IS IT WORTH CONSIDERING BUYING REAL ESTATE IN THE UNITED STATES IN THE CURRENT CONTEXT?

 IS IT WORTH CONSIDERING BUYING REAL ESTATE IN THE UNITED STATES IN THE CURRENT CONTEXT?

COVID-19 has spared no sector. The US economy and real estate market are among the sectors affected by the health crisis, and the question of whether it's worth considering buying real estate in the United States in the current context is relevant. In this article, Investir US takes stock.

Overview of the current economic context and focus on the real estate sector

From mid-March 2020, the coronavirus pandemic wreaked havoc in the United States and around the world. In its report, Moody's Analytics predicted an annualized decline in US GDP of 30%, three times greater than the historical decline recorded until then in the first quarter of 1958. Over time, forecasts were updated, and today, specialists predict a decline in US GDP of 6.6% for the whole of 2020. Compared to the subprime crisis of 2008, the figures announced are around one and a half times higher.

Among the sectors most affected by the crisis are hospitality, entertainment, manufacturing and construction.

In the real estate sector, the impact of the health crisis is occurring with a lag. Indeed, it will only be possible to see the impact of teleworking on commercial real estate after a few months. Demand for offices and retail spaces is significantly influencing the figures for this sector, as are future operating regulations. The same is true for specialized residences (senior residences, retirement homes).

In the multifamily and commercial real estate market, the number of transactions decreased by nearly 50% in the first quarter of 2020. For investors, the main challenge is simple: determining the best price for assets. It's a safe bet that in terms of real estate asset profitability, these will increase with varying sectoral variations, just as was the case during the 2008-2009 financial crisis.

The profitability of apartments, offices, retail, and industrial properties is expected to vary significantly, according to Moody's Analytics . The economic research firm indicates that the assets least sensitive to the consequences of the crisis in the short term will be multi-family properties, which are expected to decline by around 10.2%. In contrast, the declines will be more significant for offices and retail properties, with returns of -16.8% and -20% respectively in 2020.

The reason why the residential sector, especially the multi-family segment, is expected to experience stability is explained by the continued demand in the rental market.

Buying real estate in the United States and its return

High-income professions are among those seeking to maximize their investment returns. Exposure to higher costs, such as medical expenses for independent contractors, higher tax brackets, and reduced income upon retirement all provide incentives for these individuals to seek to maximize the return on each of their investments.

Risk tolerance is a key concern for both investors considering a real estate purchase in the United States and those who already own real estate in the country. For these individuals, a significant loss would be detrimental to their entire portfolio. This tolerance tends to change over time, depending on both investor choices and circumstances.

Another concern for investors in the United States, and not the least, is taxes. High-earning professionals represent a significant financial windfall for the Internal Revenue Service (IRS). By falling into higher tax brackets without a viable tax management strategy (whether for real estate or otherwise), their financial gains are quickly diminished by the amounts owed to the US government.

Is buying real estate in the United States a worthwhile investment?

Real estate investing offers many advantages. The combination of natural market forces, regulatory oversight, and monetary policy allows for stable growth that typically outpaces inflation and can be a way to pay less taxes while protecting property rights and values.

Most investors are, of course, concerned about the recession. However, key indicators point to stable but persistent growth.

Investing in real estate in the United States has many advantages... as well as disadvantages that should be taken into account.

Among the advantages of buying real estate in the United States:

A form of protection against capital gains assessments through elimination, reduction and carryover, or deferred taxes 1031 exchanges and opportunity zones

The deduction of certain amounts, including loan interest, depreciation, operating losses and improvement costs

The evolution of the price of the property, if it is favorably placed and paid at the right price, is generally positive over time

Lower volatility compared to securities

Very strong demand in certain areas, despite the crisis

A form of protection against inflation

A regular passive income

A way to diversify your investment portfolio

While there are many advantages to buying real estate in the United States, there are also downsides that must be considered, depending on how you look at things.

Among the disadvantages of real estate investment in the USA:

Less immediately available cash

Asset and portfolio management with a view to boosting the latter

Potentially complex and time-consuming operations in property management

Higher capital requirements for individual investors

Expenses for the renovation and improvement of real estate

The disadvantages outlined above obviously vary depending on the investor's profile, experience, and the amount of capital involved. To maximize your chances and make your U.S. real estate purchase profitable, surround yourself with competent professionals with in-depth market knowledge. Investir US will support and advise you.