Tenancy in your USA property: Section 8 Advantages and Disadvantages

What is Section 8?

Section 8 of the United States Housing Act of 1937 (often simply known as Section 8), is a system where the government provides payment of rental housing assistance to private landlords on behalf of the tenant. Approximately 3.1 million low-income households currently are using this system to pay for they rent.
It operates through several programs. The most popular one is the Housing Choice Voucher program which pays a large portion of the rents and utilities of about 2.1 million households in the US.

The main benefit about this is that you get a guarantee from the Federal government to make up the difference between the tenant;s contribution and the rent specified in the owner's contract with the government.
It will be in the best interest of the tenant to stay in this program as if he leaves it he will loose access for good.

Another great benefit its the amount of potential rents.

This could be some of the reasons why a landlord might decide to not have a section 8 tenant:

• Believe that the sec 8 tenant will not be able to properly maintain the property.
• don't want the government to be involved as there are inspection required by law and standards to be meet.
• wants  to charge a rent for the unit above Fair Market Rent
• fear to have to   initiate judicial action for eviction of a tenant (HUD requires that Section 8 tenants can only be evicted by judicial action, even where state law allows other procedures)
• racial profiling  (as a large percentage of Section 8 tenants are minorities)

Section 8 was quite criticized as it allowed low income earners to live in more affluent suburbs where they would be able otherwise.


If you want to read more about this go to
http://portal.hud.gov/hudportal/HUD?src=/program_offices/public_indian_housing/programs/hcv/project

Important questions to ask your property manager in the USA

Some of the questions to consider asking before you commit to a property manager:

• who does the trivial jobs like changing a light bulbs?
• Are property inspections detailed and include photos?
• how often they being in operation?
• how many properties do they manage?
• do they have a property on they own they are managing?
• do they include in the price of managing your property the usual inspections?
• how often do they inspect the property?
• How often do we review the rent?
• Will you get a written contract of what they are required to do ?
• What areas do they cover?
• When looking for a new tenant will they be available to show the property 6/7 days a week?
• How much stuff do they employ?
• Do you check the credit history, past rental history, employment etc of the potential tenant?
• Are rent arrears followed up every day, with letters sent out at the right time and in accordance with legislation?
• Would you always await my approval to repair an item?

Buyers tips for a safe investment in the US Real Estate

-Selection: One of the most important things to ensure when buying a property its that its not one of a hundred similar properties out there. At the time or rent or sell this will be a big plus. You also need to consider what American like. We like to be close to the city to commute less but they appreciate there to be out of the city and enjoy the peace and quit. 
- Financial Analysis- Ensure you have full understanding of the out goings of the property and keep a good record of everything that goes outs and comes in.
- Negotiation: Note that negotiation in different countries is different.
- Conveyancing: Ensuring you have full knowledge of the laws around property transactions.
- Property Managers: Being so far away from your property this is a key point so make sure that you know and trust your property Manager.  See the next blog with questions to ask when selecting a Property Manager.
- Do your own due diligence: do not trust completely on your agent for your due diligence, at the end of the day its going to be your property if there is a problem arising.

Paying taxes on your USA property

Australian pays taxes on US property, so you will need to get a ITIN Individual tax identification number which is used for federal tax reporting purposes. (Similar to the AUS tax file number- see the post regarding how to set up an ITIN)

A very important note regarding tax is that the US and Australia have an agreement with respect to taxation. If you submitted your US tax return in the States, when you file for return here in Australia, simply include your USA tax returned, the ATO will take that into account when your tax receivable or tax payable. So you don't have to pay tax twice!

Income tax returns for individual calendar year taxpayers are due by April 15 of the next year. If April 15 falls on a Saturday, Sunday, or a legal holiday in Washington D.C. or in the state to which the return is required to be filed, the returns are due on the next business day.

There are IRS tax forms (over 800 types) that are used for tax payers and tax exempt organizations to report financial information to the US Inland Revenue Service. The most popular of this form its the form 1040 used by individuals. Example   http://www.irs.gov/pub/irs-pdf/f1040.pdf?portlet=3

The Schedule E is used to report income and expenses arising from the rental of real property, royalties, or from pass-through entities (like trusts, estates, partnerships.

This is an example of it:
http://www.irs.gov/pub/irs-pdf/f1040se.pdf
 

It is very important to keep track of all expenses related to you property such as:

• Commissions or property management fees,
• Homeowners insurance and HOA dues,
• Real estate taxes and mortgage interest 
• Advertising costs,
• Cleaning, maintenance, and repair costs,interest expenses.
• Security deposits reimbursed to the tenant.
• and various other expenses, such as utilities, landscaping, garbage, and so forth.

To do this it would be very helpful if you use a finance software or a computer spreadsheet so that you can print out the monthly report easy at the end of the year.
Something to take into account its that the IRS limits your total losses from all your rental properties to a maximum of $25,000 per year.


NOTE:
Research about the local taxes and the Federal taxes that might be different from states to states
Useful links:
http://www.irs.gov/

Doing your "due diligence" when selecting a property

Here are some things to take into account when doing your due diligence:

That the master bedroom is in the ground floor.
Its better to have just one ground floor
Consider the rental yield averages
Population growth averages
Demographic of the area
Income earning averages
Population growth averages
Infractrusture investment.
Close to public transport and schools
Is it a safe area
stable areas near major metropolitan locations

Report about the housing situation in the USA and how to be prepare for the future.

Here I found a really interesting report (issued by Harvard University)of how the housing market its going with current issues. It identifies and analyzes the economic, social  and demographic trends to help you prepare for the future. I think its a valuable information for those how are looking at investing in the US.
 

http://www.jchs.harvard.edu/

PROPERTY SALES AGENTS IN AUSTRALIA

As a novice in this area I looked into the agencies available in Australia.

The following are:


www.myusaproperty.com.au   ( I personally didn't have a good experience with them. They were quite disorganized at getting back with me and even cancelled an appointment arrange the day before as I ddnt reconfirmed it in the afternoon.)


www.888usrealestate.com.au

http://www.usinvest.com.au

http://www.21stcenturyusproperty.com/propertyexamples 

http://www.eccoassets.com.au/09_properties.html

 

http://www.housebuyersusa.com/propertyexamples

www.uspsa.com.au

www.cashflowgold.com
  

http://www.americapropertysource.com.au

Anyone who had any experience with these agents, either good or bad, please post us a comment!! 

Welcome to USA Property Advice

We just launched USA Property Advice!

A few months ago I started my research of buying property in the USA. Due to the huge crisis, the massive amount of foreclose in the US I see the opportunity available to get a property with cash flow positive.
As I have never bough a house before it is quite daunting to buy one so far away and therefore I feel like I have to make quite much more research than usual to embark in this journey.  The idea behind this blog its to gather as much valued information I find through different sources to be able to make a sound decision when purchasing a property in the US.  Please feel free to add any comment, corrections, etc.

Note:I can not guarantee the accuracy of the information in this blog so only can be taken as a guide. Please do you own due diligence before buying.