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Investing in U.S. Real Estate: Tips for Foreign Investors

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U.S. real estate continues to attract foreign investors, primarily due to the cap rates and returns that are considerably higher than the markets in other countries. The appetite that foreign investors have for U.S. real estate remains insatiable in spite of the COVID-19 pandemic.

But why do foreigners love investing in U.S. real estate so much?

Major reasons why foreign investors continue to invest in U.S. real estate

  1. Debt terms are favorable

Investors often get the best mortgage rates in the U.S., better than almost any other country. In the U.S., the long-term, fixed-mortgage is one of the standards, which is not the norm for most of the world. In many other countries, short-term and adjustable-rate mortgages are the standard.

  1. Property valuations are low

Even if U.S. real estate may seem ridiculously expensive to Americans, property valuations here can still be lower for investors in, say, London or Canada. Furthermore, there is an abundance of properties in the U.S., leading to more stability without an insanely high barrier to entry.

  1. Positive cash flow is possible

Favorable debt terms and low property values form another major benefit: they build conditions that make positive cash flow very attainable. Compared to other parts of the globe, it is relatively easier to build and maintain a good cash flow in the U.S. real estate market.

  1. The U.S. is open to foreign investors

Non-resident aliens are completely free to own U.S. real estate, and there are no tax prohibitions of U.S. real estate by an alien individual. However, any foreign investor still has to meet lender requirements just like any other U.S. resident.

Tips for foreign investors

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As you can see, there are many potential benefits of investing in U.S. real estate, but before you dive in, here are some valuable pieces of advice that can help you invest in your first property.

Do due diligence

As with any other country, the importance of doing due diligence can never be overemphasized. Navigating an unfamiliar real estate industry with all its acquisition processes, mortgage requirements, and everything in between can be extremely difficult without a solid knowledge base.

That said, you must build a solid foundation before looking into any investment opportunity. Luckily, there are many sources of information on U.S. real estate that you can use (e.g., podcasts, articles, seminars, books, videos, etc.), and most of them are free.

Find the right people

Whether it’s a business partner, investor, sponsor, or property manager—hiring the right people can mean the difference between success and failure. You want to work with people that you can trust. More importantly, you want people with the skills, expertise, and track record to help you get ahead in a foreign market.

Also, you should find mentors that can help guide you through your journey investing in foreign property. The ones with gray hair are some of the best choices as they tend to have the most knowledge and experience, but don’t underestimate the value that younger investors can provide.

Diversify your financing options

Local mortgages may not always be easily attainable for foreign investors. Thus, having more options can help you get ready to strike a deal when it’s hot.

Aside from a regular mortgage, here are other ways you can finance property in the U.S:

  • Of course, using cash is the easiest way to close a deal faster and secure discounts, but it is not as easy to attain. You will need large amounts of it to make sizeable down payments on properties—but if this is not a problem, then cash is the best financing option to use for foreign investors. The only problem you have left is figuring out how to convert your money into the U.S. dollar efficiently and cost-effectively.
  • Developer financing. If you purchase a property still in construction, you may qualify for developer financing, which can be easier to attain than a regular mortgage.
  • Personal loan. It may not be an ideal option for all types of investors, but securing a personal loan in your home country may be the easiest way to get the funding you need to invest in foreign real estate.

Investing in U.S. real estate can provide great cash flow and less expensive opportunities in a relatively stable market. And seeing that the U.S. market is still bustling despite the pandemic, now may be the best time to take advantage of rock bottom rates and increased inventories.

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