Can someone please explain to me how on earth you can get 20-30% rental yield in the united states? According to stats, the average yield is 3-7%. If anyone could get 20-30% yield than everyone on earth would buy houses in the US. I won't believe this until I see a tenant in the house, paying the rent that the OP claims for the expense incurred.
Yields vary by type, region, state, prices and so on.
I could do 200% a year in real estate just by buying singlewide mobile homes. High risk, high reward.
Or I could buy decent single-family homes in average neighborhoods, fix them up and rent them out.
Remember - The US is about the size of europe in terms of population & size. It would be like saying that European rates are only 5%. Sure, you might average 4% in the UK but you could get 40% in Bulgaria or Romania (Just an example). The difference in the US is that you can cherry pick what area you want to go to and still get decent legal protection.
I know a agent in Columbus (Ohio) that is the exclusive rep for a large firm in Israel. They have 500 or so units right in this area and are running 20%+ ROI on all their units.
I am a firm believer in common sense.
If there is an investment that yields 20-30% yield, and has long-term capital growth on top of that (as all property typically does), that absolutely trumps all other investment options out there, such as shares, bonds and cash investment.
You could paint the narrative that it's 20-30% yield because it's risky. Well, real-estate in general is not risky (particularly rent yield). Capital growth might have some volatility, but at 20-30% rent income, who gives a crap - capital growth volatility for property is very low, compared to say stocks. It is a really big deal if property prices fall by 10% in a year, but for stocks it's a very real scenario.
So please again explain to me why every single person on earth would choose any other investment option than "midwest" real-estate, if the returns are several times better than shares? Do you believe you stumbled on some unknown secret that no other investors know about?
Or is it that the risk is so great, that a lot of investors don't want to touch it even for 20-30% cash yield (excluding growth)? If so, then the risk is so great that it is a very real chance of significant loss.
For disclosure, I own and manage 6 investment properties in Sydney, Australia, and would sell my left testicle for 10+%, let alone 20-30% rent yield (as would every other property investor here).
I'm not saying that you or your figures are wrong, I'm just trying to figure out how this could be true.
Most people are incapable of doing it.
I know many multi-millionaires who made their life in rentals locally.
If you want to read up on rental realestate in the midwest by a guy that lives about 10 miles from me, check out :
http://www.amazon.com/1-Minute-Rental-Property-Riches/dp/1430308060The real problem is management. Unless you develop a great system you will lose your shirt very, very quickly. So, the question is - Who do you trust to manage your rentals? You can hire a outside company, but they typically want 15% to 25% of your income (there goes a nice chunk of your return), or you manage it yourself. The second option is what *most* profitable landlords do.
However there's a 3rd option, and it's what all big funds do - Develop your own management team.
That way, you own your own management team, you don't pay exorbitant management fees, and can develop systems to manage many rentals. The thing with this strategy is, once you've developed a good team, you're going to be cash flowing so much that you don't need to manage anyone else's properties, just do your own. So, unless you've got capital to buy a house + rehab + develop a management team, you're SOL.
Additionally, here in my part of the US (And most of the US for that matter) you HAVE to go into investment property with 100% cash. At $35k-$60k per property, there aren't many people who are willing to risk the capital on it.
Additionally, I've talked to quite a few property investors in Australia. The market there is different than where I'm at. your market is very similar to say most metro areas in California. It's nearly impossible to cashflow, the only money that's made is in flipping or appreciation.
Additionally, a friend of mine has been looking at developing properties outside of Perth. His cost on developing a 150sqm home would be around $200,000AUD, my cost for a near-identical home would be around $75,000. Both figures exclude land, however from what I understand, building a home in the US is just cheap to do. Right now I'm talking to a few builders to see if they can do 1200sf 3br/1.5ba duplexes/triplexes for under $45,000 per unit. A good friend of mine last year built a row of houses here in town. His total walkaway cost was $40,000 per house INCLUDING land.
