International Real Estate Investors Alert - Consider Buying U.S. Real Estate In 2008 Instead Of 2012

When foreign national buyers consider investing in U.S. real estate, they often focus on projects set to deliver 2-4 years out as opposed to projects that are ready to deliver today.

Considering the path of the world's economy , this long-term investment strategy may be a bit short-sighted. For non-U.S. citizens wanting to buying investment property in the United States, there are 3 excellent reasons to consider buying property now instead of at some vaguely-defined point in the future.

By themselves, each point holds it own merit. Combined, however, the rationale is even more logical.

Reason #1: Home prices in the United States are relatively low.

Actually, I should qualify that statement.

Versus their 2007 levels, home prices aren't low everywhere, but for houses, condos, condotels, and other units built specifically for real estate investors, there's a combination of excess supply and eager sellers that may be too good to pass up.

I'm talking about finished projects in places like Florida, Las Vegas, California, and Manhattan that are online now, lingering unsold and dragging on developer balance sheets.

Capitalizing on the down-trodden U.S. real estate market is a popular reason for international investors to buy in the United States. Because the year is winding down and excess supply is clogging developer pipelines, this is a terrific time to make a deal.

Reason #2: The U.S. Dollar is running wild over the Euro, Pound, and others.

For international buyers of U.S. real estate, there are two ways to make a profit.

The first is to profit from the property appreciation on the investment unit itself. This is the form of profit that most investors talk about with respect to "buying in a down market".

The lesser-known method is via currency appreciation.

Currency appreciation happens when the dollars applied to a downpayment on a home gain value from changes in foreign exchange markets and currency conversion rates.

As the U.S. Dollar has strengthened since July, for example, foreign national investors have profited handsomely.

As an example, here's what a hypothetical 100,000 downpayment made on July 1, 2008 would be worth today in 4 popular currencies:

* Euros: €100,000 downpayment is now worth €114,201, a 14.2% gain
* Pounds: A £100,000 downpayment made now worth £112,343, a 12.3% gain
* Canadian Dollars: $100,000 downpayment is now worth $105,821, a 5.8% gain
* Australian Dollars: $100,000 downpayment is now worth $123,021, a 23.0% gain

These are monstrous amounts of currency appreciation over just a 90-day period and the U.S. dollar is expected to extend these gains through 2009 as the global economy and world currencies sputter.

Currency appreciation can be more profitable than equity appreciation and that's the second reason why international investors may want to buy U.S. real estate before the end of the year.

For every amount that the U.S. dollar appreciates prior to a real estate closing, not only does the cost of a dollar-denominated downpayments increases but currency appreciation is held to a minimum, too.

Reason #3: Foreign national mortgages are still available, despite what you hear.

When I talk with international real estate buyers, they're often genuinely surprised that mortgage money is still available for foreign nationals. And then, when we talk about new construction in Florida, the surprise turns to shock. After all, everyone else is telling them financing a new construction condo in Miami is impossible -- including their real estate developer.

And this bring us to an important point about the foreign national mortgage market.

For years, foreign national lending had been heavily concentrated with just a few lenders, most of whom were well-known banks. To drive sales, they embarked on "road shows" across Europe, Asia, and South America, talking about their products and the virtues of buying real estate in the U.S.

Today, those lenders have all left the space, creating a giant information void that most people -- mortgage brokers included -- have wrongfully assumed to mean that foreign national mortgage lending is dead.

I'm happy to report that it's not.

Sometimes, the hardest part about borrowing money as a foreign national is getting access to quality, timely information. Presumably, that's how you found this Web site to begin with (and why you're still reading).

So, if you're want some foreign national mortgage information on which you can rely, here are a few bullet points:

* Foreign national mortgages are still available in the United States
* Downpayment requirements are low -- 10 or 20 percent, depending
* Interest rates are reasonable and are not "monthly adjusting"
* There's no forbidden property types -- condo, condotels, and multi-units are all okay

And it's when I give these sort of details that my international clients wonder why every other stateside mortgage guy said foreign national mortgages couldn't be done.

See, after JP Morgan Chase and Wachovia stopped lending to foreign nationals this summer, most people assumed that the market dried up entirely. Chase and Wachovia were the last Big Banks standing in the foreign national space and a bevy of small- and medium-sized banks followed their lead. Only, it didn't dry up.

To take advantage of the growing foreign national demand, new mortgage lenders entered the fray and are now making common sense decisions on what most people generally believe are a strong set of borrowers.

However, there's a caveat. New funding sources are available today, but the lenders reserve the right to change their terms or policies at any time. And historically, they do. And, of course, they can always choose to discontinue the product at any time.

And, this is the third reason why foreign nationals should buy before the New Year.

Home prices may rise next year, or they may fall -- we can't predict that. But, we can predict with near 100% certainty that mortgages will be less available tomorrow than they are today.

And that includes foreign national mortgages.

As a brief summary of the points above, international buyers may want to buy property sooner rather than later because:

* Developers are willing to negotiate because of the current market climate
* The U.S. Dollar is poised for gains, rendering downpayments "more expensive"
* The U.S. mortgage market will not exist in its current form in 2012

We know what the market looks like today and we don't know what it will look like tomorrow. Therefore, if buying U.S. real estate is part of your overall investment plan, consider moving up your timeframe to some point soon.

And remember, in the U.S., real estate agents are paid by the seller -- not the buyer. If you don't have local representation, you're welcome to call or email me for a referral to somebody I trust in any given market.

My contact information is wtompson@ix.netcom.com.

What International Buyers Need To Know About Today's Foreign National Mortgage Market

As the dollar slides against the world's currencies, foreign national buyers are flocking to U.S. housing market for second homes and investment properties.

Looking at the graph, it's not hard to see why. Since September 2007, a European's cost to buy a $300,000 property in the United States has fallen by 13 percent.

But just because prices are falling doesn't mean that buying homes is getting easier. Mortgage guidelines have tightened for foreign national buyers just like they have for domestic ones.

Here's what foreign national buyers need to know about today's market:

You won't find foreign national investor mortgages at the Big Banks

In September 2007, the largest mortgage lenders all but eliminated foreign national home loans from their respective product menus. This squashed a huge source of mortgage money and it trickled down to the smaller mortgage players that sold their loans "up the chain".

Around the same time, mortgage brokers were closing their doors and leaving their Web sites intact. This is why you can still find hundreds of Web sites catering to foreign national buyers but can't get anyone to return your phone calls or emails.

Look for "private" investors to finance foreign national mortgages
Big Banks don't want to finance foreign national investment loans but there is plenty of money available. All you have to do it find it.

In every U.S. market, there are always small banks and financiers with direct ties to the community that want to lend in it.

Because these groups know the real estate scene so well, they will usually make common sense decisions and don't immediately reject foreign national buyers.

"Private" investors each have their own risk tolerance so expect mortgage terms to vary from source-to-source.

Choose your housing market wisely.

Large cities like Chicago, San Francisco and New York offer strong support for foreign national buyers. Big City "downtown" areas are typically:

Abundant in private investor money
Stable with respect to long-term housing trends
Filled with loads of entry-level jobs (i.e. renters)

Smaller markets or vacation centers may introduce seasonal or local economy risks. Be sure to do your homework first.

Be prepared with a downpayment of at least 30 percent in U.S. dollars
Private investors are scared of foreign national buyers because the borrowers often live halfway around the world. In other words, there's no way to hold foreign national buyers accountable should their home loan go into default.

Foreign national buyers should plan on putting a fair amount of their own money into their home purchase. 30 percent is the minimum in today's market and it carries the highest interest rates and harshest loan terms for foreign nationals.

A 40 percent downpayment can soften the rates and terms, but it's at 50 percent where the real shift happens.

With a 50 percent payment or more, foreign nationals get access to most attractive mortgage rates and very loose terms. This can include reduced documentation, reduced costs, and easier underwriting.

If you want to buy property in the United States, buy it now.

Mortgage markets are changing, the global economy is changing, and investor risk tolerance is changing. The outlook for foreign national mortgages is drastically different from eight months ago and eight months from now, it will be even farther removed.

There are plenty of homes available for purchase and there will be just as many next year. However, mortgage guidelines will be more strict. Making a 10 percent downpayment on new construction does not guarantee that your mortgage will be approved when the building is completed -- the approval only happens when it's move-in ready.

The dollar is right and the market is right. Maybe you should buy today.
Avoid mortgage fraud: "Second home" is not the same as "Investment Property."

In most states, lying on a mortgage application is a felony offense. If a home will have tenants, a lease, or the future promise of a lease, it is, by definition, an investment property. By contrast, a second home is a property for the exclusive use of the owner and his family.

When the Big Banks stopped lending on foreign national investor properties, some real estate agents and mortgage brokers "coached" foreign national buyers to use the Second Home designation as a means to get a home loan approval. This is fraud and if the offense is discovered, the homeowner (and every other party involved) will be subject to a court appearance and large fines.

In addition, the mortgage note will be called by the bank immediately to be paid in full by the homeowner.

Remember why you are buying real estate in the United States.

Many real estate investors think that the U.S. real estate market is a good value. Property values are down nationwide and the falling U.S. dollar is pushing the relative prices of property even lower.

Financiers are requiring larger downpayments than in the past, but they're asking for those monies in U.S. dollars and not in the currency of the buyer's homeland.
If (when?) the U.S. dollar recovers, the return on that downpayment investment can be gigantic.

When NYSE-traded stocks are considered to be a "value", investors buy as much of that stock as possible. As it relates to foreign national real estate investors, the "stock" is the subject property and the home's downpayment is the investment.

Making a larger-than-expected downpayment may not be optimal in the short-term, but if buying U.S. real estate is part of a longer-term strategy, keep that long-term perspective in mind.

Above all else, make sure you work with professionals.

The foreign national market changes very, very quickly in the United States and that's why every international buyer should be working with an experienced professional on both the real estate and mortgage part of the purchase.

Remember that most of the broker Web sites offering foreign national mortgages belong to loan officers that are no longer licensed or to companies that are now defunct. It's why your phone calls aren't returned, your emails are ignored, or the answers to your questions are vague.

Buying property sight-unseen is a scary proposition for most people -- especially when it's across the ocean (or farther!). You need solid advice and a realistic outlook.

If you're a real estate agent or a foreign national buyer in need of mortgage assistance, you're always welcome to contact me directly -- my email and phone number are all over this Web site.
If you need references to local real estate agents that are experienced with international buyers, please ask. We are a tight-knit community and know each other very well.

Foreign National Mortgages For Investment Properties

Over the last six months, the U.S. Dollar has been on a steady slide versus the Euro, raising the purchasing power of the Irish and other EU citizens against all-things American. This includes U.S. real estate.

The graph above illustrates, in real terms, the cost of a $300,000 property in the U.S. to a Euro-based buyer.

Because of the fading dollar, it's as if the price of every property available for purchase in the U.S. has fallen by 10 percent. This is one reason why the U.S. real estate market is looking attractive to non-U.S. citizens.

The other reason: Mortgage products for Foreign Nationals buying investment properties in the United States is back.

In mortgage lending, a "Foreign National" is a person that:
Is not a U.S. citizen
Does not have a social security number
Does not have a U.S. credit history.

This complete lack of ties to the U.S. would normally frighten a bank but Foreign Nationals buyers often display a few other traits with which banks are in love:

Foreign Nationals often have more-than-ample assets and reserves
Foreign Nationals often have strong, consistent income
Foreign Nationals often have experience managing rental properties
Foreign Nationals are often willing to make large down payments

Because of these credit-based traits, years ago mortgage lenders created niche products designed specifically for the Foreign National investor.

The terms were comparable to those offered to U.S.-based buyers, but with the stipulation that the Foreign National make a larger-than-typical downpayment.

So, whereas a given mortgage product would require a U.S. citizen to make a 10 percent downpayment, the Foreign National buyer would be expected to make a 20 percent downpayment.

For the well-capitalized Foreign National buyer, this wasn't a problem and he gladly accepted the bank's terms. And the banks were pleased because this extra collateral helped to hedge risk.
But late last year, when mortgage guidelines tightened nationwide, lenders stopped issuing Foreign Nationals loans for investment properties.

Mostly, this was because of speculation in markets such as Florida and Nevada where the extra downpayment amount was evaporating in the form of capital losses. Some Foreign Nationals defaulted on their debt obligations and the banks recognized that they had no recourse on the home loans.

In a move similar to how sub-prime mortgage defaults were handled, banks chose to cut the Foreign National investment property product rather than risk further losses.

Once it was removed from mortgage lending menus, Foreign National buyers were told that the only home loans available to them were home loans for vacation homes. Investment properties were a no-go.

This stopped almost all Foreign National lending in its tracks.

Until last week.

In a strange case of When It Rains, It Pours, two lenders re-entered the Foreign National investment property market, once again with larger-than-typical downpayment requirements,

but interest rates near the U.S. market rates.

The caveat: It's only available in Chicago where real estate values are stable and rent checks are plentiful. Speculative markets (i.e. Florida and Nevada) are not included.

As the dollar's slide against the Euro continues, expect to see more Foreign Nationals buying property in the United States, and expect them to concentrate in cities with healthy rents and strong growth prospects -- Chicago included.

If only because that's where the mortgage lending money is.