Should Foreign Investors Buy in the US Real Estate Market?

Over the years, we’ve been very lucky to work with investors from China, the Philippines, Argentina, the UK, Australia, New Zealand and France.

Many have done very well with U.S. real estate investments, but those investors are the exception, not the rule.

Investing in a market outside of your own takes a good bit of planning, groundwork, and intense vetting before one single property is acquired.

There are countless stories of investors losing millions buying in a country outside of their own. Why is it so dangerous? Because of assumptions.

In early 2007 and 2008, Detroit went through its own real estate perfect storm that included a national real estate market crash, rampant fraud in the housing and mortgage industry, and widespread job loss from the largest employers, Ford, GM, and Chrysler.

This produced a flood of foreclosed and distressed properties on the market. Thousands more were in the county tax foreclosure inventory. Investors from all around the world saw an amazing opportunity to pick up hundreds of homes at an enormous discount.

Large investment firms, hedge funds, equity funds, and every kind of investor came from several countries to see if the properties were really that much of an financial windfall. For a brief time, the investment opportunity actually lived up to the hype.

However, even with all of the right components and a great market, there’s still no guarantee of success. This is the reality most were missing: real estate investing is a business and must be approached and run like a business.

Investors who came into the market just to get rich quick were sorely disappointed; very often after they lost hundreds of thousands of dollars or in the hedge and equity funds, millions. Those that were able to stay afloat and do relatively well made nearly no assumptions and treated their business like a business.

Here are some of the worst assumptions that tanked inexperienced investors in the U.S. real estate market:

  1. What works in my country should work here, too

    Just as our tax laws, traffic patterns, morays, and customs are different, so is our business and investing culture. Investors who are successful in one aspect of real estate investing may not experience that same success here.

    Investors thinking of buying single properties, multiple properties or a portfolio of properties need to stop and analyze the business model being used and whether it is sustainable for this market to produce long-term income.
  2. This company/operator has nice business cards and a snazzy website, they’re totally credible

    Character, integrity, and work ethic can’t be ascertained by looking at someone’s website, office, or marketing materials. You need referrals, pictures, and slow integration of them into your business.

    Remember, you’re thousands of miles away from your investment, so the people you trust have to be proven trustworthy.
  3. No matter what, real estate will always increase in value

    Not so fast! Depending on the area and neighborhood values, it’s not always guaranteed that every property will increase in value. In fact, in areas with high theft and vandalism, property values decline steadily each year as more and more homes become vacant.

    Buying and holding is a strategy. Buying and hoping is not.

The value and the opportunity for investing in the U.S. real estate market is excellent, but always with a superior business plan and no assumptions.

Good Luck and Happy Investing!

Letitia Patterson is a licensed real estate associate broker and has worked in the mortgage and real estate industries for nearly 20 years. She has worked with investors in several countries from all around the world and specializes in both small and large real estate portfolios in the Metro Detroit market.

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