Real Estate Investing USA - Benefits and Risks
Risks
Vacancy
Where ever you invest in real estate you will have vacancy at some point in time. How long and how often, you may never know but we need to factor in a vacancy allowance when we do the numbers for the property to see if it is still going to be cash flow positive.
Maintenance
Again any property will have maintenance. If you buy a brand new property this may be very less. You would have to conduct a building and pest inspection to make sure the property you are planning to buy does not have any major issues. Here again you would have to put in some funds for maintenance when you evaluate the property numbers to make sure the property is still cash flow positive.
US is a very litigious country
In Australia its very common for investors to buy property in their own name. This is not a good idea in the US. You need to protect your personal assets and also limit liability if the unforeseen happens. Say a tenant slips and falls in your property and sues you. If you bought the property in your name then all your personal assets are exposed. If you have a company set-up in the US then your liability is limited to what the company holds; in this case it will be the property. The entity type to set up will be based on whether you are investing alone or with partner(s). The cost of setting up a company also known as a LLC (Limited Liability Company) is very cheap in the US, it costs about US$1,000.
Location could be a weak spot
There are some bad areas to invest in the US. The city of Detroit for example is bankrupt; the property market is in a major decline. People are moving out and there is no job growth. You will need to do some research in whichever city you want to invest in. If you have good advisers they can guide you as well. Alternatively some basic research online will help.
Property Management could be a weak link
Finding a good property manager is always a key to any real estate investment but they say it is hard to find good property managers in the US. If you have gone to the extent of purchasing a property and did all the research by the time you get to hiring a property manager you would have some contacts and you could simply ask them for referrals to good property managers. It is also a good idea to speak to the property manager before you hire them. You can find questions or check-lists to ask your property manager online.
Dealing with unethical vendors
If you want to invest in the US then you have to find honest and reliable people to work with. Watch out for big company’s trying to sell you a package with the property, loan and a tenant in place. These are called turn-key properties but are priced higher because of the convenience. As always do your research. The internet has made investing anywhere a reality and take advantage.
Summary
To be financially free you need to create cash flow for life. I am not saying you need to buy US property but asking you to think outside the box and not follow what everyone else is doing because it’s the expected norm. If you like the idea of cash flow positive property then it doesn’t matter which country you buy them from. Please note I don’t sell US real estate but I do invest there.
I will take you through the US property investing further in my next article.
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