This email follows information I sent you proving high net yields on an investment property I purchased in late 2011 in Minneapolis - St Pauls in the US. I am extremely excited to report that I returned from my first visit to the Twin Cities even more convinced than when I left.
I could not be more impressed with everything I saw and as a result placed offers on three properties. I offer my learnings, actions and results for you to apply while reading opportunities open to you below. I welcome your response with any questions you may have.
Real Growth Does Exist
Until my recent visit to the Twin Cities, I had been completely satisfied by the high net yields my investment property had been delivering. Capital growth was something that existed only on paper and thankfully was not my primary motivation. However since visiting and speaking with experienced real estate agents in the area, it soon became clear that this property purchased at $131,000 would now list at $170,000. This is also supported by properties in the neighbourhood listed in excess of $300,000. These plots are no larger, nor the property any bigger, they are simply better maintained.
The market has changed in the six months since my first purchase. While overall prices are unquestionably increasing as the US market slowly recovers, low priced properties are still being listed.
Large organizations in the US have now entered the market and are buying what many successful investors like Donald Trump and Warren Buffett have been claiming is a great investment. The number of individual property investors from all over the globe is increasing and with higher volume comes the pressure to push prices up – these are great signals for those already invested, though is also a solid sign that an expiry is on the horizon for the current high yields.
Currently, all good properties stay on the market for approximately 15-20 days before being snapped up, and in some cases even sell for above the asking price. When the demand was less six months ago they sat there for 60-80 days or more.
Essential Local Knowledge
My number one learning from this trip was how important it is to know the property location and blocks your investing in.
For those unfamiliar with the US road system, suburbs are joined together by a huge grid network of roads. Very simply it is like a chess board where each black and white square represents a different suburb with main roads the line in between. Using this analogy, the same ‘main road’ will touch 16 suburbs (i.e. 4 black squares and 4 white squares on each side) with no clear indication of change to the housing aspect, look of road or general feel to the area. But, that does not mean that all 16 suburbs have the same property value! This is where I believe many horror stories to investing in the US come from.
For example, two properties on the same road with the same defect separated by five blocks. One property is listed at $55k versus $25k five blocks away. Naturally, we are attracted to imagined higher returns investing on the cheaper option; after renovation a difference of 10% or 20% in returns. Herein lays the mistake. Price variations like this exist for a reason because the area, or block, consists of higher crime rate, more problem tenants and an increased risk of long term vacancies. These erode financial benefit of buying a cheaper option.[KH1]
Like any property market, it also helps to have strong relationships with agents on the ground, as most of the best investment properties are sold before they are even listed. This network is priceless. It is the result of continuously applying yourself to a market over a number of years. This is the benefit and the value of using experts such as Rycal.
In the days before I arrived in Minneapolis – St Pauls, Rycal had viewed over 30 available properties and shortlisted to 6 properties that fit their criteria for high returns. Of those 6 shortlisted investment properties, I viewed 4 of them. One had sold that morning (more on this later) with another vendor offering a higher price. During the viewings we were introduced to a big player that opened up another two property options (a 5-plex for a little more money). Speaking with the contact he confessed to owning over 400 properties in the twin cities and boasted about the current market conditions with claims that only seven of them were vacant – which in fact is in line with the cities current vacancy rate of 1.9%.
We put down a deposit and intention to purchase three of the four properties viewed. All were priced at $105k with the lowest projected income of 17.6% and the highest of 20.2% (gross). One was accepted almost immediately, the second was then sold to another party, and one week later we lost the third to a higher bid. The competing offers are generally not openly presented. However we have been advised that in some cases the winning bids are in excess of $20k over the asking price. There is no logic in competing with these higher bids as it would bring the yields down to a single figure. This price reduces returns to ‘high single figure’ yields and confident in market conditions today, it will be 12-18 months before I sacrifice ‘double figure’ yields.
The weekend after our visit, Rycal viewed a further 18 properties with 3 stacking up well financially. This justified the above decision not to sacrifice yields and I put an offer of $108,000 on one of these, which has been accepted.
I invite you to contact me with any questions and expressions of interest.
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