International Real Estate Investment in the USA: Where and How

Why Invest in Real Estate in the United States?

Owning rental residential properties can be one of the most effective ways to generate substantial positive cash flow and support long term capital growth. Given the sophistication, high efficiencies, and pro investor market climate in the U.S. it is no wonder that many foreign investors choose to focus their investments in the United States.

Selecting a sound real estate investment in the U.S. is a challenge for any investor, but is especially difficult for international investors because of additional hurdles related to financing and other issues. In this article I will address two of the critical challenges and obstacles facing the foreign real estate investor. Relying on Better Coast Capital’s many years of experience facilitating real estate investment transactions for international investors, I will provide advice on how to achieve success with your investment.

Choosing a Market for Real Estate Investment

Selecting your market is critical to the success of your investment. Ideally, you would select a market that allows you to generate steady income throughout the course of the investment, and also allows your property to appreciate in value, providing additional profit when you decide to sell. In a country the size of the U.S., finding this market can be a challenge. At Better Coast we rely on several indicators to help us choose our markets. We review larger markets first, then we look at a granular level and analyze individual developments. Below are some of the most important things that we factor into our community choices.

• Rent to value ratio: This will tell you how much income you can expect to make while holding the investment, or your most basic yield. Higher is better.
• Rent to average income ratio: You may be looking at a property that promises to rent for a high value, but if the residents of your market can’t afford it your property will remain vacant. A low rent to income ratio ensures your property will remain occupied and earning for you.
• Average annual appreciation: While there is no guarantee of appreciation, looking at the historical trend in your market can give you a picture of what to expect if the market continues to grow at a steady rate. Use this data in conjunction with other measures to forecast the economic prospects for your area.
• Taxes to value ratio: Taxes and other fees cut into your profit. Don’t forget to factor these into your calculation.
  Unemployment: Low unemployment can indicate a growth trend in rental rates as new residents move to an area in search of jobs. It is also a good idea to look at the area’s largest employers to make sure there aren’t major layoffs coming up, as these will negatively affect your property.
• Population growth: Above average population growth is one of the best indicators of desirability, potential appreciation, and ease of renting due to growing demand.
• Crime vs US avg: Low crime areas attract families that are stable renters. Compare crime rates to city and state levels as well.

Obtaining Mortgage Financing for International Investors

Mortgage financing is a valuable part of the real estate investment process. Done right, financing allows the investor to leverage their cash investment to purchase a larger portfolio than otherwise possible. While this does mean the mortgage interest will eat away a portion of the cash flow return during the course of the investment, the property appreciation will belong entirely to the investor. This appreciation will provide a large leveraged return on the portfolio at the end of the investment cycle.

Lenders are less likely to lend to international investors for several reasons. Unlike domestic investors, international investors lack a credit history in the United States. This makes it hard for lenders to evaluate creditworthiness for a non-resident investor. As a result, loans to non-residents are classified as non-conforming loans. With a standard mortgage the lender is able to easily sell the note on a secondary market. The secondary market for non-conforming loans is substantially smaller, making these loans less attractive for lenders, and making international investors less desirable as clients.

Investing with Better Coast Capital

At Better Coast we’ve spent years fostering relationships with select lenders that lend to our international investors. With our guidance, the majority of our clients qualify for mortgages with one of these lenders, easing the investment process. These loans are custom built for investors and typically require a minimum of 35% equity. The process does require more paperwork compared with a cash deal, but the benefit of leveraging the cash investment is substantial for our clients.

Another avenue that Better Coast will be introducing this year is investment via limited partnerships. These fully managed investments will allow investors to own portions of the investment, bypassing direct ownership and the complications of the financing process. Management of the partnership will be handled entirely by the partnership’s managers. Another benefit of the limited partnership investment option is that the investor does not need to guarantee any portion of a loan, reducing the risk to the investor.

Better Coast has facilitated real estate investments for international clients since 2013. During that time we’ve amassed a large amount of knowledge about how to most easily complete these transactions, and how to manage the properties through the investment cycle. For more information about our ongoing and past projects, visit www.bettercoast.com or email us to discuss your particular needs.