One of the best places to invest in real estate is the United States. With its economic growth, stability, and regulatory environment, investing in the US housing market can be a very lucrative venture. The good news is that the conditions are also friendly to a foreigner buying rental property in the US. Foreigners investing in US real estate don’t need to have a green card or be a US citizen before buying an investment property in their personal name. In addition, the American government doesn’t charge extra stamp duties to a foreign buyer of US real estate.
A Few Things Foreigners Investing in US Real Estate Should Know First
Although it’s possible to do so, there are some obstacles for a foreigner buying property in the USA:
- No Freddie Mac and Fannie Mae loans– Freddie Mac and Fannie Mae buy mortgages from lenders and banks, and then pack the mortgages into mortgage-backed securities (MBS) for sale or hold the mortgages in their portfolios. However, they do not buy mortgages from non-US citizens. This means that foreigners investing in US real estate must find lenders that don’t sell their loans to Freddie or Fannie.
- Higher interest rates – Banks charge higher processing fees and higher interest on loans for foreign investment in US real estate. They also require a larger down payment to protect themselves in case you default. This down payment could be 30% or more.
- Strict approval processes – To establish if you qualify for an investment property loan, the lender will look at your credit history, income, and expenses. For foreigners investing in US real estate, it can be difficult for banks to verify these things. As a result, they are likely to ask for more paperwork than they would ask from an American real estate investor. This could include months of bank statements, credit history, and tax returns from your home country. To make the process faster, you could apply for a mortgage in a bank in your home country that is affiliated with a lender in the US. This will make it easier to verify your details.
- Individual Tax Identification Number (ITIN) – Even though you don’t have to have a green card or be a US citizen to own real estate, foreigners investing in US real estate are required to obtain an ITIN for filing federal tax reports to the IRS.
Related: Financing a Rental Property: What’s the Best Way?
How to Buy an Investment Property in the US Housing Market as a Foreigner
So, how can foreigners investing in US real estate go about investing in the US housing market?
Decide what kind of investment property you want
What kind of investment property do you want to own? Commercial real estate is any property used for business purposes. This could be retail properties, shopping centers, office buildings, warehouses, hotels, and apartment complexes. On the other hand, residential real estate could be condos, single-family homes, or multifamily homes. Any rental property with 5 units or more is considered commercial, even if people are living in it. Explore the pros and cons of both commercial and residential real estate before making a decision.
Select a real estate market
The US housing market is vast and has numerous cities and counties to choose from. To enhance your chances of finding a profitable investment property for sale, you need to select one market and focus on it. Here are some of the factors to consider when choosing a real estate market:
- Population growth – Look for an area that records increasing population growth and also has a high renter population. This shows that the demand for rental property will continue rising.
- Job growth – Find out if new major companies are setting up shop in the city. This could even trigger the migration of new residents from other areas.
- Employer diversity – Avoid places where jobs come from one source such as shipping, oil, mining or agriculture. If most people are employed in one industry, you will be in trouble if that industry collapses.
After selecting a city, you will still have to find a good neighborhood for buying rental property. With a real estate heatmap analysis tool, foreigners investing in US real estate can easily evaluate neighborhoods with rental properties for sale based on metrics such as cash on cash return, rental income, listing price, and Airbnb occupancy rate.
Find profitable investment property for sale
Once you have chosen a real estate market, it is time to begin looking for investment property for sale. Mashvisor comes with a wide range of real estate investment tools that will help you find an income property that fits your goals and budget. The rental property finder, in particular, uses the latest machine-learning algorithms and technologies to help real estate investors find the best rental properties. It comes with filters such as location/city, budget, miles, number of bathrooms/bedrooms, and rental strategy of choice. The best part is that you can quickly find the best investment property for sale from anywhere in the world.
Mashvisor’s Property Finder
Then, use the investment property calculator which will help you figure out potential earnings from your rental properties.
Related: How to Find the Best Rental Properties in Any Market
Do your real estate due diligence
Finding a suitable rental property should be followed by proper due diligence. Here are some of the things foreigners investing in US real estate need to verify:
- Overall condition of the home
- The upfront cost of repairs
- Operating expenses
- Cost of insurance
- Professional property management costs
- Property taxes
To make this process easier, work with a real estate agent who is active in the area where you are planning to purchase a rental property. You can easily find real estate agents online. A good real estate agent will have relationships with professionals and can connect you with them to help ease the real estate due diligence process. This could include mortgage brokers, property managers, contractors, insurance agents, and professional home inspectors.
Make an offer
Before making an offer on the property, foreigners investing in US real estate should establish the current value of the investment property first. You can do this by researching similar properties (real estate comps) in the area that have been sold in the recent past. A home appraisal could also be very useful for proper home valuation.
Hire a professional property manager
Be sure to do some research on local property managers. Interview a few before choosing the right one to manage your new US investment property. Your real estate agent may be able to put you in touch with a trustworthy property management company so be sure to ask. Hiring the right property manager is the path to successful passive real estate investing for foreigners investing in US real estate.
Closing Thoughts
If you know the steps, understand the hurdles, have the right team and work hard, purchasing real estate in the US can be possible. However, due to some of the rules for foreign investors buying property in the US, the process can be very challenging. There are, of course, other ways of owning a piece of real estate without buying a physical property. This includes real estate crowdfunding, Exchange Traded Funds (ETFs), Real Estate Investment Trusts (REITs) and private lending. Be sure to explore all of your options before making a move.
Related: What Is a Real Estate Investment Trust (REIT)?