The coronavirus (or COVID-19) had a devastating impact on Australian society. Small businesses are on their knees, businesses have cut jobs, a battle between tenants and landlords is looming and essential groceries are in short supply.
In fragility, many people have realized that it does not take much to untangle business and lose a job. It now seems normal to see thousands of people queuing up for hours outside Centrelink to register as unemployed.
This situation is heartbreaking and disastrous. And it won't end anytime soon.
According to the Grattan Institute, up to 26% of Australian workers could be unemployed due to COVID-19 and the crisis will have a lasting impact on employment and the economy for years to come up.
The Australian government's labor market information portal indicates that around 13 million Australians were employed in February 2020.
If the unemployment rate reaches 26% on the basis of this figure, an additional three million people will look for work.
Although this may seem insensitive, this circumstance has highlighted that individual financial security must be diversified. The age-old concept of "not putting all your eggs in one basket" is now of renewed importance.
Having multiple sources of income is the only way to overcome situations like COVID-19.
This is why I think you should turn your attention to bricks and mortar, but not in Australia.
The American real estate market offers Australian investors an excellent opportunity to diversify their sources of income and create wealth, and this can be done without significant expense.
Investing in American property
As the graph below shows, the US residential housing market was worth more than $ 27 trillion last year and is expected to reach more than $ 33 trillion in the next 24 months.
While these numbers may be affected by COVID-19, he points out that the US residential property market over the next two years is worth more than the entire Australian property market.
I'm not saying there is a problem with our real estate market and if you have the resources to invest, it might be your best option. But most people don't.
The average cost of a two-bedroom apartment in Melbourne, Sydney and now Brisbane has skyrocketed in recent years and it is not uncommon for prices to exceed $ 600,000.
This would mean that Australians trying to enter the real estate market would need a deposit of more than $ 100,000, excluding stamp duties and other associated costs. Investing in our national real estate market is adding up quickly and it seems like many "Australian Dream" owners are out of reach.
However, real estate prices in the United States are well below what we know here and represent an important opportunity. For example, a three-bedroom family home can be purchased with tenants from a meager $ 50,000. It is less than a deposit for Australian property and it is done without the loan and without interest.
While many outside the United States may view the country as rebuilding in the aftermath of the global financial crisis, nothing could be further from the truth.
One of the hardest hit regions, Detroit, now has enormous growth potential, a large domestic rental market and affordable housing. Added to this are increased levels of public investment and thriving local industries.
Others are like Florida, New York, Ohio, Tennessee and even Texas and Alaska are also ready for investment.
Although this type of approach does not necessarily meet an immediate need to find an Australian home to live in at the moment, it does present a viable solution for strengthening financial security.
Ways to Invest in American Property
There are many ways for Australians to invest in the US real estate market, but, as with everything, the results you get depend on how you go about it.
Three of the most common ways to invest in American property are:
Buying and owning rentals – this is considered a long-term investment strategy with minimal risk. An investor will buy a house or apartment and keep it for the long term and open the property for rent. This strategy can bring in more than 10% of passive NET income.
Correct and return – I'm sure you've seen it on TV and what happens there (minus the smoke and the mirror) can happen to investors . Repairing and returning means buying a dilapidated property, renovating it and then reselling it at a much higher price to make a profit. This gives an investor great returns and solid equity.
Buy, renovate, rent, refinance and repeat (BRRRR) – this is a strategy that an investor will follow in the order of the investment cycle. First buy, then dive the property, then rent it, refinance for a better deal and start all over. This allows investors to get a cash investment and refinance most of their capital and repeat, leaving a solid cash flow even after financial costs of 4 to 6% return on investment. Even foreign investors have access to this strategy.
Beyond the mechanism of buying a property, investors must know how they are going to proceed. This is where the process can get more complicated.
Generally, there are two types of people who invest in property in the United States. The first one will be gung-ho and will want to do everything from start to finish by itself.
They think that hard work is all it takes and spend day after day looking for growth areas and property assessments and then getting started. No system. No strategy. No idea.
This approach may work, but it does not give the best return on investment (ROI) and after a while in the game, this investor is exhausted and does not achieve the desired passive income results.
The other investor takes a more measured approach and plans what he wants to achieve, puts in place the right strategy to achieve it and is ready to take the "training" required to fully understand the business. ; American investment and the opportunities it presents.
This is no secret for anyone who gets the most out of their investment.
Minimizing the risk of American real estate investment
No one should go blind into American real estate investment.
As with Australian real estate investment, it presents potential risks that need to be mitigated.
Currency Changes – can be a boon as much as a risk to your investment. The key to avoiding conflict is to have flexibility when converting funds. Having a bank account or a trust account (called a US escrow account) can keep funds in the United States, until it's needed, or you're comfortable with the exchange rate.
When the AUD is low, it can mean that the price of properties is higher, but of course, it also means that your rental yields are higher. Alternatively, the reverse allows cheaper entry rates to purchase but reduces the AUD equivalent of your rental yield.
It is still relevant to consider yield as a percentage of value, rather than the real dollar value, which even during large currency movements will remain constant. Specialized exchange companies often have much better rates when exchanging money than banks in general and can save thousands on transfers if done correctly.
Insurance – as in Australia, insurance is essential for your investment. Ensuring that your investment property is covered for damage, flood, theft, fire and storms is a minimum, but going further is also an option. The tenant and rental insurance are also available to cover damage caused by tenants, even loss of rent if the tenant leaves or does not pay.
Property management – is an essential element of your investment strategy. Choosing the wrong one, can cause significant heartache, especially when they are based abroad. It is not uncommon for an investor to devote hours to the due diligence of a property, to hand over the keys to the first property manager he meets.
You should always seek the services of more than one property manager and subject them all to a rigorous maintenance process. Chances are you won't be able to meet face to face, but online video programs can be used to conduct interviews.
Spend as much time developing your property manager as researching your property, and you will certainly massively increase your success rate and mitigate risk.
COVID-19 brought us a new reality and what many thought was no longer safe.
Australians are fighters by nature and we will bounce back but that will take time and will not be without some battle scars along the way.
But as unemployment rates continue to rise – up to 600,000 – and more and more companies are hitting the Virgin Airlines route, it is more time than ever to start looking for ways to diversify your sources of income to financially protect your future as much as possible.
There is security in the opportunities for bricks and mortar and return on investment in the US real estate market.
– Lindsay Stewart, Founder and CEO of Think Abroader!
