How Foreign Investors Buy Rental Properties in the U.S.

November 5, 2021

By Yumna Zahidi

The ongoing Covid-19 pandemic has impacted communities around the globe in many devastating ways. The real estate market was heavily affected as well. Home prices are off the charts, many tenants have not been paying their rent and some are reluctant to renew their annual leases, yet, the U.S. is still seeing an increase in demand for real estate investment properties – especially from our foreign counterparts. What gives?

Why do Foreign Investors Target the U.S Real Estate Market?

Here are three reasons why foreign investors still love the U.S real estate market:

1. Favorable Debt Terms

Countries around the world such as in the U.K or Canada normally lend on short-term, adjustable-rate mortgages. The United States is unique in the sense that we offer investors the opportunity to lock in low interest rates anywhere between 10 to 30 years with amortizing schedules up to 40 years. These long-term, fixed-rate mortgages allow foreign investors to find favorable leverage, especially with U.S interest rates at historic lows. This does not take into account the geopolitical nature of certain countries and the trust investors have in their governments, lending institutions or processes.

2. Low Cost of Acquisition

Property prices in the United States are shockingly much lower than some of their global counterparts. This is in part due to the abundancy of land in many of the states as it compares to highly concentrated countries and metros around the world. Apart from dense markets such as Los Angeles, New York or San Francisco, purchasing property in vast areas of the country is usually very favorable to foreign investors. These investors have a multitude of MSAs to choose from, and for the most part, the properties are of high quality in addition to being priced well.

3. Positive Cash Flow

Favorable debt and low prices go hand in hand in creating conditions for excellent cash flow. It is relatively easy for owners of U.S rental property to have a monthly cash surplus with no burden of a high debt-service and ability to grab properties for relatively low prices. This kind of stability and cash flow really drives foreign demand further for U.S real estate.

A few things foreign investors should know first

While investing in the U.S market may be increasingly attractive to a foreign investor, there are a couple of obstacles they should know about first:

No Freddie Mac or Fannie Mae Loans

Many lenders and banks sell their loans to Freddie Mac or Fannie Mae which buys the mortgages and packs them into mortgage-backed securities (MBS) to then sell or hold in their portfolios. The problem for foreign investors is that these institutions do not buy mortgages from non-US citizens. To avoid this obstacle, investors need to find a lender that so that doesn’t sell their loans to Freddie or Fannie (hint: CoreVest Finance).

Higher Interest Rates

Banks and lenders charge higher processing fees and interest rates on loans for foreign investors. Additionally, they may also require a higher down payment to protect themselves in case of default. Foreign investors still find it worthwhile to invest in the U.S as the pros many times outweigh the cons.

How to Buy an Investment Property as a Foreigner

So, how do foreigners begin investing in the U.S real estate market? Here are a few tips that can help most investors – foreign or not.

Decide what kind of investment property you want

Commercial real estate can be used for many business purposes: retail, office, shopping, hotel, etc. Residential real estate can be used for the purpose of living in different property types such as: condos, townhomes, single family rentals, or multifamily properties.

Select a real estate market

Find a real estate market that works best for your investment strategy. Factors to consider when choosing a market are not limited to population growth, job growth, and employer diversity but these three factors will help you find a market that is attractive to renters and help increase demand for your rental property. Once you become comfortable in this market, you can consider diversifying your portfolio and tapping into other markets. Once you are ready to take it to that next level, you can check out my previous article on Multi-State Investing: 4 Reasons Why and 7 Steps How to Invest in Multiple Zip Codes.

Find profitable investment properties for sale

Online databases are a great place to start as you can remotely view and narrow down your search for properties across the country. Here is a list of seven websites that are helpful for real estate investment
search:

• Roofstock.com
• Auction.com
• LoopNet.com
• Realtor.com
• Trulia.com
• RealtyTrac.com
• PropertyShark.com
• SFRhub.com

Do your real estate due diligence

One easy way to understand a market is to work with a local real estate agent or broker that can help guide you through the acquisition and due diligence process. They can also assist investors in connecting with trusted mortgage brokers, property managers, contractors, insurance agents, and professional home inspectors to help them verify:

• Overall condition of the home
• The upfront cost of repairs
• Operating expenses
• Cost of insurance
• Professional property management costs
• Property taxes

Make an offer

Next, it is time to make an offer. Before you make an offer on an investment property, you will want to establish the current property value of the property. You can do so by hiring a home appraiser for a property valuation or researching similar properties (real estate comps) in the area that have been sold in the recent months.

Hire a professional property manager

Since you are most likely thousands of miles away, you may want to ensure that there is someone there, boots on the ground, to oversee and manage your new investment property. Your real estate agent could put you in touch with a trustworthy property management company. Be sure to interview multiple firms to make a better choice on the right one for you.

Once you understand the obstacles, do your research, and hire the right team – you can unlock a great return on your U.S. real estate investment. If you are a foreign investor buying rental properties in the United States or have any questions on how to grow your U.S. investment portfolio, please call Yumna Zahidi at 949.763.3162 or email [email protected].

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