Instability in the world and inflation, which is increasing day by day, encourage people to save money and look at investments. To protect their capital, people are investing in U.S. real estate as before. How a foreigner can do this, what difficulties await him along the way and why such investments are attractive — read in our expert material.

Here’s what the statistics «say»: according to a survey of Bankrate, 29% of Americans believe that U.S. real estate is the best option for saving money. As for foreigners, the Association of Foreign Investors in Real Estate (AFIRE) did its research and found the following: 76% of the people it surveyed plan to increase their investments in the U.S. within the next year. 

Moreover, investors are interested not only in the largest cities, but also in the so-called secondary and tertiary markets. This includes, for example, cities such as Austin, Phoenix, Seattle, Denver, and Nashville. Especially attractive in terms of investments at the moment are apartment buildings and industrial assets. 

You don’t need a visa to invest in the American real estate: normally an ESTA is enough. This permit allows you to travel to the US an illimited amount of times for 2 years and stay each time for up to 90 days.

You are a foreigner and you want to invest in U.S. real estate. What are the nuances?

In the U.S. real estate market there are no federal restrictions, so it is possible to invest in this market as a resident, as well as any foreigner.

What can cause difficulties: tax laws, which often differ depending on the state where you buy the property, and difficulty in getting a loan (if you need one) to cover the investment. Local banks and lenders still consider foreigners to be less reliable investors, so interest rates and down payments are usually higher for them. You will have a better chance of getting a mortgage if you have a certain credit rating and have lived and worked in the United States for at least two years.

In addition, it should be taken into account that a foreign investor can stay in the U.S. for more than 90 days, under the condition that he/she has a B-2 visa. With it, a foreigner can stay in the country for up to six months. To get this visa, you need to prove that you have enough money to support yourself all that time.

Why would a foreigner want to invest in the U.S. real estate market?

In the U.S. there are no restrictions on the purchase of real estate by foreign investors. That is, the rights to buy and own real estate in this country are the same for both foreign investors and citizens of the United States. This factor greatly affects the attractiveness of this market for investors.

Investors are also attracted by the steady increase in home values in the U.S., which guarantees an investor capital gain. According to the National Association of Realtors, this year in the U.S., the average home price rose 14.2% over 2021 and reached $413.5. And that’s an all-time record. Of course, you have to understand that the price will vary based on the neighborhood, size, and type of property chosen.

Another compelling reason to invest in U.S. real estate is high rental yields. Looking at 2021 to 2022, rents have risen sharply (26.5 percent over the previous year) in nearly 400 cities across the country during that period. To understand: people now pay $1,000 more per month than they did a year earlier. In New York, for example, the average month’s rent now costs $5,812. All of this suggests that investment real estate in the U.S. will generate significant rental income.

Top tips on buying real estate in the U.S.

1. Choose the place for investment thoroughly — this is the key point.

It is best to think of America as different countries with their own nuances: because the country is vast, you are not just investing in the U.S. real estate market, but in a particular state. Each state has local laws and taxes, which you need to study beforehand. California and New York are known for their high taxes and complicated rules, while Texas, for example, does not even charge income tax. And there can be a lot of such intricacies.

It will be a plus if you can personally visit and evaluate the property or development. A lot of nuances play a role in the choice: what area and what the property itself is, how close it is to the necessary infrastructure and transportation, and maybe even such bonuses as beaches and attractions; what history this object has, whether it brought income in the past; whether there are any major events and festivals nearby, etc.

2. Take into account real estate taxes and additional contributions (when calculating the possible yield).

Not always, but it does happen that property taxes in the United States equal 3-4 months of rental income. This is especially true in states that do not levy state income taxes: then funds for school districts, etc. are raised through property taxes. If you are investing in real estate at a resort, there are additional costs too.

Don’t underestimate the contributions to homeowners’ associations, either: their volume also varies and is highly dependent on the neighborhood. Therefore, as we said earlier, you need to approach the research on location and real estate with the utmost responsibility.

In general, it is best to seek the necessary advice from professionals — this way, it will be much easier to understand the complex tax regime in the United States.

3. Be prepared for the IRS to withhold a significant portion of your money when selling.

This is a very important point: if you sell property as a non-resident, 15% of the amount you receive will be withheld by the IRS. The money will be returned to you after you fill out an income tax return and pay capital gains taxes. But experience shows that this process is not quick and can take months or even years. Therefore, you should not count on the 15% right after the sale. But there are exceptions: this rule will not affect you if 1) you sell the property worth less than $ 300,000, and 2) the buyers of your property will live in it, rather than use it as an investment.

«In the last year, the value of almost all real estate in the country has increased by 30%-40%»

Denis Wallace, investor and founder of LunaSun Real Estate Inc. told a REALTING reporter which U.S. real estate is the best to invest in now, what budget to have for such investments and what profit to expect.

— In the last year, almost all real estate rose in price by 30%-40%. There were two reasons: 1) because of the pandemic, people from the cities began to actively move to small towns, thereby increasing demand; 2) wealthy people were afraid of inflation and began to buy everything, which also increased demand. There could be more than 10 buyers for one good house.

Now the excitement has subsided, plus the interest rate on financing has risen, so you can already see a slight decline in prices. The further course of events depends on many factors, including the situation in the economy and politics, so we’ll see.

Regarding the best place to invest: if 5 years ago I would have said that commercial real estate was the best place to invest in, now everything has changed. At the moment, a lot of commercial real estate is idle: sometimes it is noticeable that premises stand empty for more than a year, small retail is dying, companies are moving to small towns or «going away» to work remotely. That is why you have to be very careful with such investments now.

Instead, residential real estate is at its peak right now: there is a huge demand, and a lot of people who want to rent, while the choice is very small.

Americans themselves are particularly active in investing in real estate, especially starting in 2020. As for Russians, Belarusians, and Kazakhs, I find it difficult to say how interested they are in investing now (due to recent events). However, in the short time I spent in Minsk and Moscow, I still met people who are thinking about it.

Real estate investors can have two goals: some buy properties in the expectation that they will grow in value (in order to later sell them profitably), while others want to receive a passive income every month from renting.

As for the first point, I can say that in America, real estate is growing in value all the time. Sometimes, of course, there is a slowdown in growth, but it is a temporary phenomenon. Even the famous crisis of 2008 confirmed this: yes, there was a slight decline and prices did not move, but after two years, prices went up. Therefore, the potential for profit in this «field» is. Speaking of renting out properties and obtaining passive income, I can say that the approximate profit from such investments will be 5-10% per annum.

How much money can be needed to invest in U.S. real estate? The lower threshold is about $120,000, the upper threshold can go up to tens of millions.

Here are the main ways by which a foreign investor can invest in U.S. real estate:

  • You come to the U.S. and choose a realtor who will help you choose the right property. After that, you are going to rent the property yourself or select a management company for this purpose. It should be noted that the better your management company is, the fewer problems you will have.
  • There is such a thing as a Turnkey: it is when you are helped to pick the right property for you and taken full control of the maintenance and management of your property. All the paperwork is done online.

It is important to understand that the privileges you can count on are earnings and inflation protection. There will be no other benefits from investing in U.S. real estate, including visa and immigration benefits.

Want to buy an apartment in the USA? Visit the section «Real estate in the United States» and choose from thousands of options, the one that is right for you.