When it comes to real estate investing – that is, buying a home to earn capital appreciation and cash flow from rental income - it has been common practice to own where you live.
If you live in Vancouver, you buy in Vancouver.
If you live in Hong Kong, you buy in Hong Kong.
If you live in London, you buy in London.
This, of course, makes sense:
1. Knowledge
Living in the same area as your real estate investment makes you an expert. You know the nuances of that area that an outsider would not know – where the schools or shopping malls are, what areas are gentrifying, etc.
2. Financing
Bank financing is easier for its own citizens. Borrowers will have a credit history in the country and relationships with their existing banks, which they can visit at their branches.
3. Access
It is easier to visit new developments, and in hot markets (like in HK when I used to live there), you would have to line up to get a lottery ticket to earn the right to purchase a property.
This has been a great recipe for success, and many of us have enjoyed the fruits of this type of real estate investing with this supportive macro landscape. Property prices have surged, creating unprecedented wealth for many, magnified by the ability to borrow and get leverage.
But things are different now…
Real estate investing as we know it does not exist anymore!
Rental yields are negative in most countries (rental income < mortgage), so you can only make money by “hoping” the value of the property goes up.
The U.S. is one of the very, very few countries that offer generous “positive” net rental yield + capital appreciation.
Peculiar behaviour when it comes to real estate investing…
If you invest in equities, I’m sure many of you have owned Apple, Amazon, and Google at some point over the past ten years, regardless of where you live in the world.
You don’t only buy Singapore stocks if you live in Singapore, and you don’t only buy U.K.-listed stocks if you live in England. Many people own Bitcoin and its virtual currency.
Why doesn’t this happen with real estate investing?
Why don’t more people buy property as an investment where they don’t live?
Let’s go back to the 3 reasons earlier
1. Knowledge
There is less information on real estate investment opportunities in other countries.
If you are living in Portugal and want to invest in Singapore, is Orchard Road better than Serangoon Road?
If you want to buy a condo in San Francisco - is Geary Street/18th Avenue better than 22nd Avenue?
Unless you have connections to that area (prior education), do extensive online research or have a friend or realtor contact that can give you on-the-ground advice, knowledge is more difficult in other countries.
2. Financing
Banks were created to serve their own citizens. Connecting to a loan officer at a bank in another country is nearly impossible, and most overseas banks do not lend to non-residents. In countries with mortgage brokers, finding financing solutions can be easier if there are mortgage options for overseas investors (hint – this is the problem that we fixed).
3. Access
Very little overseas property is sold in other countries. U.K. and Australian developments are regularly shown in Singapore and Hong Kong. Recently, Japanese and Vietnamese property has been popular, but virtually NO U.S. property is shown overseas - except for the occasional super-high-end New York condos.
This brings us to….
The (new) Real Estate Investing Paradigm…
Instead of solely betting on capital appreciation, it’s now time to look for “cash flow + capital appreciation.” That is, buying and hoping the price appreciates will no longer work in the new paradigm.
The new approach will require doing more research and being an expert on your investment.
The easy money days are over, but I would argue consistent and higher-probability money-making opportunities are available.
As an investor, you are motivated by the highest returns based on your individual circumstances (risk tolerance, time required, cost, etc).
Moment =>If Knowledge, Financing and Access are made available, where the property is located should be irrelevant (less) when looking to maximize investment potential (Hint….U.S. real estate investment)
Of course, in reality…doing research and speaking to realtors, accountants, and friends takes time, but like with any investment, you need to be as well-informed as possible.
The goal of this report is to give a high-level snapshot of the attractiveness of U.S. real estate investing versus other major countries - from an absolute price and rental income standpoint.
