The property market is extremely bad, but fortunes are made by shrewd investors in tough markets. Forced sellers sell properties at prices fundamentally undervalued in order to stave off banks, pay bills and to reduce debts. But if you are a cashed up investor who has managed your money more prudently, this creates an opportunity for you to buy distressed assets at cents in the dollar and earn a very handsome cash return each year while waiting for values to improve.
That is the opportunity being created in the US property market right now for Australian investors.
By now you have probably heard a lot of doom and gloom being reported about the US property market.
Well consider this:
- The US has experienced its biggest decline in housing prices in over 100 years and quite possibly ever. Consider that same 100 year period includes a great depression, 2 world wars, the Asian financial crisis, the fall of the Soviet Union and other rolling crises during that period of time. Since 2006, values have fallen in some cases by as much as 75%+, while the average decline is around 35% from the highs 6 years ago.
- Rental returns are soaring. It is not uncommon to generate gross rental returns well into the double digits and after accounting for running expenses it is still possible to own a property that pays you a double digit rental return.
- Savers in the US are getting close to no return for their cash in the bank and have been starved of yield for years.
- And US house prices have now risen for 5 straight months. While still early days, evidence is starting to mount that US property prices may have found a sustainable bottom. Just checkout these recent announcements from the National Association of Home Builds and this report from CNNMoney.
- Mortgage rates in the US for US citizens are also at record lows near 3.5% to 4%, helping to make housing more affordable than most could ever have imagined 6 years ago.
- All of these factors, combined with the current high Australian dollar means that Australian investors can benefit from a rare opportunity to buy property for investment and diversify their asset base into an offshore market.
But that’s not all. It seems increasingly unlikely that the US Federal Reserve Chairman Ben Bernanke will be looking to raise rates in the near future, instead just last week he announced a new round of money printing to ensure interest rates stay artificially low until at least 2015. CLICK HERE TO GET THE WORDS STRAIGHT FROM THE FED PRESIDENTS OWN MOUNTH.
The Chairman has made it clear that he will not raise rates until either the unemployment rate falls considerably or inflation picks up. Neither of these factors appear to be just around the corner at the moment. But even so, because of the US federal government’s high level of debt, any rate rise would likely be minimal.
And as if low prices and low interest rates were not enough of an incentive for home ownership, there are significant tax advantages for US residents to invest in their own home. Mortgage payments and other expenses can be offset against taxes and up to $500,000 in capital gains can be kept without any liability for capital gains tax. The US government is so keen for people to own homes that they even have government sponsored loan entities in place to ease the process along.
For many people a home is an investment that makes more sense than shares. A home is a tangible asset that provides not only the potential for great returns, but a level of security and reassurance that investing in a business cannot provide.
The world is become a smaller place and the importance of building a diversified portfolio of positive cash flow generating assets which has the ability to increase your cash returns and capital base into the future cannot be underestimated.
But probably the best thing in all of this is that this trend has only just started!
Don’t waste any longer thinking about how things used to be. What worked over the past 40 years is unlikely to be as successful over the next 10 years.
Contact one of our advisors today for a no cost, no obligation discussion about your financial strategy and learn how you can build wealth and prosper in the new normal by taking advantage of this rare opportunity.