The pros and cons of using a company to help you invest in the US: Cameron McEvoy
Page 1 of 2I recently mentioned the 12-month-long research process I went through in the lead-up to deciding 100% that I would be investing in the US property market. Today I chronicle the period of January 2013 up until this month, where I began my meetings and dealings with numerous US investment specialist companies that are either based entirely in Australia or are based in both Australia and the US.
But let me take a step back, first of all. There are effectively two ways to buy in the US as an Australian citizen:
1. You can attempt to do it all yourself. This involves securing finance yourself, setting up a company structure yourself, finding a property yourself (whether this be directly or via a US buyer’s agent whom, you guessed right, you’d need to find yourself), doing any repairs or renovations (aka "rehab" in US property language) needed, finding a managing agent yourself, and so on; or
2. You could pay a specialist company a fee to help you through all, or some, of these steps in the journey.
Being a first-time investor in the US, I decided early on that I would opt for the second option. However, this process was something of a minefield. I must mention up front that I am acutely aware of the fact that if I name any one (or several) of these service-providing companies in my writing, readers may perceive these mentions to be biased, name-dropping, or cash-for-comments appearances. So I will not mention any companies by name.
Instead, I will list the different "types" of companies that exist here in Australia to offer would-be US property investors services that can help with their property portfolio build/plan. I will provide the cons/weaknesses that I observed as I interviewed, enquired, and canvassed these various companies. Firstly, however, I’ll list that option I mention above – the one that does not involve partnering with a company. In other words, going it alone! As mentioned, I am not interested in this option; instead I am choosing to partner with a specialist company for my first endeavour.
Additionally, it is not in my interest to critique or review any single specific company’s operation and present my views based on my experience. This type of assessment must be made by individual investors based on their interactions with these companies. In fact, I fully recommend this critiquing as part of your US property investment due diligence. So in no order, here is a list of the types of options available to Australian investors when it comes to the US market:
Do it yourself (no company)
How it works: You do everything yourself, so you must set up your company structure, source a property, do the due diligence on it, then buy and manage the property yourself. Perhaps you’ll still use a managing agent, but you’ll need to source a trustworthy agent yourself.
Pros: You do not have to pay any professional fees for information or "process costs". You will, of course, still need to pay all "dues" (county taxes, legal costs, LLC set-up costs, etc.), as you would with any other purchase. You also have the freedom to engage any partners – i.e. buyers 'agents, in any process component that you desire, and are not at the mercy of using the "preferred partners" of a real estate investment company (this may come at a higher cost than sourcing these partners individually). This approach can work if you have friends/family who already invest in your chosen state/market and have contacts on the ground there.
Cons: There are a lot of sharks in the US real estate market. You will rely only on their "word" (though you should be requesting testimonials and speaking with other clients, to make sure they can be trusted), but there is no real way to know if the people you are enlisting will do the job properly. Costs may be cheaper for some services, but due to inexperience, you may be unknowingly paying more. Unless you are very confident in buying sight-unseen and contact-unmet (which in itself is a high-risk venture) you will need to fund a trip to the US to do your due diligence on the ground, costing several thousand dollars.
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