The Perfect Storm
Most Canadians wrongly believe that it’s too difficult and risky to buy U.S. real estate. Most think that even if they did own U.S. foreclosures they wouldn’t be able to profit from them. This article will blow these myths out of the water like two Canadian geese heading south for the winter…
Emotion stops many from seeing the facts. No matter what you fear about U.S. real estate… three things that should be obvious:
1. YOU CAN buy perfectly good homes for 50% to 70% off.
2. YOU CAN buy foreclosures directly from the banks with clean title.
3. YOU CAN cash-flow from day one, covering your expenses, mortgage and putting money in your pocket
The entire U.S. market has not crashed. It’s economically impossible for an entire nation to experience a real estate crash. Real estate cycles are unique to each neighbourhood in each city. If you learn how to identify the signs of an emerging market you can buy foreclosed properties at a 50% discount of today’s market value and consistently resell them for a minimum of $30,000 profit. But much like the 1989-1992 real estate crash where smart investors made millions… this opportunity won’t last much longer.
Arizona, Florida, Georgia, California, Nevada etc. are sometimes considered as “Sun Belt” continues to be a red-hot market to invest in based on three main factors: baby boomer statistics, job growth and population growth. There are 78 million U.S. baby boomers, 9.6 million Canadian baby boomers and one billion worldwide (30 per cent of the population)
When surveyed, 51 per cent of North American baby boomers would like to move to a better climate. Of those 44,675,000, 41 per cent (18,763,500) want to move to the south Atlantic region, and 32 per cent (14,296,000) want to move to the western part of the U.S. (Arizona, Nevada and California). And all told, 58 per cent of the boomers want to move to a one level, smaller home (50,808,000).
Conclusion: Close to 5,000,000 people are looking to move into a bungalow/condo in Arizona over the next 10 years, and 18 million people looking to move to Florida over the next 10 years.
Florida, Arizona and the entire U.S. are going through a housing shortage. Lawrence Yun, chief economist of the National Association of Realtors said "Home builders must add 1.6 million to 1.7 million housing units each year to accommodate typical U.S. population increases and replace demolished homes. According to the USA census data in 2009 and 2010 were just over 650 thousand new housing units completed in the USA.
Florida is one of the states with the largest number of foreclosures in the country. As a result of the “sub-prime mortgage meltdown” banks are becoming more stringent with lending practices making it more difficult, even for people with good credit to get a home loan. More people with foreclosures on their record means, even less people qualifying for loans, which results in more people looking for homes to rent. The rental occupancy rate in Tampa Bay is averaged at around 92% Combine these factors together and we have ourselves a “Perfect Storm” for investing in cash flow rental properties.
We know the full recovery will take some time "Economists predict 2014. But this is irrelevant. What is important is to buy right. You must determine your exit strategy, whether it's quick flip or a long-term rental hold, it's important to leave equity in the deal at today's market value, not subprime market value.
Investors to in today’s markets have the room to leave 65 per cent equity after all costs (including rehab) and acquisition costs. It is quite possible to buy a $100,000 home, and ensure be all in for no more than $65,000. This enables investors to rent, cash flow, and take a huge appreciation ride when the markets recover.
It's the perfect storm
1. Loonies’ Up and Interest rates are down:
As I write this, one Canadian dollar will get you 96 cents American. The Canadian dollar has increased 69% in value since 2002. Interest rates are at an all-time low making the cost of borrowing the most affordable we have ever seen.
2. Real estate is 50% to 70% Off:
Right now U.S. banks are selling tens of thousands of foreclosed properties per day. You can buy a $66,000 home and sell it for $220,000 after rehab.
3. Only in the U.S.:
Only in the States can you buy repossessed homes in good condition at a discount. (Our Canadian courts prevent banks from selling foreclosures at a discount.)
4. Rents continue to stay high:
Rents have not been affected by this downturn. The average rent in the USA is $1350 per month for a 3 bedroom single family home.
The U.S. favors the investor. Canada regulations serve the consumer. Practices which are perfectly acceptable in the U.S. become borderline illegal in Canada. Properties under $100,000 are cash cows during the time we sit and wait for the market to go back up, and cash in on hundreds of thousands of profit per property in 10 to 20 years from now.
Auxo Homes is an asset management of the company portfolio of emerging markets. The majority of his investments are made in single family rental properties.
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