We get a lot of questions from international clients regarding the process of investing in the United States. Below is a follow up to “5 Things International Citizens must know when Purchasing U.S. Properties” and answers actual questions asked by one of our prospective clients.
Our goal at Memphis Turnkey is to help YOU in each step of the process of owning US properties, and make it as painless as possible so that YOU become a successful investor!
FAQ From Prospective Clients:
1. We are interested in getting more market information on Memphis so that we know the area is good for us to invest in. I have heard your advertising, listened to your market description from last year’s REG podcast. Do you have any other third party materials that make sense to investors?
Yes, we have a link to a PowerPoint presentation about our company and the Memphis Market that Jeremy delivered in L.A. to an event put on by one of our affiliates. Click HERE to download the presentation found under “Get Free Report”
2. How do you manage an independent property inspection on closing? If I remember correctly, you provide a one year warranty on your product, so I am not worried about the quality of the workmanship; I just want to make sure that there aren’t any unexpected issues. How do you manage that?
You have the choice to use our property inspector or hire your own property inspector. Our inspector is very thorough and does a quality job… with out KILLING the deal! We want a thorough inspection so we can catch/fix any problems on our end. We have nothing to gain by selling you a problem property as we’re managing it too! Yes, we do provide a 1 year Home Warranty also.
3. What has been your experience with vacancies in the area? Are the properties leasing up quickly or are there several months before they get occupied. DFW seemed to be very low vacancy when we were there, what is the trend in your market currently?
Vacancies are low in the areas in which we invest. Most of our Bartlett and Cordova properties lease up within 1-2 months of rehab completion. We usually tell our clients to budget 5% for a vacancy factor in their cash flow projections. Delays in getting a property rented could be due to: time of year, higher rent level (above $1,200), or property management holding out for a better tenant. Since we also manage properties, we’ll sometime wait a month or two longer to place a better tenant, rather than chancing it with a riskier tenant.
4. Please provide us your standard property management contract that we would have with you as our manager? Do you conduct yearly or more regular walk-throughs? Do you video tape them too?
Yes! We provide a Property Management contract upon request. We typically don’t do annual walk-throughs. We do, however, ask our contractors and leasing agents to inspect a property every time they are there for a maintenance issue or a showing. Click HERE to download a copy of our property management agreement
5. When your website says the property is pending, is that to highlight that you have an offer and are waiting for it to close, or is it to highlight that house is being prepared by your crew and should be ready for sale & tenant occupancy in the coming days/weeks?
PENDING means the property is under contract with a buyer and “pending” close at a date in the near future. Sold means it’s closed with the new buyer. We put ‘Pending’ because there are cases where the contract falls through, the buyer backs out, and the property comes back on the market (as was the case with Frosty Leaf!).
6. I know that you are actively pursuing more inventory. What types of properties do you currently focus on? (The ones currently listed appear to be quite nice. Do you call them B class or somewhere else on the scale?)
Our focus going forward is upper ‘B’ and lower ‘A’ class properties; LIKE the ones you see on the website. We’re definitely focusing up as we acquire more properties and, ideally, we’d like to be COMPLETELY OUT of the lower end stuff. We’ve found that upper ‘B’ and ‘A’ perform better (i.e. “Blue Chip” investments).
7. What is usually the largest O&M expense in the next 2-5 years of owning one of the properties that we buy from you? We were astonished to learn in DFW that they go through air conditioning units quite quickly and the cost to repair them sure eats into the cash flow. IS there a Memphis problem (like termites) that really eat into the property’s profit. (sorry about that pun)
Termites are a problem, but that can be treated and prevented on the front end. I’m best friends with a bug guy and my partners have a relative that does most of our inspections. So, I wouldn’t worry too much about that. AC’s and Furnaces going out are definitely a big expense. Memphis gets HOT in the summer and (even with a new unit) they can be strained. I do have an AWESOME AC guy on my staff that can replace AC and Furnaces with brand new units and 10 year warranties! But, when you acquire a property from us, you’ll get new stuff and won’t have to worry about this, ideally, for several years down the road.
8. What reporting should I expect from you? I see that I can log into your website which is a great feature. Would you provide a few standard reports so that I know what I should expect? I don’t want to be extra picky, but I have two different property managers currently and their reporting is dramatically different.
I’ll refer you to Property Management for this question. We use Buildium – an online cloud-based system. You’ll get an account set up and monthly statement. We recommend having rents automatically deposited into your account instead of checks, as it’s easier/quicker for us. Property management statements are standard; we can forward one to you if you’d like a sample.
9. I have yet to establish an entity to work in when acquiring US properties. Am I to assume that you have excellent contacts with legal advisers to assist us too?
Yes, we can put you in contact with solid legal advisers who can help you in this process. Also, you may want to Google ‘Mark Kohler’ and look for his advice and tips online. We met Mark recently and he is very knowledgeable in this area.
10. I am intrigued with the various “international” investor options that you have. We should have a discussion on the merits of what you are offering vs. other options locally available. Can you provide us with some more “food for thought”?
We have already established ourselves with US credit scores and would be interested in speaking to your mortgage broker, who may have a few other financing options for us. When the time comes, would you introduce us to the right people.
Of course! We have a few excellent mortgage brokers that work with several of our clients. The main thing you have to decide is your strategy: (1) Cash Flow, or (2) Rapid Equity Build up. Do you need cash flow now, or can you sacrifice cash flow now to build equity in the property quickly and have it pay off 5-10 years down the road! Most investors either say they want ‘both’ or they say ‘cash flow.’ Both are not realistic and cash flow is great… but you have to think about the future! If you’re international and not able to get conventional U.S. Financing, private financing may be a good option.
Now, with private financing your terms are not the best- 40% – 50% down, 12% interest, 5 points, 15 year fully-amortized- but, you can still take advantage of leverage and because it’s ‘fully amortized’ over 15 years…. BUILD EQUITY RAPIDLY and have that pay off down the road! The cash flow isn’t as great, but as long as you’re breaking even, you’re essentially getting into a property with leverage (instead of financing with all cash) and Rapidly Building Equity, which will impact your cash flow in a POSITIVE way a few years down the road. This is why the ‘savvy’ investors will still finance with private money (even with terms that aren’t nearly as great as conventional) and focus on the equity buildup before the cash flow.
We can discuss this strategy further when you get ready to proceed.
If you live outside the United States and are interested in learning how to invest in the United States, contact us and we will give you guidance along the way!