Australians swoop in on U.S. foreclosures

[Heracles 417]

By Steve Hargreaves, senior writer

October 29, 2010: 11:54 AM ET

MEMPHIS, Tenn. (CNNMoney.com) -- On a recent Wednesday night, my wife and I found ourselves in an otherwise empty Beale Street bar surrounded by a group of Australian men.

"You guys from here?" they asked cheerily. "You like the area? What do you do for work?"

My USA Property Founder Andrew Allen, who is Australian, has sold almost 300 homes to other Australians. He owns eight U.S. homes.

Despite the boozy surroundings, what could have been mistaken for friendly banter was actually research. The Australians were on a real estate tour of American cities, sussing them out before pulling the trigger on the latest trend in this hard-hit sector: snapping up foreclosed homes, renovating them, then renting them out.

"America represents an opportunity, and Australians have just jumped all over it," said Andrew Allen, founder of My USA Property, who was leading the tour.

Allen's firm, which has an office in Orlando, Fla., brokers deals between Australians and real estate professionals in the United States.

The real estate pros who find the foreclosed homes also fix them up and then manage them as rentals. The Australians provide the capital and -- hopefully -- collect the profits.

The properties come delivered with a clear title and a building inspector's report. The firm has arranged nearly 300 deals in the last two years in 14 U.S. cities, mostly in the Southeast and Midwest.

Allen, an Australian himself, owns eight properties in the United States. He hopes to have 30 within the next five years.

"The beauty is, the U.S. economy will recover one day," he said. "You guys have hit a rough patch, but we know you'll be back with flying colors."

It's all about natural resources. It's not just the hurting American economy that makes these deals so sweet. It's largely the complex interplay of the global economy.

0:00 /2:42The foreclosure that started it all

The Australians are riding a commodity-driven export boom. China, workshop to the world, is gobbling up ever more metal and fossil fuel, much of which comes from Australia. Among Australia's top commodity exports are coal, iron ore and gold.

Unemployment in Australia is just 5.1%. Home prices, which did not fall, average $500,000. Plus, the Australian dollar is at near record highs, equal in value to its U.S. counterpart.

That means Australians have lots of cash. In many cases, Allen said his investors are taking out home equity loans to buy U.S. property. That may strike many as an all-too-familiar and risky proposition, but Allen believes it's safe. He says stricter banking regulations and a rising population will keep his country immune from a housing downturn.

A closer look at the deal. The deals themselves seem solid, at least on paper.

Jim Reedy, owner of the Memphis-based property management firm Reedy and Company, said a recent sale he put together for an Australian on a $68,000 house looked something like this:

How to buy a foreclosure in a robo-signing world

With a $17,000 downpayment, the monthly costs for the buyer totaled about $700. That included the mortgage payment, insurance, management fee, taxes and setting aside 12% of the rent in an emergency fund to cover maintenance and vacancies.

Yet the house rents for $1,100 a month. So the buyer is making $400 a month, a 28% return on his $17,000 investment. And that's not counting any appreciation the home may see, or the currency advantage if the Australian buys now and the Aussie dollar falls in the future.

"'Our business is exploding," said Reedy, who buys foreclosed properties every day, literally right off the Memphis courthouse steps. He said the recent drop in foreclosures due to the robo-signing mess has crimped sales, but that he expects foreclosures to pick right back up again early next year.

Reedy is making money on both the home sale and the management fee. He pays somewhere between $20,000 and $30,000 for the home, then hires contractors to put another $10,000 to $15,000 worth of work into it. Then he charges 8% of the monthly rent to manage the property, find tenants and deal with any additional repairs.

Before this year, he said most people looking to buy these homes were Americans, sometimes referred to as vulture investors.

But now, about 30% of his clients are from overseas -- many from Australia, New Zealand and Singapore, and also some wealthy Europeans.

Nationwide phenomenon. This is happening in other parts of the country as well.

In Phoenix, where real estate prices are off 50% from their peak in 2002, broker and property manager Tanya Marchiol said she has helped Australians buy 16 properties in the last six weeks.

"It's crazy," she said. "They're scooping up tons of stuff."

She also says she seen lots of interest from people in Canada, another place where the economy is heavily pegged to commodities.

Sometimes the process involves evicting the occupants of the foreclosed homes. Some criticize this harsh reality as taking advantage of other people's misfortune. They argue it opens the market for foreclosed properties, giving banks an incentive to foreclose and not work with the homeowner.

But Allen and others in the business say it's simply the free market at work. In many cases, they say the people being foreclosed on never should have bought the place to begin with. The investors are keeping the home from falling into disrepair, and are helping put a floor under housing prices.

Not for the timid. Despite the rosy scenarios, the investments themselves are risky propositions. One financial planner strongly advised against it, unless it's just a small part of a portfolio or one can afford to buy dozens of homes.

"Otherwise, it's a ####### shoot," said Jon Duncan of Seneschal Advisors. "I wouldn't touch it with a ten-foot pole."

But then again, the Aussies aren't exactly noted for being meek.

"Fortune favors the brave," said Max Billi, an Australian mortgage broker who just bought an Orlando condo, his first in the United States. "But I'm comfortable it's a safe bet."

[Gary and Alla 3,694]

Use Aussie $$$ to boost our home prices. Good idea. The best thing a country can hope for is for foreigners to come, spend money, and leave. Thanks. Bring more.

[Heracles 417]

Use Aussie $$$ to boost our home prices. Good idea. The best thing a country can hope for is for foreigners to come, spend money, and leave. Thanks. Bring more.

You missed the point, these big-government types are buying your ####. I have not even finished building a town house in AUS and the price has increased by $80K on each - building two. $80K could buy a house here, yet is barely a deposit over there.

Liberteapartians = Fail

Big-government = 1

Edited November 2, 2010 by Heracles

[웃 910]

If I had $100,000 to spare I could easily get 4 houses all completely renovated (new paint, doors, light switches, fixtures, carpet) and rent them out between $750 and $1100 with taxes being around $2,000/year on each.

Invest $100,000

Collect 4 X $1,000 per month = $4,000 / month = $48,000 / year (minus $8,000 in taxes per year) = $40,000 cash in hand per year on $100,000 investment.

Of course you do have the occasional repairs (leaking roof, plumbing, etc.) and the possibility of finding a bad tenant but even so, there is no better investment then buying a house for <$25,000 and renting it out for $1,000 per month.....And these houses are not in the ghetto, they are in the suburbs (a 10 minute drive and you'll be in the ghetto but a 10 minute drive will also take you to multi-million dollar homes)....Most of these foreclosure properties sold for more than $100,000 about 5 years ago...

[mawilson 2,133]

I have not even finished building a town house in AUS and the price has increased by $80K on each - building two.

You know it's a bubble, right?

[Heracles 417]

If I had $100,000 to spare I could easily get 4 houses all completely renovated (new paint, doors, light switches, fixtures, carpet) and rent them out between $750 and $1100 with taxes being around $2,000/year on each.

Invest $100,000

Collect 4 X $1,000 per month = $4,000 / month = $48,000 / year (minus $8,000 in taxes per year) = $40,000 cash in hand per year on $100,000 investment.

Of course you do have the occasional repairs (leaking roof, plumbing, etc.) and the possibility of finding a bad tenant but even so, there is no better investment then buying a house for <$25,000 and renting it out for $1,000 per month.....And these houses are not in the ghetto, they are in the suburbs (a 10 minute drive and you'll be in the ghetto but a 10 minute drive will also take you to multi-million dollar homes)....Most of these foreclosure properties sold for more than $100,000 about 5 years ago...

I'm actually thinking of investing into the US market myself. I think now is the right time to make some real cash in the future. I sure as heck cannot send my cash to AUS when I move, as the dollar has gone to the toilet.

You know it's a bubble, right?

The prices are not artificially inflated, they are driven by real demand.

Thousands of Brits alone are moving there every month and these people need homes to live in.

Australia actually still has a housing shortage.

[Obama 2012 1,714]

You missed the point, these big-government types are buying your ####. I have not even finished building a town house in AUS and the price has increased by $80K on each - building two. $80K could buy a house here, yet is barely a deposit over there.

Liberteapartians = Fail

Big-government = 1

your logic is fail.

While "asset" value is great for a homeowner, value is bad for the consumer.

You price ALOT of people out of the market if values go up.

Housing generally always appreciates in value, but it needs to be a steady thing over time.

[Gary and Alla 3,694]

Also interested in CANADA? The US economy WILL recover? what?

Did you forget to edit the post?

Say what you will. I live in a border area and when the Canadian $ is close to PAR with the US dollar it is a major BOON to our economy. They have ahuge 15% sales tax plus an imbedded VAT that drives up the price of everything, but if their $ is worth 20% less it isn;t worth it to come here. when the $ is PAR they save 20-25% purchasing nearly anything in the USA. many come just to fill their gas tanks at $2.82 er gallon vs. $4.40 per gallon in Canada. We LIKE the business. We LIKE our Canadian neighbors. It gives JOBS to Vermonters and is the reason our unemployment is half the national average. It also provides for a huge health care system to provide for Canadians that need health care. The health facilities here are built for the 2 million people that live within an hour and half drive, not for the 150,000 people that live on the Vermont side of the border. we have great health care facilities and good paying healthcare careers and have the Quebecois to thank for it. Thank you!

JayPeak, a local resort that is popular with Canadians (so much so it is rare to hear English spoken there) has gone from 35 employees just 8 years ago to 700 employees this year. The Canadians come, drop their $$$ and go home. They do not need schools, roads, parks, traffic lights. We put up some signs in French and some of us speak French, but most of them speak English well enough so there is really nothing WE need to do but rake in those good Canadian $$$ which almost all the local businesses gladly accept. It is not a bad thing and not an indication that anything is wrong with the USA.

[Gary and Alla 3,694]

You missed the point, these big-government types are buying your ####. I have not even finished building a town house in AUS and the price has increased by $80K on each - building two. $80K could buy a house here, yet is barely a deposit over there.

Liberteapartians = Fail

Big-government = 1

Ukraine has big government. I bought (paid in full!) a three bedroom flat in Donetsk for $4000. I pay less than $400 per YEAR in taxes and utilities. We keep it because I can't stay in a hotel for even a week for $400 and one or all of us stay in the flat at least 2 months per year. So this is a BAD thing? Right?

Why aren't you buying flats in Ukraine? They are even much cheaper than the US. maybe you could invest in Benin or Ivory Coast.

[Heracles 417]

Ukraine has big government. I bought (paid in full!) a three bedroom flat in Donetsk for $4000. I pay less than $400 per YEAR in taxes and utilities. We keep it because I can't stay in a hotel for even a week for $400 and one or all of us stay in the flat at least 2 months per year. So this is a BAD thing? Right?

Why aren't you buying flats in Ukraine? They are even much cheaper than the US. maybe you could invest in Benin or Ivory Coast.

Ukraine has a GDP per capita that is 18 times lower than Australia, 42 times lower the the socialist of socialist. In other words, a bad example on anything.

What fools like yourself fail to ever acknowledge is that the top 10 countries that offer the highest quality are all so-called socialist. Not one is a YeeHa [aimed at your roots] type of country - not one.

Edited November 2, 2010 by Heracles

[mawilson 2,133]

The prices are not artificially inflated, they are driven by real demand.

Define "artificially inflated". All bubbles are driven by demand.

[Heracles 417]

Define "artificially inflated". All bubbles are driven by demand.

The US property market was not driven by some big boom in anything; certainly not from the impoverished jumping the border to earn their $7 an hour. People were cooking the books, flipping houses like they were burgers, while others where approving loans that could clearly not be serviced. Whereas, less than 0.5% of Australian buyers are sub-prime.

Like I said earlier, if you have 1,000 middle-class and up Brits moving to AUS a week, they need homes. It's not just Brits anymore, my friend moved from Manhattan to Sydney and said he cannot believe the number of Europeans that are moving into there. Completely different kettle of fish migrant, compared to who moved and is till moving here. What does this affect? Supply and Demand. Australian cities are essentially one big Manhattan, explaining the property boom. Withing 5 miles of NYC, I could buy a house for well under $600K and a nice house. Yet the same distance in Melb or Sydney and you are looking at $1.3 million for the equivalent home.

[spookyturtle 9,465]

It's unbelievable that a man could disrespect his wife's home country so much and bash it every opportunity. Loser.

[Heracles 417]

It's unbelievable that a man could disrespect his wife's home country so much and bash it every opportunity. Loser.

It's your ilk that has ###### the country up.

[spookyturtle 9,465]

Ukraine has a GDP per capita that is 18 times lower than Australia, 42 times lower the the socialist of socialist. In other words, a bad example on anything.

What fools like yourself fail to ever acknowledge is that the top 10 countries that offer the highest quality are all so-called socialist. Not one is a YeeHa [aimed at your roots] type of country - not one.

Disrespecting another member's wife's home country just as you do your own wife's. You're a class act.

It's your ilk that has ###### the country up.

No, it's your ilk. Do you talk like this in front of your wife? Do you disrespect her to her face or just here? Low life.