Best in Class Finance Functions For Police Forces

Background

Police funding has risen by £4.8 billion and 77 per cent (39 per cent in real terms) since 1997. However the days where forces have enjoyed such levels of funding are over.

Chief Constables and senior management recognize that the annual cycle of looking for efficiencies year-on-year is not sustainable, and will not address the cash shortfall in years to come.
Facing slower funding growth and real cash deficits in their budgets, the Police Service must adopt innovative strategies which generate the productivity and efficiency gains needed to deliver high quality policing to the public.

The step-change in performance required to meet this challenge will only be achieved if the police service fully embraces effective resource management and makes efficient and productive use of its technology, partnerships and people.

The finance function has an essential role to play in addressing these challenges and supporting Forces’ objectives economically and efficiently.

Challenge

Police Forces tend to nurture a divisional and departmental culture rather than a corporate one, with individual procurement activities that do not exploit economies of scale. This is in part the result of over a decade of devolving functions from the center to the.divisions.

In order to reduce costs, improve efficiency and mitigate against the threat of “top down” mandatory, centrally-driven initiatives, Police Forces need to set up a corporate back office and induce behavioral change. This change must involve compliance with a corporate culture rather than a series of silos running through the organization.

Developing a Best in Class Finance Function

Traditionally finance functions within Police Forces have focused on transactional processing with only limited support for management information and business decision support. With a renewed focus on efficiencies, there is now a pressing need for finance departments to transform in order to add greater value to the force but with minimal costs.

1) Aligning to Force Strategy

As Police Forces need finance to function, it is imperative that finance and operations are closely aligned. This collaboration can be very powerful and help deliver significant improvements to a Force, but in order to achieve this model, there are many barriers to overcome. Finance Directors must look at whether their Force is ready for this collaboration, but more importantly, they must consider whether the Force itself can survive without it.

Finance requires a clear vision that centers around its role as a balanced business partner. However to achieve this vision a huge effort is required from the bottom up to understand the significant complexity in underlying systems and processes and to devise a way forward that can work for that particular organization.

The success of any change management program is dependent on its execution. Change is difficult and costly to execute correctly, and often, Police Forces lack the relevant experience to achieve such change. Although finance directors are required to hold appropriate professional qualifications (as opposed to being former police officers as was the case a few years ago) many have progressed within the Public Sector with limited opportunities for learning from and interaction with best in class methodologies. In addition cultural issues around self-preservation can present barriers to change.

Whilst it is relatively easy to get the message of finance transformation across, securing commitment to embark on bold change can be tough. Business cases often lack the quality required to drive through change and even where they are of exceptional quality senior police officers often lack the commercial awareness to trust them.

2) Supporting Force Decisions

Many Finance Directors are keen to develop their finance functions. The challenge they face is convincing the rest of the Force that the finance function can add value – by devoting more time and effort to financial analysis and providing senior management with the tools to understand the financial implications of major strategic decisions.

Maintaining Financial Controls and Managing Risk

Sarbanes Oxley, International Financial Reporting Standards (IFRS), Basel II and Individual Capital Assessments (ICA) have all put financial controls and reporting under the spotlight in the private sector. This in turn is increasing the spotlight on financial controls in the public sector.

A ‘Best in Class’ Police Force finance function will not just have the minimum controls to meet the regulatory requirements but will evaluate how the legislation and regulations that the finance function are required to comply with, can be leveraged to provide value to the organization. Providing strategic information that will enable the force to meet its objectives is a key task for a leading finance function.

3) Value to the Force

The drive for development over the last decade or so, has moved decision making to the Divisions and has led to an increase in costs in the finance function. Through utilizing a number of initiatives in a program of transformation, a Force can leverage up to 40% of savings on the cost of finance together with improving the responsiveness of finance teams and the quality of financial information. These initiatives include:

Centralization

By centralizing the finance function, a Police Force can create centers of excellence where industry best practice can be developed and shared. This will not only re-empower the department, creating greater independence and objectivity in assessing projects and performance, but also lead to more consistent management information and a higher degree of control. A Police Force can also develop a business partner group to act as strategic liaisons to departments and divisions. The business partners would, for example, advise on how the departmental and divisional commanders can meet the budget in future months instead of merely advising that the budget has been missed for the previous month.

With the mundane number crunching being performed in a shared service center, finance professionals will find they now have time to act as business partners to divisions and departments and focus on the strategic issues.

The cultural impact on the departments and divisional commanders should not be underestimated. Commanders will be concerned that:

o Their budgets will be centralized
o Workloads would increase
o There will be limited access to finance individuals
o There will not be on site support

However, if the centralized shared service center is designed appropriately none of the above should apply. In fact from centralization under a best practice model, leaders should accrue the following benefits:

o Strategic advice provided by business partners
o Increased flexibility
o Improved management information
o Faster transactions
o Reduced number of unresolved queries
o Greater clarity on service and cost of provision
o Forum for finance to be strategically aligned to the needs of the Force

A Force that moves from a de-centralized to a centralized system should try and ensure that the finance function does not lose touch with the Chief Constable and Divisional Commanders. Forces need to have a robust business case for finance transformation combined with a governance structure that spans operational, tactical and strategic requirements. There is a risk that potential benefits of implementing such a change may not be realized if the program is not carefully managed. Investment is needed to create a successful centralized finance function. Typically the future potential benefits of greater visibility and control, consistent processes, standardized management information, economies of scale, long-term cost savings and an empowered group of proud finance professionals, should outweigh those initial costs.

To reduce the commercial, operational and capability risks, the finance functions can be completely outsourced or partially outsourced to third parties. This will provide guaranteed cost benefits and may provide the opportunity to leverage relationships with vendors that provide best practice processes.

Process Efficiencies

Typically for Police Forces the focus on development has developed a silo based culture with disparate processes. As a result significant opportunities exist for standardization and simplification of processes which provide scalability, reduce manual effort and deliver business benefit. From simply rationalizing processes, a force can typically accrue a 40% reduction in the number of processes. An example of this is the use of electronic bank statements instead of using the manual bank statement for bank reconciliation and accounts receivable processes. This would save considerable effort that is involved in analyzing the data, moving the data onto different spreadsheet and inputting the data into the financial systems.

Organizations that possess a silo operating model tend to have significant inefficiencies and duplication in their processes, for example in HR and Payroll. This is largely due to the teams involved meeting their own goals but not aligning to the corporate objectives of an organization. Police Forces have a number of independent teams that are reliant on one another for data with finance in departments, divisions and headquarters sending and receiving information from each other as well as from the rest of the Force. The silo model leads to ineffective data being received by the teams that then have to carry out additional work to obtain the information required.

Whilst the argument for development has been well made in the context of moving decision making closer to operational service delivery, the added cost in terms of resources, duplication and misaligned processes has rarely featured in the debate. In the current financial climate these costs need to be recognized.

Culture

Within transactional processes, a leading finance function will set up targets for staff members on a daily basis. This target setting is an element of the metric based culture that leading finance functions develop. If the appropriate metrics of productivity and quality are applied and when these targets are challenging but not impossible, this is proven to result in improvements to productivity and quality.

A ‘Best in Class’ finance function in Police Forces will have a service focused culture, with the primary objectives of providing a high level of satisfaction for its customers (departments, divisions, employees & suppliers). A ‘Best in Class’ finance function will measure customer satisfaction on a timely basis through a metric based approach. This will be combined with a team wide focus on process improvement, with process owners, that will not necessarily be the team leads, owning force-wide improvement to each of the finance processes.

Organizational Improvements

Organizational structures within Police Forces are typically made up of supervisors leading teams of one to four team members. Through centralizing and consolidating the finance function, an opportunity exists to increase the span of control to best practice levels of 6 to 8 team members to one team lead / supervisor. By adjusting the organizational structure and increasing the span of control, Police Forces can accrue significant cashable benefit from a reduction in the number of team leads and team leads can accrue better management experience from managing larger teams.

Technology Enabled Improvements

There are a significant number of technology improvements that a Police Force could implement to help develop a ‘Best in Class’ finance function.

These include:

A) Scanning and workflow

Through adopting a scanning and workflow solution to replace manual processes, improved visibility, transparency and efficiencies can be reaped.

B) Call logging, tracking and workflow tool

Police Forces generally have a number of individuals responding to internal and supplier queries. These queries are neither logged nor tracked. The consequence of this is dual:

o Queries consume considerable effort within a particular finance team. There is a high risk of duplicated effort from the lack of logging of queries. For example, a query could be responded to for 30 minutes by person A in the finance team. Due to this query not being logged, if the individual that raised the query called up again and spoke to a different person then just for one additional question, this could take up to 20 minutes to ensure that the background was appropriately explained.

o Queries can have numerous interfaces with the business. An unresolved query can be responded against by up to four separate teams with considerable delay in providing a clear answer for the supplier.

The implementation of a call logging, tracking and workflow tool to document, measure and close internal and supplier queries combined with the set up of a central queries team, would significantly reduce the effort involved in responding to queries within the finance departments and divisions, as well as within the actual divisions and departments, and procurement.

C) Database solution

Throughout finance departments there are a significant number of spreadsheets utilized prior to input into the financial system. There is a tendency to transfer information manually from one spreadsheet to another to meet the needs of different teams.

Replacing the spreadsheets with a database solution would rationalize the number of inputs and lead to effort savings for the front line Police Officers as well as Police Staff.

D) Customize reports

In obtaining management information from the financial systems, police staff run a series of reports, import these into excel, use lookups to match the data and implement pivots to illustrate the data as required. There is significant manual effort that is involved in carrying out this work. Through customizing reports the outputs from the financial system can be set up to provide the data in the formats required through the click of a button. This would have the benefit of reduced effort and improved motivation for team members that previously carried out these mundane tasks.

In designing, procuring and implementing new technology enabling tools, a Police Force will face a number of challenges including investment approval; IT capacity; capability; and procurement.

These challenges can be mitigated through partnering with a third party service company with whom the investment can be shared, the skills can be provided and the procurement cycle can be minimized.

Conclusion

It is clear that cultural, process and technology change is required if police forces are to deliver both sustainable efficiencies and high quality services. In an environment where for the first time forces face real cash deficits and face having to reduce police officer and support staff numbers whilst maintaining current performance levels the current finance delivery models requires new thinking.

While there a number of barriers to be overcome in achieving a best in class finance function, it won’t be long before such a decision becomes mandatory. Those who are ahead of the curve will inevitably find themselves in a stronger position.

Alternative Financing Vs. Venture Capital: Which Option Is Best for Boosting Working Capital?

There are several potential financing options available to cash-strapped businesses that need a healthy dose of working capital. A bank loan or line of credit is often the first option that owners think of – and for businesses that qualify, this may be the best option.

In today’s uncertain business, economic and regulatory environment, qualifying for a bank loan can be difficult – especially for start-up companies and those that have experienced any type of financial difficulty. Sometimes, owners of businesses that don’t qualify for a bank loan decide that seeking venture capital or bringing on equity investors are other viable options.

But are they really? While there are some potential benefits to bringing venture capital and so-called “angel” investors into your business, there are drawbacks as well. Unfortunately, owners sometimes don’t think about these drawbacks until the ink has dried on a contract with a venture capitalist or angel investor – and it’s too late to back out of the deal.

Different Types of Financing

One problem with bringing in equity investors to help provide a working capital boost is that working capital and equity are really two different types of financing.

Working capital – or the money that is used to pay business expenses incurred during the time lag until cash from sales (or accounts receivable) is collected – is short-term in nature, so it should be financed via a short-term financing tool. Equity, however, should generally be used to finance rapid growth, business expansion, acquisitions or the purchase of long-term assets, which are defined as assets that are repaid over more than one 12-month business cycle.

But the biggest drawback to bringing equity investors into your business is a potential loss of control. When you sell equity (or shares) in your business to venture capitalists or angels, you are giving up a percentage of ownership in your business, and you may be doing so at an inopportune time. With this dilution of ownership most often comes a loss of control over some or all of the most important business decisions that must be made.

Sometimes, owners are enticed to sell equity by the fact that there is little (if any) out-of-pocket expense. Unlike debt financing, you don’t usually pay interest with equity financing. The equity investor gains its return via the ownership stake gained in your business. But the long-term “cost” of selling equity is always much higher than the short-term cost of debt, in terms of both actual cash cost as well as soft costs like the loss of control and stewardship of your company and the potential future value of the ownership shares that are sold.

Alternative Financing Solutions

But what if your business needs working capital and you don’t qualify for a bank loan or line of credit? Alternative financing solutions are often appropriate for injecting working capital into businesses in this situation. Three of the most common types of alternative financing used by such businesses are:

1. Full-Service Factoring – Businesses sell outstanding accounts receivable on an ongoing basis to a commercial finance (or factoring) company at a discount. The factoring company then manages the receivable until it is paid. Factoring is a well-established and accepted method of temporary alternative finance that is especially well-suited for rapidly growing companies and those with customer concentrations.

2. Accounts Receivable (A/R) Financing – A/R financing is an ideal solution for companies that are not yet bankable but have a stable financial condition and a more diverse customer base. Here, the business provides details on all accounts receivable and pledges those assets as collateral. The proceeds of those receivables are sent to a lockbox while the finance company calculates a borrowing base to determine the amount the company can borrow. When the borrower needs money, it makes an advance request and the finance company advances money using a percentage of the accounts receivable.

3. Asset-Based Lending (ABL) – This is a credit facility secured by all of a company’s assets, which may include A/R, equipment and inventory. Unlike with factoring, the business continues to manage and collect its own receivables and submits collateral reports on an ongoing basis to the finance company, which will review and periodically audit the reports.

In addition to providing working capital and enabling owners to maintain business control, alternative financing may provide other benefits as well:

It’s easy to determine the exact cost of financing and obtain an increase.
Professional collateral management can be included depending on the facility type and the lender.
Real-time, online interactive reporting is often available.
It may provide the business with access to more capital.
It’s flexible – financing ebbs and flows with the business’ needs.
It’s important to note that there are some circumstances in which equity is a viable and attractive financing solution. This is especially true in cases of business expansion and acquisition and new product launches – these are capital needs that are not generally well suited to debt financing. However, equity is not usually the appropriate financing solution to solve a working capital problem or help plug a cash-flow gap.

A Precious Commodity

Remember that business equity is a precious commodity that should only be considered under the right circumstances and at the right time. When equity financing is sought, ideally this should be done at a time when the company has good growth prospects and a significant cash need for this growth. Ideally, majority ownership (and thus, absolute control) should remain with the company founder(s).

Alternative financing solutions like factoring, A/R financing and ABL can provide the working capital boost many cash-strapped businesses that don’t qualify for bank financing need – without diluting ownership and possibly giving up business control at an inopportune time for the owner. If and when these companies become bankable later, it’s often an easy transition to a traditional bank line of credit. Your banker may be able to refer you to a commercial finance company that can offer the right type of alternative financing solution for your particular situation.

Taking the time to understand all the different financing options available to your business, and the pros and cons of each, is the best way to make sure you choose the best option for your business. The use of alternative financing can help your company grow without diluting your ownership. After all, it’s your business – shouldn’t you keep as much of it as possible?

Should Australians Still Invest Properties in the United States?

For several years now, people have been trying to call me to ask if it is still a good idea to invest in property in the United States? I have been buying properties in the United States for more than 20 years already.Buying a real estate in the United States started in the late 80s, when I got myself involved in the loan debacle and savings. This was when the banking system in the southern states was failing and we even had to make transactions of the property buying and selling without any banking system, since there were virtually no banks around.Now it’s as if there are bank crisis every 20 years in America. Prices significantly dropped, sometimes 95 cents on the dollar, when I was buying properties. We can even buy properties 5 cents on the dollar! There were even home units that we could buy for as low as $600 and a couple of thousand dollars per house.The fact that the Americans are currently going through a major bank crisis, a lot of Australians are apprehensive to take advantage of the US market. Perhaps you don’t have to worry about this issue if you are not going to live in the United States.In the late 80s, I did spend a lot of time with some Australians who were trying to save what’s left from their capital, the capital that they have invested in the U.S. And after 20 years, I’m doing it again – helping Australians who lost a lot of money, to get out of the United States and will still be able to keep the remaining capital that they have invested.The American and Australian Culture DifferencesWhy do you think this happened? Why do some Australians invest in the United States and end up being disappointed? Even if we read about 15% returns – 25% returns. I will examine that fact for you in a little while. But before that, I’d like to go back to analyzing the differences between the way Australians do business from the way the Americans do business. Most of this is outlined in the book, written in the 1970′s called, “American and Australian Cultural Differences”.In the book that Donald Trump wrote, “The Art of the Deal”, he simply mentioned there is no such thing as a win-win in business. It has always been ‘I win and you lose’. Here’s the first major difference, in Australia, people come first, then the money comes second. While in the United States, it is the other way around, big business and the big bucks comes first before the people. This doesn’t mean that Americans are bad and we are good, we simply have a different culture. Also, our governing laws lean that way.Our Australian culture and mentality is reflected in our legal system, a system that is shared with both legal and equitable law. Once a judge sees a contract that he doesn’t like, he can overturn the contract since under the equitable law, which means fair play law. Unfortunately, this is not how it works in the American playing field. The real deal is always on the piece of paper.On the lighter side of playing in the US market is, we both can sit down and talk work out a contract. I can even trade a portion of a property in the US for only $7. As long as we both sign a one page General Warranty Deed or Warranty Deed, that property is bought for $7. And it costs that much because that is what cost me to record this at the local court house and make the purchase. That is the deal whether we had a creative lease option or an installment contract. Unfortunately, if you get into some bad terms, you have no government body to come in and looks after you. The deal is, the dollar comes first.So, if ever you are in a country where the real estate has an “I win and you lose” kind of rule, be careful. They do have different set of rules.Here are some interesting stories of what actually happened over the years. Perhaps by the end of this article, some people can instill in their heads that the US may not be the best place to invest, unless, you already live there.US Property ManagementA lot of Australians assume that the US Property Management is handled the same way as it is in Australia. Here, when you buy or sell a piece of real estate, it is managed by the real estate agent. In the US, the people who sold the property to you have nothing to do with the management. Here, it is difficult to find someone who shares the same moral code as in Australia. And if ever you find one, it is expensive, and it can drain you financially.Here’s an example. Strangely, the American management companies can never bring your money to you in Australia. They seem to have a poor mail service since they lose a lot of cheques. What they do know is, your cheque sinks because Australia could be Atlantis. Bottom line is, it is about taking your money and not let you make a profit.If you choose to go for a good management company, a light bulb may only cost 25 cents, but if you get it installed, it may cost you $88. This is because good management company in the US, only use licensed people, and licensed people are expensive. Since everybody is afraid of being sued in the US, the property manager doesn’t use anybody who doesn’t have a license, whether it is a plumbing license, or electrical license.Although a light bulb in the US may last for 15 months, and it is indeed cheap to buy. However, since I have been an absent landlord, I have been charged several $88 to have my light bulb put in the house. And sadly, no Americans can change their own light bulbs.In Australia, we do a lot of stuff using our hands. Americans have been used to being gifted to for so long that they do nothing. When I rent my propertiesI noticed that my rented property in the US becomes un-rentable when: • the carpet is more than 2 years old, and• your property has been painted less than a year ago.In Australia, even if my place has a 10, 20 or even 30 year old carpet, I can still have it rented, even if it hasn’t been painted in the last 5 years. This is the reason why vacancy in the US is much higher than in Australia.How does this affect the management? We now know that a rented unit, apartment or a house in the US can’t be rented out unless it is in perfect condition, practically a new condition. This fact costs money. My apartment buildings in Dallas, Texas used to be vacant. I also had a building very close to SMU campus and the students had to move out at midnight. So, I had a crew go in to re-carpet and repaint. The next morning, I had new people coming in, at around 10 a.m. This is clearly an expense that you have, as a landlord.You also have management companies who make sure that they take money out of your pocket. Being constantly charged for various systems like, hot water, heating, and air conditioning which was never in your property.The Systems That Drains Your PocketHow about air conditioning? Most (if not all) of the properties in the US have air-conditioning. And air-conditioning is simply expensive. It would be great if the US tenants clean the filters. Unfortunately, they don’t. If that happens, your air conditioning systems get burn out. It would take another $300-$400 to have your air conditioning coils cleaned and have new compressors put in. This obviously drives you nuts! Another situation is the ice maker. American houses have an ice maker and every time you replace it, it costs $130 plus another $150 for the service call. That’s almost $300. Ice makers will last for 24 months.If you have 2 to 3 tenants who constantly change the temperature of the air conditioned properties, this can fry your air conditioning unit. You adjust the air conditioning system since you have tenants and unfortunately, they don’t respect your equipment. You will end up spending a fortune just for your air conditioning and heating systems. What may be standard in the US is not the standard in Australia.The management normally gets 10% of the gross income. A lot of American management companies get their kickbacks from the service tradesmen who are constantly sent out to the properties. Obviously, the landlord is not the priority of the US property management company, the tenants are. Whatever these tenants want, they get. No matter how careless these tenants are when using your equipments, no matter how constantly they burn up your cash flow or profits. These are just some of the things that never happens in Australia. Here in Australia, we serve people to live in is bottom of the range, Americans can’t be served this way.Most Americans don’t pay their rent. Those tenants who do pay rents in the US have a lower percentage compared to the Australians who do pay their rent. They even have a book that’s called “500 Ways to Rip Off Your Landlord and Never Pay Rent”. This book costs $19.95. You are simply in the area of big business, I make money and you don’t. A lot of these Americans don’t pay their rent. That’s how the business is – Americans do not pay their rent!A lot of Australians ran into these US properties with cash intending to refinance later and only to get their cash returned by creating more debt. The properties were cheap when bought because you can’t get financed. You will need to put all your cash in there and eventually bring out your cash out.If ever the management has left you any money, they will get it back from you by charging you all sorts of jobs that were never even done, like a house that has never been painted. That’s how landlords are eaten alive.Also, here’s something worth knowing, the American roof only lasts for 12 years. Ever wonder why the suburbs blow over in the storm? That’s because American houses do not have any steel nor cement in them, which are important. American houses are made of wood and bricks on the outside. The bricks aren’t even thick enough to hold up the house. They are only slate style brick which is an inch wide. Unlike Australian household brick, around 3-4 inches wide. This can actually hold up the house.For the American houses, the wood behind the brick face holds up the house. So the brick is just a fascia plate. What happens when a big hurricane comes? It wipes out the entire suburbs of this American house, simply because there are no bricks and no cement.What about the bathrooms? Here’s a revelation. They do not have any water nor sink hole for the water to go all the way down. The American bathroom floors are just made of plywood, standard of five ply. I change the bathroom floors every 4 years since it only costs $ 300 – $400…if you do it yourself. Yes, it is necessary to change the bathroom floors every four years, in case you didn’t know. As mentioned earlier, the American bathrooms do not have any drainage hole. So the water sits on the floor which is often carpeted. Eventually, it rots, that’s why it is a must to change your bathroom floors every four years.Another thing you should know is that American sewer pipes are 2 inches, not 4 inches. Expect to be fixing blocked toilets every so often. In order to have it fixed, you would need to call the Rotor Router guy and pay $90. It is the standard way of fixing blocked toilets.Your tenants will be blacks, whites or Hispanics. A lot of Australians do not realize that when they buy a cheap property, they do not understand where they are buying these properties. What kind of neighborhood it has and such. The Hispanics are great. They actually pay their rent even before they feed their children. But did you know that there is this expression called, ‘they’re hard on the machinery’, the Hispanics are really hard on a property. Perfect example is, they use lard when cooking. Lard is fat. They pour this lard down your sink, which causes the sink to get clogged. Which means, that you will need to call a Rotor Router guy every three to four months. Or perhaps, your managing agent will be the one to do this work for you. Making you spend more because they had to unplug all your pipes.I knew this one gentlemen who lived in the Sydney suburb of Roseville. He bought 52 cheap units. What he didn’t understand was that it was 52 units of Hispanic residents. This man ended up financially crippled because of the operating expenses of the Hispanics.The Hispanics, like to sit in the back of their pick up trucks and shoot their guns on a Friday or Saturday night, which is fine. They like to drink a lot, and in many of the States, there is no drunk driving laws. So I would often dig a pick up truck out of my swimming pool full of these drunk Hispanics who drove their pick up through my fence and straight into the swimming pool. What makes it harder is, majority of these Hispanics don’t speak English at all. And it is expensive to get tow trucks at 3 in the morning.The sad thing is, when Australians buy a property in America, they think that it has the same system and set of standards as it is in Australia. You have to remember that America is a totally different market. They think, do and act things differently. The carpets do not last long, the paint does not last long either. Although it is cheap to paint and you only need to spray the paint using spray gun. Nobody uses brush anymore because spray gun is a lot easier to use and you need to repaint after 2 years.Currently, I am assisting a lady who has a property in New York. Her agent put the property for $1.3 million on the market. Even to this day, I do not think that her property is worth anywhere more than $900,000 in the present market condition of the US. This agent has produced a back pocket buyer who don’t really exist. He would actually report someone trying to buy the property, and then not buying the property. There would be reports that this house does not have tenants when in fact there has been tenants in there for 9 months already. The agent collects the money and puts it in their back pockets telling the owner, “I’m sorry, we can’t get any tenants”.When you do find out that you actually have tenants in your properties, your management people will keep telling you there isn’t and they’ll just draw off the money and you’ll keep paying the cost.The main idea here, intentionally or unintentionally, is to make you financially bleed. Until such time that you decide to sell the property back. Surprisingly the management company has a back seat buyer who will take pennies on the dollar. I have witnessed this incident so many times.What about your lawns? What happens if they don’t get mowed? Your the management company does not take care of this. They do not organize anybody to mow lawns since the city is going to come in and mow the lawns for you. Simply because they have city codes and ordinances that you need to make your house look clean and tidy. If you do not make your house look clean, the city will come in and make it look clean and tidy, then you get charged for $400 for having them do that for you.You are not allowed to park your car on the street, that’s the rule for most parts of America, because if you do, you will be charged any towing costs. And you now have a lien to the city. If you are in Australia, you may not find out about this because the notice is probably sent to your American mailbox or even to your American property manager, which is the usual case. Your American property manager does not pay it. He goes out of business or simply destroys it. Since you don’t know what’s going on, the city sells your property from under you. The city wants its money back for its $400 lien, and will take your property to foreclosure and even sell you out.This is what you hear or watch on late night television, the city tax lien sales. This is where the city owed money on properties. Next thing you know, they will just sell your property up and you will just find out that they either sold your property or they have condemned it.Your property has a burst pipe flooding problem which is why the city will condemn it. We had the same issue in Dallas, Texas. That is a hot State and it simply means that you will have to constantly run those taps. So during the winter, if I don’t get all my piping blown out, there’s a huge risk that my pipes will burst during the winter months. Then I have major flood damage. Another term used for having the pipes blown out is winterizing. This leaves me two options, to have it winterized and cost me, or make sure that my taps are dripping and make sure that the house is above 68 degrees- which will also cost me on air conditioning and heating system running 24/7.Oftentimes, you get it wrong. Your pipes will burst while you are not around to fix and sort things out. So the city comes by, and condemns your property. They will condemn it by putting a huge tape across the front door. Worse is, the homeless people will move in and will destroy whatever’s left of it. They can even sue the city if they hurt themselves in a city condemned property which may lead to having to remove your house from the lot. They will leave you with what is called a PAD. This has happened a lot in the United States in the early 90′s. You will have nothing there but a cement pad. If you look at the bright side, the cement pad is clean and smooth for you to rebuild another house.These are just some of the things we don’t do in Australia. Many Australians get lost and confused by this. They sell their properties for $19,000 without understanding that they have black tenants who sometimes do guns and drugs and don’t pay the rent. So, if I was an American and I wanted to sell you some properties in Australia, I will put phantom tenants in the properties, create a bunch of leases that will show how much they’re supposed to pay and for 2 or 3 months. I will also make sure that the money goes through the books to encourage some Aussie sucker to buy properties.Aussies come in and their tenants don’t pay rent. All of these guys carry guns, unless you want to start learning how to use a.44 hand gun in order to collect rent, then you’ve to start getting these guys, who are doing drugs, out of your house. American properties can be bought for as low as $8,000 simply because nobody goes there. This neighborhood is the gang areas, the drug houses and the house of prostitutes. Australians are not used to this. There are a number of gun carrying States in America. People either strung out on drugs or get shot and these are the cheap properties that Aussies start buying.The issue here is not because the Aussies are buying cheap properties. The point is, they do not understand why it is cheap. They need to know that the Americans won’t touch it for many reasons. Most of the US mortgage companies do not lend money less than $50,000 and because of this, you cannot get your cash out. So even if there’s a buyer for your $40,000 or $45,000 property, an American cannot get this because of the loan size. Although it used to be $35,000, now they’ve increased it to $50,000-which is the minimum loan size.If that’s the case, most of these Hispanics, blacks and the people who live in this neighborhood cannot buy it since they do not have the 50 grand to spend for this property. They cannot borrow it because the loans don’t exist. Only thing left for them to do is to cash out.The investor will cash out the money, not the black person, nor the Hispanic person. This investor will take you out at $20,000 initially. Then he will walk in and string you out. He will do this because he’s the only one with the cash and you will find out that you are going to get about $20,000.Whenever people talk about these gross yields in America, what they say is, this property is gross yielding 26%. But it is important to remember that is before an amount of your money is taken out from repairs, maintenance, vacancy and other unforeseen expenses. My property, where I used to live, is 17.4 % of every dollar in up keep. It is indeed cheap to get parts for US houses. If you are in the US doing everything yourself, it would have been great. But if you actually live abroad, and you have properties in the US, that’s when it’s a killer. What will drain you financially is the cost labor of having someone to do the job while you are not around.Another burden foreign landlords need to keep in mind is the airfares, of flying back and forth to the US, not to mention the overseas phone calls and the time difference, when you have to get up at 5:00 am in Australia just to speak to somebody in the management office. Unfortunately, you don’t get to speak to anyone, because everybody has voice mail. The fact that you cannot speak to a live person drives you nuts. You will also notice that your cheques won’t arrive. That American banks won’t wire money to Australian banks unless you have filled out different legal documents.You have a whole bunch of extra paperwork from the new Patriots Act that Bush brought in. This whole stack of paperwork will stress you out to the point that you would simply want to pull your money out of the US back to Australia.Up to now, I do not know any Australian who made a profit from buying and holding a property in the US. But people still call me, people who bought properties in the US looking forward to getting a big profit. Fact is, that day may or may never come.Here is another story for you. I bought a 22 home units property from the US government and I owned it for 2 years. Well, it took me 2 years to fix things in order to buy it from the government. My cash flow should have been $11,000 after all my expenses. I have hanged on for 2 years and I never got a check above $1,500. Like their system, it goes, and disappears.You need to understand their structures, the LLCs, S Corps, companies, everything. You will need to do all these tax treaties and corporations with the US government. An average Aussie accountant will not be able to do your taxes any more. You’ll end up going to Coopers and Lybrand, the biggest companies in Australia to do your taxations, and because they understand the structure in the US. The LLCs, S Corps, C Corps, all these things that you have set up in the US.For Starters, these guys will charge $300 per hour. Here, you will discover that your tax bill will come from $1,000 up to $15,000 a year just to acquire an Australian and US tax return done. That would surely kill you. This is what you call, the on cost of doing business.However, if you do live in the United States, you will absolutely profit from it. You will earn a lot from buying and trading properties in the US, simply because Americans forget about equity. For them, real estate is not an investment vehicle but a consumer item, that as soon as they are finished with it, they can leave and move on. If you are in the US, you’ll witness this yourself. The Americans will know that Aussies have not left for Atlantis to live there, they will realize that you can show up the next day with a double barrel shotgun, demanding to get back your money, so you can make profits – BUT, that is only if you are physically there.We can take advantage of a lot of situations when we are there in the US. I made a lot of money when I was buying, selling, trading properties. But we have to understand how real estate trading works in the US. My objective of writing about this today is to recognize two essential things. We may speak the same language as the American, but our philosophy about business is totally different-which is, ‘they win and I lose’. Majority of Australians who invested in properties in the US do not go through this without legal battles.In the US, people sue each other. This isn’t about just winning, it’s about making the other guy bleed and dry. Whoever gives up first will comply to what the opposite party wants. This is the painful reality of real estate business in the US. I’ve seen a lot of Australians go into that industry in the US market, and will eventually come back broke, drained and stressed. They do not get anything near their returns at all. And yes, your cheques will mysteriously get lost in the mail.My ultimate message is, spare yourself from this painful experience. If you want to earn money, you can earn it here, in your own backyard, without having to buy any airline ticket, dealing with US corporations, learning and understanding a different country’s system and way of doing business-the hard way. Yes, we do speak the same language as them, but they do not do business the way we do. It may sound appealing and sexy to say that I’m off to see my house in Florida, but there are more negatives than positives in this experience. Find the same opportunities here in Australia.When you see US figures for yield returns, find out what the net yields and figures of the net return. Consider the repairs, maintenance, vacancy and other surprising expenses that will come your way. Brace yourself from disappointments. Don’t say I didn’t warn you. This is probably your way of knowing and seeing what properties in the US can do to the investor.I also came across an e-book about an author who shares his similar experience when buying a property in the US. In case you want to read about this as well, you can find it on http://www.seekingfortuneinnewyorkstate.com.