APARTMENT IN THE UNITED STATES: OUR ADVICE FOR INVESTING

 APARTMENT IN THE UNITED STATES: OUR ADVICE FOR INVESTING

Buying an apartment in the United States is the goal of many foreign investors, particularly French-speaking ones. However, it's important to research the feasibility of this project. Furthermore, it's imperative to seek advice from various sources to ensure this investment is a success. What type of property should you look for? Anticipating the acquisition cost is also important to determine the return on investment. Finally, you should also work on your budget to understand what's feasible for your situation.

invest in an apartment in the United States

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Reasons to invest in an apartment in the USA: 

1/ Strong demand and stable cash flow

Rental demand for apartments in the United States is very high. Moreover, it has always been a necessity. It is all the easier to rent an apartment since, in the United States, these apartments are often located within condominiums. This means that these buildings offer more services. For example, there is a swimming pool or a gym, etc. In addition, a slight rent increase (like 3%) is possible each year. The entire complex experiences possible improvements made to the community, which leads to an increase in the return on investment (ROI). The increase is almost automatic and all the easier to get accepted since it concerns all residents.

2/ The tax advantage of owning an apartment in the United States

One of the most sought-after reasons to invest in an apartment is to benefit from investor-friendly US tax laws. As an apartment investor, there are a variety of strategies you can use to minimize your taxes, including accelerated depreciation or even cost segregation. Ideally, investors should work with experienced tax professionals to optimize their tax situation. This obviously helps make an investment even more profitable.

3/ Simplified rental management

If you're an investor and have already completed transactions, then you understand the challenges of rental management. These challenges are even more significant when working remotely. Third-party management is sometimes mandatory, and at the same time, it increases the costs of your investment. Moreover, expensive management fees lead many real estate investors to take charge of managing their rental portfolios themselves. However, resolving tenant and maintenance issues can be a full-time and very time-consuming job. In the case of an apartment investment, operations can be centralized. Similarly, maintenance costs can be lower than for a single-family home.

4/ An assessment of your real estate assets

Another advantage of investing in apartments is the ability to accelerate your property's appreciation. Single-family homes generally appreciate through comparables. This means that the value of the house will be influenced by similar properties in the same area. There are, of course, exceptions and some leeway for owners. In the case of properties like apartment buildings and complexes, on the other hand, their value is determined by the rental income they generate. You can increase the rent of apartments by adding value to the same building by providing essential services like laundry, security, parking, etc.

The budget and cost of buying an apartment in the United States

1/ Define your budget and what you can buy

Now it's time for you to define your budget. That is, to know your financial capacity. There are two scenarios, however: you are a foreign resident in the United States or a non-resident foreigner. In the first case, you normally have a credit score with varying degrees of history. Therefore, you need to know your debt capacity. The easiest way is often to go through brokers. They will help you with your situation in order to present the best application. They will also take care of finding the best offer. The second situation is when you do not reside in the United States. Purchasing real estate, such as an apartment, is possible, but with more limitations. Finally, buying in cash is obviously the "simplest" situation since it eliminates all the previous steps and allows you to become a homeowner in less than 3 weeks.

2/ How much does it cost to buy an apartment in the USA?

By cost, we essentially mean the "closing costs", but also the costs during the life of the investment. Obviously, it is difficult to generalize since all of these costs vary depending on the location. However, it is generally accepted that these costs represent between 2 and 5% of the final purchase price. You should therefore not neglect this part and plan for this amount in your strategy. Here is a non-exhaustive list of costs added to the purchase price of the apartment: lawyer fees who can assist you during the purchase process, application fees for a loan from the bank, fees for an "appraisal" real estate expert from the bank, loan insurance fees, title company fees. Also added to the closing costs are costs during the life of the property such as property tax, insurance, possible rental management fees or association fees (in the context of a condominium or community). You have a complete detail here .

The different types of apartments and their characteristics

1/ The classification of apartments: 

They can be classified into two categories. The first corresponds to small spaces such as studios, one-bedroom apartments, or alcove studios. Then come the others, that is, apartments with two or more bedrooms, lofts, or penthouses. Also included in this last category are multifamily apartments, which are small "buildings" called duplexes (two apartments) or triplexes (three apartments). In the same sense, there are also co-ops, which are shared buildings with several bedrooms and common areas for residents.

2/ Condos vs. apartments: Which has the best return on investment?

Definitions

A condominium is either owner-occupied or rented to a tenant. The unit is part of a large residential building with access to common amenities such as pools, gyms, tennis courts, spas, etc. In addition to the monthly depreciation of the condominium unit, you will also pay homeowners' association dues, which are used to maintain amenities and other facilities. On the other hand, an apartment building is a type of multi-property investment. As we have seen, this small building can have up to 20 units. Therefore, the cost of acquiring an apartment building varies, but it is generally much higher than the cost of acquiring a condominium. Unlike condo units, occupants of apartment buildings generally do not have access to amenities.

Two investments, two objectives

In our opinion, these two investments serve different purposes. From a management perspective, a condo is more passive, requiring less maintenance at first glance. You are also responsible for fewer repairs. This is not without consequences, since in a condo, you are subject to a number of rules, especially when the property is rented. In a multi-family apartment building, you set your own rules. Another point: if we're talking about a multi-family building, the acquisition cost is generally higher. Although this depends significantly on the market in which you invest. You are also responsible for almost all repairs emanating from the building. Similarly, from a condo perspective, the building management association fees can eat into your profitability. Be careful, as these fees can increase at any time.

Get support for purchasing and renting your apartment 

Work with a council that has experience with foreigners

When searching for, evaluating, and financing an apartment in the United States, it's important not only to find licensed agents but also those with local expertise. The agency is truly important because they will also be responsible for educating you on the process in the United States. Building a team around your project can take time, but don't skip the steps. Do some online research, find locations, and cross-reference information. Ultimately, the expertise these professionals bring helps make the experience less stressful.

The Florida acquisition process explained in video:

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Seek financial leverage if possible

First of all, a warning: financing for investing in an apartment in the United States is particularly difficult to obtain as a non-resident foreigner. This is also true if you have been a resident foreigner for only a few months or even years. However, each situation is different; the market in which you invest strongly impacts the feasibility of the loan. Therefore, more than ever, you need banking advice such as a broker. Their role is to guide you in finding the best offers, as well as in the application you present. There are French-speaking brokers in the United States who are better able to understand your situation. Depending on your situation, a more or less significant down payment is required. Generally, a 20% down payment is considered ideal when purchasing a home. Your application may require a larger down payment, up to 30%.