FOREIGN INVESTMENT INTEREST

At the beginning of the recession the last thing people imagined was a demand for US properties, especially homes, by foreign investors. But as is the case in cycles, what is truly of value but trading at a discount, can generate demand. Hence foreign investment seeing that normally reliable and financeable us real estate IS ON SALE. On sale means a discount from either intrinsic value of the property or the alternative investment value to the investor.

The discount of intrinsic value is linked to the property itself. A home selling at $50/sf when it costs $130/sf has intrinsic (long term or short term) value, let alone if its worth 100,00 today and selling for 50,000 today.

Alternative Investment value compares the value of buying “that” property compared to leaving my money where it is. For selected foreign investors even a modest return from a US property can far outstrip their risk adjusted returns they currently get.

Now combine both…..great alternative for current foreign holdings/returns, PLUS properties with intrinsic “true” discounted pricing. This is driving capital into US real estate.

For example, recently 20% of Canadians responding to a survey said they were interested in U.S. real estate. According to the NAR, non-residents of the US accounted for $41 billion of real estate purchases recently. 23% of all international sales were to Canadians heading their investments into markets such as Florida, California, Arizona and Texas. In Arizona Canadians recently overshadowed CA investors. Arizona/Phoenix was/is robust reaching 1,000/homes sold per month but prices are now seeing thinner discounts and marketing times. With the median MLS price bottoming out, investors are getting less discounts and banks are asking for more and more. Buyers who were used to large discounts are finding investment competition willing to pay retail prices.

A lot of foreign investors are buying properties between 60,000 to 90,000, renting for 800 to 1000/mo and achieve in excess of 9% COC with projections reaching 12% plus. Although the rental market has 8% vacancy, most modest priced rentals are renting rather quick. Good deals are selling quick and investors are paying cash, financing part via banks, and using retirement and lines of credit to obtain 100% debt.