The number of foreigners investing in the US housing market has been increasing over the past several years and there are no signs of them slowing down any time soon.
If you’re a non-US resident looking to own an investment property in the country, you’re in luck. The housing market in the United States welcomes foreign property investors with open arms and provides them with friendly business environments across all 50 states. As a matter of fact, the country is the single largest recipient of foreign direct investments (FDI) and cross-border capital in the world. Forbes reported that, over the last 2 years, the US received more than $450 billion of foreign investments!
There are many reasons why foreign investors from all over the world want to start investing in the US housing market (in both residential and commercial investment properties) despite the obstacles and challenges in some cases. In addition to being a great strategy to diversify your investment portfolio, here’s why you, as a foreign real estate investor, should consider investing in the US housing market in 2018.
Related: How to Buy an Investment Property in the US from Abroad
What Foreign Investors Gain from Investing in the US Housing Market
1) Stable Market and Strong Economy
10 years have passed since the housing crisis and the US real estate market is now stronger than ever. Among the things that attract foreign property investors to the United States are its transparent legal system, outstanding infrastructure, and access to the world’s most lucrative consumer market. In addition, the American government doesn’t restrict or charge hidden fees from a non-US resident seeking out a home or an investment property in the country. Thus, a foreign real estate investor has the ability to operate with relative freedom when investing in the US housing market.
Furthermore, with a population of over 300 million and a comparatively qualified workforce, the United States has the world’s strongest and most stable economy. With respect to real estate investing, this results in increasing the demand for housing and office space which provides property investors with great opportunities – especially in the world of commercial real estate investing.
Thanks to the stability of the American economy, buyers and real estate investors from countries where the situation is much more volatile and property prices are skyrocketing (such as Dubai, China, and Singapore) choose investing in the US housing market over their home countries. At the same time, the US real estate market is known for its large scale and liquidity, providing foreign property investors the flexibility to exit their investments if they decide to invest their capital elsewhere.
Looking for an income property in the US? Click here to use our Property Finder Tool and find the most profitable properties in the city/cities of your choice in a matter of minutes!
2) Available Financing
Some foreign investors mistakenly believe that they can’t qualify to finance an investment property from a US bank. On the contrary, many banks do lend to non-US residents who are buying investment properties. Instead of relying on conventional mortgages, however, America’s home loan market offers foreign real estate investors a variety of nonconforming, safe and affordable mortgage loans with their own underwriting guidelines.
Something worth mentioning here is that in order to qualify, foreigners investing in the US housing market are typically required to make larger down payments (30% – 40% of the income property’s purchase price) to obtain financing. Different banks have different requirements with regards to the loan limit, amount of deposit with the bank, or the required credit score. Also, these requirements could differ from one state to another. So, as a foreigner real estate investor, you should discuss what’s required of you with your bank in your state of choice.
A piece of advice: consider big-name banks with global operations. They have the necessary experience to verify credit established in other countries and will guide you through the process of buying investment properties in the US. On the other hand, when investing in the US housing market, plenty of foreign real estate investors pay cash for investment properties to avoid the hurdles of obtaining a mortgage loan. If that’s the case with you, we suggest looking for a property in the affordable parts of the country – they do exist!
Related: Where to Invest in Real Estate for Affordable Investment Properties
3) Tax Benefits
Homeowners in the United States are subject to property tax regardless of their nationality. Yet, remember where we said that you, as a foreign investor, have to put a larger down payment for the purchase of an income property? Well, doing so is actually to your benefit! A real estate investor who purchases an investment property with 40% to 50% down payment dodges paying income tax on any rental income that the property generates for the first 10 – 15 years!
The government also allows foreign taxpayers investing in the US housing market to deduct certain expenses like mortgage interest, property taxes, and depreciation. Eventually, this will change the longer foreign investors hold their rental properties, but it’s still a great way of avoiding taxes on your investment property for a number of years.
Unfortunately, things can get complicated with foreign investments – tax laws of more than one country may apply! Your tax liability as a foreigner investing in the US housing market will depend on where the purchase is from and whether your country has a tax treaty with the United States. Moreover, the American government requires foreign investors to file tax returns in a timely manner, otherwise, they become subject to financial penalty and a tax of 30% of the gross rental income may be assessed.
Thus, before closing any deals, make sure to consult with a tax attorney in your country (preferably in the US as well) to get answers to tax-related questions for investing in the US housing market.
Top Markets for Foreign Investors in the US Real Estate Market
Based on our research, we found that the majority of foreign investors come from China, Canada, the UK, Mexico, and India. According to the National Association of Realtors, the states of New York, California, Florida, and Texas are the top destinations for foreigners investing in the US housing market. If you’re looking for an income property in one of these states, we suggest buying in these cities:
#1 New York, NY
- Median Property Price: $1,116,899
- Traditional Rental Income: $2,839
- Airbnb Rental Income: $3,382
#2 Los Angeles, CA
- Median Property Price: $950,039
- Traditional Rental Income: $3,108
- Airbnb Rental Income: $3,472
#3 Miami, FL
- Median Property Price: $2,567
- Traditional Rental Income: $3,161
- Airbnb Rental Income: $641,540
#4 Austin, TX
- Median Property Price: $508,469
- Traditional Rental Income: $1,923
- Airbnb Rental Income: $2,935
Looking for more options? Read “The Best Cities to Invest in Rental Properties 2018”
These numbers are obtained from Mashvisor’s investment property calculator – a real estate investing tool that uses traditional as well as predictive analytics to provide property investors with accurate real estate analytics to help them make smart investment decisions. Using this tool, you can easily find the cash on cash return and cap rate (both traditional and Airbnb) of an investment property before making the purchase. This way, property investors can compare and analyze different rental properties in different locations to determine where they should invest their money for the highest returns!
Click here to start looking for, comparing, and analyzing the best investment properties in your city and neighborhood of choice in the US real estate market!
The Bottom Line
When it comes to real estate investing, there are few countries that are as welcoming and kind to foreign investors as the United States. There are significant advantages to investing in the US housing market that keep on drawing more and more foreign investments. These include a safe and stable market and economy, available financing, tax benefits, and ability to reap a high rate of return on investment. So, if you’re thinking of diversifying your investment portfolio through buying an income property, we highly recommend making your purchase in the United States!
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