by Michele Lawrie·
· 12 min read
“Do not keep all your eggs in one basket” is a famous saying in the investment world. If you keep your investment in the right baskets, you will reap good returns. Real estate investments are considered one of the most stable and lucrative investments, and with relatively lower risk than other asset classes, you can achieve plenty of profits.
By investing abroad, you can create international assets. As international buyers, you can also take advantage of the global economy to diversify your portfolio with foreign investment in the residential or commercial real estate market.
Table of Contents
- 7 Reasons Why Foreign Buyers should consider foreign investment in the US Real Estate:
- 1. No barriers for foreign real estate investors by US Government
- 2. US Mortgage Loan Financing for Foreign Investors with No US credit history
- 3. Relatively Low Property Prices
- 4. Excellent Rental Yields in the US
- 5. Stable and secure foreign investment with capital appreciation in USD
- 6. Positive Cashflow
- 7. Capital Tax Deferral Advantage to the foreign buyers
- Step-by-Step process for Foreign Real estate Investors to invest in USA
- Top Five common avenues for Foreign Investors to invest in US real estate
- Country of origin for Top 5 Foreign buyers of US real estate in 2021
- Country of origin for Top 6 Foreign buyers of US real estate in 2022
- In Conclusion
- Frequently Asked Questions
The USA is one of the top destinations for foreign real estate investment. Several reasons make foreign investment in US real estate attractive, which we will detail in this article. The United States provides the perfect opportunity for real estate investors to generate cash flow through rental income, capital appreciation, and profits produced by commercial activities that rely on investment properties. Moreover, the US is one of the few countries with no additional restrictions or taxes on foreign investment in real estate by foreign investors.
Here are the top reasons why foreign real estate investors should buy investment property in the USA:
7 Reasons Why Foreign Buyers should consider foreign investment in the US Real Estate:
1. No barriers for foreign real estate investors by US Government
As a foreign buyer of real estate, the first barrier that you probably will face with your foreign investment property abroad are the restrictions imposed by the country’s government.
The good news is that the United States government does not restrict or prohibit foreign investments in real estate. Therefore, there are no additional taxes or restrictions imposed on foreign buyers.
Foreign national investors of US real estate have the same rights to buy and own property in the US as US citizens do. In the last ten years, foreign real estate investors have purchased more than $1 Trillion worth of US real estate (Source: National Association of Realtors (NAR)).
2. US Mortgage Loan Financing for Foreign Investors with No US credit history
US lenders specializing in foreign national mortgages offer long-term fixed-rate mortgages at competitive rates for non-resident foreign investors (with no US credit) and US Newcomers on visas.
The ability to secure mortgage home loan financing and lock in low-interest rates with a 15-year or 30-year mortgage (based on your needs and preference) without needing an established US credit history truly makes the US a perfect place for foreign real estate investment.
Please refer to our complete guide onHow to Obtain a US Mortgage for Foreign Nationals with No or thin US Credit Historyfor a detailed step-by-step process.
3. Relatively Low Property Prices
This might come out as a surprise, but home prices in many US metro areas are inexpensive as compared to the central regions of the other global cities. For example, even in a relatively costlier US city like San Francisco, per square meter of residential real estate costs $7,180 compared to $26,262 in London (UK), $28,570 in Hong Kong (China), $10,947 in Toronto (Canada), $10,932 in Mumbai (India), etc. (Source: Global Property Guide, NAR)
The prices per square meter get cheaper ($1500-$3000) in most US metro cities.
The below table compares Home Price Comparison Among Global Cities and US Metros:
Home Price Comparison Among Global Real Estate Market and US Metros
4. Excellent Rental Yields in the US
The US is a renter-friendly country with a high demand for rental properties. Therefore, you can easily find tenants for your investment property in the USA and generate good rental income.
Rental yield is defined as the gross annual rental income as a percentage of the property purchase price. This is what a landlord should expect to earn before taxes, maintenance fees, and other expenses.
According to ATTOM Data Solutions, the average annual gross rental yield for 2021 is 7.7 percent.
Rent prices in the US have been increasing as well. For example, the Zumper Year-End Rent Report reveals that the two-bedroom rental cost increased by 13% in 2021.
YoY Growth in Median Rent in the US
5. Stable and secure foreign investment with capital appreciation in USD
The US is one of the most stable countries for real estate values. The housing market in the US is relatively stable, making it a safe investment for foreign investors.
In addition, the property prices in the US are expected to rise by 17.3% in the next 1-year forecast (Per Zillow Home Value Index), giving foreign investors a perfect opportunity to take advantage of capital appreciation in USD.
This makes the US an excellent place to invest your money, as your foreign investment is likely to grow over time.
Pro Tip: When you are ready to buy a house in the US, you should ideally work with real estate agents who have expertise in working with foreign national clients, such as a real estate agent withCIPSdesignation.
A CIPS (Certified International Property Specialist) real estate agent has undergone specialized training to handle real estate transactions smoothly for foreign real estate investors.
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Connect with a local US real estate agent(s) with CIPS designation
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6. Positive Cashflow
It is pretty standard for owners of US rental property to have a monthly cash surplus from the rent after paying for their monthly mortgage payment and property taxes owed in the escrow. Foreign interest in US real estate is fueled by the prospect for cash flow, stability, and even appreciation.
7. Capital Tax Deferral Advantage to the foreign buyers
When you invest in the US, one of the most beneficial and unique things is getting tax benefits on your investments, which is very specific to the United States. Here’s the list of such tax benefits:
1031 Exchange policy
Let’s start with the 1031 exchange. A 1031 exchange can be used to defer paying capital gains taxes on a property sale. Foreign investors can defer capital gains tax by reinvesting in a like-kind real estate investment property when you dispose of a property and generate a capital gain.
As with any investment property, the new properties purchased in a 1031 exchange also have the potential to build up large amounts of equity and appreciate over time, at which point they can be 1031 exchanged again.
There is no limit to the amount of 1031 exchanges that an investor can do in their lifetime so that this process can repeat, allowing an investor’s real estate wealth to grow tax-free indefinitely.
Qualified Opportunity Zone
Next on the list are qualified opportunity zones. Investing through a suitable opportunity zone (QOZ) is another tax deferral strategy for individual or business property investors. For example, if you invest in economically distressed communities classified as QOZs, you might be able to take advantage of capital gain tax incentives.
Tax Deductions
As a general rule, a non-US person who rents out their US home is subject to a 30% withholding tax on their rental income. However, the foreign owner must only pay tax onthe net rental incomeon the US tax return, which means the non-US owner can take plenty of deductions (standard deductions in renting a property include interest deductions for mortgages, advertising costs, cleaning costs, property manager costs, etc.).The result could easily be that the foreign owner pays zero tax (or very little tax).
Step-by-Step process for Foreign Real estate Investors to invest in USA
1) Choose the type of investment property you desire.
What sort of investment property are you interested in buying? All real estate used for commercial reasons is considered commercial real estate. This might include retail establishments, malls, office buildings, warehouses, hotels, and residential buildings. Contrarily, residential real estate could consist of apartments, single-family homes, or multifamily buildings. Even if there are occupants, a rental property is deemed commercial if it has five or more units. Before making a choice, consider the advantages and disadvantages of both business and residential real estate.
2) Decide on a real estate market.
There are many cities and counties and a sizable housing market in the US. Choose one market and concentrate on it if you want to increase your chances of discovering a profitable investment home for sale. Here are key points to take into account while selecting a real estate market:
Population growth – Seek out a region where both the number of renters and the population growth are expanding. This demonstrates that there will be an increase in demand for rental property.
Job Growth – Find out if any new, large companies are expanding into the community to help create more jobs. Even fresh movers from other locations might move here as a result of this.
Employer diversity – Steer clear of industries like shipping, mining, oil, or agriculture, where a single source dominates jobs. If the majority of people work in one industry, you will suffer if that business fails.
3) Find profitable investment property in the US.
There are a variety of properties available, from single-family homes to multi-unit apartments, and the potential return on investment can be significant. Of course, it’s important to do your due diligence before making any purchase, and working with a qualified real estate agent can be invaluable. But with the right property, an investment in US real estate can be a smart and lucrative decision.
4) Do your due diligence before investing in US Real estate
After locating an appropriate rental property, due investigation should be carried out. The following are some things foreigners who invest in US real estate should confirm:
- general state of the house
- The initial price of repairs
- operational costs
- The price of insurance
- Costs of professional property management
- tax on real estate
Work with a real estate agent who is engaged in the community where you intend to buy a rental property to make this process simpler. HomeAbroad can help you find the best realtors. A CIPS real estate agent will know professionals and be able to put you in touch with them to make the process of conducting due diligence on a property easier. Mortgage brokers, property managers, contractors, insurance agents, and certified house inspectors may fall under this category.
5) Make a proposal
Foreigners investing in US real estate should first determine the current worth of the investment property before putting an offer on it. Investigate recently sold comparable properties (real estate comps) in the neighborhood to help you with this. An accurate house assessment may also benefit greatly from a home appraisal.
Top Five common avenues for Foreign Investors to invest in US real estate
Investing in US Real estate can be profitable for both budding business owners and seasoned investors.
Choosing your real estate income strategy is the first step. Five broad categories can be used to classify the methods utilized to generate income streams and make money by investing in US real estate:
1) Cash-Flowing Real estate
The most common method of investing in real estate and a form of property that investors are already familiar with is to purchase income-producing property with a steady cash flow.
2) Buy-and-Hold
Long-term equity building and investing for future appreciation can be profitable investment strategies in markets with high real estate values.
Positive cash flow is still crucial, of course. But by making wise long-term purchases and holdings, investors might benefit from potential windfalls years or even decades from now.
3) Fix-and-Flip
Another crucial strategy for making money in US real estate, is to find off-market bargains with motivated sellers. However, the lack of funds for necessary upkeep and repairs is frequently the driving force behind sellers’ motivation.
Investors who employ the fix-and-flip approach must acquire at a discount, precisely project the price of renovations, and then sell the property for a profit.
4) Wholesaling
A foreign investor investing in US real estate can use arbitrage to make a rapid and sizable profit by investing in wholesale real estate.
The act of taking ownership of the property does not generate revenue for real estate wholesalers. Instead, they choose desperate sellers who are highly motivated, properly assess the cost of repairs and the home’s fair market value, and then assign the contract to another investor in exchange for a set profit.
5) REITs and Crowdsourcing
Crowdfunding or purchasing REIT shares are popular choices for investors seeking nearly entirely passive investment alternatives.
Real estate crowdfunds are organizations that raise modest sums of money from a large number of individuals in order to buy and manage huge, complex assets that generate income. The major stock exchanges offer shares of publicly traded REITs. When the property is sold, investors get a modest pro-rata portion of the cash flow and profit for the quarter.
Country of origin for Top 5 Foreign buyers of US real estate in 2021
In terms of the number of units, Canada has risen to the top position among foreign buyers for real estate purchase in the US, accounting for 8% of all transactions since April 2020-March 2021. The second-largest foreign buyers were from Mexico, with a total of 7 percent. The third-largest origin country was China, which was the top country for three years before retreating below 6%. India and the United Kingdom were in fourth and fifth place respectively, with each country around a 4% share.
However, in terms of dollar volume of real estate purchases, China remained at the top, followed by Canada, India, Mexico, and the UK respectively.
Dollar Volume of Existing-Homes Purchased by Top 5 Foreign Buyersin Billion Dollars
| Year | China | Canada | Mexico | India | UK | All Foreign Buyers |
| 2010 | $11 | $17 | $7 | $5 | $12 | $66 |
| 2011 | $7 | $13 | $4 | $5 | $7 | $66 |
| 2012 | $12 | $16 | $7 | $5 | $4 | $83 |
| 2013 | $13 | $12 | $4 | $4 | $4 | $68 |
| 2014 | $23 | $14 | $5 | $6 | $6 | $92 |
| 2015 | $29 | $11 | $5 | $8 | $4 | $104 |
| 2016 | $27 | $9 | $5 | $6 | $6 | $103 |
| 2017 | $32 | $19 | $9 | $8 | $10 | $153 |
| 2018 | $30 | $11 | $4 | $7 | $7 | $121 |
| 2019 | $13 | $8 | $4 | $4 | $4 | $78 |
| 2020 | $12 | $10 | $6 | $5 | $1 | $74 |
| 2021 | $5 | $4 | $3 | $3 | $3 | $54 |
Country of origin for Top 6 Foreign buyers of US real estate in 2022
China and Canada continued to occupy the top spots, first and second in US dollar residential sales volumes at $ 6.1 billion and$5.5 billion, respectively, continuing a trend that dates back to 2013. India ($ 3.6 billion), Mexico ($ 3.6 billion) 2.9 billion) and Brazil ($ 1.6 billion) completed the top five.
Among the top six overseas buyers, purchases fell only among Chinese buyers. However,China was still the most significant foreign buyer in terms of the dollar volume of houses purchased. Chinese buyers bought $6.1 billion worth of existing homes, up 30% compared to the prior period due to an increase in the average purchase price to $1.0 million ($710,400 in the prior period).
Dollar Volume of Existing-Homes Purchased by Top 6 Foreign Buyersin Billion Dollars
| Year | Canada | Mexico | China | India | Brazil | Colombia | All Foreign Buyers | Share of Top 5 |
| 2009 | $8.5 | $3.8 | $3.8 | $5.7 | $0.6 | $0.5 | $38.8 | 57% |
| 2010 | $17.1 | $6.5 | $11.2 | $5.0 | $0.9 | $0.5 | $66 | 62% |
| 2011 | $13.1 | $4.2 | $7.0 | $5.1 | $2.0 | $0.6 | $66.4 | 47$ |
| 2012 | $15.9 | $6.5 | $12.0 | $5.2 | $2.7 | $0.6 | $82.5 | 51% |
| 2013 | $11.8 | $3.6 | $12.8 | $3.9 | $1.1 | $0.5 | $68.2 | 49% |
| 2014 | $13.8 | $4.5 | $22.7 | $5.8 | $2.2 | $0.5 | $92.2 | 53% |
| 2015 | $11.2 | $4.9 | $28.5 | $8.0 | $2.9 | $0.9 | $103.9 | 53% |
| 2016 | $8.9 | $4.8 | $27.3 | $6.1 | $4.3 | $1.2 | $102.6 | 50% |
| 2017 | $19.0 | $9.3 | $31.7 | $7.8 | $9.1 | $1.0 | $153 | 50% |
| 2018 | $10.5 | $4.2 | $30.4 | $7.2 | $3.9 | $1.2 | $121 | 46% |
| 2029 | $8.0 | $3.7 | $13.4 | $4.2 | $1.4 | $0.8 | $77.9 | 39% |
| 2020 | $8.5 | $5.8 | $11.5 | $5.4 | $1.2 | $1.3 | $74. | 45% |
| 2021 | $4.2 | $2.9 | $4.8 | $3.1 | $0.6 | $1.1 | $54.4 | 29% |
| 2022 | $5.5 | $2.9 | $6.1 | $3.6 | $1.6 | $1 | $59.9 | 33% |
In Conclusion
In conclusion, there are many reasons why foreign real estate investors should buy investment property in the USA. The country has a stable economy, good infrastructure, and low taxes, making it an ideal place to invest your money. So, if you are thinking of investing in the US real estate market, now is a good time to do so. You can refer to our blog on Best Cities for Foreign Investment in US Real Estate to explore your next US real estate investment destination.
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Frequently Asked Questions
Can I invest in US real estate as a foreign investor?
Yes, foreign investors can invest in US real estate. There are a number of ways to do this, and the most popular method is through a US-based LLC. This structure allows foreign investors to pool their resources and minimize their liability. Another popular option is to form a joint venture with a US-based partner. This can provide access to local knowledge and expertise and additional capital. Foreign investors can also purchase property directly, although this typically requires a larger investment.
Can non-US citizens invest in US real estate?
Yes, non-US citizens can invest in US real estate. There are no citizenship requirements for ownership of real property in the United States. Any individual, regardless of citizenship status, may purchase and own real estate in the United States. Additionally, foreigners may form entities to hold title to real property, such as corporations or limited liability companies.
Why do foreign investors love US real estate?
Yes, foreign investors love US real estate for the following reasons: grow.
The stability of the US economy and political system, the transparency of the real estate market, and the potential for high returns.The US economy has been growing steadily for decades and is not as susceptible to sudden downturns as other economies. Additionally, the US real estate market is highly transparent, making it easier for foreign investors to understand what they are buying.
Finally, US real estate can offer high returns, especially in markets where there is strong population growth or gentrification. As a result, foreign investment in US real estate will likely continue to grow.
Is US real estate a good investment?
Yes, US real estate is a great investment. The reasoning is simple – as the population grows, there is an increasing demand for housing. In addition, the baby boomer generation is beginning to retire, and many are downsizing or selling their homes altogether. This creates even more demand for housing. Furthermore, the rise in popularity of rental properties has created a steady stream of potential tenants. All of these factors contribute to making US real estate a sound investment. There are several ways to profit from this trend, such as flipping properties or becoming a landlord. With the right strategy, anyone can reap the rewards of investing in US real estate.
Can a non-resident foreign investor invest in US real estate?
Yes, a non-resident foreign investor can invest in US real estate. There are no restrictions on who can invest in US real estate. Any person, whether they are a resident or not can purchase property in the United States. Investing in US real estate can be a great way to diversify one’s portfolio and generate income from an asset that is not subject to foreign currency fluctuations.
Do foreign investors pay taxes on US real estate?
Yes, foreign investors need to pay taxes on US real estate. There are two types of taxes that foreign investors need to pay: capital gains tax and ordinary income tax. Capital gains tax is a tax on the profit from the sale of property, and ordinary income tax is a tax on rental income. In order to avoid paying double taxation, foreign investors can take advantage of the Foreign Investment in Real Property Tax Act (FIRPTA). FIRPTA allows foreign investors to deduct their home country’s taxes from their US tax liability. For more information, please consult a qualified tax professional.
About the author:
Michele Lawrie is the Chief Real Estate Officer at HomeAbroad and has worked as a real estate professional for the past 14 years,helping domestic and foreign national clients navigate the home buying and selling process.
She is passionate about real estate and strives to educateread more...
