All Forum Posts by: Tracey B.

Originally posted by Jeff Tumbarello:

That is why the did not have the market run up, all the guys are at the beach :lol: :idea:

I don't know about that; I bought my home for $243K in 2001, and just got a bank valuation for $790K. That's pretty typical for my city (Brisbane), and many other parts of Australia.

Originally posted by Jeff Tumbarello:

I think the Aussie's are a little behind the curve, lets reserve judgement for a bit.

It took longer for the effects to begin to be seen here, I'd agree. But our Reserve Bank has aggressively cut interest rates the past few months - our cash rate has dropped from 7.25% in August, to 4.25% for December, with a further cut of 75 to 100 points tipped when it next meets in early February. I have seen optimism beginning to return the past week or so, as people realise how much they're saving on mortgage payments. I believe both the share market and housing have either bottomed, or at least within a few per cent of bottom. Some disagree, and as you say, time will tell... :wink:

Tarrant County, Texas.

LOL - thanks Dave! :mrgreen:

Thanks for your input. It's now obvious to me that this arrangement - extremely common here in Australia - is not used extensively in the USA. I think it could work, but I'm mindful of a mentor's advice: "Pioneers end up with arrows in their a**" :)

I'll use my time on the ground to find a good property management company and build a relationship with them.

Thanks again for your advice.

Originally posted by Rich Weese:

Many of our states, like CA are not deficiency judgement states. That means the collateral is the ONLY security for the loan. You lose the house in foreclosure and they can't go after you.

Thanks, Rich. Wow, we don't have a law like that anywhere in Australia. Doesn't that encourage the kind of irrational exuberance that created your housing bubble? Gees, I know if I were in California - and less ethical and financially savvy :wink: -I'd be buying absolutely the most expensive house I could, with the minimum down payment, under these circumstances. I'm wondering if this goes a good way to explaining why our housing bubble hasn't "burst" to the same extent as the USA. We're seeing a higher number of houses for sale, stagnating prices, and perhaps 10% price drops from peak in some markets, but nothing more severe than that (yet).

Excuse me, this Aussie is thinking there's some fundamental difference between our laws that I'm not grasping. :wowie:

If, in Australia, I default on a mortgage and the bank sells the property for less than the outstanding balance, the bank could (and generally would) pursue me for the remainder for years to come. eg If I default and my mortgage is $250K, but they sell my home for only $200K, I have to keep paying the bank until they get their $50K back. And I certainly wouldn't be able to get another loan in the meanwhile!

This makes me wonder if things are different in the USA: "Homeowners are qualifying for a second home, buying at the new discounted rate, then moving into the second home and defaulting on their original home". There'd be no advantage to doing this in Australia, as the mortgagee of the first home could simply foreclose your second home as well, in order to pursue the $50,000 shortfall.

What am I missing? Why is there any benefit to taking this course of action?

Many contributors to an Australian property investing forum are currently arguing that as yields are now approaching 1/2% (from below), Australia must be getting set for another boom, because "why would people pay 1/2% to rent when they can buy for that?". :lol: This is even more starkly contrasted with the US situation when you consider that we don't have tax deductibility of owner-occupied mortgages. :mrgreen:

David, firstly keep in mind that the lessee is highly motivated to attract and keep tenants, so it's in their interest to keep repairs and maintenance up-to-date. The leases are also quite long-term, making it much harder to defer things until after the lease ends.

There are two ways that repairs and maintenance can be dealt with:

1) Contractually. The lease - which usually runs for a long time, perhaps 10 years - specifies which works must be complete during the duration of the lease. It usually includes a maintenance schedule that's binding on the lessee, saying that they must perform inspections (by an independent building inspector) at certain frequencies, and perform all rectification work required within a certain timeframe. It also says that all kitchens, floor coverings, window treatments, HVACs and light fittings (for example) must be replaced no earlier than half-way through the lease, and the property repainted upon vacation. In other words, the property has to be handed back with everything < 5 years old. It's very much more like a commercial lease than a residential lease. Commercial leases nearly always require tenants to pay for repairs and maintenance, and the contractual mechanisms for ensuring performance are well-established.

2) Get the master lessee to pay a higher lease, but cover the cost of repairs and maintenance yourself (as landlord). Obviously this allows you to retain more control over the upkeep of your asset, but as I'm in another country, I'd prefer to go the first route. This option obviously carries the opposing risk that the lessee will go crazy with requesting unnecessary repairs.

Jon, I'm not sure if the "language barrier" ;) is preventing me from making myself understood, or whether this type of arrangement really is unknown in the USA (which would surprise me).

You mention an "investor", but I'm not proposing having an option to purchase as part of the arrangement. I'm looking for somebody wishing to operate a property management business via a master lease; the person has no ownership in the property, now or in the future, they simply use the asset to operate a business. This arrangement is used extensively in Australia (we call it "management rights").

How it would work is that the master lessee pays me (the owner of the property) $170K pa, and in return they have the right to collect all rents, and the obligation to perform all management, repairs, etc and pay all operating expenses. I estimate they should earn about $280K pa, for a profit of $110K pa for operating a property management business.

The difference to me is between making $170K pa with no hassles, and $220K with potentially many problems. A $220K return would be after paying a property management company $60K in fees. Effectively, what I want to do is pay somebody $50K extra in management fees, in return for their taking on the risk of higher vacancies and repair costs, etc. If they can operate the business better than my property management company and have lower vacancies and repair costs, they may make even more than $110K profit - good luck to them. :)

I'm not looking at REITs etc because 1) I like to have more control over my investments, 2) I can't leverage to the same degree, and 3) they generally have much lower ROIs.

If anybody understands what I'm describing and knows if I'm using the appropriate terminology and can provide any advice, I'd be most grateful.

I believe you all that this phenomenon of "winter vacancies" is real, but I'm a bit confused as to how it exists. Surely there are the same number of people and the same number of dwellings year-round... so occupancy levels must be similar year-round, no? Or do people leave the country, or live with friends/relatives/in shelters, over winter? Where do all the tenants GO?