USA vs. Australian Property Investing – What’s the Difference? Why Blending the Two Is The Best Investment Strategy
On this week’s episode, I talk about the difference between Australian and U.S. property investing. In Australia, there’s only one way to transact from a real estate perspective, while the U.S. has multiple methods. What this means is that property investing becomes a much more entrepreneurial space given that there are less regulatory red tape to navigate.
00:00 – Intro
01:12 – The benefits of investing globally
03:12 – We’re used to the metrics of our own market
04:03 – Flexibility with transacting real estate
06:39 – The aspirational element of investing – easier to invest in USRead More
09:39 – What types of investment options are available in the US
13:27 – How hard is your capital working for you?
15:57 – Real example comparing US and AU properties
17:26 – Key takeaways
In this week’s article, I talk about the difference between Australian and USA property investing.
In Australia, there’s only one way to transact from a real estate perspective, while the U.S. has multiple methods. What this means is that property investing becomes a much more entrepreneurial space, given that there is less regulatory red tape to navigate.
When it comes to investing globally, most investors immediately think about shares. Given the relatively small size of the Australian market, most shares and equities investors understand that you need to be invested globally to get a bigger piece of the pie.
This isn’t the case for property markets for some reason. But what this does mean is that it can be a very fortunate circumstance for more open-minded investors who are looking for better deals beyond mainstream investing.
One strong caveat I’d like to point out is that the power of having these options is the best part. Having the ability to blend these strategies to build capital in Australia and invest in the USA for cashflow is something that should be considered if you’re looking to build a robust portfolio. Neither strategy on its own is necessarily better than the other.
What’s important to understand is that it’s more about context – where you are in your investing journey and what your highest priority needs are.
While it’s exciting to see a wide range of investing opportunities, investors need to assess whether they should look into optimising their existing portfolio before considering opportunities like the U.S. property market.
Given that investing in foreign real estate isn’t a mainstream concept, it’s often incorrectly perceived as high risk, which is completely untrue.
Investors in Australia mistaken high risk with unfamiliarity.
In Australia, we’re used to property being expensive with poor yields, generating lacklustre income streams – something we take for granted.
Whereas if you were to go to other markets like the USA, you’d notice that there is a massive difference between princes of property vs. income stream ratios.
Another thing to note is the way real estate is transacted between the two markets. In Australia, there’s only one way to do this involving solicitors, brokers and agents. In the USA, this is much less regulated and makes it much faster to enter and exit the property market.
Beyond traditional transacting, in the USA, you can create deals such as single paper deeds, assume mortgages and work with title companies. Stamp duty also virtually doesn’t exist in the USA.
However, it’s a double-edged sword.
In Australia, there’s a lot of safety built into the regulations, but it also means limitations on being more entrepreneurial.
While for USA property investing, there’s a lot more flexibility available to create strategies that you couldn’t do in Australia. For example, you can approach a homeowner and offer to take over their mortgage in the USA while the government and banks wouldn’t allow for it, let alone it even being a concept in Australia.
The entry and exit costs such as stamp duty and legal costs also make it very unattractive to move in and out of property transactions freely.
Culturally, Australians are hungry for property investing. Homeownership is a favourite pastime with plenty of property podcasts, magazines, literature and an entire industry built to support the average Joe with real estate investing.
In contrast, the USA has a tiny percentage of the population who are avid real estate investors because of the wider spread of wealth.
What this means is that the appetite to be an investor and to create wealth isn’t quite as strong as it is in Australia.
This means that investors like you or I can participate relatively easily in a market where there are plenty of opportunities when compared to the Australian real estate market that’s become very efficient. This means you have to become very savvy at finding good deals where more time and money is spent searching rather than investing.
In contrast, USA property investing has more opportunities for deals without too much searching given that the real estate market is highly inefficient. By establishing the right connections, you can go into the market and acquire real estate alongside other investors in a way which is palatable and not as labour intensive as Australia.
Some examples of investing strategies available in the USA are lending opportunities (becoming the bank), turnkey investing and syndications. While these do exist in Australia, the challenge is that there’s a limited number of deals and the risk is relatively high due to the higher entry prices.
The other key difference to understand between the USA property investing vs Australian property investing is that the U.S. market is a flatline market – no capital growth, while Australia has always been about capital gains.
This means most investors look into buying for cash flow purposes rather than capital gains.
When compared to the USA, the growth of property prices in Australia has been on an upward trajectory for the past 30 to 40 years, making affordability an increasing issue.
Which brings me to the argument of net wealth vs financial freedom – the reason why you’d invest globally is to deliver you greater cash flow and bring you to financial freedom years (not decades) sooner.
When you can buy a typical home worth $800,000 in Australia to grow capital and then purchase property for $150,000 – $200,000 in the USA to generate cash flow, most investors will be interested in finding out how they can blend both countries’ strategies to maximise their returns.
And beyond simply directly investing in real estate, there are also options out there that afford you the ability to participate without dealing with tenants and toilets — something for another time.
So where do you start? Get in contact with me to find out more.
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