U.S Investment Analysis – My Foray into the American Market

About four years ago we stumbled into U.S. home ownership. How we came about it is a long-winded story that I won’t bore you with. 

Florida ApartmentOwning property in the U.S. wasn’t something that initially interested me. It deviated from my strategy of owning property that was easy to manage. The prospect of calls from tenants late at night in a city that was 2000+ kilometres away wasn’t particularly appealing. I didn’t have a network of people to rely on and it just seemed overwhelming to put together this team given my workload in Toronto. Additionally, things were going well with our portfolio here so the thought of diversifying didn’t make sense. 

Now that all that has been explained, I’ll describe why we ended up buying the first property. My partner (wife) worked in the US and was paid in US funds. We had been accumulating the money in a US bank account and the dollar was at ‘par’ with the Canadian dollar. We had family in Florida and the city we stumbled into (Fort Myers) wasn’t far away. We thought we could always shoot down to Miami/Fort Lauderdale if needed and rent a car and drive across to Fort Myers for any major issues. 

We were referred to a Realtor in the area and found a property of interest. Because there was competing inventory and the market wasn’t nearly as heated as Toronto’s, we offered under the asking price. To put things into context, we ended up buying the property for 1/3 of what the previous Buyer had paid at the peak of the Florida real estate market a few years earlier. 

After we secured the property, we discussed financing options. Financing US investment property has become increasingly challenging and it wasn’t much different when we bought this first property. We decided to take a secured line of credit against our home in Toronto (a small Line of Credit) and financed the bulk of the purchase in cash. We understood that the largest benefit of buying property is the ability to leverage the purchase and use the ‘Bank’s money’ rather than our own. Because of the additional challenges, we figured that borrowing against our Canadian real estate was easiest given the quick closing.

Our first Tenant in the US was fantastic. He was a graduate student at Florida Gulf Coast University and remained in our condo for approximately 18 months. Our initial vacancy period before he occupied the unit was only 1 month and we had accounted for a two month vacancy when we purchased the unit. Overall, things went very smoothly. After the first year of his tenancy, we chose not to increase the rent in return for how outstanding he was as a tenant and how well he maintained the unit. We had a hiccup or two with air conditioning and given how hot it gets in Florida in the Summer, we were appreciative of how understanding he was in allowing us a few days to get things repaired when needed. When he gave us his notice to leave the unit, he even referred a friend to lease the unit and we have been happy with this new tenant for the past year and a half.

The financial details on this purchase are as follows;

  1. Initial purchase price – $62,500 (USD)
  2. Current Market Value – Approximately $135,000 (USD)
  3. Current Rent – $1000/mth
  4. Monthly maintenance fees – $400
  5. Monthly property tax – $90
  6. Monthly insurance – $35

Total operating expenses per month = $525

Mortgage – small mortgage was paid off after 2 years

Monthly cash flow = $475

Annual Cash flow = $5700 USD (approximately $7200/year)

Let me be clear that owning property in the US isn’t any sexier than owning property in Canada. I’m very pleased with the appreciation and the tenants we’ve been lucky enough to have had to date. Next month, I’ll get into detail on another US property we currently own that has been ‘subject’ to a flood, numerous repairs and other miscellaneous issues.

Brandon.

Photo courtesy of: http://www.meretdemeures.com/en/detail/sea-view-apartment-for-sale-in-miami-beach-miami-dade-florida-usa/14067/
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