With the Aussie dollar continuing to track alongside the US greenback and America’s housing market still languishing in value limbo as a result of the GFC, more and more Australian investors are parking their money in US property.
But is it such a good idea to invest in such an unknown commodity when you haven’t even seen what you’re buying and you have no idea about the state of such a historically uncertain market?
A recent article in The Age pointed out the many pitfalls of seeking cheap property investments in the States, as experts warn that many Aussies who have purchased in the shaky American housing sector risk losing hundreds of millions of dollars.
With the soaring success of our dollar, 2010 saw local investors pour around $600 million into US residential property according to the Washington-based National Association of Realtors.
Tempted by the promise of unrealistically high rental returns – sometimes as much as 20% – and supposed “cheap” opportunities, investors are taking some very risky punts on the US property sector.
Consumer advocate Neil Jenman says the inevitable outcome is “a calamity, for sure and certain.”
Experts say the housing up for grabs at bargain basement prices is often in less than desirable neighbourhoods, making them virtually impossible to tenant and even harder to re-sell in the future for any kind of profit, let alone with the hope of breaking even.
Jenman says that while there are potential opportunities for investors who are prepared to travel to the US, do the research and make wise purchases, for those relying on long distance advice and buyer’s advocates it’s a potential recipe for disaster.
”Some of the properties being offered are in ghettos and you need a bulletproof vest and an armoured Humvee to collect the rent in there,” he says.
”Tenants also have more rights in the US and if they don’t clear the garbage up, it can be the landlord who gets fined – there are a lot more legal issues.”
Some Australian investors have already been burned; buying and renovating properties that they cannot tenant, only to have vandals strip them of the new fittings.
The other issue is a lack of knowledge of the market these investors are buying into. Experts say that while $40,000 for a three bedroom house might seem like a steal, in many cases that house might only be worth $25,000 in the current crippled market.
A large part of the problem in the US is the over-supply of property; unlike here in Australia where housing values are largely underpinned by increasing demand and a lack of dwellings, the population is declining in many US cities, creating a glut of vacant homes. Then of course there’s the overall state of the American economy, with record high unemployment seeing many homes being foreclosed on.
Vincent Selleck of Byron Bay-based buyer’s agent 888 US Real Estate says, ”We are expecting another 3 million foreclosures in the US in the next 12 months.”
He cautions investors to consider their risk profile before investing in US property and says they need to understand that it will take up to three years before housing there starts to show any signs of growth.
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