Aussies will lose millions of dollars on US residential investment: Neil Jenman
Here's a confident prediction: Hundreds (probably thousands) of Australian investors are going to lose millions of dollars in the American property market.
Right now, it seems to be all the rage, the latest fad. Buy real estate in the United States. It's easy. Prices for American homes are so low and our dollar is so high that an investment in “the home of the brave and the land of the free” seems like a really good idea.
Unfortunately, it's not a good idea. For the average mum-and-dad Australian investor, buying real estate in America is a very bad idea. Never mind what the Aussie spruikers tell you, never mind how good it sounds, it really is too good to be true.
These days, a number of Australian spruikers have set up companies and are selling real estate in America to Aussies. Some of the men behind these companies are the same villains who were once ripping off investors with over-priced property deals in Australia. As any police officer will tell you, once a crook, always a crook.
Yes, I know it sounds wonderful. The numbers are enticing. You'll be told that you can buy a house for as little as $50,000 and rent it out for about $200 a week. That's a 20% return. It seems like a no-brainer. In reality, it's an investment for people who don't have the brains to spot a scam. And while I don't mean to be rude, I do mean to protect you from getting stung.
If you really want to check out the American real estate market, do it properly. Buy a ticket to the United States and check out the market for yourself. Under no circumstances should you buy property on the advice of an Australian company alone. Do the real research.
If you do the research, guess what you'll find. The American real estate market is not as good as it appears from a distance. Up close, it's an entirely different market to the Australian market. There are some places in America where homes cannot be sold at any price. That's right, they can't even give them away!
A lot of smart people – those with plenty of experience in property dealing – have checked out the American property market. They have come back with a simple message – don't touch it. In one case, a lawyer was flown to the United States by one of his clients. He was required to give his opinion on a large number of condominiums in Texas. "We are going to be rich," said his client. "We can buy these properties for as little as $2,000 each." The wise lawyer checked out the properties, checked out the local market and gave his judgement. Don't touch them.
Ask yourself an obvious question. If these American properties are such a good deal, how come the locals aren't buying them?
Right now, interest rates on home loans in America are very low (around 4% for 30 year fixed-rate mortgages). That means an American family can borrow $50,000 and pay just $2,000 in interest each year! Why, then, would that same family pay rent of $200 per week when they can buy the property for a far lower payment? Something just doesn't seem right, does it?
I can introduce you to Australians who have bought houses in the United States for $50,000 and cannot re-sell those houses for $25,000.
Here's a question you must always ask yourself before you buy any property in any strange area, especially a foreign country: What price are the locals paying for similar properties? If the locals are not buying the properties, then you shouldn't touch them either.
If you don't believe me, go to the United States for yourself. You'll see that some areas are ghettoes that resemble war zones. As one American agent reportedly said, "You need an armoured Humvee and a bullet-proof vest to collect the rent in this area." Well, in some areas there is no rent because the properties are abandoned. They are left vacant. And that's how they remain until some Aussie spruikers come along and realise that they can sell these properties to Aussie investors.
Well, be warned. America is now full of groups of people who are known as “flippers”. These are wheeler-dealers who buy properties at cheap prices and immediately on-sell them to unsuspecting out-of-towners at high prices which seem like low prices.
Yes, I agree – $50,000 sounds like a cheap price for a home. But there are very good reasons why so many of these American homes are so cheap. They are the white elephants. They aren't worth anything.
So, be warned Aussie investors. The latest rip-off is American real estate. In the years ahead, we will look back on the last few years and realise that this was when we got ripped off by buying American real estate.
Don't be one of them.
Neil Jenman is a property commentator, consumer advocate and investigative writer. This article first appeared on his website, www.jenman.com.au
