USA Buy to Let Market – “ What REAL returns can I expect ?
Investors from all over the Globe are being attracted by the high returns advertised in the USA by companies selling in areas like Detroit, Ohio, Memphis, sometimes we even see potential returns of up to 35%. From the layman’s perspective these types of investments with such lucrative returns seem like a real no brainer but the words “ too good to be true “ can come to mind.
Are such high returns really possible?
Global Investments Incorporated have been selling these types of investments for coming up to six years now so who better to ask than the companies CEO Mike Moodie about what “ REAL “ returns which can be achieved by such investments and what are the pitfalls or mistakes if any that investors should be looking out for ?
Mike was quoted in saying “ well the first thing that I would like to say is that there is no investment without risk, in my opinion good investment is about minimising the risks in certain types of investments. I think that there are several factors investors should consider and look at before entering such a market that maybe a lot of companies out there would not share. “
1.Don’t just look at the ROI. – I think that investors sometimes can make the mistake of only concentrating on the net ROI of a property. Lets think about what makes a high return. Low price and high rent copied with low taxes. Normally the lower the price of the property the lower the calibre of the location or the neighbourhood. I believe that investors should try and find a balance between price, location and return and not always being drawn to the lowest prices and highest returns. Sometimes we can forget about the potential uplift on the price and growth potential. Of course normally the better the location or neighbourhood the more likely you are to see potential growth in the coming years. Also another factor in this would be the exit strategy and again a property located in a better area would be easier to sell when the time comes to cash in on your investment.
2. The two unknown factors – There are two factors of this type of investment that you would rarely see on any companies marketing materials as they are impossible to predict but investors should be made aware of them as both of these can have an effect on any potential ROI.
Vacancy – At some point like with any rental home any where in the world the house will at some point become vacant as tenants do not live in the property for ever. How can we minimise the risk of vacancy ? Well again we get back to my earlier point about location, the better the location and neighbourhood then the more chance you have of replacing a tenant quickly. The nicer the area then the more demand you would have for rentals. Also in relation to vacancy it is imperative that you have good management in place. ( I will come to this later )
Maintenance – the second unknown factor would be maintenance or repairs on your property which of course is the responsibility of the landlord. This is an impossible figure to quote any investor as it would of course vary from property to property and also depend on the condition of the property when the investor closes on the sale. ( This is one of the reasons we would always recommend the buyer carries out an independent third party inspection ) The way to minimise the risks of maintenance is firstly when we see the inspection before we close is for us to ask the Seller to take care of any minor maintenance issues that arise from the inspection meaning these repairs are not necessary when the new buyer takes possession. I think the main thing to look at when trying to avoid maintenance is buying a house that has been recently rehabbed or updated so the house is in a excellent condition when you buy it. Yes you may pay more for this in the long run but over time it would pay off as maintenance in the first few years of ownership would be minimal.
3. Management – In my opinion this is the single most important factor when trying to maximise your returns out of USA buy to let homes. It can also be the most challenging. Remember that you can buy the best located, tenanted home but if it is managed badly then it can turn into a bad investment. I have heard examples of good tenants leaving properties as they did not like the managing agent. As a company we only work with reputable companies in all the areas that we sell in and that have been in business for many years and have excellent knowledge of their given marketplace. This is key to making any investment like this work and also minimising the risks like maintenance and vacancy discussed earlier.
4. Get three quotes – Always ask your management company for three different quotes for any maintenance work needed on the property. Sometimes only saving 100 dollars here and there can have a massive impact on returns over long periods of time. Your management company should have no issue with you asking for this and maybe even involving third parties.
I believe that the USA buy to let market provides excellent opportunities to investors both domestically and internationally. The market can be lucrative with excellent returns but investors have to understand the above can have an impact on their actual net return over time.
From experience I think that you should always look to deduct maybe 2-3% off the advertised ROI so you can factor in any vacancy or maintenance that may arise in the given years ahead. So if the property is showing a 18% net Return then maybe look at that as 15% which is still a very healthy return on your money. Mike Moodie – CEO Global Investments Incorporated.
Global Investments Incorporated sell turn key opportunities in Detroit, Cleveland Ohio, Toledo Ohio and Upstate NY in areas like Buffalo and Niagara. For further information on current available investments or if you have any questions at all. Please email Mike or any of his team at email@example.com