During our recent live webinar, “How This Couple Used U.S. Real Estate to Retire Early!,” hosted by America Mortgages’ Co-Founder Donald Klip (DK), our special guests, Han Teo & Tracy Pah (HT & TP), shared their incredible journey from U.S. real estate beginners to owners of multiple cash-flowing rental properties in the U.S. In just four years, they achieved financial freedom, and during this session, they provided valuable insights into how they navigated the U.S. real estate market.
For those who missed the opportunity to join the webinar, it is available here.
Remarks have been edited for clarity and brevity.
1. Is it risky to invest in properties located far away?
HT & TP: Yes, it can be challenging, but it’s manageable if you educate yourself, learn from people who have done it before, and build a reliable team, such as property managers, contractors, realtors and lenders. Proper due diligence and research help mitigate the risks of remote investing, such as choosing the right market with strong rent demand.
2. How did you overcome operational challenges while managing remotely?
HT: Overcoming remote operational challenges involves building a strong team of local professionals (e.g. property managers, and contractors). You can establish trust through regular communication, such as video calls, and set clear operational guidelines through property management agreements.
3. How much capital is required to start investing?
HT & TP: In some markets, cash-flowing rental properties can be priced around $150,000 to $200,000. A down payment of 25% means you would need around $50,000 to start, depending on the property price.
4. Do you have any properties financed by America Mortgages?
HT & TP: Certainly, multiple of them! Having worked with multiple lenders before, America Mortgages has been the only lender who is well-versed in handling out-of-country loans, ensuring a timely, stress-free and smooth closing.
5. What is the minimum loan amount, and are there any restrictions on the type of housing?
DK: The minimum loan for some programs is around $100,000. The type of housing typically depends on the local market, but investing in homes priced between $150,000 and $200,000 is common.
6. How do you identify suitable properties for investment?
HT & TP: Identifying properties involves first choosing the right markets based on factors such as job growth and demand for rentals that correspond to your investment objectives. You should also consider factors that attract renters, such as proximity to amenities. After selecting the right market, you do your due diligence to ensure that rents can cover all the monthly expenses.
7. How do you manage to supervise renovations from overseas?
HT & TP: Managing renovations remotely requires clear understanding of your scope of work, stringent vetting of your contractors, managing payment milestones with contractors, and having someone trusted to oversee the work. Regular communication and photo updates are crucial.
8. How do you protect your cash flow from extended periods of vacancy that aren’t covered by property insurance?
HT: Mitigate vacancy risks by choosing markets with job and population growth, this ensures high rental demand. It is also important to keep your properties well-maintained and ensure your property is appealing to renters. Your property manager is vital in reducing vacancies as they are your first-line responders to prospective tenants.
9. What are your most popular loan programs?
DK: The most popular loan programs include rental coverage loans, which require rent to cover mortgage expenses, and bridging loans, which allow investors to access equity from their properties.
10. What are the tax obligations for foreign investors?
DK: Foreign investors have the same tax obligations as U.S. citizens, paying taxes on rental income according to state regulations. Setting up an LLC can provide tax advantages and reduce liabilities.
11. How do you overcome the psychological challenges of remote investing, especially in a country far from Singapore?
DK & HT: Remote investing can be psychologically challenging, but it’s about mindset. The key is building a trustworthy team, knowing your market, and understanding that remote investing offers freedom while managing risk.
12. Is foreign investment approval required from the U.S. government as part of a home loan application?
DK & TP: No, foreign investors do not need U.S. government approval to purchase homes or apply for loans. Setting up a US LLC can be beneficial for liability protection.
13. Did you need to establish an LLC or any other U.S. entity for liability protection?
DK & TP: While not mandatory, it is highly recommended that an LLC be established for liability protection and tax benefits. An LLC can help shield personal assets and simplify tax deductions.
14. How do you mitigate the risk of being over-leveraged if housing prices decline, potentially leading to default or foreclosure?
DK & HT: The key is ensuring your rental income covers the mortgage payments and maintaining reserves for vacancies. Even in a recession, demand for affordable rentals remains strong, since shelter is a basic necessity. In the US, there is no margin call, meaning that if your home value drops below what you borrowed from the bank, as long as you keep up with your mortgage payments, there is no need to top up the difference to the bank. This makes it one of the safest investment vehicles compared to any other equally leveraged products.
15. In how many cities are your properties located? How do you avoid contractors overcharging during renovations, and how do you find a reliable property manager?
HT & TP: We are only focused on 2 cities in the Midwest. We prefer to nurture strong teams and strong relationships in each city to support our remote rental business instead of buying across multiple cities and spreading our attention thinly in each city. This also creates scales of economies. Doing thorough due diligence, getting guidance from a mentor, and getting multiple quotations for your renovation scope of work and estimated costs are essential to avoid being overcharged. As for finding a reliable property manager, there are several aspects to look out for, which are covered in detail in our Masterclass, such as what questions to ask to interview them, what are the red flags, what their management agreement should include, etc.
16. How do you handle hot markets and multiple offer situations?
HT & TP: With experience, we have devised strategies to put up compelling offers at the right price. With our network, we also have access to off-market deals. The strategy is going to be different for every unique situation. Still, it has allowed us and our graduates to buy great cash-flowing rentals today, meeting the 1% Rule (i.e. Monthly Rent ≥ 1% of the Property Value) even in super hot markets.
17. How long did you spend on due diligence before committing to your first property? Did you visit the site often before making your decision?
HT & TP: The process took about three years, and we only visited the city once to validate our research and network before we started to buy properties. With so much available data and a strong network on the ground, there is no need to be physically there.
18. What rental yields are you achieving post-renovation compared to your cost of debt?
DK: Rental yields are generally higher than mortgage costs, especially with the benefit of rising property values and decreasing mortgage rates, leading to expanding profit margins over time.
