Buying real estate in the U.S.
Finding real estate investment properties
Partners of H&CO invest heavily in real estate, and we truly believe it to be one of the best investments that you can make. Many wealthy people invest in real estate, and they have grown their wealth because of their real estate investments. There is associated risk with any investment, and real estate investment is no exception. You can make or lose money in real estate, but in the long run, real estate investment is a stable investment with limited risk. Here are some guides and answers to common questions when investing in real estate.
How do you make money in real estate?
Real estate has produced more wealth than most industries. If you learn the tricks of the real estate trade, you can make money in real estate by generating rental income or capturing some of the property appreciation.
Rental income – One way to generate wealth with real estate is by buying properties and renting them. When you buy the right property, it can create more income than your expenses and leave you with rental income every month. We have many clients who live off their rental income.
Capital gains or market appreciation – Capital gain is the asset’s appreciation during the time that you owned it. If you buy land for $500,000 and sell it for $750,000 several years later, then your capital gain on the sale of this property is $250,000.
Some investors buy properties to hold and rent, while others make money on market appreciation by buying and selling. In either case, you will make money if you buy low and sell high.
Even though it’s a simple equation, many people fail to do well in real estate because they don’t know what they are doing. We can guarantee you that you will lose money without the proper knowledge, research, and support from a team of experts.
As your first step, we recommend investing in real estate education. Read as much as you can, talk to other investors in the U.S. real estate market, and listen to your real estate team members. Equipped with the right education, you can learn how to find valuable real estate property, minimize risk, and maximize your return.
Finding good real estate investment properties
Remember this phrase: “You make your money when you buy, not when you sell.”
The key to success in real estate is finding the right property at the right price, so you should invest time in finding the right property for your portfolio. This step requires a lot of research, patience, and due diligence.
Location, location, location! Location is everything, and you absolutely must buy your properties in the right area. Successful real estate investors know that the primary factor that makes properties profitable is their location.
Spend time studying different locations and the real estate trends in those areas. You want to know when it is a buyer’s market or a seller’s market because it’s crucial that you buy a property during a buyer’s market. Don’t enter the market at the end of the trend. If you are too late for the game, you will not make money.
With the help of your real estate team, analyze the real estate market to find the best areas for investing. After finding the right location for your investment, spend time choosing the right type of property with the highest potential for income and appreciation.
How do you find good real estate investment properties?
The ten ways to find good real estate investment properties:
1. Work with your real estate agent. They can research for you using MLSs, which are private databases created, maintained, and paid for by real estate professionals to help their clients.
2. For residential properties, research the following websites: Zillow, Realtor, Trulia, Foreclosure, Keller Williams Realty, RE/MAX Real Estate, Century21, and others.
3. For commercial properties, research the following websites: LoopNet, Crexi, Brevitas, theBrokerList, and others.
4. Contact sellers through direct marketing, such as phone calls or text messages.
5. Drive around your target neighborhood and talk to sellers.
6. Ask your banker for bank-owned properties for sale.
7. Check courthouse auctions. In most cities, properties going to auction are publicly listed.
8. Network. As in any business, networking is the key to finding good deals.
9. Talk to builders and contractors. They can often give you access to properties before they’re publicly listed for sale.
10. Promote via word of mouth. Tell your friends, family members, and anyone in your network that you are buying properties, and they will call you first when properties become available.
What is a good ROI for real estate investments?
Return on investment (ROI) is a profitability metric used to evaluate the performance of an investment. It is calculated by dividing the investment’s net profit by its initial and subsequent outlay of cash.
Different investors will accept different percentages of return depending on their level of risk. However, most real estate professionals consider 10% or above a good ROI.
Making the real estate offer
Once you find the ideal real estate property, the next step is making the offer. Making an offer as an investor is the same as making an offer on any other property type.
The offer expresses your interest in buying the property. In this offer, you will tell the seller how much money you are willing to pay and the conditions of the deal. We strongly recommend that your real estate agent handles all of the negotiations.
How do you make a good offer on a property?
Since real estate is so competitive, you want to present an enticing offer that improves your chance of getting the property. Here is the process for making an offer on a property:
1. Price – During the pricing strategy stage, work with your agent to determine the starting price to include in the offer.
2. Escrow – Decide how much money you will put down as a deposit.
3. Financing – If you are not paying cash for the property, know how much money you can get from a lender to finance the property.
4. Contingencies – The contingencies are clauses that you put on the offer to allow you to get out of the contract in case you are not happy with the property inspection, appraisal, title, financing, or any other contingencies recommended by your attorney.
5. Present your initial offer – Your real estate agent will present the offer to the seller.
6. Negotiation – Once you present the offer, the seller can accept it or propose a counter-offer. Your agent should help with the negotiation.
7. Under contract – When the seller accepts your offer, you are officially under contract. Your offer is now a legally binding agreement. If you cannot meet the contract’s numerous conditions and fail to close on the property, you can lose money.
Real estate cash offer vs. financing
Should you buy cash or finance the property?
Real estate cash deals - It is easier for foreign investors to buy U.S. properties if they pay cash instead of using financing. Real estate sellers love cash deals since they eliminate the need to work with a bank and include a variety of other benefits.
The advantages of a cash offer include:
Real estate financing deals – Using a mortgage to buy properties can help you get a better return on your investment. Financing will increase your ROI when the interest you pay on the loan is less than the rate of return on the investment.
When you use financing, you can purchase better properties. You are not limited by the amount of cash available for investment. Be aware that leverage can be risky because you can lose the property if the market takes a hit. We recommend a 50% deposit to you to minimize risk and a loan with a value of 50% to 60% maximum.
For example, say you buy a property for $1,000,000. If you put down $500,000 cash and finance the rest with a loan of $500,000, then your loan-to-value is 50%. The property will have to go down 50% for you to be in the red. In addition, if the property generates 7% ($70,000) on the $1,000,000, the return on your deposit is 14% ($70,000) on the $500,000 paid cash.
How do you bring money to the United States?
One of the main concerns for foreign investors is transferring money to the U.S. In the U.S., there is no limit to the amount of money that you can bring into the country as long as you can prove the source of funds. The easiest way to transfer funds into the United States is by wiring money into a bank or brokerage account. Contrary to most countries, you will not pay transfer taxes on the money. We recommend sending the money before you go under contract to avoid potential problems.
How much money can I bring into the U.S.?
It is legal to bring large sums of money into the United States in the form of currency or other monetary instruments. There is no maximum limit, so you can bring as much as you want. However, if your combined currency or other monetary instruments exceed $10,000 at one time brought into the United States from any foreign country, you must file a FinCen 105 (Report of International Transportation of Currency or Monetary Instruments) with U.S. Customs and Border Protection.
In addition, you must also report the amount in the CBP Form 6059B. This is the form used to declare goods being brought into the United States through customs, and you may recognize it as the form handed out on a plane before landing. The U.S. Department of Homeland Security and the U.S. Customs and Border Protection use this form to regulate the flow of cash into the U.S.
Can a foreign investor get a mortgage to buy real estate in the U.S.?
Yes, a foreign investor can obtain a mortgage to buy real estate in the U.S. as a foreign investor. Many banks offer to finance foreign investors. Keep in mind there is a lot of scrutiny and documentation involved, which means the process is more complicated than when a U.S. resident applies for the same loan.
Many banks do not lend to foreigners who have never paid U.S. taxes, which reduces your number of banking options. The few banks that offer loans to foreign investors will need proof of credit, proof of income, and proof of the source of funds. You will also need to show your ability to repay the loan.
As a foreign investor, it is easier to obtain a loan to invest in real estate if you have a valid visa to work. However, you should know that there are many options to obtain financing as a foreign investor even without a visa.
How does a foreign investor get a mortgage to buy U.S. real estate properties?
A foreign borrower who resides outside of the United States and is not a U.S. citizen or permanent resident may apply for a mortgage to purchase property in the U.S. as a vacation home and/or investment property. There are many options for foreign investors to obtain real estate loans. However, we recommend you apply for non-income verification loans because the process is much easier than traditional mortgages. On non-income verification loans, lenders rely on the potential income generated by the property without considering the investor’s income. These programs are perfect for foreign investors who are unable or choose not to verify their employment or provide proof of income. We recommend establishing good relationships with more than one lender since each lender specializes in different property types. In addition, your CPA should guide you through the lending process. H&CO works with the most important real estate lenders in the U.S. to help its clients.
Real estate property Inspection
When you use financing, you can purchase better properties. You are not limited by the amount of cash available for investment. Be aware that leverage can be risky because you can lose the property if the market takes a hit. We recommend a 50% deposit to you to minimize risk and a loan with a value of 50% to 60% maximum.
For example, say you buy a property for $1,000,000. If you put down $500,000 cash and finance the rest with a loan of $500,000, then your loan-to-value is 50%. The property will have to go down 50% for you to be in the red. In addition, if the property generates 7% ($70,000) on the $1,000,000, the return on your deposit is 14% ($70,000) on the $500,000 paid cash.
Real estate appraisal
A property appraisal is a crucial component of the transaction that will help you understand the real estate property value. The appraisal is an unbiased professional opinion of the property’s value and will indicate whether or not you are overpaying for the property. An appraiser’s report will include an opinion on the property’s value, the approach they used to value the property, the trends in the area, and similar properties sold in the area.
If you are obtaining a loan to buy the property, your lender will require an appraisal. A bank will not lend money without an appraisal, so you should not buy a property without one. Even if you are paying cash, you should not buy a property without an appraisal. The National Association of REALTORS® represents approximately 25,000 state-licensed and certified appraisers throughout the country.
Real estate closing
The closing of the property is the final step in purchasing your real estate. Closing usually happens about two months after you sign the sales and purchase contract, and the process itself takes a few hours. Upon closing, the ownership of the property is transferred from the buyer to you.
On the morning of the closing or a day before, you should perform a walkthrough of the property. This final walkthrough is an opportunity to inspect the property before signing the documents. Upon signing the documents and paying the seller, you become the legal owner of the property.
Real estate closings are usually executed by a real estate attorney or a title company. We recommend hiring an attorney for your closing, as we have seen significant problems when foreign investors do not hire an attorney.