We are joined once again by expert property investor and founder of Star Dynamic Property Investments, Lindsay Stewart. He has years of experience behind him when it comes to investing in the US real estate market and shares with us some of his tips and tricks when it comes to diving into that market.
Join us as we delve into another one of Stewart’s clients, his client this time is looking to fund their dream of living on the Gold Coast and is using the US market as a vehicle to make this dream a reality, we find out more about her situation and the timeframe she is looking to achieve her property portfolio end goal, her surprise once she started investing in the US, the risk factor that you may face, and much much more!
Once again we are learning more about the US property market and how to get into it with Lindsay Stewart and we find out about the client we will be discussing on this episode.
The diversity of the clientele and people that invest in the US is quite extreme, which is great. We've had all sorts of people from, we spoke previously about, you know, high level entrepreneurs wanting to invest money to diversify portfolios. But, you know, we also have single moms coming to us. So, you know, we had a lady come up to us just in the middle of last year and she sold a business here in Melbourne actually and moved up to the Gold Coast. A goal of hers was always to live on the Gold Coast. It really is sort of a dream of hers and she wanted to start a business up there. But in the year or two that she had been there, she was finding it very, very difficult to actually get the business off the ground.
So you know, after this period of time of actually not having any income coming in and trying to get a business going, she sort of was starting to panic and think how is she going to be able to develop an income? But that's when she reached out and said, look, is this something that could help? And I said to her, look, absolutely you can, as long as you understand in cases like this, using property investment as an income is great, but you have to understand, you've got to look at it more from a business standpoint. There's a period of time where you are investing money, investing time into this business before it's able to give you a return. But after a while, it does start to give you a return and that return will start to build.
And that's generally how properties work. So it's not like a job where you're going to, you know, invest 40 hours and then get a return for that. I look at property and I tell people to look at property more as a business and to be in the business of property investing and I think that's an important difference. And she understood that and said, yeah, but that she understands and she was able to go ahead. So we were able to get in and over the next sort of six months buy two properties for her. You know, again, we were able to buy one property and in a very solid area actually in Michigan. She bought it very cheap. She bought the property for, would you believe, $15,000 US dollars. Now the property needed a lot of work, both exterior and interior.
Getting the property for an amazing price like that, there must have been a lot of work that needed to be done on that property.
If I was to show you a picture of a house and it looked like a car had backed into the corner of the house and knocked all the bricks out. I guess what it would normally do is that sort of thing could scare a lot of people away. But she stuck with it. She bought the property. She spent nearly just a shade over $40,000 on renovations, including, you know, the brick work and tuck points, exterior fixing up a lot of the steps, interior just about a full, you know, brand new kitchens, two brand new bathrooms, four bedroom home, quite a sizable home. You're talking about 1500 square foot, which I think is something like I think that's about 150 square metres I think in Australia, something along those lines anyway, but you know, so it was quite a beautiful home.
She had spent probably about $65,000 US all up. But then was very pleased when we had a realtor come through and they had a valuer come in to value the property for her. And they valued the property at 115,000 to $125,000 US dollars, which absolutely floored her. And I must admit even I had no idea, I mean we sort of estimated to her that her sell price would be something around that 90,000-$95,0000. Which would have given her a 30% return on her investment, which is quite nice. But to come in at sort of 115,000-$125,000 was astounding and it goes to show. I do talk a lot about how the US is excellent for cash flow and not necessarily capital growth, but that doesn't mean that you don't get some growth in certain areas.
And I think really this area you know, in Michigan there's a brand new Fiat Chrysler plant being built which is, I think it's opening in October this year. You know about one and a half mile away from where this property is located and Fiat Chrysler at the moment are spending $1.9 million giving grants out to homeowners in this area to improve their properties. So people are going to want to be moving into these areas and I think you do start to see surges of property prices. And I think what happened here is when she was looking at buying the property, it probably was worth $95,000 but by the time she had bought it, renovated it and was looking to sell it, that's now worth the 115,000-$120,000. So that's a fantastic result for her.
She sold her business and then wanted to jump into the property market but we gain a better understanding of what was happening during that interval period for her.
I think she was lucky enough to be able to have some funding from the sale of the business. So she ran, not Airbnb, but she was sort of doing a similar process with units down here in Docklands. So what she would be doing would be managing the short term rentals of a bunch of units in a block in Docklands here in Melbourne. And this was sort of, she'd been doing it for about 20 years, you know, before Airbnb became a big thing. And I think, to be honest with you, it was probably Airbnb that really was the nail in the coffin for her business. You know, being a bit of a disruptor, it's sort of made it very difficult for her going forward because you know, anyone could buy a unit and then of course get a short term rental through the Airbnb sites and not have to go through, you know, using managers, property managers like she would be doing.
So I think that was really, she saw the writing on the wall and then was lucky enough to be able to sell the business before it sort of got to a point where there probably wasn't any value left. And she was able to get out. And again, I've mentioned, I think that one of, a sort of goal of hers on her backup list was to live on the Gold Coast. So she moved up there and she wanted to, one of the things that she's always wanted to do on the Gold Coast was to open a seafood restaurant. So that's what she was looking at doing. And actually she had some nice funds from the side of the business and the sale of a property down here in Melbourne. She bought the house, she had already previously, I should say, bought the house in the Gold Coast and was actually using Airbnb to rent that out while she was down here.
But then when she moved up there, she lived in that property. So she did have some funds behind her, but she was finding it extremely difficult to be able to get the business up and running and starting to eat into the funds that she had to a point where, you know, nearly 18 months later, I think she was starting to say that if she wasn't careful, she was literally going to run out of money. Now, and I'm not talking out of school here, but she, you know, had her 60th birthday down here. So, you know, that's very difficult for someone at her age to be able to go back to work. And there's not a lot open. So people as far as jobs and things, unfortunately as you get a little older, whether we like it or not, there seems to be a bit of a stigma against older people going into the workforce.
So, you know, she was focusing on this thinking that it was going to be very difficult for her. She had to get a job. So that's where I think the property investing sort of came to her and she thought maybe it was something she could do. She didn't have enough funds left to be able to purchase property and with no income it was going to be very hard for her to get a loan here in Australia to buy a property here. So that's when she heard about the US and I think she might've seen one of our ads. I'm not sure how she found us again, but when she heard about the US and she had enough funds to be able to invest, you didn't have to worry about getting loans for these properties. That's when she reached out. And started exploring that option.
Stewart explains how the process works and how long it takes before you are actually purchasing properties in the US.
In her case it was probably about six to eight weeks to get all of that done. I mean there's some setup that you need to do also in the US and here as far as structures and so on and so forth. We don't necessarily recommend anyone to invest in the US in their own name. There are some tax implications and some asset protection issues you'd want to be wary of. And always, certainly I would recommend having a chat to your accountant about that or financial planner and talk about how to structure this properly so that you don't sort of find yourself stuck with buying properties in your own name that you've got to sort of deal with. So there is all this process where she's talking to her accountant and getting all that set up and getting a company structure set up and also we're getting the strategy working for her and getting that organised, you know, so I think it would have been about nearly eight weeks before she was able to purchase the first property and then probably another six weeks or twelve weeks on before she purchased the second.
Now the first one was ready and on the market for her in about four months, what I call under the hammer. So it was quite a fairly large renovation. So it took her about four months, all up calendar months to have the property finished and on the market for sale.
So you aided her in that whole process and managed all that for her. Is that what you were doing or did she go over there and do any of that herself?
There's a couple of ways that we can help people. One is that we can support and assist and you have basically what we call, do it with you. Literally help you with the investing, help you find the properties, help you get the contract, help you get the renovations done, everything you needed. It's literally what I call a joint venture without having the money partner, you know, and that's the first thing. Now we do have other people who are not interested in learning or doing it themselves at all. And in that particular case, you know, we can look at doing it for them and where we literally just get in and do it for them. And that's generally people who don't have a lot of time.
You know, they can't put aside any time or anything like that or have absolutely no interest. I just want to be able to invest some money. But generally a lot of people are quite interested in the idea. They love the idea. I mean, you know, at the moment there's a lot of fix and flip shows that you see on television and things like that. And people find that very fascinating and love to be able to learn how to get into the market and learn how to buy the properties. And that's where I think we come in and can help people, you know, doing all that. But you're not on your own. It would be very difficult to do it without any sort of support or backing or not having had any experience in what you're doing.
We find out about what the goal was in terms of how many properties she wanted to have in her portfolio.
At this stage these two were on her main strategy. I mean at the end of the day, she still would love to get back to doing her restaurant. That's what her real end goal is here. So what we'll look at doing for her is probably purchasing one to two more properties in the next 12 months. Getting them renovated and what we're looking at doing now, first and foremost for her, it's more important to build back up her capital so that she's got that money to be able to invest in her business. And then what she'll do, she'll start looking at buying a couple of properties to hold onto them as rentals. So then she can start developing a passive income and she'll probably stop the flipping altogether. The flipping is not something she necessarily has a passion for. She just sees it as an avenue to be able to generate the wealth or the capital she needs to invest back in her business, which is her passion. So, you know, once again, I think we've spoken before about the strategy and how critical it is to be able to first of all decide exactly what it is that you want from your property investing. And it may even be like in her case, the actual property investing itself is, and what she's after, she's looking at that. The restaurant is her passion and that's what she loves. But the vehicle of property investing will be able to get her that restaurant and that's what she's looking at.
What kind of timeframe are we looking at to help her achieve that?
I think she's probably looking at another 12 months. So she's been working on this now for six months. I think another 12 months. By the end of this year, she should be in a position after having done probably two more deals. So that'll be four deals all up for her. She's already got two, I think two more in the next 12 months would be enough for her to get started and make sure she can jump into the restaurant. And then after that we can start developing a little bit of passive income for her from some rental properties, just to give her that safety so that she knows as she's getting the restaurant set up and you know, as we know with all restaurants, all businesses, it can take some time to be able to generate a return. She'll have that passive income behind her to give her a bit of support so she can still live and so on and so forth while the business is sort of in its groundwork phase.
One of the great advantages of having a great team around you and working with people that you trust is that you won’t even need to set foot in the US to invest in property.
That's actually not a requirement. She has not set foot in the States and actually has no intention of ever doing so. She actually doesn't need to. You don't actually have to do that. And now I know we've had previous clients who certainly have done so and particularly if they've got a real passion for what they're doing and they really love investing and flipping in the US. I certainly do recommend that you get over there and, you know, step foot in your market and walk the streets and see the properties and talk to the people and build relationships by all means. But that is certainly not a requirement. You can certainly do that from your living room here without actually ever stepping foot over there.
You don't have to have bank accounts set up in the US you can do it through trust accounts and escrow accounts and so on and so forth with foreign exchange providers and title companies and property attorneys, etc. You can set up LLC companies and that sort of thing from here. There's people here in Australia that can do that for you, or there are people in the US that you can contact, they will do it for you. It's just a matter of sending documents backwards and forwards. So in actual fact, there's no real need. Now, in her case, she was lucky enough to sort of piggyback off our team on the ground over there. Time was of the essence for her. She would love to have done it in 12 months, but she had to understand that certain things take time.
And while property is certainly a viable vehicle, it's no magic bullet and it takes time to be able to set up a decent portfolio. And she understood that. She also didn't want to waste any time. So she piggybacked off of our strategy. She was working in Michigan where I work. We used contractors that I use, we used wholesalers that I used to be able to get the deal for her. So rather than try and have her set herself up in an area and have that take, you know, I guess what you were thinking there is if you were to set yourself up in your own area, I'd allow sort of 60 to 90 days to do that. You know, to really have that team on the ground ready to go so you could actually buy your first home.
I think that's a sort of a 60 to 90 day journey and I think you want to be careful and you want to make sure you do it properly and I wouldn't rush that. And then once you set up that team, you can start buying properties as quickly as you finances allow. But I think that's something I wouldn't rush now on her in her case because she sort of came on board with us. She's able to piggyback off the fact that we've already got a team on the ground and we've been using them for years. And so that saved her that time. And so what I like to say is we're not doing, or we're not showing you anything that you can't do yourself, but what we are doing is help people save time and get into it a lot quicker, a lot faster, and to start seeing those returns a lot quicker than maybe if they were doing it themselves.
It is about overcoming that fear and once you do that you could end up like his client and build a successful property portfolio in the US.
I was wrapped for her with her result. I've got to say these sorts of results are not necessarily common to have such a great uplift there. And she's going to be getting 45% plus return on this property and that is an amazing outcome for her. And that's fantastic, you know, but generally 20 to 25% is what we sort of aim for. And that's what I tell a lot of people, you'd be looking at that, but it does show that, you know, sometimes all you've got to do is take that step and get started and you can be surprised. You really can surprise yourself at what the outcomes can be. And the fear of starting is what holds a lot of people back from actually achieving. But once they get into it and she actually spoke to me only a couple of months ago and she was saying she'd never realised how easy it would be. She just thought it would be really difficult and she realises now that it's actually not that hard. It's actually she's bought property here in Australia before so she sort of knew a little bit about how that works and so once she gets started that fee can melt away and it's not as bad as it might seem up front.
We now turn to Stewart himself and delve into his journey at the moment and what his current property situation is.
We talk a lot about strategy and my particular strategy, I love flipping homes. I really do. Now having said that, I'm certainly not an interior designer or a decorator. So you know, my strategy, I purchase distressed homes. I do them up and I tenant them and then we sell them as tenanted investment properties and we sell them to investors who are looking for sort of high cash flow properties. So that's my strategy. And I look at generally single family homes. I look into the multifamily area. I'd be looking particularly at the duplexes or triplexes that we were speaking about earlier. They're the sort of properties that I look for. I look around about that. I'm looking for a property that I can sell for around or just under that $100,000 mark at the end when I'm finished. That's a pretty good number. And I'm looking for properties that can be returning at least 10-12% return after costs if possible.
How did you come up with that, with that particular number? 100,000? Why that number?
If I say to you, we've got a property here that's $92,000 you're thinking, wow, that's really, really cheap. If I say to you, we've got a property that's $102,000, it just makes it sound so much more expensive, right? Because now you've got a one in front of it, there's six digits instead of five and so on and so forth. So you know, in a lot of cases it's so much easier to sell a property to someone at that 80,000-$90,000 mark than it is to sell a property that's worth 105,000-$110,000. There seems to be this mindset where there's this extra digit, the extra zero on the end just makes a difference. And so you know that's really all it is that I found.
And the other thing is you want to make sure that the property has got to be giving a good return for the investor who's buying it. So, you know, the most important thing here would be that the property is returning at least a 10% return after costs. And if you're going to be paying $200,000 for the property. Then the rental amount per month that the tenant is going to have to pay is going to have to start being pretty high to give you a 10% return on that money particularly after all costs. So that's where it gets a little more difficult. So we find this sweet spot is somewhere around about the 60,000-$90,000 USD. That's a real sort of sweet spot in there. And we can easily get 10, 12, 14% return.
You know, the properties have got to be tenanted. You know, you can't be selling vacant properties if you're talking about selling a cash flow, because you could be a month without getting a tenant and then you just wasted a month of your income for the year. So you've got to have a property that's tenanted. You've got to have a property that's had a renovation done recently. You don't want to be stuck with any large repair bills because again, that could easily eat away any of your profit for the year. If you've got to spend $8,000 to replace a roof, that's a huge chunk of your rental payments for the year. You're not talking about, you know, hundreds of thousands of dollars in rent. You are literally talking about someone who's paying you 12,000, 13,000, $14,000 a year in rent, which can be giving you a 12 or 13% return on your investment, which is fantastic. But if you have to spend $10,000 on doing that property up or getting it into a condition where it's livable, getting your rental permit, then you've just eaten up your whole year's rent. So you’ve got to be very careful on that.
Many people might think that it is too dangerous or too risky to invest in the US but Stewart explains why that is not actually the case.
A lot of people don't realise it at all. They look at me strangely when I say that. You know, people ask me, isn't the US risky? In actual fact, there's probably less risk involved in purchasing a US property than there is in buying a unit in Sydney because you're nowhere near so heavily leveraged into the property. You don't have so much capital and equity invested in that deal that, you know, something goes wrong, you can generally get out of it for the price you paid for it and get your money back. That's a learning lesson rather than if you really do something wrong in our market here, you could actually find yourself facing bankruptcy. So it can be very dangerous if you've got a $600,000 mortgage on a property and you lose your job, that can be a real strain on how to get on, how to move forward.
Volume is correct. You know what I like to try and do sort of three to four days a month. You know, I know we're lucky enough now to be able to have developed through a lot of our marketing, we have a lot of people come to us who are looking to buy high cash flow properties, not necessarily interested in learning how to flip them. I just want to buy property to add to a portfolio that can generate them some really good cash. So we’re then able to, of course, you know, link them up with the properties that we renovate so they can get some really good high cash flow properties, recently renovated, all tenanted, giving them at least that 10 to 12 to 15% return on their money.
He shares with us some of the other projects that he has been working on whilst still helping his clients.
So that’s basically what my strategy is now, you know, apart from, of course helping a lot of our people and we've just launched before Christmas our investors in a circle which is essentially an online networking portal where people can get together and do support work. And we have some workshops and I run some online coaching calls for people who are interested in US property. You know, so between that and our own investments and then helping our clients like Wanda before, get her properties going and get them returns. Don't have a lot of time for too much at the moment.
Because we've been in the market so long, we have a lot of wholesalers who send a lot of deals to me. I don't actually buy retail properties anymore. We're now able to buy a lot of wholesale properties. So we do a lot of feasibility on a lot of properties and I don't necessarily have the capacity to be able to purchase all of them. So that's where we get a lot of deals. Off market deals come through that we pass through to our inner circle members and they can pick those deals up themselves and start running with them. And then they of course have our support behind them if they, you know, hit a snag or need anything, any advice or anything as well. So that once again, it's sort of what we try to do is help people collapse time and get into the markets faster and get the properties renovated faster or tenanted faster. So if they can get their returns or their profits.
If you want to keep in contact with Stewart or have any questions for him, he provides the details on how you can contact him.
I think best might be if they wanted to jump on our website, a lot of our information and we've got some case studies and we've got some training pieces and all that sort of stuff is all on the website there. They can have a look at that and get a bit of an idea. There's even a guide they can download on the website, which will give them a really good idea in how the US market works, what sort of properties you can look at, what sort of returns you can expect and how to go about doing it. So that's probably the best one. Our website is www.stardynamic.com.au. I think that's probably the first place they can call. We have a Facebook page as well. They can jump on, you can search for, Star Dynamic Property Investments on Facebook. We'd come up but I think the website would be great with some really good information on there for them.