We will cover all aspects of a real estate investment in the United States so that you can make an informed decision on the subject and especially understand why investing in real estate in the United States is a great idea and how to do it in a secure context.
Why invest in real estate in the USA?
Buying real estate in the USA, new or old, for the purpose of renting it, has a lot of interest currently and often brings in around 10% gross, 6% net. Europeans invest massively in the rental and not necessarily close to home. However, rarely do they consider investing in real estate abroad. However, some real estate markets, such as that of the USA, have interesting characteristics and this is an option to integrate when thinking about it.
It is obvious that it is often by comparison between the American real estate market and the European real estate market and which one you know better. Below are the main reasons to invest in real estate in the USA.
It is an affordable market. As in Europe, there are large disparities between certain sectors in the United States. Investing in real estate in California, Miami, Phoenix, Detroit will be very different like Paris, London or Rome. However, overall, the rent to price ratio is much more favorable in the United States than in Europee and the price of real estate per square meter is lower than in France, in comparable cities. The IMF recently mentioned France as one of the most overvalued countries in the world.
it is a profitable market. The rent to price ratio is favorable and it is the basis of rental profitability. Renting a property purchased at the right price, i.e. at a fair price (at market price) will generate high profitability. Overall, we can say that real estate is sold for less than 15 years of rent in the USA. Rather, it’s the equivalent of 30 years of rent in France.
It is a liquid market. Real estate transactions go very quickly in the United States. Currently apartments and houses are sold between 60 and 90 days on healthy markets (we will discuss which cities to target below). A transaction lasts 45 days if a credit is requested, 15 days if the buyer pays cash.
There is strong rental demand. Americans move a lot for their jobs and, in this context, buy less. Each city has its own characteristics in this area, but some cities in the USA clearly have better indicators in terms of attractiveness and creditworthiness of tenants. Having a low rental vacancy rate has a strong impact on the profitability of your rental property investment.
Purchase costs are lower in the United States than in Europee, but above all they are 90% borne by the seller (including the agent’s commission).
There is a property right on the owner’s side. Nothing could be more unpleasant to invest in rental property and not to collect rents because of unscrupulous tenants. The law is clearly on the owner’s side in the United States and, should this unfortunately be necessary, an eviction procedure is generally quick and not too expensive.
In which region of the USA should you invest?
Of course, we all have our preferences for sentimental reasons, but here our goal is to argue our advice. First, in which city should we refrain from investing in the USA in our opinion? A number of sites and articles currently advise investing in real estate in Detroit: we don’t have the same opinion. Indeed, the demography of the city is unfavorable (constant drop in the number of inhabitants for more than 20 years). The unemployment rate is high, the average income low, the real estate very old (for the United States). Therefore, we do not recommend this city.
How about the west coast of the United States? We love California, Oregon, Washington state. On the other hand, real estate is expensive there overall, which makes the rental profitability lower, because the rents cannot go up to the sky, for lack of a solvent demand. Regarding California in particular, the area of San Francisco/Palo Alto has become so expensive that the rental profitability is very low. On the other hand, the rise in prices has generated great capital gains in these cities in recent years.
A recent article by Forbes ranks the cities most favorable to rental investment in the United States: the cities of Florida are well ranked and the city of Orlando is again ranked first. A track to dig too is Texas. Another article by Business Insider shows the 20 best cities to invest. Like them, we recommend the city of Orlando for your Florida real estate investment project and Atlanta for the East Coast. The price of real estate is affordable. They have attractive rents in relation to the price of real estate. The demography is in perpetual increase bringing a constant flow of tenants. You can see a lot of construction dumpsters over there as residents keep on renovating and improving the local real estate.
The criteria for choosing a real estate investment in the United States must take into account the quality of the schools surrounding the property. In the USA, the schools are classified each year according to many criteria and obtain a grade from A to F. A is the best level (take your information to the education department of the targeted state, and not from certain sites where the grade can be given by the angry student against his teacher). The proximity of these good schools will have an immediate impact on rental demand.
The best location is a specific district of Orlando where the schools are all classified A (from elementary school to high school) and which is located 20 minutes from the campus of UCF (University of Central Florida , the largest campus in the United States with 65,000 students) and 20 minutes from Valencia College (which goes up to an associate degree, equivalent to Bac + 2). The other criteria to take into account, in our opinion, are the unemployment rate in the city, population growth in recent years and average household income compared to average American income (around $ 45,000 a year). Most of this information will be available on Census.gov or City-data.com.