Posted 10/06/2008

by Dan Green

Dan Green is an expert on topics of money. He has been featured in The Washington Post, MarketWatch, Bloomberg, and others.

Share This Page

As Seen On

International Real Estate Investors Should Consider Buying U.S. Real Estate In 2008 Instead Of 2012

Dan Green

The Mortgage Reports Contributor

100,000 invested in the U.S. real estate market has yielded a terrific return since July 2008, the bottom of the U.S. dollar in foreign exchange markets

When foreign national buyers consider investing in U.S. real estate, they often focus on projects set to deliver 2-4 years out as opposed to projects that are ready to deliver today.

Considering the path of the world’s economy , this long-term investment strategy may be a bit short-sighted.  For non-U.S. citizens wanting to buying investment property in the United States, there are 3 excellent reasons to consider buying property now instead of at some vaguely-defined point in the future.

By themselves, each point holds it own merit.  Combined, however, the rationale is even more logical.

Reason #1: Home prices in the United States are relatively low

Actually, I should qualify that statement.

Versus their 2007 levels, home prices aren’t low everywhere, but for condos, condotels, and other units built specifically for real estate investors, there’s a combination of excess supply and eager sellers that may be too good to pass up.

And when I say “condos”, I’m not referring to new construction set to deliver in 2012 — like the Chicago Spire, for example.

Instead, I’m talking about finished condo projects in places like Florida, Las Vegas, Chicago, and Manhattan that are online now, lingering unsold and dragging on developer balance sheets.

Sure, you can get a good deal at Lincoln Park 2520, but you could get an amazing deal on a ready-to-deliver condo instead.  The year-end is looming and developers are itching to get finished inventory off the books.  And that may be the biggest understatement of the year.

Capitalizing on the down-trodden U.S. real estate market is a popular reason for international investors to buy condos in the United States.  Because the year is winding down and excess supply is clogging developer pipelines, this is a terrific time to make a deal.

Reason #2: The U.S. Dollar is running wild over the Euro, Pound, and others

For international buyers of U.S. real estate, there are two ways to make a profit.

The first is to profit from the property appreciation on the investment unit itself.  This is the form of profit that most investors talk about with respect to “buying in a down market”.

The lesser-known method is via currency appreciation.

Currency appreciation happens when the dollars applied to a downpayment on a home gain value from changes in foreign exchange markets and currency conversion rates.

As the U.S. Dollar has strengthened since July, for example, foreign national investors have profited handsomely.

As an example, here’s what a hypothetical 100,000 downpayment made on July 1, 2008 would be worth today in 4 popular currencies:

  • Euros: €100,000 downpayment is now worth €114,201, a 14.2% gain
  • Pounds: A £100,000 downpayment made now worth £112,343, a 12.3% gain
  • Canadian Dollars: $100,000 downpayment is now worth $105,821, a 5.8% gain
  • Australian Dollars: $100,000 downpayment is now worth $123,021, a 23.0% gain

These are monstrous amounts of currency appreciation over just a 90-day period and the U.S. dollar is expected to extend these gains through 2009 as the global economy and world currencies sputter.

Currency appreciation can be more profitable that equity appreciation and that’s the second reason why international investors may want to buy U.S. real estate before the end of the year.  For every amount that the U.S. dollar appreciates prior to a real estate closing, not only does the cost of a dollar-denominated downpayments increases but currency appreciation is held to a minimum, too.

Reason #3: Foreign national mortgages are still available, despite what you hear

When I talk with international real estate buyers, they’re often genuinely surprised that mortgage money is still available for foreign nationals.  And then, when we talk about new construction condos in Florida, the surprise turns to shock.  After all, everyone else is telling them financing a new construction condo in Miami is impossible — including their real estate developer.

And this bring us to an important point about the foreign national mortgage market.

For years, foreign national lending had been heavily concentrated with just a few lenders, most of whom were well-known banks.  To drive sales, they embarked on “road shows” across Europe, Asia, and South America, talking about their products and the virtues of buying real estate in the U.S.

Today, those lenders have all left the space, creating a giant information void that most people — mortgage brokers included — have wrongfully assumed to mean that foreign national mortgage lending is dead.

I’m happy to report that it’s not.

Sometimes, the hardest part about borrowing money as a foreign national is getting access to quality, timely information.  Presumably, that’s how you found this Web site to begin with (and why you’re still reading).

So, if you’re want some foreign national mortgage information on which you can rely, here are a few bullet points:

  1. Foreign national mortgages are still available in the United States
  2. Downpayment requirements are low — 10 or 20 percent, depending
  3. Interest rates are reasonable and are not “monthly adjusting”
  4. There’s no forbidden property types — condo, condotels, and multi-units are all okay

And it’s when I give these sort of details that my international clients wonder why every other stateside mortgage guy said foreign national mortgages couldn’t be done.

See, after JP Morgan Chase and Wachovia stopped lending to foreign nationals this summer, most people assumed that the market dried up entirely.  Chase and Wachovia were the last Big Banks standing in the foreign national space and a bevy of small- and medium-sized banks followed their lead.  Only, it didn’t dry up.

To take advantage of the growing foreign national demand, new mortgage lenders entered the fray and are now making common sense decisions on what most people generally believe are a strong set of borrowers.

However, there’s a caveat.  New funding sources are available today, but the lenders reserve the right to change their terms or policies at any time.  And historically, they do.  And, of course, they can always choose to discontinue the product at any time.

And, this is the third reason why foreign nationals should buy before the New Year.

Home prices may rise next year, or they may fall — we can’t predict that.  But, we can predict with near 100% certainty that mortgages will be less available tomorrow than they are today.  And that includes foreign national mortgages.

This is a variation on a common theme I cover with the press.

As a brief summary of the points above, international buyers may want to buy property sooner rather than later because:

  1. Developers are willing to negotiate because of the current market climate
  2. The U.S. Dollar is poised for gains, rendering downpayments “more expensive”
  3. The U.S. mortgage market will not exist in its current form in 2012

We know what the market looks like today and we don’t know what it will look like tomorrow.  Therefore, if buying U.S. real estate is part of your overall investment plan, consider moving up your timeframe to some point soon.

And remember, in the U.S., real estate agents are paid by the seller — not the buyer.  If you don’t have local representation, you’re welcome to call or email me for a referral to somebody I trust in any given market.  My contact information is all over this Web site.

Dan Green

The Mortgage Reports Contributor

Dan Green is an expert on topics of money. He has been featured in The Washington Post, MarketWatch, Bloomberg, and others.

The information contained on The Mortgage Reports website is for informational purposes only and is not an advertisement for products offered by Full Beaker. The views and opinions expressed herein are those of the author and do not reflect the policy or position of Full Beaker, its officers, parent, or affiliates.

3 Testimonials

Barry L. Systems Analyst

The Mortgage Reports is an excellent resource. I depend on the Mortgage Reports for the most up-to-date information regarding shifts in government policy and mortgage rate information in general.

Don B. Retired

The Mortgage Reports has helped me so much. I can't thank you enough.

Mohammed Y. Retired

The Mortgage Reports is informative and I read it daily. I am grateful for the knowledge I have gained.

2018 Conforming, FHA, & VA Loan Limits

Mortgage loan limits for every U.S. county, as published by Fannie Mae & Freddie Mac, the Federal Housing Administration (FHA), and the Department of Veterans Affairs (VA)