What is the simplest way to invest and maximise returns?

Question

Hi folks,

I posted in another forum and didn’t receive any replies so thought I would try here. I have a few more options included in this scenario:

Situation:

Foreign national not living in USA.

I have a brother who lives in NYC and is a US citizen.

I have a decent salary (after taxes around 200k USD per year) so am able to quickly raise cash for properties.

I already have US bank account with BOA, a secured credit card and ITIN.

My home country property and taxation rules make it pretty prohibitive to invest there so I would like to invest in the US.

Should I (would you) do the following:

Option 1) Go it alone cash purchases

- Purchase property outright for cash at around 200k.

Slowly build things up and eventually refinance?

Advantage is that all potential profits are mine.

Option 2) Go it alone financing

- Purchase a property providing large deposit (50%) and finance the rest

- Build up credit rating and refinance

Option 3) Team up with my brother

- provide deposits and create a joint venture with my brother.

I guess financing this route  would be easier as he is a US citizen with good credit however we don’t always see eye to eye on things. Would going down this route improve my credit for the future to strike out on my own?

Option 4) any other suggestions?

What would you do?

Thanks in advance!

Randall K. · Answer

Who says the housing market will "bottom" in a few months?  I am aware of all the speculation as the why housing prices MAY go down, but that is not a guarantee.  The lending and SBA assistance futures are very unknown-if banks continue to forgive mortgage payments and average working people continue to receive some type of assistance, there won't be many additional foreclosures compared to a 'normal' environment.

Katrina Moseley · Answer

@Joseph Musso-Gomm

The answers depends on your needs and goals. I sent you a message, feel free to call me today.

Randall K. · Answer

Gotcha.

If you and your brother partner up, both of your credit will be used for any financing the LLC goes to get (that may be good or bad based on each of your credit score/worthiness).  If you go to buy the place yourself and finance it yourself, just you will be on the note obviously.  Cash= none of that matters.

I asked about how many properties you want because that will ultimately determine if you go the cash route or if you should finance.

If you have $200k, you can buy one property at $200k with cash.  After taxes and insurance say you net $16k/year that's an 8% cash on cash return (assuming $2k/mo. rent and $6300/year for taxes and insurance- I know these numbers are debatable, but had to use something).

If you finance (say 25% down) you can buy FOUR properties worth $200k each. Using the same math you would net $8k/year per property (instead of $16k because you have mortgage payments now) so you would net $32k/year which is a 16% cash on cash return.

Of course I am not factoring in vacancies, or the extra time/effort to manage 4 properties instead of 1.  But if you desire to own more properties faster, financing is the way to go. (not to mention the tax benefits in this model).

Further thoughts and commentary encouraged!

Joseph M. · Answer

@Randall K.

Of course it’s all conjecture about the house prices.

If I were a betting man, and I’m not, I would say that house prices will soften overall.

Economies are in shock and it will take some time to successfully recover from this. That’s my opinion. May be wrong. May be right.

As per your other advice, thank you.

I get very cheap travel benefits through my work so flying to various places and the accompanying cost isn’t so much of an issue. That said It’ll realistically be a few months until I make it over to the US again.

Really I’m just trying to see at this point the best way forward for financing given the options above or any other options I may have missed. Potential pitfalls etc.

Thanks.

Eric Yao · Answer

I would wait until this fall/winter when housing market reaches bottom.

Jay Hinrichs · Answer

you will find it nearly impossible to get financing right now as a foreigner with zero experience.

I think you safest play is to invest with other very experienced operators.

Joseph M. · Answer

@Randall K.

That’s some great advice. Thanks Randall.

I will have a chat with my brother and see what we can do together. I will have limited credit in US but he has good credit and an income there. I think working together will enable me to ramp up the investments quickly and also strengthen my credit.

As you rightly say, 4 properties with 50k down on each is better than the 1 property paid cash, from a viewpoint of returns on the money.

I don’t think I would be able to achieve that without teaming up with him as access to credit would be limited for me.

Definitely food for thought. Thanks again!

Randall K. · Answer

I'd book a flight now.  Never been cheaper- and you can insure it for very little cost if you don't feel comfortable taking the flight at the time.

And if you were to find a property, make an offer now, and get it under contract, you could always back out later based on your contingencies if you don't feel good about the environment later.

Randall K. · Answer

Few questions:

What are you goals long term?

How many properties do you eventually want to own?

Would you brother provide value/expertise around the purchasing process and property management?

Joseph M. · Answer

@Eric Yao

Hi Eric,

I completely agree with you.

However I am a big fan of “getting my ducks in a row”.

I would like to work out a feasible plan for moving forward so that when the travel restrictions loosen and the market softens I am ready and able to move.

Now is a great time to take stock of options and formulate plans.

I’m just not sure on the best way to go. It’s the financing and the time to ramp up to several units that has me considering the option with my brother.

I eventually want to get up to a large amount of properties and understand I need to leverage in order to do that. So what is the quickest and simplest way of achieving this in my situation?

All the best.

What is the simplest way to invest and maximise returns?

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