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I know someone in Australia who tells me they just settled on a property in Cleveland, Ohio last week.

These are the details of the purchase:

  • 3 bedroom, 1 bath brick home
  • 2 car garage;
  • Price: $46,300
  • Monthly Rent: $900.00
  • Yearly Gross Return: 23.33%
  • Yearly Net Return (after expenses): 14%.

Are these figures typical of some areas of the USA?

And if they are trypical why are more Americans not snapping up these types of properties for themselves?

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Any more details? Was this a bank owned foreclosure? Was it in need of repair/update or was it ready to rent out. With the cost of money so low in the US, this deal is most unusual, bordering on "too good to be true" unless some detail is missing. The last rental I still own is worth nearly $180k, with a monthly rent of $1200. –  JoeTaxpayer Nov 18 '12 at 2:41
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These sort of prices make me think that there is something wrong with the house. It is not unheard of to buy a house for sub $100k and get $900 a month out of rent, but $46,300 is pretty low. There are towns, especially college towns, where good money can be made off of poor quality houses. But this seems a bit extreme. –  Kellenjb Nov 18 '12 at 3:26
    
The person says that they have bought a number of properties in the US since Jan 2011 between $30K to $70K returning 14% to 23% gross. They say that all their properties were purchased turn-key, meaning they were renovated and had tenants already in place prior to purchasing. –  Victor Nov 18 '12 at 7:16
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@Joe it is not unusual at all, in fact its quite wide spread. I bought my rentals at significantly lower prices. It was hard to imagine that there are people who can't afford buying at these prices, even if they pay $600-$700 rent. For some people the economy is significantly tougher than the others. –  littleadv Nov 18 '12 at 10:01
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Too localized to a point in time, voted to close. –  sdg Nov 18 '12 at 17:28
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1 Answer

up vote 5 down vote accepted

Americans are snapping, like crazy. And not only Americans, I know a lot of people from out of country are snapping as well, similarly to your Australian friend. The market is crazy hot. I'm not familiar with Cleveland, but I am familiar with Phoenix - the prices are up at least 20-30% from what they were a couple of years ago, and the trend is not changing.

However, these are not something "everyone" can buy. It is very hard to get these properties financed. I found it impossible (as mentioned, I bought in Phoenix). That means you have to pay cash. Not everyone has tens or hundreds of thousands of dollars in cash available for a real estate investment. For many Americans, 30-60K needed to buy a property in these markets is an amount they cannot afford to invest, even if they have it at hand.

Also, keep in mind that investing in rental property requires being able to support it - pay taxes and expenses even if it is not rented, pay to property managers, utility bills, gardeners and plumbers, insurance and property taxes - all these can amount to quite a lot. So its not just the initial investment.

Many times "advertised" rents are not the actual rents paid. If he indeed has it rented at $900 - then its good. But if he was told "hey, buy it and you'll be able to rent it out at $900" - wouldn't count on that. I know many foreigners who fell in these traps. Do your market research and see what the costs are at these neighborhoods. Keep in mind, that these are distressed neighborhoods, with a lot of foreclosed houses and a lot of unemployment. It is likely that there are houses empty as people are moving out being out of job. It may be tough to find a renter, and the renters you find may not be able to pay the rent.

But all that said - yes, those who can - are snapping.

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Thanks littleadv, sound like a good description of the actual situation is in the USA. –  Victor Nov 19 '12 at 3:26
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