Monday, January 3, 2011

Australian investors could lose millions on US rental properties

Australian property investors risk losing hundreds of millions of dollars after snapping up thousands of US housing bargains at forced-sale prices, experts have warned.

The lure of a perfect property storm

Emboldened by the soaring local dollar, Australians invested about $600 million on US residential property last year, according to the Washington-based National Association of Realtors, as overseas buying of US housing doubled.

But consumer advocate Neil Jenman predicts that thousands of Australians will lose their money after unwittingly buying undesirable property.

''It's going to be a calamity, for sure and certain,'' he says.

Many investors are being lured by agents promising unrealistically high rental returns.

Investment experts say swathes of properties on offer are in bad neighbourhoods where it would be almost impossible to get a tenant, and even harder to get your money back if you decide to sell up down the track.

In the past six months, Australian companies that help investors buy US residential property have reported a big surge in interest. Vincent Selleck of Byron Bay-based buyer's agent 888 US Real Estate says his business has grown fivefold since June.

The robust local dollar means Australians' purchasing power in the US hasn't been this strong since the Aussie floated in 1983.

At the same time, bank-forced house sales mean the US residential property market has been flooded with millions of homes at bargain-basement prices.

US property spruikers are promising net rental returns of up to 20 per cent on properties that can be picked up cheaply.

Mr Jenman says the situation is creating a window of opportunity for investors who are prepared to do the research, travel to the US and make suitable purchases.

For everyone else, it's a recipe for potential 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,'' Mr Jenman 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 Australians are already finding that after they buy their US property ''bargain'' and spend more money to renovate it to an acceptable standard, they can't find a tenant. Vandals and opportunists often strip renovated properties of their fittings if they remain unoccupied.

Chris Gray, chief executive of property portfolio manager Empire, said Australians had limited understanding of foreign property markets.

''Buying a house for $40,000 might seem like a bargain but how do you know that the house isn't really worth $20,000?,'' he said

''It's a bit like pyramid selling where it goes well only until it goes wrong, and then virtually everyone loses apart from a couple of people at the very top.''

Paul Moran of Paul Moran Financial Planning says potential investors need to be very wary of what is being offered. Mr Moran has clients who are making property investments in the US work and he is not against it for the right investor.

''But in each case, the client had good knowledge of the US residential market, went to the US and inspected the property and bought it themselves - and they are getting good returns,'' he says.

Unlike Australia, there is a surplus of homes in the US and many well-known cities are contracting. The city of Buffalo, for example, where the population has fallen from 600,000 to fewer than 300,000, has created an ''Anti-Flipping Task Force'' to try to eliminate the unethical sale of vacant foreclosed properties online for inflated prices.

888 US Real Estate's Mr Selleck said investors should consider their own risk profile before buying into the US market, and had to understand it would take up to three years for the housing market to start to show capital growth. ''We are expecting another 3 million foreclosures in the US in the next 12 months,'' he said.


Source: 

http://www.smh.com.au

No comments:

Post a Comment