Rod´s USA Diary June 2011

I've just returned from two weeks travelling in the USA, meeting our existing partners and exploring new cities. If you are interested in investing in the States, you may find my insights gained on this trip helpful.

My trip included visits to Orlando, Atlanta, Detroit and Memphis - three current locations where Axis already offers property and one potential new city in Atlanta.

General Background

Since 2008 new housing development across the USA has virtually stopped, with a few local exceptions. That means for three years nothing of note has been added to the housing stock.

This is important because the USA, just like the UK, needs new housing stock for three reasons:

Growing population
Replacement of property past its useful life
Migration of the population to certain locations

Of course there are regional and local variations which are an important part of the analysis, but the underlying fundamental is that the USA is increasingly short of housing stock and this can only mean an increase in demand and price rises ahead.

What is holding back the demand for the purchase of housing stock? Answer - the mortgage famine. This has resulted in a recycling of housing through the foreclosure process, from being owner occupied to rental property owned by investors.

In fact it is this shortage of mortgages, resulting in the inability of most people to purchase, which has resulted in such a fantastic opportunity for investors. Investors enjoy the double benefit of property prices through the floor, combined with significant and increasing rental demand.

You can easily see why many renters will want to purchase again. Here's an example:

You purchase a property at $50,000, which was priced at $200,000 at the top of the market. The tenant pays $900 a month, which is typical in a number of locations. Now let’s say you sell the property for $100,000. Your buyer pays you a $20,000 deposit and takes a mortgage for $80,000 (capital and repayment). Their mortgage repayments would still only be around $400 a month – less than half of the rental amount.

What is certain is this - the moment that mortgage availability becomes easier, there will be a massive jump in demand from renters with good jobs wanting to buy for themselves. The feedback from professionals I met across the USA was unanimous - a doubling of prices within a few short years is eminently possible.

Orlando, Florida

I was in Orlando to look deeper at our new single family homes (SFHs) strategy. This is the first place we offer bank lending and our clients, subject to qualification, can obtain up to 70% finance on multiple properties. There are two restrictions: firstly the loan has to be a minimum of $100,000 and secondly the property has to be in certain approved locations.

The bank makes these stipulations because it is taking a very low risk view of the market and is clearly confident that buying SFHs in approved locations is a great investment for the future.

Our preferred location is 'Medical City', located some 15 minutes south of Orlando International Airport. This is a new area zoned for medical facilities and already the largest Veterans Hospital in the USA has been built there, along with a Children’s Hospital and a major medical research centre.

Within 24 months there will be 10,000 new and mostly well-paid jobs in Medical City, with a requirement for approx 5,000 homes within 30 minutes’ drive. Currently, there are around 1,000 homes available - and no more being built at this time! Looking beyond 2 years, Medical City is expected to produce 40,000 jobs within the next 15 years and it will become the pre-eminent location for medicine in the whole of the USA.

If you are looking for sound fundamentals, secure investment and quality homes at bargain prices, then the SFHs strategy is for you. Remember, your investment in a $160,000 property is just $48,000, which gives you excellent leverage and, in our view, the potential of 300% returns in around 3-5 years.

Ready to invest in Florida? Peruse our currently available Florida properties straight away.

Atlanta, Georgia

Axis has not yet offered property in Atlanta, but we are going to now. The first units will be available in the next few weeks and we are currently preparing an Atlanta Investment Guide. In advance of launch, I am going to share the highlights with you here.

Since the 1980s, Atlanta has been on a massive growth spurt, with its population jumping from 1 million back then, to approximately 6 million today. In fact, from 2000 to 2008, Atlanta was the fastest growing city in North America!

There are many reasons for this:

Income 13% above national average.
Living costs below national average.
Great climate - as warm as possible whilst still retaining four seasons.
Great location - perfect as a 'hub' for the USA and therefore now home to many corporate headquarters including Coca Cola, UPS, Delta, The Home Depot and more.
Extensive 'middle class' population, which has made Atlanta a very relaxed place to be.
Major centre for the arts, sports and entertainment.
Very suburban city with many almost rural locations within the city limits.
Within 10 minutes of downtown it feels like you are in the country, with secluded communities hidden amongst the trees.

The growth of Atlanta has been assisted by the fact it has no natural boundaries (such as rivers, mountains, etc).

From a personal perspective, I felt very chilled and relaxed the moment that I arrived in Atlanta. In fact, as a city to live in, I would rank it no 1 of all the cities I've visited so far.

The Atlanta investment opportunity

As Atlanta has been growing so fast, the local builders were producing larger numbers of new homes. Many of them got caught with the housing crash and had unsold, new-build stock. In some cases the stock was not even completely finished internally.

Our partners are buying this 'new' stock - mostly built in 2007 and 2008 but never occupied. They finish it where necessary - including kitchens, bathrooms, decor, light fittings and flooring; and then make the property available for you to purchase.

Investors can purchase new homes, either single family or townhouses, at a price typically between $50,000 and $70,000 for a 1,500 sq ft property. To give this some context, for a builder to buy land, provide infrastructure, then build the same property will cost around $110 per square foot - $170,000 for a similar property.

The short-term return for an investor will be between an 11% and a 14% net rental yield. This is on a brand new property with minimal maintenance and high rental demand, coupled with the prospect of strong capital growth within a 3-5 year period. A doubling of price is a real possibility.

Detroit, Michigan

This was my second visit to Detroit in a matter of months. I went to meet our new partners. We are always on the lookout for the very best deals for our clients and our new partners offer four incredibly important benefits:

Better, larger, more imposing properties for the same price.
All refurbishment work completed prior to purchase.
Every property tenanted before purchase.
An ability to get premium rents because of our partners’ excellent reputation, increasing net yields.

This combination of benefits increases the potential returns, reduces risk and provides greater net income than we could offer before. We have regained our market- leading position for investors in Detroit! We can now offer net rental yields in the range of 14% - 19% pa.

Turning to the city itself, there is a palpable air of confidence about the future and a sense that recovery is moving faster than previously anticipated. I was told a story about the past from a long-term Detroit resident and this helped me to understand what is possible in the future.

Back in 1984 the City was in dire trouble. Property was selling at around $20,000 to $30,000. Unemployment was high and race riots common. A new mayor and a new approach made major changes. By 1992 property was selling at $120,000 to $130,000 and the city was in great shape.

Detroit has not only suffered from the property crash and problems in the car industry, but until recently had a city administration that was generally considered to be corrupt.

Now everything has changed and Detroit has:

A new mayor who is dedicated to the city.
A strong recovery in the car industry already underway.
Massive government investment.
Inward investment encouraged by the city administration.

We see Detroit heading for a return to growth that echoes what happened in 1984! Make sure you are on board for the ride.

Ready to invest in Detroit? Peruse our currently available Detroit properties straight away.

Memphis, Tennessee

I was back in Memphis specifically to review our bulk portfolio strategy and ensure that we have sufficient capacity to meet demand. In just eight weeks this strategy has proven the most popular amongst our investors - even taking into account the entry level cost of c. $120,000 (which buys you four single family homes!).

Here’s a quick reminder of what this strategy offers:

Two years of income with an optional guarantee at 20% pa
An anticipated 100% profit after 24 months
Four exit strategies
Single family homes from $25,000 to $29,000 – fully-refurbished!
Portfolios between 4 - 10 units

I have been trying hard to replicate this strategy in other US locations and have failed. Our partners in other cities are simply gobsmacked at the deal on offer here, and can't come close to matching it.

Some of you may think: “It’s too good to be true!” I understand that sentiment. However, here are some facts that may help. Four of our clients have already been to visit Memphis, of which three have gone ahead and invested. The fourth is waiting for a remortgage to go through before investing.

We also have clients who have already purchased a bulk portfolio without visiting. We have acquired all the properties on their behalf and they are so pleased with the strategy they have now instructed us on a second portfolio!

Our 'secret weapon' in Memphis is a partner with superb long-term connections with the local banks. We get first-pick options on foreclosure properties at prices which enable us to refurbish and offer them to you from just $25,000. This is exceptional when you consider that even ‘normal wholesale' prices are in the region of $50,000 to $60,000 per property!

The great benefit of the Memphis portfolio is that no increase in price is needed to realise 100% profit. You are buying so far below even the current wholesale price, that the exit strategies make perfect sense.

The biggest challenge with our bulk portfolio strategy is that every property requires renovation and there is a physical limit on the monthly capacity to do that. We are currently taking bookings for bulk portfolio eight weeks ahead!

Therefore, if the returns from the bulk portfolio sound good to you, it's in your interest to act quickly.

Ready to invest in Memphis? Peruse our currently available Memphis properties straight away.

Summary

The USA is on sale right now! Our carefully-chosen locations offer three strategies: Maximum Income, Maximum Growth and Maximum Profit. In our experience, there is no other country in the world right now that can offer the combination of great returns, low risk and an English-speaking, first world economy.

For investors seeking above average returns at below average risk, then property in the USA should be at the top of your shopping list.

My visit confirmed two critical points. Firstly, we are in the best window of opportunity to invest in the best bargains. Secondly, our strategic US partners are doing a superb job, delivering great investments at unbeatable prices and then providing 'hands-off' management for our clients.

Ready to find out more about the benefits of investing in the USA?

View out currently available USA investment properties and download the decision packs right away.

Call our US hotline today on 0333 444 1440 for a no obligation chat (calls charged at standard rate for both landlines and mobiles, so calls may be free with inclusive minutes depending upon your service provider and contract).

Alternatively, contact our US portfolio managers to discuss what investing in USA property can do for you.

David Ball: +44(0)1273 447 307 or david@axiscontact.com

Russell Bonner: +44(0)1273 447 301 or russell@axiscontact.com

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