Reasons Why More and More Foreign Investors Prefer US Real Estate
Many real estate investors have witnessed the largest increase in tenants in US history. In July, a 97% increase in rental occupancy rate was observed, providing many landlords with unprecedented pricing power.
While it is difficult to imagine investment optimism in the middle of the pandemic, foreign investors still have an interest in real estate in the US. Yes, multifamily and residential markets are indeed being overpriced, the office and retail sectors are in trouble, and there are eviction moratoria. Still, real estate investment in the US has continuously been rising for some quite time now.
Here are some of the reasons why more and more foreign investors are bullish on real estate in the US:
Low Property Valuations
Many Americans have a sticker shock once they look at the real estate prices, but it is nothing compared to foreign investors. For instance, a square foot may cost $200, and it is like you have to pay for a high-end property. However, it is less costly compared to a property in London, where you have to pay thousands of pounds per square foot.
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If you are looking for many property options, the US market is an excellent option, where new developments are almost constant. Several stable markets are among the least expensive alongside the lowest barrier to entry and are often found in the country's middle.
Favorable Debt Terms
Many US investors forget how effective they are in the real estate debt market in the country. Plus, the fixed-rate and long-term mortgage is far from the global standard. Many countries see adjustable, and short-term rate loans are the norm.
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However, US lenders provide a chance to lock in the low-interest rate between 10 to 30 years alongside amortization schedules between 15 to 40 years. Some agency lenders offer $1 million or over-stabilized-asset loans, which are more attractive, especially because of the interest-only periods and non-recourse guarantorship.
Positive Cash Flow
The combination of low prices and favorable debt forms the major benefit: positive cash flow. The low purchase price and low debt-service burden compared to the market rent make it easy for US rental property owners to get a monthly cash surplus.
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However, most American investors do not recognize the potential cash flow from their highly-levered real estate assets. In London, investors prefer minimal cash flow during the hot real estate market. As for Australian markets, negative cash flow is expected but still not acceptable.
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The foreign demand for real estate in the US offers potentials for stability and cash flow.
Relative Stability
As foreign investors eye on American real estate, their prospects remain bright. Due to the advantages that US property ownership offers, investors from different parts of the world are more than willing to accept far more modest returns compared to local investors.
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In general, US markets may be volatile nowadays, but the interest of foreign investors in US real estate is still strong.
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Are you planning to invest in the US real estate market? If so, do not forget to work with trusted partners in growing your investment portfolio.