The Covid-19 in US has not subsided. Why are so many people still buying a house in US? In this article, we would like to share with you three "money logic" in buying a house in US.
Lack of "cash flow" concept
The real estate market in the United States over the past few decades has been characterized by strong appreciation but extremely poor cash flow. How bad can the cash flow of rental housing in American first-tier cities be? To put it in an exaggeration, some financially ample and troublesome homeowners are willing to leave their houses vacant, and are not willing to rent them out. This big environment also makes everyone not particularly interested in the investment direction that real estate can generate "cash flow". New immigrants who have just left the country and come to the United States are not particularly sensitive in terms of "cash flow". Many people initially set the goal of buying a house in the United States. The thinking used still stays at the limitation of "how much the house can increase in a few years".
In American real estate investment, there is a "1% rule" in the rental return of rental housing.
When many friends who come into contact with real estate in the United States first hear about it, they are usually a little overwhelmed. Many people will add: Do you mean 1% when you mean that the annual rental return of the house is 1% of the house price? When they learned that 1% is "the ratio of monthly rent to house price", they were very surprised. This explains from one aspect the practical differences in the return of real estate "cash flow" at home and abroad. Of course, it is not any region or time node in the United States. It is easy to find a house purchase opportunity that meets the "1%" rent rule. This is related to investment strategy, region selection, housing channels, house purchase timing and house finding skills. . In reality, even if buyers cannot find housing that meets the "1% monthly rent" rule, the annual cash flow generated by even the 5% annual return on capital is much stronger than the domestic first-tier market.
In addition, the concept of "positive cash flow" is the core underlying logic that guides US real estate investment. "Cash flow" is a continuously dynamic concept, as the famous financial business book "Poor Dad Rich Dad" advocates: it is assets that can generate "positive cash flow", otherwise it is liabilities.
In short, if you have just set foot in the United States to buy an investment house, you must pay attention to and understand the concept of "cash flow" and the measurement in practice, otherwise, it is easy to fall into the pit and buy the wrong deal or be fooled by an unscrupulous intermediary.
Underestimate costs
If there are "slots" in real estate in the United States, then I am afraid that the most severe complaints are the various costs of real estate in the United States. Compared with the United States, some friends who buy domestic houses early in China do not need to pay real estate tax. When renting a house, most of the maintenance costs can also be borne by the tenants. Domestic landlords also tend to occupy a strong position, and the economic losses from bad tenants are relatively limited. However, for newcomers who are new to the United States, they must fully understand the costs and principles of the costs incurred during the holding and leasing phases of real estate in the United States before the actual operation, so as to correctly treat the "surprising costs" after buying a house in the future, such as Say: U.S. real estate tax: If you buy a house and your last family has held the real estate for decades, then before the seller sells the house to you, the estimated tax base of the real estate tax he pays every year is lower than the market. The price is a lot, which allows him to pay very little real estate tax every year. However, once you accept the market price, the real estate tax base of the house will be assessed to be close to the market price due to this transaction, so that the real estate tax that you bear after buying the house is much higher than that of your previous home. Therefore, when buying a house, when looking at the real estate tax issue, don't be confused by the seller's existing land tax amount. You need to calculate it roughly.
New immigrants to the United States for the first time are fascinated by the lavish and beautiful front and rear courtyards of the American mansion, but you need to be clearly aware that all the good things in front of you are piled up by money and need to be sustained by continuous spending. Especially when you are buying a luxury property, you need to pay more attention to this point, such as:
* Because of the large area of the house yard (some large houses can occupy an area of one acre or more), the monthly maintenance, watering, deworming, and swimming pool cleaning and equipment maintenance of the garden green plants are like "blunt knives" "Cutting meat", an average of a few hundred dollars to nearly a thousand dollars is a must. If you encounter a burst of water pipe or a crack in the swimming pool, you may lose more than 1,000 RMB in extra water bills this month.
* The large living area inside has led to an increase in water, electricity, and coal costs. There are too many rooms. If you are not able to do it yourself, you need to ask someone to do regular cleaning. You can’t get away with a few hundred dollars each time. Some communities will also have HOA property fees.
In short, the more expensive the house you buy, the higher the above-mentioned internal and external maintenance costs will be. Many of the above costs are related to manual services. The high manual services in the United States, you know.
In addition, many Democratic-led states in the United States (known as "blue states") tend to protect the interests of tenants. This means that if you unfortunately encounter the "rental tyrant" or the current problem of "cannot evict tenants due to the epidemic", the landlord will be time-consuming and laborious in the process of processing, and the money will not be made, and the landlord will still lose money. Of course, the original intention of citing all the above is not to make newcomers to the United States feel that American real estate is troublesome, but to tell everyone frankly: If you want to enjoy the benefits that American real estate brings to you, you must first fully understand the background. The financial details of the operation are structured so that you can “start with the end and put the target in place” during the actual operation. Instead of thinking that your American house is "affordable, but you can't live in it".
Tossing back and forth, buying and selling are too frequent
This pit is actually a chain reaction after the above "buying the wrong house".
Examples previously observed:
In a certain city I am concerned about, some of the most expensive “luxury houses” were bought by some friends. The reason was that the price premium was unreasonable, and it would be very difficult to sell again in the short term. This erroneous buying action directly led to the next problem that the buyers who entered the pit found out that something was wrong after living in the pit for a few months, so these luxury homes were re-listed for sale in less than a year. First of all, such frequent back-and-forth buying and selling must reveal that the buyer has not done his homework before buying. It is very likely that he has not even thought about the purpose of buying a house, living and use planning, financial calculation and exit strategy. Secondly, if it goes public again in a short period of time, there is a high probability that it will lose money.
In the US housing market, there is basically no short-term surge like that in China's first-tier cities. Therefore, the price you can sell in a short period of time, after deducting the property tax, maintenance fee, loan cost and intermediary fee during the year, is basically Losing money.
In this process of repeated tossing, it is basically the process of "working" with your own money for the real estate agent in the United States. You bought and sold 2 transactions within a year, creating 2 times for the relevant brokers. The opportunity for a quick commission is left to myself.
3 useful practical logic
In the United States, it usually takes up to 5-7 years to hold real estate before selling it. Basically, you can make your own profit after deducting various costs from the selling price.
A real good player follows a concept that is not as simple as buying and holding for a certain period of time and then simply selling and exiting the market. Instead, the snowball expansion principle of "buy only without cash" is used to use the time track to accumulate huge wealth. For example: after a certain period of time after the property is purchased, the cash can be loaned out and reinvested through mortgage refinancing, or after the first property is sold at a high price, the benefit of "delayed value added tax" exchanged in 1031 can be used to buy the next one. Real estate with bigger returns.
You really need a good real estate agent to assist you in making the right investment strategy and through a solid analysis to find a good deal worth having. Rather than those desperate for quick success and quick gains in pursuit of commissions and let you buy at the top price of the mountain.
