THE RISE IN THE NUMBER OF FOREIGN INVESTORS IN THE MULTIFAMILY BUILDING MARKET
THE RISE IN THE NUMBER OF FOREIGN INVESTORS IN THE MULTIFAMILY BUILDING MARKET
The increase in the number of foreign investors in the multi-family building market
The American real estate market is booming. Foreign investors are rushing to buy homes, especially multi-family buildings.
increase in foreign investors in multi-family buildings
Foreign investors in multifamily
Foreign investment volumes increased by 29.3% in 2018 in multifamily buildings in the United States, according to a report by JLL Research. In fact, Canadian investors alone invested $9.8 billion during the year, 31.5% more than the previous peak in 2015. Starting early last year, for example, the Canada Pension Plan Investment Board and GIC, an organization that manages Singapore's foreign exchange reserves, entered into a partnership with Atlanta-based Cortland to purchase up to 10,000 Class B apartments across the United States and convert them into Class A apartments.
Canada may be the largest non-U.S. player in the market, but it's not the only one. According to the report, "up 23.8% from a year ago, annualized cross-border investment activity remains near record levels, at $14.6 billion. Investors based in Canada, Bahrain, and Singapore drove investments, contributing 67.5% of quarterly foreign capital in the first quarter of 2019."
Read also: Why invest on the West Coast of Florida?
What are the advantages of multi-family buildings?
According to a CBRE article titled "American Multifamily Housing: A Primer for Foreign Investors," here are the benefits of investing in this type of housing.
A favorable regulatory environment
Regarding public housing, the United States has a lower level of beneficiaries or low-income people than many other countries. These properties require additional expertise on the regulatory environment, but represent only a small portion of the total inventory (estimated between 5% and 10%).
Liquidity
According to CBRE, the conditions for accessing mortgage capital are favorable here: the availability of debt capital is significant for investments in all real estate sectors. Leverage is used for most transactions, with acquisition financing typically ranging from 50% to 75% loan-to-value. The article also cites the diversity of sources of multifamily real estate debt. These include banks, life insurance companies, commercial mortgage-backed securities, finance companies, and particularly government-sponsored enterprises. For example, Fannie Mae, Freddie Mac, and the Federal Housing Administration are the primary sources of debt capital for existing assets in the United States. They have no analogues in many countries.
Short-term leases allow for immediate adjustment to market conditions
American tenants are accustomed to one-year leases. This is a factor in the "American Dream" of homeownership. It's assumed that each tenant is staying in their apartment temporarily rather than calling it their permanent home. You'll also find that in the United States, your contract with your tenants expires once a year. So, you're not locked into the relationship for more than 12 months. You can raise their rent unless a local ordinance intervenes. It's also easier to evict tenants for non-payment (about 1 month).
Third-party leasing and management options
In the United States, owning multifamily buildings can be a passive, turnkey investment. These management companies provide an interface with tenants and local knowledge. They also add a professional aspect to the process that most financial investors lack.
However, let's add another reason why investors are interested in apartment buildings in the United States: immigration. Indeed, a large portion of foreign investment is motivated by the desire to immigrate to the United States. To acquire a home here, you must create a U.S. company and obtain an E-2 or EB-5 visa.
With a favorable economic climate, the American real estate market continues to attract investors from around the world. Changes in laws in other countries influence where investors choose to invest their money. With the taxes in France, many choose the United States because it is much more accommodating to foreign investors.
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