Investing in the U.S. of A.

Investing in the U.S. of A.

Retirees and holiday homers have long looked to the US for its sun, sea and lower house prices. Now intelligent cash investors are getting in on the act.

The US housing crash of 2007 is well documented. Lately, mortgage demand is up and house prices have been rising, prompting investor confidence to return. As Jamie Dimon, chief executive of JPMorgan Chase & Co told analysts last year: “Importantly, we believe the housing market has turned the corner.”

The bank, which is the biggest in the US by assets, posted record results in the second quarter of 2013, with profits surging 31% to $6.5bn (£4.3bn). Wells Fargo, the largest US mortgage lender holding one third of all domestic mortgages, posted a 19% increase in the same period, a sure sign that the mortgage market has dragged itself out of the slump.

For the British investor, the USA offers excellent purchase power. Sterling is strong against the dollar. A $200,000 property bought now would cost the British buyer £124,926, compared to £133,000 just six months ago when the pound was at its lowest rate for a year.

Despite the upturn, prices remain doggedly low by international standards. A quick look at the listings shows that $79,000 (£49,000) will buy a three-bedroom, two-garage villa in Kissimmee, Florida, a perennial favorite with British investors. The same amount would buy a studio in Malaga, Costa del Sol, Spain, where deals are souring thanks to the VAT increase on new-builds from 4% to 10% and the end to various tax breaks on real estate.

The price trend is upwards. The Florida Association of Realtors reports that average sales prices for single-family homes have risen 13.6% in the last twelve months, putting US real estate firmly on the up-curve. Median sales prices across the state were $175,000 in August of this year, up from $147,500 at the end of 2012. That’s 70% down on the 2006 peak — and a bargain compared to the UK.

All of which explains why an estimated 50,000 Britons own a piece of Florida real estate. Besides Florida, California, Texas and Arizona draw the largest number of foreign investors, accounting for 58% of all non-national sales.

US markets are local, rather like the UK, so $100,000 in Texas buys a very different investment to $100,000 in Illinois. But wherever you look, the outcome is similar.
In New York, the rental market is thriving. Younger people find city housing comparatively expensive, so they’ve shifted in masses to renting. The landlord’s market has seen Manhattan rents rise for 26 months straight, with similar figures from Brooklyn. To put that into context, Global Property Guide lists the median rent for a 75 square meter apartment in upper Manhattan at $3,812 (£2,380) per month. That’s against a median sales price of around $849,000 (£530,000), giving a rental yield of 5.39% – 63% higher than the average yield in central London of 3.4%.
Away from the major cities, the average yield can be double the British average. In Aventura, Miami, a small condominium (flat) will set you back $215,000 (£134,215) in return for $1,685 (£1,052) monthly rent – that’s a mouthwatering 9.41% yield before factoring in costs and voids. With rental vacancies at their lowest levels in over a decade and rents on the rise, those yields look set to get even better.
Specific lots for sale are as broad as they are long, offering investors a selection of properties — condos (flats in purpose built blocks), town homes (terraces) and single-family villas (detached housing). Regardless of whether you are looking to buy in New York or Nashville, the properties are high-spec by British standards.

The buying process is transparent, with all Realtors (estate agents) professionally qualified and certified. All subscribe to a multiple listing service which correlates and disseminates listings and sales price information across all states. Unlike the UK, where prospective home owners must trawl the windows of every estate agent on the high street to find their perfect property, every broker has access to every available property for sale.

Purchases are usually backed by title insurance. This indemnifies buyers against title “clouds,” which would otherwise reduce the value or marketability of the property. As in the UK, sellers make certain disclosures about the condition of the property. Deeds are recorded and legal titles are robust.

With market conditions propitious and hotting up, the time to act is now. Low house prices, a rising market, mortgage availability and favorable exchange rates act in the British buyer’s favor. With cash and stocks producing poor or volatile returns, US property seems like a safe bet for anyone wanting a bigger bang for their buck.Incomeedu


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