When purchasing a US investment property, there are certain expenses involved we want you to be aware of beyond the price of the property itself. These costs are broken into the following three sections:
American Properties Membership = $1995
LLC set-up costs = Varies by state but entry level is approx. $500
Accounting costs = Varies by complexity but typically $900 for first year, $650 for subsequent years
Purchase price = Cost of investment property
Optional closing costs
Property Management = 10% of monthly rent
Property Insurance = $400-$1,000
Property Tax = $1,000-$1,500
Yearly tax return and accounting fees = Approx. $900 for first year, $650 for subsequent years
Repairs and Maintenance = 5% of rental income
Vacancy allowance = 5% of rental income
Note: All of these numbers are intended to be a guideline only, actual costs may vary.
Let’s run through an example of a typical purchase and analyse the costs. To make things easier we’ll use round numbers and assume that our investor is using cash to purchase a property for $100,000 that rents at $1,000 per month.
The investor’s start-up costs would total $1995 for his American Properties membership and $500 for his LLC and $900 in accounting fees.
Total start-up costs = $2,395
The purchase price of the property is $100,000 as stated previously. In addition to the mandatory closing costs as outlined above our investor opts for a $200 property inspection and $300 title insurance. The mandatory costs consist of $400 in title agent fees, $300 transfer tax, $600 property tax, and $100 in miscellaneous costs.
Total purchase costs = $101,900
Total combined cost of start-up costs and investment purchase costs = $105,295
In order to manage and maintain the investment property, we need to consider the ongoing costs as outlined above. The monthly rent is $1,000 per month, which equates to a rental income of $12,000 per year. Of this rental income 10%, or $1,200, goes to his property manager, $800 for property insurance, $1,200 for property tax, $450 for filing of tax returns, and our investor chooses to make allowances for both vacancy at 5%, or $600, and repairs at 5%, or $600.
Total Yearly ongoing costs = $4,850
Now that we have identified the annual ongoing costs, we need to consider the yearly income of $12,000. By subtracting the yearly ongoing costs from the yearly income we arrive at the yearly positive cash flow figure.
$12,000 – $4,850 = $7,150
Total Yearly cash flow after all expenses = $7,150
Our investor purchased a $100,000 property in the USA. In total, after all set-up and purchase costs, the total investment costs $105,295. Every year the investor receives $12,000 in rental income and budgets for $4,850 in ongoing costs, resulting in a yearly positive cash flow of $7,150. This represents a 6.8% net yield which is towards the lower end of available net yields, but fine for this example
If this is unclear or confusing, or you have any questions – please give us a call at 1800 642 144. We’re here to help!