Investing in Out-Of-State Real Estate: Is it worth buying?

In Ukraine investing in real estate is seen as the easiest and also the difficult way to earn money. Whether you plan to save a certain amount of money after the sale of your property, you can enhance or lose your investment. The result will mainly depend on your knowledge and, at a certain level, from luck. Purchasing the first property is most risky and difficult as you have to discover the real estate market in Ukraine on your own and get this first experience. 

Not many foreign investors like the idea of accumulated money. Thus, more often, they invest their fund in financial or nonfinancial assets.  The most popular variants of investment tools are real estate (25%), retirement savings (22%), and stocks (35%). 

Investing in real estate

Foreign investments in Ukrainian real estate are currently actively increasing and have every chance to become more stable in the nearest future. More and more foreigners see Ukrainian real estate as a promising field for their investments. 

In the last few years, a new variant of foreign investment has appeared. It is called crowdfunding which has considerably lowered the bar for the real estate market entry to about $1,000. 

Investing in real estate
Investing in real estate

The investor works from the special websites (crowdfunding platforms) and can operate either as a lender and get a fixed income of 8-9% per annum or purchase a share and get profit from the lease and the resale.

Real estate investments are currently ranked second in popularity in the United States and have every chance of taking a leading position. According to surveys, Americans consider real estate to be the most stable investment asset.

To start investing in real estate, before you had to save a very significant amount of money. People built their houses and invested in them for many years, eventually receiving a full-fledged non-financial asset. But in recent years, a new way of investing has appeared – crowdfunding in real estate, which has lowered the bar for market entry to $ 1,000.

The investor acts through special sites – crowdfunding platforms and can either become the lender of the object, receiving a fixed income of 8-9% per annum or buy a share of the object and receive income from the lease and its resale.

In the United States, crowdfunding is a full-fledged, albeit risky, investment tool. Investors receive financial profit – for example, interest in the case of investments under a loan agreement or dividends on their shares. Crowdfunding is a relatively new tool, but it is of constant interest to Americans. A study of the crowdfunding industry showed that 58% of Americans are willing to invest in 2-3 startups annually.

Also, thinking about passive income, people are first of all looking for a project that is not only profitable but also reliable. Therefore, even many foreign investors are increasingly turning their interest in the US. Political and economic stability in the country is attracting more and more investors.

The United States real estate market is one of the most attractive for foreign buyers and investors. Consider the reasons for their choice and approaches to finding an investment object.

According to the NAR (National Association of Realtors) of the United States, between April 2018 and March 2019, the volume of home purchases from abroad in dollars amounted to $ 77.9 billion. And the number of transactions carried out as part of the acquisition of American real estate by a foreign person is 183,100. The average price of such a purchase is $ 280,600, which is slightly higher than the average purchase of American citizens.

The main foreign buyers of real estate in the United States are residents of countries such as: China, Canada, India, the UK, and Mexico. Top 5 states preferred by foreign nationals purchasing real estate in the USA:

  • Florida (20%)
  • Texas (10%)
  • Arizona (5%)
  • New Jersey (4%)

Why is the US real estate market so attractive to investors?

The American market has many advantages that tip the scales of foreigners when choosing a platform for investment. Stable economy The American economy in peacetime is the most calm and stable, which inspires confidence in its participants. Before the epidemic, each industry developed and flourished, new projects and innovative solutions constantly appeared. The US unemployment rate was Trump’s real pride, or rather, one of the list of his achievements.

Experts believe that the United States is one of the first countries to rebuild their economies after the completion of the coronavirus lockdown. And this is despite the fact that America is now ahead of all other countries in terms of prevalence and mortality.

  • Good real estate prices

The price of American real estate will appeal to both extremely wealthy people and those who have fairly modest capital. For example, a residential complex in Miami, a commercial building in San Diego or a house in a suburb of Austin (the best US city in 2019) – there you can choose real estate for every taste and budget.

  • Developed infrastructure

This industry can be a real “dark forest” for beginners, but the American market is so developed that you can always find a specialist who will conduct a tour, provide support and show all the real estate. Even the personal presence of a foreign investor will not be necessary if a professional is hired: working with tax documents, checking objects, meeting with participants in transactions, working as a manager on behalf of the owner, and much more. All issues can be resolved in real-time, without even leaving the borders of their homeland.

  • Financial support

In the USA it is not so difficult to find help in the form of a loan and a loan. There is a well-developed system of credit programs, some of which are aimed at working with foreign citizens who want to start operations and be present on the American real estate market.

Out-of-State Real Estate Investing

Some investors try to avoid investments outside the state, while others accept this concept. Investing in housing, especially multi-family housing, which is located next to the house, has many advantages. You already know the area and are familiar with brokers and real estate agents who can recommend properties for sale.

Many markets outside the state offer exceptional investment opportunities for multi-family investors. They are often located in “landlord-friendly states,” where rental control is very limited and does not exist. In addition, there may be a limited number of accessible facilities of a higher rental class, or, for example, in the region, there may be a sharp increase in jobs or population, as well as for other reasons.

However, some investors prefer value-added transactions in states with low unemployment, a strong population, and job growth. For example, there is an investor who lives in California and does not invest there. This is because there are too many wild market fluctuations, tight marginal rates, and rental controls. Instead, he will invest in properties located in Texas and Florida, which are more friendly to landowner states with high employment and huge population growth.

Regardless of how you approach a multi-family deal, the universal key to successful investing is to exercise due diligence. This includes location and property, so be prepared to collect market information.

The search for the right one begins with an in-depth market analysis. You will want to look at the growth of rental income, job growth, and a close look at market demographics. Who lives here? Is there an abundance of millennials and baby boomers on the market? It is important to know because it is these two groups that contribute to the growth of tenants, so you want to be sure that their number is large.

Out-Of-State Real Estate
Out-Of-State Real Estate

To make sure that you are investing in a strong market, you will also need to do analytics. To simplify your work, there are many online tools that provide the market data you need. This includes demographics, population growth, and other major factors.

You can start with City-Data.com or Census.gov. Both provide the information you are looking for. There are more advanced tools that show a wide variety of metrics on property valuation, neighborhoods, employment, and more. These include Veros, IRR.com, and Yardi Matrix, but these sites are more expensive. To find out if a state is “landlord-friendly,” you can check out Vertical Rent, which lists each state’s policies.

You must understand that managing an object without your presence is a team effort. By entering into transactions outside the state, you will need a group of professionals who understand both apartment buildings and the market in which you invest.

Your team must have a broker because in most cases it is a good source of recommendations for other team members. You will also want to include a lawyer and a CPA with experience working with investments outside the state. In addition, you will want to include a property manager who is local and knows the market well.

However, after you assemble the team your work is not finished. You will still need to visit your property, which can take six or seven hours to fly from where you live. You want to be the real owner. Which owners of their properties at least once a quarter to see how the team works and check the condition of the property.

Many investors do not want to deal with remote management, but they want to invest outside the state. The solution for them is to invest in syndication.

Answering the question of whether it is worth buying out-of-state real estate, we can say with confidence that yes. But you will need to conduct a thorough check of the market to make sure that it is strong and has both population growth and jobs. In addition, you will most likely need to create a professional team to help you manage your property. And even with the strongest team, you will have to check the property.