With the 4th of July weekend just behind us … it’s the perfect time to reflect on the fact that foreign investors absolutely love US real estate. Americans tend to take our own property for granted, but foreign investors have an insatiable demand for title to US real estate. That appetite has only increased in the past decade.
By reflecting on why that is, we Americans may gain a better appreciation of what we have, right there beneath our feet. And if you’re a foreign investor, maybe we can push US real estate higher up your list of assets to consider.
Let’s look at five key reasons foreign investors love US real estate …
1. The Price
Soaring valuations have made American buyers hesitate. Who wants to pay $100,000 or more over asking.
But high prices haven’t deterred foreign investors. Why? Because the prices in their home country may be even higher.
Yes, $200-$300 per square foot may seem like a lot to pay for a house, especially when we remember what we paid for the same house 10-15 years ago.
But compare that to the plight of the Londoner, who has to pay $8,000-$10,000 per square foot at best to be anywhere within an hour of the Thames. Tokyo, Hong Kong, Monaco, Moscow, Mumbai … these cities have property price tags that would make a US homebuyer blanche.
The US not only has lower prices, but also a variety of prices. Yes, you could pay $1 million or more for a brownstone in New York … or you could pay $150,000 for a rental house in Euclid, Ohio. The US has options for every price point … and there’s still a lot of undeveloped land to tap for new assets.
2. The Loans
We Americans have it good. It’s easy to forget that most of the world has to borrow money for real estate purchases on terms that seem like outright usury to us — terms no American would ever accept, because our lending market has spoiled us.
What if you were limited to maximum leverage of 60%, like in Spain? Interest rates in the neighborhood of 15% on a good day, like in much of South America? No fixed-rate option, only adjustable rates, so your cash flow became impossible to predict?
Foreign investors will go to great lengths to take advantage of the favorable US real estate lending environment — partnering with local guarantors, seeking private debt, etc.
One of the main reasons we created the first tokenized real estate fund was so that foreign or low-credit investors could take advantage of US debt and leverage without having to qualify for the loan themselves. Read more about that tokenized investment fund here.
3. The Cash Flow
Americans not only take their debt for granted but also the possibility of positive cash flow. It doesn’t always happen … but we’re at least aware that it can happen, due to a salubrious balance between property value and market rent.
In London, by contrast, positive cash flow is rare enough to qualify as a pipe dream. In Sydney, Australia, investors expect to realize negative cash flow. To the Sydney investor, a property that generates positive cash flow is a luxury on par with diamonds — it’s like getting paid to be an investor!
4. The Stability
Every now and then, someone will complain about the rule of Eminent Domain — the ability of the government to forcibly seize property within its jurisdiction.
This is the dark side of real estate. We talk about “owning” our homes and real estate investments … but try skipping out on your property taxes next year. You will see exactly how much you own that property when the sheriff comes to evict you.
In many ways, we haven’t left the Feudal Era when the rules of real estate came to be. All the land still effectively belongs to the government. After all, they have the big guns.
That being said, the US has an enviable reputation for protecting property rights compared to other countries. There has never been a military coup, nor has there been mass or routine seizure of land when the owner has committed no crime, as is common in places like China.
If a US governmental authority deems it necessary to force someone to give up property — to make room for a highway project, for example — they at least have a history of paying the owner fair market value for their inconvenience.
5. The Passivity
On paper, US real estate may be a good buy for a foreign investor … but what does it matter if the investor lives on the other side of the world?
Fortunately, the US business infrastructure makes it easy to buy US real estate remotely and invest passively. Due diligence and document signing can be done remotely, and professional property managers can keep the property leased, maintained, and generating cash flow.
That’s what MartelTurnkey does — do the heavy lifting of property selection, acquisition, due diligence, renovation, and leasing. That way, investors both foreign and domestic can buy with confidence without ever setting foot on the property.
Ready to invest in US real estate the easy way? Call MartelTurnkey now!