With Xe.com is citing AUD to USD conversion figures of around $1.04, and further signs that the US economy is slow but is likely to grow by the critical 3% in 2013, I thought now was as good a time as any to revisit property investment in this market. Where I initially focused on the risks involved with market selection within the country, quality of tenants and fluctuating currency exchange rates, I want to look more closely at some of the buying and holding costs involved with US property investment and highlight areas where this may differ to Australian property investment.
The list is not exhaustive, and it’s likely that there are further unforeseen costs that others will have experienced in getting in to this market. In particular, there may be nuances between various states that are not accounted for here. In 2013, I’m aiming to be on the ground in the US to conduct further research and investigate several key markets identified as ‘game-changers’ in terms of their scope for future capital growth. I’ll look to report back in during and after this trip with further discoveries I make.
It is important to note some of the additional set-up costs involved, no matter how small. I say this because many young investors or those with very limited savings look to the US because of its attractive entry point costs. These low costs can be the difference between a viable investment and a non-investment, where there is not enough capital to make up the entry costs to proceed with an acquisition. This is important to highlight for low-cost properties such as some of those in the US.
Take an Australian investment property purchase of say $300,000. The late discovery of a couple of extra thousand dollars in sudden fees can be much easier to accommodate in Australia.
Where US investors get unstuck are those who have not allocated additional funds much contingency. So where a $5,000 contingency on a $300,000 Australian buy may not be that big a deal, for someone who has overextended on a $50,000 US buy, a last-minute $5,000 fee could destroy the entire feasibility of the project. The below will at least give an indication to some of the fees involved in a US acquisition, regardless of whether the buy is a $50,000 property or a $250,000 property.
Setting Up an LLC:
This is a ‘limited liability company’, a must for non-US citizens looking to build an investment portfolio in the US. This cost actually varies depending on who you get to help set it up, but can be anywhere from $2,800 to $6,000, depending on the scale and complexity of the way it is set up and its intended purpose.
An additional LLC “holding fee” may be payable depending on the state you are buying in. I do not know the cost of each state, but typically this is around $1,000.
Title search, inspection and solicitor’s settlement fees:
This is similar to Australia typically; anywhere from $1,000 to $2,000 depending on the size and scale of the property being settled.
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