As the US and local real estate markets continue to work slowly through a large inventory of distressed properties amidst tight credit conditions, foreign investors are sensing solid value in US real estate and have become very significant purchasers. While traditionally, most foreign investors are like some of my clients who purchase prime multi-million dollar properties at deep discounts, I’m also starting to see a wave of interest from more modest investors originating from China, Canada, and Australia.
These investors are now able to leverage their stronger currencies to buy deeply discounted,
distressed US real estate at a further 30% exchange rate advantage compared to just 2-3 years ago. Even investors from China, with their tightly controlled currency, enjoy a 20% price advantage against the dollar. Considering that local investors are already driving hard bargains and getting returns of 12-15%, even in California, the additional currency exchange rate discount just makes our distressed properties seem dirt cheap.
For foreign investors, today is a great time to take advantage of their strong currencies to pick up performing hard assets in the US. Unlike US sovereign debt which is non-recourse and on the verge of credit rating downgrades while only offering 0-3% returns, performing US real estate offers strong asset coverage while offering double digit returns. Since vacancy rates in the US are dropping rapidly from the 3-4 million new renters from the recent housing bust, rental rates will continue to improve, providing further downside protection.
Meanwhile, there is always the small possibility of shocks to the global financial system either from exploding commodity prices, escalating sovereign debt issues in the EU, or military actions from unstable nuclear-capable states. In any of these long-tail scenarios, the global flight to safety will drive up the US dollar, reversing the currency exchange advantage of foreign investors. But for those foreign investors who invest today in a performing US property, they will have a powerful hedge against the appreciating dollar with higher converted rents.
For more information on how to invest between $250K-$1M in US real estate and get a professionally managed return of 7-10%, please contact us.