Aussie property investors being duped in US, but US Masters Fund not among them: Alan Dixon

As we look back on 2011, Property Observer is republishing some of our most noteworthy stories of the year.

Alan Dixon, fund manager of the US Masters Residential Property Fund, says Australian investors are being duped into buying overvalued properties in the US, but the fund he manages does not fall into this category. 

Dixon says this is particurlarly the case in the depressed areas, “where promoters are picking up properties for US$10,000 to US$30,000 and then flipping them on to unsuspecting Australians for huge mark-ups”. 

“They are also in areas where ongoing tenancy management will be an issue.  I actually think there will be a list of horror stories involving Australians and US property over the next decade,” he tells Property Observer. 

However, the US Masters Residential Property Fund has taken “a completely different approach” to selecting properties, he says. He denies charges made by property investment commentator Monique Sasson Wakelin and others that Dixon Advisory's properties are in a poor location.

“Our target area is Hudson County, New Jersey, and all of our properties range between a 15-minute to 45-minute commute to the heart of Manhattan. 

“This is not Florida, Arizona, Nevada, California, Georgia etc where you can buy a liveable house for sub-US$50,000. 

Dixon quotes US real estate website Zillow, which lists average Jersey City house prices at around US$245,000 compared with US$360,000 in 2006, reflecting a discount of about 32%. 

To date the fund has acquired 55 properties at an average price of just over US$200,000 a property. Prices though have ranged widely from just US$120,000 for a two-family detached house on an 11.8% yield to almost US$400,000 for a four-family detached house on an 8% yield. 

The fund paid more than double the recent sales price for several of its properties, but Dixon says they were still good value.

“We did our research for many months before deciding on Hudson County.  I’ve been in the US for roughly half the time we’ve been running the fund and know we’ve used the right processes to get the right prices for the fund. 

“We hired two local real estate professionals who since March have been working exclusively for the fund.  Gerald Lucas and Desi Barrios have both been working in Hudson County, New Jersey real estate for over a decade,” Dixon says. 

“Gerald’s expertise focuses on purchasing and negotiation and Desi focuses on the leasing and development side.  Desi has run his own portfolio of over 80 apartments in the area for over a decade giving great experience to the fund.  They are highly experienced in the market and lead a very strong team here.” 

Dixon says the in-house team is responsible for sourcing all tenants, completing all property management tasks and dealing with all levels of government involved in property. 

“We’ve placed a large number of tenants in to properties, dealt with ongoing management and also dealt with the difficulties that come from inherited tenants.”

Among the challenges the fund has had to overcome has been the fire that broke out on September 17 at 42 Bartholdi, which it acquired for $114,000 in August. 

“Since that date and in less than 3 months, we have secured the property; received a full insurance settlement of $200,000; received all permits to remove rubbish and clean up the site; cleaned up the site; and have completed the drawings for the reconstruction,” Dixon says. 

“The next stages will include final permits for the reconstruction and completing the reconstruction to have the property on the leasing market, which we expect to occur by the middle of March 2012.” 

Dixon says Australian owners of US property need to make sure they have a top quality property management team on hand to look after their properties. 

“When you add the complications of US state and Federal taxes - which we are able to avoid under a REIT structure and individuals are not - individual ownership of US property appears a much riskier proposition than a professionally managed fund such as the US Masters fund.”