U.S. real estate investing is a hot market for international buyers looking to get their footing in a new, profitable market and take advantage of lower priced properties. As one of the biggest segments, residential real estate – like single-family homes – is a top seller in the States because of its high potential for property appreciation. Foreign buyers accounted for $92.2 billion in real estate purchases in the year ending March 2014, according to the National Association of Realtors. With rising demand for housing in key metropolitan areas, foreign nationals often look to rental property investment to increase their monthly income.
Here are the five steps to investing in U.S. residential rental real estate:
1. Identify desired properties
Whether you are very familiar with certain regions of the country or not, it helps to research the locations of any potential rental property investment.
- Choose the region first: East, West, Midwest and South. Populated areas in the Midwest and South tend to have a higher concentration of lower-priced housing markets compared to the West and East.
- Next, consider metropolitan areas that have high growth potential for rental income, such as Houston in Texas in the South.
- Narrow down your choices of cities, suburbs or rural areas surrounding these areas and then study up on the various neighborhoods in these places.
- Look for amenities, rate of crime, quality and schools and other attributes potential tenants will look up when deciding where to rent.
2. Seek out loans/financials for the investment
After selecting your rental property investment, consider how you will finance the purchase of the home as well as any renovation projects that might be needed. Cash is a popular option for foreign nationals and all-cash offers will often help close real estate deals. According to the 2014 NAR report, 60 percent of international buyers paid for their purchase in cash while 38 percent received financing in the form of a mortgage.
While U.S. federal housing organizations may help U.S. residents with financing, foreign buyers may have to look to apply for financing at banks at home or financial institutions that are present in their country as well as the U.S. For example, Canadian homebuyers interested in U.S. properties could go to the Canadian banks that operate in the U.S., including the Royal Bank of Canada and TD American Bank, to obtain financing.
The U.S. home loan market is also expanding to make it easier for international buyers to obtain the funding they need.
3. Research taxes and necessary paperwork
As you are closer to choosing the right residential investment property, consider how much you might have to pay for property taxes and other fees associated with inspections, appraisals and the escrow process. A real estate investment firm experienced in facilitating the process and providing these services to inspect a home and fill out paperwork could help international buyers navigate these difficult steps to U.S. homebuying.
4. Prepare your property for rent
If you plan on doing renovation projects, such as putting in new flooring or updating the appliances in the kitchen, you need to account for this in your homebuying budget. You should estimate how much it will cost to prepare your property and get it ready for tenants looking to rent the home. You might also want to research about the benefits of a property manager to keep the home well-maintained and supervised while you are out of town.
5. Advertise and choose tenants
The final step is to find tenants who will occupy the property. Advertise the residential rental listing online as well as make sure there are signs outside of the property. While finding tenants fast could lead to having cash flower sooner, it’s also crucial to approve tenants who will pay their rent on time and not cause any damage or destruction of the property. You could perform a background or credit check for potential tenants after they apply for housing.