Hello all,

I've been going to a lot of property networking events in London over the last few months and have various leads and deals come into my inbox.

I've just had one which almost appears too good to be true and wondered if anyone else has heard about it?

I won't copy in all the details here but the basics are that the US government is so keep to redevelop parts of Mississippi that were devastated after the hurricane that they are offering huge incentives and tax breaks to people willing to invest in property to rent out. It's all in an area known as the 'Go Zone' and one of the deals is as follows

Example: Buy a property in the Go Zone area:
£120,000
2 X 3 Beds (Duplex)
10% Down (£12,000) No credit checks all you require is a pulse and to be over 18.
Then £36,000 paid to YOU by the USA Federal government in the form of a forgivable loan, which does not have to be paid back, as long as property has been up for letting 5 years.
There is a limit of 6 properties per person

It seems a bit too good to be true so I'm concerned that it might be dodgy. I'm slightly wary but am going along to a meeting tomorrow near St Pancras to find out more. If anyone has any info or experience of this I'd love to hear about it or if you are interested in going to the meeting to find out more let me know!

Cheers.

Phil

Hi Phil - I'd be interested in finding out more so please let me have some detail - Thanks
Al

Sounds good, My main concerns would be - Is the property valued correctly?What If the property is over valued by 30% or if the market crashes 30 % you have lost the incentive. Also Mississippi is a very run down area and taxes are high so as an investment may not stack up. It would be interesting to know the finer details.

I had an unsolicited email the other day from an outfit which implied that there were US government handouts across the board. Not sure how true that is.
Huw

Hello again,

Ok, here's the latest on this 'Go Zone' scheme...
(DISCLAIMER - Please bear in mind I've only just got back from the meeting in central London and haven't had time to read or check up on much of the info I was given. Information about the project below is what I was told this evening and not anything I've verified!)

I went along with several members of a property mentorship group I attend each month. We discussed the scheme earlier in the day, our mentor came with us and although several of us had a healthily cynical attitude towards the whole thing we were curious. The talk wasn't the typical hard sell we were expecting and the guy seemed to be able to back everything up with evidence. Again, I haven't checked this yet but will do so over the next few days.

Apparently Bush has had the programme passed by Congress (the 'Go Zone Act 2005') as well as having FEMA (Federal) approval and the aim is to regenerate areas of the Gulf Coast to provide housing for workers who are being attracted to the area. As well as employers such as Chevron, Cingular, FedEx and large military bases, it seems as if the area is turning into a 'new Las Vegas' with 11 casinos back open and another 12 more on the way.

The government has gone about the regeneration in a slightly odd way and thousands of the workers needed for these industries, particularly the casinos, are either living in trailers or being bussed in from miles away. Not ideal. Having said that, they may actually have done it the right way round, as had they built the houses first to attract people back to the area after the hurricane no one would have moved there because of the lack of employment. The rental demand is apparently massive.

In order to fund the massive house building programme needed, the US Government has introduced a scheme to entice investors to help rebuild. The problem is that with the credit crunch and sub-prime crisis most Amercans, even those with decent credit ratings, don't have access to a credit line and are therefore unable to invest.

It seems as though foreigners aren't subject to the same checks and somehow all that is needed is an ID check. As I understand it, the mortgage is with the builders rather than the individual investors although investors are responsible for payments. Tenants are offered government rental subsidies if they have jobs but can't afford market rents, and to top it all off the government is offering large 'forgiveable loans' if the properties are held and rented out for five years. These will be paid out within 6 months and as long as you hold the property for 5 years you don't have to pay it back. (ie if the property is available for rent for five years the loan is 'forgiven' and you keep it) Management agencies are all in place and already finding tenants.

I'm not a tax expert and certainly not qualified to give any advice but it says in the handout that there is 50% 1st year accelerated depreciation and you can depreciate the other 50% over the next five years. There is also apparently a magical thing in the US called a 1031 tax deferred exchange which if used correctly means that if you sell you pay no capital gains tax as long as you reinvest your profits in rental property (subject to various conditions I'm sure)

MASSIVE DISCLAIMER - I've only just heard about this myself and there are various boxes that must be ticked for this to apply. Anyone out there an expert on US property taxes????

The figures they give in the blurb give a relatively small negative cash flow each month but the huge 'forgiveable loans' will easily cover this (eg for a £120,000 property the 'forgiveable loan' is £36,000 and about £6000 of this will cover the shortfall in rent for the 5 year period giving you about £30,000 cash back)

Ok it's well past my bedtime now and back in the real world I have to paint my living room tomorrow so I'm off to bed. Any thoughts on this greatfully received.


The Conclusion
All us cycnics ended up pretty well convinced and are looking into it further. Some rather rashly gave their details in to receive an application form but none of my well-disciplined mentorship group signed their lives away. Even if they had, there is a 60 day cooling-off period which is reassuring. There was no 'if you don't commit today the deal will be gone' and no pressure to sign up (it lasts until 31st December and properties must be built and lived in by the end of 2010) . How refreshing! Even our property mentor & guru admitted that although he can usually tear a 'deal' to shreds he couldn't, on first listen, pick any holes in this one.

I will update you as I get any more info. Sorry for being so long winded but I wanted to get this all down while it was fresh. Anyone else heard anything about this yet or am I imagining the whole thing?

One other thing...

My main concern was that they were simply building a load of houses that would get washed away the next time a hurricane hit and the levees broke again, which is bound to happen according to the documentaries I've watched. I raised this point and was told that the new developments are on virgin land well above sea level. Many of the areas wiped out by the last floods have simply been abandoned and will not be built on again as they cost of rebuilding the flood defences is so enormous. You can also purchase extra 'wind' insurance which I think would be wise!

All this makes price comparisons rather difficult as there was little there before to compare the new builds to. However, to quote the blurb about the price of the plots of land the properties are built on...
'$30,000 is subsidized by $21,000 therefore the plot only costs $9,000 which is included in the purchase price'
This should mean that there is some equity built into the deal.

Thanks Phil, that's really interesting. I'd be interested in updates.
Huw

Phil, do you have any links to their website where I can find out more about this?

Do you know if the properties have to be on rent control for 5 years? From what I understood you had to rent to people at a substancial discount and the tennents had to earn below 20% of the average income.

I could be wrong on this though, I only did a quick bit of searching.

Some decent rents 9% seem possible under normal circumstances but if rent control reduces this then it's not such as good deal.

This isn't for me, but for anyone interested there is a go zone podcast on the nubricks website which has an interview with a couple of people about this.

I'm not sure the 1st year depreciation allowance is relevant to us here in the UK. My understanding is that you must apply UK tax laws to calculate tax payable in the UK, so as a UK resident any tax saving you make in the US will simply be paid in the UK.

I continually get frustrated when people sell properties based on the great tax advantages in the overseas country. It all depends on your residency and tax position, but for most of us normal tax payers in the UK, overseas tax laws are irrelevant. You never save money in the UK because you still pay UK tax on any overseas gain, whatever the local tax rules.