Over the last several years foreign investors across the world have dramatically stepped up their real estate purchases in the United States. Real estate properties have increasingly become more attractive as a result of several factors, including currency rates, housing prices, attractive returns on investments, home equity requirement purchases, and homestead protection laws.
Based on their specific needs and desires, foreign national home buyers (investors, college students, transferred employees, etc.) share several characteristics that are unique in these transactions:
Long term perspective or objective of the transaction
Advice – Don’t rush the deal. Give your relationship with the client time to mature. Define their perspective/objective of the purchase and focus on the buyer’s intent.
All cash or high equity transactions
Advice – Locate properties that are “move-in” ready and have no maintenance issues. As substantiated in the April 2012 business survey of HAR members, 34 % of foreign buyers pay cash for their real estate transactions and another third pay a combination of a large down payment with a mortgage. They do not as a rule abandon properties; therefore, ensure they understand the need to tour all properties, even new construction. These investors are seeking low risk placement of capital and will want to avoid properties that need major renovation.
Acceptable and predictable returns
Advice – Make sure you identify their expected rate of return on the investment. Unlike U.S. investors, foreign investors are not necessarily looking for bargain properties. They expect a reasonable rate of return and assurance that their future cash flow will remain steady.
Advice – Locate higher quality properties with predictable returns for these clients. Foreign investors are seeking these objectives. They tend to be limited as to the amount of time they spend in the United States; therefore, they do not want to spend time on remodeling.
Advice – Locate properties in desirable areas. Gateway cities such as Houston, Dallas, New York, Atlanta, Miami, Los Angeles and Boston are often preferred choices for foreign investors. They tend to concentrate their investments in desirable areas where large communities of compatriots live.
Advice – Become familiar with how different cultures conduct their business transactions.
Note: Some cultures require more detail than others. Do your work and explain your role as their REALTOR in the transaction in detail. It is critical to define how the process works from start to finish in transactions with foreign investors. Be specific about foreign currency restrictions and exchanges, the role of the Title Company, real estate attorneys, appraisers, inspectors, what escrow funds are and most importantly details about properties, schools, areas and make them familiar with general tax implications. You can share with them city crime statistics, government census numbers and compare the rate of return in investment between several properties.
Specialized Professional Advisors
Advice – Make sure you surround yourself with a good team of trusted professionals that are familiar with foreign transactions including immigration attorneys, international tax attorneys, certified public accountants, financial advisors, lenders that provide financing to foreigners and title companies which conduct business outside the United states. Lastly, make sure you explain these relationships and how they will come into play during the transaction.
Remember knowledge creates new opportunities!
Author: Gerri Vasek, CIPS, 2012 HAR International Advisory Group member