Have you ever wanted to buy property in the United States but thought that it would be easier just to buy property in Australia? I decided to compare a $100,000 investment in property in any state or territory in Australia with the same amount in Dallas Texas, one of the strongest markets in the US. You may be surprised to see how it can be truly advantageous to purchase property in the US in comparison to Australia.
Let’s focus first on some of the pros and cons of each location.
Australia
Pros:
- Can borrow up to 80 per cent without Lenders Mortgage Insurance (LMI).
- Interest Only loans are available.
- Property management fees, council rates and insurance are lower in Australia than the USA.
- Should expect growth over time.
- Good demand in certain markets based on population growth.
Cons:
- Stamp Duty prevents you from using all your investment capital.
- Low rental yields.
- Property prices are high and categorised as some of the most unaffordable in the world.
- Focus on growth to gain returns.
- Negatively gearing properties are considered a (tax) benefit.
- Requires a substantial amount of time to see growth generate into Total Equity.
- Small relative population.
USA
Pros:
- Very affordable market.
- Low interest rates if you can get financing.
- Large population as well as population growth.
- Hi rental yields based on being a renting society and tight financing policies.
- Cash flow positive from the beginning.
- Should expect growth over time.
Cons:
- Maximum 70 per cent financing (for the time being).
- Loans are Principal and Interest not Interest Only.
- More than 9000 miles away.
The numbers reflected in the table below are very genuine and accurate. I used a recent investment property purchased for my wife last year for the Australian figures. This property is in Fletcher, NSW just outside of Newcastle. Albeit she had benefited from no Stamp Duty on her investment but those days are now gone.
Please click on the hot link to bring up the spreadsheet showing the different investments – What do you get for $100k investment.pdf
From the above figures, at the end of your first year of investing $100,000 in the property market, which position would you rather be in?
A) Australia: Cash flow negative to the tune of about close to $5,000 with a total equity position of $80k-$86k (depending on which state you invest in).
B) USA: Cash flow positive to the tune of about $11,000 and a total equity position of about $106,371, about $6,000 more than what you started with because your loan requires principal payments.