The Upside to Real Estate Investment in the US

The Upside to Real Estate Investment in the US

My money follows my mouth, and I love real estate.  Even at today’s prices, there are super safe investment in the US in both the single family house area as well as commercial opportunities.  The values have gone up in primary areas of the US.  All you have to do is follow the people as they migrate within the country and you will follow the money.  People move for better job opportunities and quality of life.

Follow the money

The areas they leave see a decline in values as demand for real estate goes down and the cost of services goes up.  Think about this: when people leave an area, there is a domino effect in the local economy. There are less people to buy groceries, dry cleaning, landscaping, building – anything – you name it.  The municipalities have less people to charge for services, so they either raise the cost for people left behind, or they cut services.

Well, certainly there is opportunity to buy houses on these areas, but I think it is a lot wiser to acquire and hold properties in the areas where people are moving to – and in the US, that is primarily the Southeast and Southwest areas of the country.  Primarily, Georgia, Florida, Texas and Arizona.  These areas currently have a terrific rebound in values and new construction is everywhere to be seen in the major metro areas of specific cities.

I personally live in Tampa, Florida and I am shocked at the rise in values and money being invested in the infrastructure – mainly the airport and roads.  The same is true of Atlanta, Georgia and parts of Texas.  You see, our real estate market has recovered in most areas from the Great Recession, yet there are many reasons why now is the best time to buy US real estate.

Know your options

Many promotors of US real estate complicate the process of foreigners acquiring real estate here.  Unless you are going to buy a lot of houses, you don’t have to bother with the cost of a US Limited Liability Company (LLC).  Homeowners’ insurance with liability insurance protects your investment.  For the small investor, simply keep the property in your name and use a local address in the US for all your correspondence.

The US is a perfect investment opportunity for South Africa. There are several reasons for this, including a less volatile currency, rule of law to protect investors, the safety of your wealth for future generations, and tax advantages.

All cash purchases of well-located single-family houses will produce a net yield of five to eight percent.  You can get higher returns in low income areas, but the higher quality the house, typically the lower your yield will be.  Many people get caught up on “paper returns’, sold by various promoters and it’s important to realise that paper returns are different from reality because tenants do move out and houses do require repairs.

But the thing about houses is that they are the most liquid of all types of real estate and the cash flow is fairly predictable.  If you owned ten houses and needed some money for any reason, it would be easy to sell one house or borrow money on one house.  It’s not that simple if you owned an apartment building or office building.

We have a plethora of opportunities in the multi-family class of real estate. However, the control over the investment lies with the general  partner. You would be a limited partner, not involved in day to day decisions, which is not a good thing in most cases. These assets allow you to get terrific leverage and double digit returns.  As a limited partner, you have no real control over the asset.  This used to be a big issue for me, but I have recently invested in a limited partnership of 104 units and my anticipated return is 14.5%  That’s the IRR (Internal Rate of Return) projected on a five-year exit plan.

I’m on a flight in Brazil right now, having recently spoken at real estate conferences in Rio de Janeiro and Sao Paolo.  The team I work with here suggested to their investors to have both limited partnerships on multi-family projects, as well as single-family houses with decent control for a balanced and diverse portfolio.

If this is something that interests you, send me an email or join me on an upcoming webinar with Neale Petersen.

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