

Tue, May 08 2012, 10:01 am

try buying in the catskills. buy a house where tenants already live in (nonjewish).in the catskills prices are really low these days.

amother

Tue, May 08 2012, 10:11 am

One more thing. If you do buy a house and take out a mortgage then the mortgage company will make sure you get insurance. But regardless until the house is rented make sure you have special insurance specifically for empty properties. Its much more expensive, but if something happens to an empty property, like a fire, regular insurance will not pay up.

amother

Tue, May 08 2012, 11:08 am

Thanks everyone for the useful input. To clarify, I personally wasn't going to buy and flip, I just said that many Israeli companies are currently doing that and marketing the houses to the Israeli public. I would personally feel uncomfortable buying a house for $20K and then selling it for $55K to Israelis who think it's a great deal and don't know enough English or internet use to realize it was previously listed at half the price.

I was looking at the cheaper end of the market, like you amother, houses that sell for $30K. I would hire an inspector. I calculated that I could renovate up to $40 or $45K and then rent for $800 in some areas. If I end up with $700 after paying property management, lawyer fees and all, that would be great. I also figured 1/5 houses would be vacant at any one time.

Amother said she earns $200 net a house, that's what I estimated, but after paying a monthy mortgage. Do you earn that amount after all your expenses including tax and mortgage, or before? Do you pay cash or mortgage for the houses?

I am nervous about some things. My English may be great but I have no idea about American mentality. Some things you brought up are things I never thought of, like bedbugs. That's very strange to me. I also never figured the house would be ransacked even when empty.

Previous amother with the property management husband, I was actually going to hand over all the homes to property management. I figure it's in their best interest to keep things running smoothly. I was hoping maybe I could even develop a relationship with one company and they would advise me where to buy. Am I dreaming or is this possible?

amother

Tue, May 08 2012, 11:41 am

We did a mixture. Some houses have a morgage, some cash, and some we took out a home equity morgage on our house. We plan on waiting 2 - 3 more years and refinancing all the houses. They look much better then when they were first purchased.

$200 is after taxes, morgages, and insurance and minor repairs. But if there are major repairs (at least 1 -2 times per year) it is in the negative. On houses without a mortgage it is more but we are also paying back our savings so don't count it as profit.
But we don't pay a management company or someone to go to court for us. My dh can also do a lot of light fixing and electrical work. That would be an added expense.
We don't get the houses inspected. Part of the reason is that we get a better deal because we don't put any contingencies in the contract (which typically includes an inspection). It makes the bank accept our offers faster and even if our offering price is less then others.

Our houses are in Philadelphia. We typically buy a house between $25k - 40K. We do have some that were as much as 52K. Repairs are anywhere from 10K-20K. Most houses are between 40K - 60K when we are done.

Tenants pay around 800. If they are on section 8 it is closer to 1000 - but section 8 requires a lot more repairs and extras and time. so I'm not sure we make any more at the end of the day.

One more thing. When buying a house you have to know where you can get hit with major expenses that are specific to the area. Like Philadelphia - the water company is tied to the gov't. So if it is not paid the state can put a lean on the house. So water should always be landlord paid. but what if you buy a house and the meter is missing. And after the closing it is put in. You are responsible since the last reading (which could be years earlier). One house we bought the reading was over 4K. Now my dh makes sure a new meter is installed and there is a reading before he closes. His title company is on top of it. The banks don't like it, but the title company will not give a clean title otherwise. Title insurance in Philadelphia does not cover water for this reason. Just one example where you have to be careful
I would talk to someone who is a landlord in the state where you want to buy before going into it to find out specifics for that area.

There are people who do this. Buy houses for people as an investment. But you have to be careful and calculate the numbers yourself. Some numbers my dh has heard from people in the business really do not make sense and are very inflated. Also be sure to get real references.

amother

Tue, May 08 2012, 11:44 am

Wanted to add the refinancing after a few years because they are tenant occupied and look nicer is really where you make your profit. We are hoping it will make it all worth it eventually.

Regarding mortgages - You cannot get mortgages now for more then 5 houses or something like that - its a new rule/law. Once you go above that if you want a mortgage you have to go through investors/ private banks, where the rates are much higher, but they may loan you more because they know the area better. But don't count on getting the low rate for a bunch of homes.

amother

Tue, May 08 2012, 11:48 am

Not sure how this will work for you being out of USA. But one more positive for us in owning homes is depreciation. It makes a big difference on our tax returns. A down side is that our taxes are now very complicated and we pay an accountant to do it (dh used to do it himself) so that is another business expense. But with all the depreciation this is the first year we ever got back a tax refund (YAY!).

amother

Tue, May 08 2012, 12:10 pm

amother wrote:

Thanks again for all the wealth of information. What exactly is depreciation? I would have to hire an accountant, I'm sure, because I'm not familiar with the American system. The taxes worry me, I understand foreign residents have to pay 30% tax on the rent, but I'm not sure yet if that is 30% after all expenses are deducted or not.

amother

Tue, May 08 2012, 12:40 pm

I'm not sure how all of it works to be honest.

depreciation - It is an allowance for the wear and tear of the property. Check out http://www.irs.gov/businesses/......html

I think everyone, including US citizens have to pay taxes on earnings, that includes rental income. I think it is close to 30% for us also. http://www.irs.gov/businesses/......html

amother

Tue, May 08 2012, 12:41 pm

The 30% I think is after all business expenses - I think, but I'm not accountant.

amother

Tue, May 08 2012, 12:46 pm

some more things to consider:
- if renting properties you should have an umbrella insurance policy. This way if someone slips on ice ch'v and sues your for millions it would be covered under that.
- Do you want to create an LLC? We didn't. We still aren't sure if it was a mistake or not. DH discussed it with an accountant and he thought it was okay that we didn't. I still wish we had. If we wanted today to create an LLC and transfer the houses there we would have lots of complications like transfer taxes, closing costs on homes with mortgages so for now we are just leaving it. But if you are starting fresh it is something to consider.

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