Buying the American Dream

Complicated Taxation....

2011-04-05T12:36:00.002+08:00

Well, unlike Australia, the tax year in America is based on the calendar year. While our financial year runs from July to June, theirs runs from January to December. That means, some of these forms need to be in pretty shortly (April).

Anyway, there were a number of forms that needed to be sent to various bodies around the States - four envelopes are making their way around the world as we speak:

Envelope 1 contains:
Form 1065: US Return of Partnership Income
Form 8825: Rental Real Estate Income and Expenses of a Partnership or an S Corporation
Schedule B-1: Information on Partners Owning 50% or More of the Partnership
Schedule K-1: Partner's Share of Income, Deductions, Credits, etc.
Form 4562: Depreciation and Amortization

Envelope 2 contains:
Form 8804: Tax Return for Partnership Withholding Tax (Section 1446)
Form 8805: Foreign Partner's Information Statement of Section 1446 Withholding Tax

Envelopes 3 & 4 each contain:
Form W-7: Application for IRS Individual Taxpayer Identification Number
Certified copy of passport
Form 1040NR: US Non-resident Alien Income Tax Return
Form 8805: Foreign Partner's Information Statement of Section 1446 Withholding Tax

The moral of this story: get yourself a decent tax agent in the US - it's way too complicated to try and figure out on your own.

We have a tenant!

2011-03-02T21:33:00.001+08:00

Yes! We have a tenant for the Florida condo. He's signing a 12-month lease and will be paying $925/month.

So, let's just work this through before we get too excited:

Yearly income: $925 x 12 = $11,100

Minus

Yearly expenses:

HOA Fees - $3684
Property Management Fees - $1110
Incidental maintenance - $500
Insurance - $300
Tax - $200
Banking fees - $360
Tax filing - $375
2 months' vacancy - $1850

Nett profit - $2721/year

Well, at least we're still in front, even if it's not by a lot :) Here's hoping that 5 years from now, we'll be seeing a beautiful, big capital gain!

That's the plan :P

SOLD! Port Charlotte, Florida

2011-02-04T23:36:00.001+08:00

I just bought a block of land in Port Charlotte! Wow - this will be a gift to my daughter, if it turns out nicely in 10 years - 21st birthday - hopefully it will be worth a few extra dollars then.

Here's what I checked for: utilities, established area, schools, shopping, medical, low crime rate, access to larger centres, roads, airports, etc.

This block has no HOA/POA fees, so we can sit on it for a long time, without it hitting our pocket.

Section 8 Housing in the USA

2011-01-31T17:06:00.000+08:00

Here's something that you might consider if you're buying to rent out. Section 8 is like our Housing Commission in Australia. Basically, people who qualify for Section 8 housing (low income families) can rent a property and the rental income is guaranteed by the government.

Check it out at http://www.gosection8.com/

Land - don't get caught with useless plots that aren't buildable!

2011-01-30T15:45:00.000+08:00

Assessor Parcels vs buildable lots

The Assessor creates Assessor Parcels for assessment and taxation purposes. These may not be legal, buildable lots. You should always check with the county or city planning departments to verify whether or not a particular Assessor Parcel constitutes a buildable lot.

Dirty Deeds

2011-01-30T14:13:00.001+08:00

I'm now on the lookout for USA land but the deeds are confusing. Here's what I've found out:

Warranty Deed - this is really the only type of deed I'm interested in, as a buyer. A warranty deed ensures that the person who's selling the property is the actual owner, that the title is fee of encumbrances and that the seller will defend the title, if someone comes along years later, after the sale, claiming that they had rights on the property.

Special Warranty Deed - this is similar, but only has a limited guarantee - the seller guarantees the time-frame that he/she owned the property. Be careful here - remember, some places are being 'flipped' in a very short time frame. A special warranty deed could prove to be fairly worthless if the seller bought the property as a Quit Claim Deed two weeks ago.

Quit Claim Deed - this is the dirtiest deed of all. No warranties - not even one that the seller has any rights to sell the property. TREAD VERY CAREFULLY!!!!

Real Estate - USA Tax

2011-01-28T13:39:00.000+08:00

Today, I've been on the hunt for a CPA in Florida. I came across this website for the Florida Institute of Certified Public Accountants - www.ficpa.org - which lists its members.

I've knocked up a spreadsheet of the expenses we incurred in 2010 and have shot it though to a couple of accountants to give me a quote on how much it will cost to prepare and lodge our tax in the States.

For your information, the total closing costs, including attorney, title agent, inspections, government fees, postage, bank fees etc came to a total of just over $5000, so we got through the whole process, walk in, walk out, for under $71,000.

USA Property Manager!

2011-01-24T16:40:00.001+08:00

Yippee - the property manager is on board! We'll be renting the condo for $950 a month. After our monthly HOA fees ($307) and monthly property management fees (10% - $95), we'll be collecting around $548 per month. I'm also paying my lawyer $30 per month to deal with the bank account and make any payments etc, so that brings us to $518 per month.

Yearly, that's $6216 in income. Then we take off insurance, property tax and miscellaneous maintenance.... let's say we're down to $5000 in our hands. It's not a magnificent cash flow at 7.6% but then we need to consider:

1. The likely capital gain over 5-10 years
2. The likely strengthening of the US dollar over the next 5-10 years

Word of warning: let's say we get $5000 in our hand and we've convinced ourselves it's all good, considering points 1 & 2 above. If you're up against the wall with your repayments, it's not worth the risk. See, here's a few more expenses... accounting fees in USA could be a bit of a shock and what if it goes untenanted for a few months? Suddenly, there's nothing in the hand. If you're relying on positive cash-flow with your investment property, I'd have to advise you to rethink. Positive cash flow should be a bonus, if it happens - please don't do it if you'll have to depend on it, because nothing is ever certain. Remember, that's exactly how the USA got into this mess in the first place.

As with any gamble, don't do it if you can't afford to lose it!

Property Management, USA Bank Accounts, Landlord Insurance...

2011-01-13T14:03:00.000+08:00

Geez..... and to think I thought I was seeing the light at the end of the tunnel.

Weirdly, the seller still has the key!?? I don't know why. Shouldn't that have been handed over? Anyway, I've got the inspector going back tomorrow and he's going to take it. I'm going to change the locks as well.... just as soon as I can find a property manager!! Who'd have thought it would be so hard?

The bank account is still an issue. Harvey (the lawyer) is going to act as an agent on our behalf and hopefully will be able to set that up for us asap. I have established a Citibank account in Australia and am hoping to get a Citibank account in America - one of very few banks that doesn't charge for moving money across international borders.

With regard to insurance, it doesn't seem that I can get an online quote. I'll be staying up late tonight so that I can phone a few insurance brokers... must be something weird about their laws over there that I can't just sign up for insurance online.

I've listed the property on Trulia. If I get a couple of bites, I can send them on to the property manager.... as soon as I have a property manager, that is....

Lordy!

Done deal! We're USA property owners!

2011-01-05T16:00:00.000+08:00

Well, there you have it - done and dusted!

We are the proud new owners of a Florida condo :)

Now, all there is to do is grab hold of a property manager, get insurance, set up a Citibank account in the US, find a tenant...

And you thought it was all over - it's only just begun.

Clink go the champagne glasses!

Parity....!

2010-12-23T08:34:00.001+08:00

OK, it's all very exciting in my corner of the world, as I eagerly await an SMS from Ozforex to let me know that we've reached parity... C'mon Aussie! C'mon! C'mon!

I'll be transfering around $60,000 today, so I want that money to be working its butt off. Currently, the Ozforex quote is 0.9922 AUD to 1 USD. Am I being greedy to wait?

Although my heart goes out to millions of Americans, who are really feeling more than just a pinch, I have to say I'm excited that the Aussie dollar is getting more bang for its literal buck! We've been the poor cousin for so long.

More pennies in the pudding as $A jumps
Gabrielle Costa
December 23, 2010 - 8:04AM

Let's go!

Lessons learned when buying a USA property sight-unseen.

2010-12-22T11:57:00.004+08:00

Well, I've stirred up a hornet's nest in Florida. The seller has stamped his foot and said no to a reduced price. I suppose I can understand his frustration, after he's attempted to fix things up.

From my point of view, he did the wrong thing by advertising the incorrect HOA fees but I've come around a bit today after checking out other for-sales - it seems he put in the one bedroom, one bathroom HOA fee, instead of the 2 bedroom, 2 bathroom. I don't know whether it was deliberate or not on his part, but I've decided to put it to one side.

Even with the increased HOA, we will be able to meet our ongoing costs and, when we sell, we will hopefully make enough of a profit to replace the money we've redrawn on our mortgage, make up for the lost interest payments and knock off a fair chunk of our debt on our house in Australia. Remember, this is a 5-10 year plan (no get rich quick for us).

So, it looks as though we're going to closing on 31 December, with the original price. Other costs, including legal, company establishment, title company and inspection fees have totalled around $5000-$6000.

How we've saved money:

- Buying directly from the owner (save real estate commission fees)
- Buying in the USA (no stamp duty fees)
- Using OzForex for the money transfer (saves about $1500 in better exchange rate and lower transfer fees than the banks)

Here's how I'd do it, if I was to do it again with my new-found wisdom:

Step 1: Get an accountant's advice before even looking at buying property overseas - I did this and would recommend it to you too - everyone is in a different position. It would be wise to seek advice on your financial position and how you would best set up the deal - as an individual or under the company structure. Don't follow blindly - get advice.

Step 2 - Research. I researched the US property market for about 12 months and was confident when I dived in. That confidence has flailed about a bit over the last month, but I think that the research certainly made some difference. In saying that, I don't know whether you will have 12 months to ponder, with the market strengthening again in the US. Interest rates are rising over there, which is a sure sign that they think they're on the road to recovery.

Step 3: Check the facts with the condominium complex and with the county appraiser - if I had checked first, I would have found the HOA fees were wrong and been able to verify the taxes. The appraiser's site also gives details of how much the owner paid for the property and when. Here's the site for Orange Country Appraiser. I could have made a more informed decision to pursue the deal or not at that stage, before spending any money. In this case, I have been lucky, because it's turned out to be OK - but it could have gone the other way too.

Step 4: Get a property inspector involved prior to engaging a lawyer. If the inspection is OK, go ahead. If you're not happy with the inspection, don't waste any further time and money. The inspection will cost around $300 - better to waste $300 if you need to walk away than invest in legal as well, which might also go down the gurgler if you decide to pull out.

Step 5: If you're still right to move forward, engage your own lawyer. Make sure he or she is approved by the bar association in the state you're buying the property.

Step 6: Set up an OzForex account so that you can transfer money overseas (without lots of fees and with the added advantage of a better exchange rate).

Patience is NOT a virtue

2010-12-21T08:32:00.000+08:00

OK - no more time for patience.

While you read this post, repeat this mantra: HURRY! HURRY! RUSH! RUSH! QUICK! HURRY! RUSH!

Today is Tuesday, 21 December, 2010. There are exactly 10 days until we're at Friday, 31 December, 2010. 10 days left in the year. 10 days until closing. 10 days to squeeze in the following:

1. Letter to go from Australia to USA to Russia, back to USA and back to Australia - thank God for email. With the time difference, it still takes longer than you'd imagine, let me tell ya!

2. HOPEFULLY, the seller will agree with the new terms, which have changed the closing date and, more importantly, have cut around $4000 off the selling price....

3. New closing documents to be prepared.

4. Meet with accountant.

5. Arrange money transfer.

6. All parties (from Australia, USA, Russia) to sign closing documents and POST to USA - Let's hope FedEx is as fast as they say.

7. Hold Christmas Eve party for friends at our place.

8. Hold Christmas lunch for family at our place.

9. Wait for an AGE while everyone has two bloody public holidays Mon/Tues.....

10. Reinspection of property

11. Close on the deal.

12. Drink copious quantities of champagne.

Batter up!

2010-12-19T08:22:00.003+08:00

Is it time to play hard ball?

The reinspection was conducted on Friday and things were not fixed! Strangely enough, it was the seller that arranged the inspection time. Why??? At $200 a pop for re-inspections, that gives me the wonks, as my mother would say.

Further bad news is that I was right on one account in the previous post - the HOA fees are actually quite a bit higher than what was advertised. Advertised: $146; Actual: $306. That's quite a difference when we're talking monthly expenses. He must have done this kind of maths when he worked out those advertised fees:

So, with that in mind, it's time to get a bit tougher.

I don't want the seller to lose out, but I certainly don't want to lose out either.

My lawyer took a call from me this morning (Saturday evening, his time) because he's an angel. He is going to draft a new agreement. The price is going to be lower. The new closing date is going to be 31 December. Of course, we are running a risk that the seller may walk away but, in the end, we have to do what's going to be best for us and, hopefully, still good for him (although my opinion of him is dwindling, let me give you the tip!)

Well, we'll see what happens early next week. Things could go from bad to worse, or we could be celebrating in style on New Year's Eve. Let's hope it's the latter.

Patience is a virtue. Patience is a virtue. Patience is a virtue.

Crunch time - will Harvey find a problem with the HOA documents?

2010-12-13T16:58:00.003+08:00

Well, I'm waiting for Harvey Birdman's opinion on the rules of the Home Owners' Association. The documents are now with my attorney and will be reviewed by morning! These are my fears:

1. The HOA fees are going to be a lot higher than what the seller advertised
2. The rules will be too restrictive on rental agreements

They're the major concerns. But... my dear husband always says 99% of the stuff you worry about never happens. Let's hope that's true now!... And let's also hope, while we're at it, that no other unexpected little gremlin pops up either.

Fingers crossed, peeps!

The Dreaded US Bank Account

2010-12-09T21:30:00.001+08:00

Well, I've finally worked a way around the bank account issue.

You see, after I formed an Limited Liability Company (LLC) to own the property (and to avoid enormous taxes as an individual), I found that it's literally impossible to get a bank account in the name of the company, without physically being in America.

This has caused much angst. So after going around and around, I've found that we can have a notarised agreement between the LLC and me, as an individual, appointing me as the collection agent for the LLC. Tricky huh? So, I can open a personal US bank account, through HSBC (without being there in person) and then have all the rent paid to that account, as the authorised 'agent'. HA!

Where there's a will, there's a way.

This is, of course, costing us a fee with the attorney - but it's much less than the cost of a ticket to Orlando!!

For Florida Property Managers

2010-12-08T20:31:00.000+08:00

This condo will be rented fully furnished. It is 1150 sq ft and has two bedrooms and two bathrooms. The apartment is on the first floor in a gated community in the Metro West district, with pool and clubhouse facilities.

Please contact me if you are interested in managing this property.

Slowly, slowly catchy monkey.... Closing on Florida Condo next week!

2010-12-08T10:53:00.002+08:00

Well, f-i-n-a-l-l-y.

The contract has now been signed by one of the brothers who own it, who acts as President of their company. (I have a sneaking suspicion that he may reside in Russia). Oh, what a cosmopolitan deal this is. That certainly could explain the delay in getting it from one continent, to another to another....

Tick tock, tick tock.

Now, all that's left to do is the re-inspection when brother two lets us know the condo is ready.

The bank account is still bothering me - a call to HSBC today will, hopefully, sort that out.

All quiet on the Western Front

2010-12-05T17:38:00.000+08:00

God, I hate waiting. I know it's Sunday, but the problem is, tomorrow will still be Sunday in the States....

We haven't heard back from the seller about whether or not he's going to accept the new conditions of the contract. That's taken some time now and it's beginning to worry me, to be honest. I can't work out why he would take such a long time to sign that contract or at least make a counter-offer. Oh well, another 30 hours or so and I might be a bit wiser...I'm just hoping something dodgy isn't going on.

Rentometer

2010-12-03T11:32:00.001+08:00

How cool is this? Rentometer gives you an indication of how much your US property will rent for, giving you comparison data for the surrounding area.

http://www.rentometer.com

Devastating news

2010-12-03T10:56:00.001+08:00

Just kidding! I am just monitoring the hits on my page views - it seems 'bad news' headlines pick up more readers. Sucker!

Anyway, the GOOD NEWS is that I've just saved myself $1300 by arranging money transfers via OzForex, rather than my bank. Check out my comments on the post about XE Accounts here.

I've hit a snag

2010-12-01T20:08:00.001+08:00

Although I set up a US limited liability company (LLC), I've hit a wall when it comes to opening a bank account. If you can't be there, in person, it seems the only alternative is to open an 'off-shore' account. Transferring money is going to be quite expensive if I use that method, so I'm on the hunt for another viable solution....

Property Sale - Contract Signed

2010-12-01T07:49:00.002+08:00

Well, late last night I had a discussion with my lawyer. We made some changes to the standard contract, including a clause which requires that the seller repair or replace the items that were found to be 'defective' or 'marginal' in the inspector's report.

So now, having signed and delivered the contract, we wait to see if the seller will agree to the terms.

Patience is a virtue. Patience is a virtue. Patience is a virtue.

Too good to be true?

2010-11-30T16:55:00.003+08:00

It's often said that if it looks too good to be true, it probably is.

So, I contracted a fantastic guy from National Property Inspections, who has been absolute GOLD. He was really worried that I was being led down the garden path by an unscrupulous seller, looking for some mug to buy his crappy condo. So he was really thorough and gave me an honest opinion about the area and the rental market. He's exactly what I needed - my own Inspector Rex.

He went out to the property last week and checked and photographed EVERYTHING! We now have a 35-page report, with every detail, from a missing disposal unit under the kitchen sink to a missing light fitting on the porch. There were a few other things that I wouldn't have been able to pick up from the photos - the shelving in the pantry hasn't been fitted yet and the oven wasn't working...... are you starting to see the light about getting an inspection? The dishwasher wasn't connected and the air-conditioning needs a service.

When I first read the report, I have to admit, I was a bit disappointed. The pictures look so great, but there are things that aren't exactly perfect about the place.... I did some calculations and worked out an estimate on how much it will cost to have it 'perfected'. All-in-all, the problems are minor and superficial. There are no issues with the building structure, the electrics or the plumbing, so those big cost items are clean and clear.

Basically, I've gone back with an offer - the seller can either fix the items Inspector Rex found to be 'defective' or he can take a lower price.

Either way, it's going to be too good, but absolutely true.

By the way, I still haven't parted with the money for the deposit. If Inspector Rex and Harvey Birdman can't see any problems, I'll sign, seal and deliver.

Today's lesson: the inspector and the lawyer are absolute MUSTS. Don't leave home without them.

Now I'm excited - Property to be inspected today!

2010-11-24T20:57:00.000+08:00

Well, the last 12 hours have been s...l...o...w...

I've just been waiting for some news. The lawyer has been changing a few things on the contract, which I'm really grateful for - definitely worth getting a lawyer. (Now there's something you don't hear every day!)

In about two hours, it will be 10am in Florida, which means our new patch is going to be getting a quite undignified inspection - its plumbing will be peered at, its wires will be examined and its whole body will be felt and tested for defects. That poor condo is going to be feeling rather exposed, to say the least!

Anyway, hopefully she's spick and span and we'll be proud to sign her papers tomorrow morning! That is, of course, if we EVER get the HOA Disclosure, which is still on its way.

Patience is a virtue. Patience is a virtue. Patience is a virtue.