As always, if you have any additional comments or questions, leave a comment below or contact us directly. Be sure to check back often for more videos and articles on buying U.S. real estate!

Greater cash-on-cash returns

Traditionally, apartment buildings offer a greater return than single family homes. Apartments also have a lower cost per unit than single family homes.

America is becoming a nation of renters

All of the families who have been displaced because of foreclosure are going to have to live somewhere! And most likely they will live in apartments. Why not have them rent from us? Many Americans are still recovering from the hangover from the housing crisis and are leaning towards renting instead of owning.

Instant profits

As an apartment owner, you benefit from positive cash flows from day one. Use this additional income to supplement your current income, take a nice vacation every year, or even to reduce your hours at your job. In fact, if you purchase a big enough building and you can live off the income, you don’t have to go to a job every day!

Now of course, if you’re buying a distressed property with a high vacancy rate, or perhaps the whole building is vacant, you may not have positive cash flow. But that’s a different strategy in itself. Purchasing non-performing apartments and stabilizing them can offer even great returns and huge payouts!

Financing options

It is typically easier to get financing for apartments than single family homes. Apartment building owners are generally more financially astute and are more willing to help you finance the property. It is even possible to get 100% financing. In fact, most of our deals that we put together involve some sort of bank or seller financing; sometimes even a combination of both.

Forced Appreciation

Apartment buildings can appreciate faster than houses. You don’t have to wait for real estate prices to go back up to increase the value of your apartment building investment. You can increase the value of your apartment building by increasing the rents, cutting your expenses or by making physical improvements on the property. Also, strong demand in metro areas with limited apartment vacancies can cause prices to soar.

So while everyone is jumping on the single family home bandwagon, perhaps it’s time to consider investing in apartment buildings as another option.

Last month we published an article on the 11 Costs to be Aware of Before Buying U.S. Real Estate. This month, we want to help you save potentially thousands of dollars when buying U.S. real estate. Let us know if you have any other ideas to save money.

1. List price does not mean offer price

When purchasing a home, buyers should always keep in mind that the list price is not essentially equivalent to the offer price. This is where the power of the negotiation takes place. There are many ways that you can haggle with the seller by taking advantage of some of the things that you have observed in the property. When you see the property , you may spot some areas that need to be repaired. This is an important haggling point that you can take advantage of against the seller as you would be spending more money for the fixing up as opposed to just literally moving in.

Aside from that, other factors that come into play include multiple offers that result in inflated prices. Many of these offers are actually just that, offers. Few if any actually are going to decide to actually purchase the property. If you see yourself as a serious buyer to the property in question, you can negotiate with the seller that you are serious about putting a down payment and therefore they should be able to adjust the price some more to what you are comfortable paying. A lot of sellers also tend to overprice because they anticipate that they might get lucky with a buyer that would be willing to accept the list price as is. However, doing so would be costly and impractical as buyers can always present an offer of their own in order to save money. If the property you are intending to buy is a foreclosed one, you can still negotiate with the bank as they are looking to quickly dispose of it in order to somehow recover part of their losses.

Another reason why you cannot undermine the value of negotiating for a lower price than what is being posted as the list price is the fact that in an economic downturn, the decline in market value of the property is due to lesser-interested buyers. This results in an oversupply of property and just merely applying the law of supply and demand. More supply means more opportunities to get lower prices for the home.

2. Closing Costs – Paid by the seller

There is nothing that can kill the excitement of purchasing a home more than discussing who will pay the closing costs on the property. Usually both the seller and the buyer pay part of the closing costs of the transaction. However, you as the buyer have the upper hand to ask the seller to shoulder more of the closing costs in order to sweeten the deal so to speak. The exact amounts of closing costs actually differ from area to area and this amount basically depends on the offer and the counter offers that occur during the transaction process.

In order for you to have more leverage against the seller, it is important that you do some necessary research on the area where the property is located to ascertain what the general practice regarding closing costs are and also to be informed about laws and guidelines for such. There is nothing wrong with actually asking the seller to pay the closing costs in order for you to save money. This is again part of the negotiation process and should not be overlooked by overzealous or uninformed buyers. As a guide here are some of the costs that are normally shouldered by the seller and buyer. It is up to you to haggle with your vendor so that you would be able to save on your overall costs.

For Buyers:

• Mortgage fees
• Inspection fees
• Transfer taxes (seller may offer to shoulder this or can be shared)
• Homeowner’s insurance (valid from 1 year from date of closing)
• Title insurance and escrow fees (can vary depending on location)
• Attorney’s fees ( if there are any legalities needed)

For Sellers:

• Real estate commission (buyer might shoulder some of this)
• Termite repair fees
• Loan payoff fees
• Title insurance (varies with location)
• Cash payments in lieu of necessary repairs to the property
• Transfer and escrow fees
• Attorney’s fees

3. Go all Cash – Refinance later

Talk about how all cash offers are better viewed then financing ones.

If you do not want to get burdened by mortgage payments every month, you may want to opt for paying in cash. If you have the capital, paying in cash can actually save you a lot of money in the long term. Cash payment for the property puts you in the driver’s seat to negotiate for a much lower price than what is offered. Sellers typically cannot resist the allure of a buyer ready to part with their hard earned cash.

Buying in cash means that you can close the deal quickly especially if there are other buyers that are also looking into the property. It usually takes about thirty days for a financed purchase to push through which means other buyers can beat you to the punch if you have not gotten approval for your financing yet.

Of course, the use of leverage in the Real Estate Investment is always key. Once the property is closed, many lenders will look at the market value of the property 6 months after you closed on it as a “refinancing”, not a purchase. What this means for you is that instead of using your purchase price (and if it was a distressed sale, you most likely paid under market value), using market value may allow you pull out as much as you paid for the deal, leaving equity as well.

With this excess cash, I would recommend to purchase more income sources to increase your portfolio.

If you’re thinking of purchasing U.S. real estate and would like to know how we can help, feel free to contact us for more information.

1. Property Taxes

All property buyers need to pay what is called property taxes. This tax is levied by the government where the property is located. Property taxes could be meted out by a national governing authority, a federal state or a municipality. Real property taxes where most homebuyers belong to consist of a mix of land as well as improvements to that land via the construction of a house. The state would appraise the total value of the property and a corresponding tax is levied for that property.

2. HOA (condo) transfer fees

Homeowner’s association or HOA (condo) transfer fees are a type of payment that homeowners need to pay to the HOA that is in the jurisdiction of their unit. These fees vary from state to state and neither the seller, buyer nor the agents have any idea how much the association would charge for the transfer of the property. If you plan on buying a condo, or any property with HOA fees, be sure to watch our tips for buying condos video.

3. Insurance

If you are purchasing a property, you would be required by law to get insurance so that you can be able to receive financing for that home. There are actually three types of home insurance namely: HO-1, HO-2 and HO-3. These policies only cover the property but not the contents of that property. A lot of these policies carry many exclusions. Among the three types HO-3 seems to have the most coverage. An HO-3 policy is divided into property and liability protection. Property protection gives out coverage for the house itself as well as attached structures. Personal property is also covered. Some types will offer reimbursement of the value lost while others would also provide the actual amount regardless of depreciation. There are also other policies that provide specific coverage of items that are lost inside the property even if there is no catastrophic event. If your property is damaged and is deemed unlivable, the insurance will cover your living costs while it is being renovated. For more details on insurance, check out our video on real estate insurance.

4. Accounting Fees

The US Internal Revenue service describes real estate as a capital asset which means that it has a useful life of greater than one year. For accounting purposes, real estate property is recorded on the accounting general ledger provided by the rules of the IRS. As an alternative to expensing the entire cost of a capital asset when it is acquired, the cost should be apportioned over the number of years of the useful life of the asset or in this case the usefulness of the home. The IRS does not consider land as a depreciable asset and therefore its value is considered separate from that of the structures that are involved in the transaction.

5. Legal Fees

These are attorney’s fees that the buyer needs to shell out for the services rendered by legal counsel for acquiring the property. They vary based on the time and effort needed to complete the transaction. Other factors that contribute to the amount of legal fees charged by counsel are: whether special skill or service was provided, amount or value of the property, difficulty, results obtained, fees authorized by law as well as special circumstances like postponements, loss of retainer, uncertainty of reward as well as urgency of the transaction.

6. Title Agent Fees

This is a fee that must be paid to a settlement agent that prepared the documents, calculated the figures as well as supervised the proper execution of closing documents in a real estate transaction. This fee is usually split in between the seller as well as the buyer and can always be bargained or negotiated as part of the contract of sale. For more details on the services that title agents provde, check out our video on title insurance and owners policy.

7. Property Management

This is basically the operation and control normally at the behest of the owner of the property in question. Managing the property means taking physical care of it as well as maintenance for its usable life and condition. One essential role of property management is it acts as a liaison for the owner and the tenant. They provide a buffer for property owners that do not want to have any contact with their tenants. Their main duties include: screening or testing of the prospective tenant’s credit, rental and criminal history as well as ability to pay. Property management also does the lease contracting on behalf of the owner and mitigation and remediation of any issues that may arise like maintenance problems. For more details on property management, check out our video on property management.

8. Currency exchange

This is basically the value of the currency you own against the US dollar. If your native currency is strong then you gain some momentum in savings. However, if it is not performing properly then you may have to pay more.

9. Document Recording fees

When you purchase a home, it becomes public record. All the information regarding the property as well as any loan information you possess requires it to be filed at a county courthouse or a local government office. The recording fee is given to the government, which then enters an official record for the change of ownership.

10. Inspection

Home inspectors have different methods when quoting home buyers for the services they offer. Some usually charge a standard or flat rate while others charge depending on the living area by square foot, some charge depending on the overall value of the property while some on the amount of time they spent. If the inspection turns out little or nothing wrong with the house then you could say that its money well spent. It is also safe to say if the inspector is able to find some potential issues that can be resolved by early intervention then you could also save money in the long run.

11. ITIN application Fees

ITIN or individual tax identification number is usually issued to people that are not eligible to obtain a US social security number but need to request an IRS tax number in order to file a US tax return and or make tax payments are required in the Internal Revenue Code. Basically any individual can file an ITN application himself or herself or through a certifying acceptance agent which usually charge a fee for the service.

If you’re thinking of purchasing U.S. real estate and would like to know how we can help, feel free to contact us for more information.

During the the holiday season,
our thoughts turn gratefully to those
who have made our success possible.

It is in this spirit that we say…
Thank you and best wishes
for the holidays and happy New Year.

Sundog Real Estate

Here are a few reasons why we are investing in Atlanta

Large Metropolitan City

Atlanta is the capital of and the most populous city in the U.S. state of Georgia, with a 2010 population of 420,003. The Atlanta metropolitan area is home to 5,268,860 people and is the ninth largest metropolitan area in the country. With the recent housing crash, many of these people are looking for homes to rent. Nowadays, more and more homeowners cannot get access to credit to buy properties. This has increased the number of people who will need to rent. This means lower vacancy rates.

Median Home Price is Lower Than the National Average

As of January 2012 Atlanta had the lowest housing prices of major metropolitan areas in the country. Low prices means high rates of return for those investing in real estate.

Jobs

Job growth in Atlanta is increasing at a faster rate than the national average. Atlanta metropolitan area is the eighth-largest economy in the country and 17th-largest in the world. The city serves as the regional, national, or global headquarters for many corporations. Atlanta contains the country’s third largest concentration of Fortune 500 companies, and the city is the global headquarters of corporations such as The Coca-Cola Company, The Home Depot, Delta Air Lines, AT&T Mobility, UPS, and Newell-Rubbermaid. These companies employ a large portion of Atlanta’s tenant population.

Technology

As of 2006, Atlanta Metropolitan Area ranked as the 10th largest cyber city (high-tech centre) in the US with 126,700 high-tech jobs. Atlanta’s biotechnology sector is growing and gaining international recognition. High tech companies are some of the fastest growing companies in the world, leading to growth in higher paying jobs.

25-34 Year Olds

Atlanta leads the nation in attracting the labor market’s most sought-after demographic – college educated workers aged 25-34. These young people move to Atlanta, rent homes, and then after a few years move into the home owner stage of their lives.

Current Prices

Since Sundog Real Estate is buying mostly distressed properties from sources dealing directly with this type of real estate, we have access to properties at prices unseen since 1990. For example, homes that once sold for $200,000 can now be purchased for $50,000! Check out our latest property that we just purchased last week. This home is located in the suburbs of Atlanta in Union City.

So those are just a few of the reasons why we are investing in the Atlanta market. Can you think of any other reasons why investors should invest here? I do know that some of our readers already own investment properties in Atlanta. What made you decide to buy properties in Atlanta?

Built in 2001, this 3 bedroom 2.5 bathroom home is located in a quiet neighborhood in Union City and is close to all amenities. It even backs onto a small private lake. With only minor rehab needed, this home will make a perfect rental property and will provide a solid return on investment. Check out our initial walkthrough video that our team filmed before the repairs.

We’ll post updates on this property once the repairs have been complete. Stay tuned!

UPDATE! This property has been completely renovated and is now available for purchase.

Mistake #1 – Exposure to Title Risks

In Canada, the title transfer process is subject to required oversight, but U.S. title transfer processes don’t have built-in mechanisms for accountability. If you’re not careful, you can lose a lot of money on a property after the fact. It’s best to use an attorney or title agent for U.S. title transfer documents but here are the 4 basic elements your title transfer should contain.

1. Property identification and description with full address.
2. A listing of all parties involved in the transaction (including the grantor and grantee). Proper full legal names should be clearly indicated on the title.
3. The title should indicate any forms of payment for ownership that have or will take place.
4. Any pending conditions, such as financing or hold against outside claims, should be clearly listed in the deed.

Mistake #2 – Lack of Asset Protection

Legal action in the U.S. is frequent and accounts for 96% of lawsuits worldwide. On average, every adult in the U.S. is involved in 4 lawsuits in their lifetime. Without proper legal protection and liability insurance, your properties and personal assets are at serious risk.

Generally speaking, creating a U.S. corporate entity may be the best way to go about securing your assets. This can provide you with the necessary legal protection in the event of a lawsuit. You can choose to register different corporate entities for different properties you own and may find it advantageous for taxation purposes as well. If you do decide to register a corporation, it is best to seek out legal counsel to get it set-up. To find the best form of limited liability, look into various entity structuring options, such as: C-Corp, LP, LLC, LLLP and maybe even a corporate entity in your domestic country.

Mistake #3 – Underestimating Cross-Border Accounting

The US federal income tax is based on a self-assessment method, which basically means that all taxpayers are responsible for determining their own personal tax responsibilities. Canadians who purchase U.S. property who do not make adequate tax payments can and will have a lien placed on their property by the IRS. Your best bet on this one is to consult an experienced tax attorney and accountant, make the necessary payments and rest easy knowing you’ve avoided taxation issues.

Mistake #4 – Self Managing a Rental Property

As a landowner, having a property manager is a crucial aspect of success. The amount of time it takes to screen tenants, discuss issues, perform maintenance tasks and so on is all-too easy to underestimate. An experienced property manager is an expert at conflict resolution, dispute prevention and U.S. landlord procedures in addition to performing regular maintenance tasks. In other words, your property needs a manager to run effectively.

Mistake #5 – Assuming Immortality

Sounds morbid, but it’s a fact of life. If you don’t want to burden your heirs with legal hassles on top of your passing, you should set your affairs in order as early as possible. Estate planning basically involves determining how your assets will be distributed to your heirs. This process usually entails an attorney and/or certified financial planner that can assist you with creating your plan for your estate.

Mistake #6 – Wrong Homeowner Insurance

Once you own property it is highly recommended that you insure it against theft, accident or any other form of damage. In most U.S. homeowner policies, casualty insurance and property insurance are combined and your house is insured either for replacement value or actual value. To make sure to you have the right policy for your property, find out what options are available to you and determine whether you want the replacement value or actual value for your house.

Mistake #7 – Saving Money on Maintenance

Owning real estate is a long-term investment. If you are purchasing a vacation home, you need to consider the cost of upkeep within your operating budget. One way to do this is simply create a maintenance account and take out a monthly deposit from rental income. This way, your property is well-maintained and you have a consistent monthly income.

Remember, when in doubt; don’t be shy to contact an expert. Money spent on expertise is money saved and money earned in the long run.

As competition for U.S. real estate is on the rise, rumors about the U.S. shadow inventory have begun to circulate. Although exact numbers remain unknown, financial experts estimate shadow inventory at anywhere from 3 million to 10 million homes. According to a recent study conducted by CoreLogic, the shadow inventory is worth approximately $246 billion dollars. In other words, the shadow inventory will definitely play a role in the U.S. housing economic conditions and lending practices in the near future.

Given the gradual positive incline in U.S. real estate values, the release of shadow inventory is expected in the near future. Recent estimates are projecting roughly 4.16 million homes that could begin to flow to the U.S. real estate market. Further, there are speculations of an additional 6.5 million additional foreclosures going forward. Question is: how will it affect the housing market value and investment opportunities?

Well, to get to the point here, shadow inventory is essentially a good thing for Canadians interested in buying and selling U.S. real estate. As shadow inventory is slowly released into the market, prospective buyers will have more options while sellers will be more inclined to price property to sell. On a monthly basis, housing values may dip or rise yet the U.S. housing market is showing signs of recovery and the shadow inventory ensures a continued buyers advantage. In sum, U.S. real estate is still an amazing opportunity, especially in a long-term investment scenario and shadow inventory releases will continue to pump out new units for buyers to consider. Happy hunting!

In general terms, here are some considerations for U.S. real estate ownership:

1.  Create incorporated entity structures

If you are purchasing more than one property, entity-creation is probably the best choice for ownership registration. Canadian and U.S. entity-structuring will be slightly different and you will need to hire an accountant and a lawyer to establish a set-up that protects your investments. It may sound like a hassle but it will save you a lot of estate and capital gains taxes.

2.  Register the home under a joint name

If you are interested only in a snowbird home, it may be most beneficial for you and your spouse/partner to register your U.S. real estate jointly. Joint ownership will minimize your U.S. tax exposure and is likely to lessen your payments. Remember that if you choose this ownership option, both parties have to provide documentation to prove each person has contributed to the purchase using their own money.

3.  Use a fund or a trust

Yes, you can register your real estate under a trust to avoid taxes. A fund or a trust may be a viable choice for those interested in investment property or vacation homes because your estate and capital gains tax would be minimal. Eventually though, the piper must be paid and you will have to pay taxes following a time limit.

Our favored and current strategy (which we paid accountants and lawyers to create and register) is definitely option 1 – entity-structuring. This is a good option for Canadians buying U.S. real estate as a strategy to build wealth. Depreciation will defer your taxes while you continue to grow your corporations and your accountant should be able to move the money around and give you the run-down of accessible cash as the grace periods lapse. In the meantime, you keep the extra cash to carry on business.