Why Should Foreign Real Estate Investors Invest In the USA?

The US is the most popular country in the world for foreign investors. Each year, hundreds of billions of dollars of foreign investment flows into the country from various parts of the world. A sizable chunk of that foreign investment, or around 53,3 billion dollars for 2023, comes from foreign investments in US real estate.

Why is that, and what do those foreign investors know about investment properties in USA that you don’t? This is the MAIN question we aim to answer in this rather lengthy article. 

Join us as we dive deep into why foreigners invest in US real estate. And please, stick with us as we go through the basic information about the US economy, share with you the details about US mortgage loans, talk about the advantages of US tax laws, and the major benefits the US real estate market has over other Western markets.

Let’s start!

Investment Properties in USA: 10 Reasons for Foreigners to Invest

Here are the top 10 reasons for foreigners to invest in US real estate:

1. The Strength of US Economy

You’re probably aware that the US is the world’s largest economy. The country’s Gross Domestic Product (GDP) is now estimated at almost 28 trillion dollars for 2024. (And yes, that’s a trillion, with a “T”). It’s so large that the US economy represents more than a quarter of the world’s economy or just above 27% of the Globe’s GDP.

But that’s not all. It’s one thing to become the world’s number one economy, but a completely different thing to stay there for long periods of time. And yet, the people running the US economy have managed to do just that. But, you might ask, how long have they been on top? The answer will surprise you (and that’s a guarantee).

Since the early 1890s, the US economy has been the strongest and largest economy in the world. This means that, for more than 130 consecutive years, the US has held the title of the world’s biggest economy.   

So, when talking about the US economy, we can’t just talk about its size without mentioning its longevity. Things in the world change, industries shift, and new technologies completely remake the entire way business is done, and this cycle keeps repeating every 5-10 years, almost without missing a beat. But somehow, one thing, probably the only thing that hasn’t changed in the past 130 years, is the strength of the US economy. 

Everyone who does any sort of business knows that reaching the top and staying on it are two completely different things. Yet, somehow, the US, along with its people and leaders, has managed to do something never before seen in the history of the world — to become and stay the world’s largest and strongest economy for over 130 consecutive years. And that almost a century and a half old economic legacy doesn’t look like it’s going away any time soon.

2. Foreign Investors in US Real Estate Can Easily Get Mortgage Loans

Putting money into a foreign country brings a certain degree of risk with it. Whether you’re investing in real estate or any other type of industry or business, your first goal should be to find ways to mitigate risk. So, how is buying real estate in the US less risky than purchasing it in any other country?

The highly-developed financial system and openness of the US to deal with non-citizens almost guarantee that foreigners can get a mortgage loan in the US. To get it, you’ll only need to cover the down payment, which is usually around 20-25% of a property’s value. This directly translates into less risk, as you won’t need to put up the money for the entire property in advance and jeopardize losing it. 

With mortgage loans, you only have to cover the 20-25% down payment, allowing you to purchase equity in a property that would otherwise be outside your price range. This gives you increased leverage and the ability to create a larger cash flow through rent. You’ll be entering into “good debt” that will ultimately be repaid by your tenants.

We can help you find the best US mortgage lenders.

Because you don’t need a US credit history or score to get a mortgage loan in the States, your biggest problem will be figuring out which type of US mortgage loan you want to settle on. To further prove our point of how easy it is for foreigners to invest in US real estate, we’ll just share with you a couple of the most popular mortgage loans for nonresidents:

• Foreign national mortgage loans — A non-qualified type of nonresident mortgage loan provided by private lenders to people who don’t qualify for regular mortgage loans due to various reasons (e.g., they don’t have US credit scores, don’t have US citizenship, or are not Green Card holders, etc). 
• Rental income mortgage loans — A type of mortgage that allows investors to use current or potential rental income to qualify for a loan. It can be used to finance either housing or commercial investment properties in USA.
• DSCR loans — A type of non-qualified mortgage loan provided by private lenders and certain large financial institutions. The main way the DSCR loan lenders lenders decide whether to approve a specific application is by calculating the DSCR score of a particular property. The DSCR loan interest rates are a bit higher when compared to conventional mortgage loans.
• Portfolio loans — These loans are provided by lenders who retain them on their account ledger instead of offloading or selling them on the secondary mortgage market.
• Hard money loans — A type of loan usually provided by private lenders. They use the financed property as collateral. The interest rates are higher (between 10-20%), but the closing times are much quicker when compared to most other types of loans. 

3. US Real Estate Market Suits Every Pocket

The US real estate market is very large, with the most recent estimates stating that it will reach a value of 119,80 trillion US dollars by the end of 2024. But that’s not its biggest strength. So what is it? 

The US is an extremely large country with 50 states, each operating as its own entity (some would argue separate countries). Not only does each US state have its own business and job market and different industries, but every state also has a completely separate real estate market. And the differences between them can be rather huge. 

For example, over the past year, real estate prices in the state of Wisconsin have gone up by 6%. On the other hand, the prices in the state of Utah have only gone up by 0,1%. At the same time, the average home in Wisconsin costs around $288,000, while in Utah, you can expect to pay just north of $500,000 for a typical house. 

So, the difference is not only in how the real estate market of each state behaves (the percentage of prices going up and down) but also in how much the houses in every US state cost. The main appeal of the US real estate market and the reason why so many foreigners buy investment properties in USA is that it has something for everyone’s pocket. In one country, you can find properties that cost upwards of a couple of million dollars, but you can also find US properties that cost less than 300K or less than 200K. In fact, you can find properties in the US that cost less than 100K (which you will be hard-pressed to find anywhere else in the Western world). Some would argue that those more affordable properties can bring a higher return on investment (ROI).

Want to find your ideal property in the US? NRI can help! Book a call or contact us to find out how.

4. Tax Breaks

One of the reasons why a lot of foreign investors are attracted to investment properties in USA, is the tax advantages and other incentives that the country offers. And the first step to getting those tax advantages is to open up an LLC in the US.  After you do that, you can reap many different tax benefits, including:

• Depreciation—The IRS sees physical assets, or in this case, real estate, as a type of holding that wears out over time and depreciates in value. This allows owners to deduct a portion of the property’s cost from their tax returns. 
• Deductibles — Expenses that are a regular part of operating a rental property can be deducted from your tax bill. Things like mortgage interest, property taxes, repairs and maintenance, property management fees, and more can all help reduce the amount of money you end up paying in taxes.
• 1031 exchanges—If you sell a qualified investment property (a property purchased with pretax income) and use the income to buy a different qualified investment property, you can avoid paying capital gain taxes. The only catch is that you have to do it within a certain time period.
• Debt is always tax-free — You can use the equity of a rental property as collateral to incur debt (i.e., take out a loan). This debt is always tax-free, and you can use it for various reasons, including investing in other rental properties. 
• Nonresident for tax purposes — If you fail the Substantial Presence Test you only have to pay taxes on US source income (i.e. the profit from that type of income).

Need help opening an LLC in the US? Book a free call or contact us to learn more.

5. Invest in the US Dollar Trough Real Estate

The US dollar is one of the world’s most stable and widely used currencies. The Bank of International Settlements estimates for the year 2022 show that the US dollar is used in around 90% of foreign exchange transactions and 85% of spot, forward, and swap market transactions. 

Additionally, 50% of global trade and 75% of Asia-Pacific trade are done in US dollars.

It’s also one of the most popular reserve currencies, with many countries holding billions and trillions of US dollars in foreign exchange reserves. The US dollar is so popular as a reserve currency that it is used by almost every country in the world. 

The countries and territories that hold the most amount of US dollars (obviously apart from the US) are:

• China holds around 3,4 trillion US dollars in its foreign exchange reserves
• Japan holds around 1,3 trillion US dollars in its foreign exchange reserves
• Switzerland holds around 868 billion US dollars in its foreign exchange reserves
• India holds around 619 billion US dollars in its foreign exchange reserves
• Russia holds around 582 billion US dollars in its foreign exchange reserves
• Taiwan holds around 569 billion US dollars in its foreign exchange reserves
• Saudi Arabia holds around 438 billion US dollars in its foreign exchange reserves
• Hong Kong holds around 423 billion US dollars in its foreign exchange reserves
• South Korea holds around 415 billion US dollars in its foreign exchange reserves
• Singapore holds around 357 billion US dollars in its foreign exchange reserves

So, by purchasing investment properties in USA, you’ll get to:

• Take part in the largest and strongest economy in the world
• Put your money in real estate (a proven way to safeguard money from inflation)
• Effectively invest in the US dollar, the most widely used and stable currency in the world.

6. Investment Properties in USA Beat Inflation 

The US real estate market not only follows inflation but surpasses it to a great extent. What does that mean? To explain it, let’s first take a brief second to explain inflation. 

Inflation, in the most basic of ways, directly affects the value of money or the purchasing power of money. So, 10% inflation means that money is worth 10% less, 15% inflation means that money is worth 15% less, and so on. For real estate to keep its value, when inflation happens, property prices would have to rise by the same percentage (if the inflation is 5%, property prices should also rise by 5%, and so on). 

Now, to return to the original question and explain what we mean by — the US real estate market surpasses inflation. Since 1963, inflation has lowered the purchasing power of the US dollar by a whopping 896%. During the same time period, real estate prices rose by more than 2,350%. This means that the increase in real estate prices beats inflation by a staggering 1454%. What it also means is that anyone who bought a house in the early to mid-1960s would now be reaping a really high return on investment for just owning and regularly maintaining the property.  

These numbers are real and historically accurate, but they are also extrapolated from a period of more than half of a century. And because of that, it would be dishonest of us to say that you should expect that sort of return in the next 55 years. It is extremely difficult to predict market trends for such a long period of time. 

But, we can use these numbers to say that the US real estate market and its prices have historically outshined inflation. And that if you invest in US real estate, the absolute worst possible outcome is that you get to protect your money from inflation (protecting your money from losing its real-world value and purchasing power). Which in these uncertainties doesn’t sound bad at all. 

But some would say, is that it? Is that all you should expect from investment properties in USA? To keep your money from losing value over time?

7. High Rental Yields and ROI

Some of the main reasons why many people, both domestic and foreign, invest in US real estate are — the historically great numbers, high return on investment, and high rental yields. Before we move on, let’s focus on rental yield for a bit.

Simply put, the rental yield is the yearly sum that investment properties in USA can generate. It is expressed as a percentage of the property’s market value. So, a rental yield of 10% would mean that a specific rental property can generate 10% of its market value annually. For example, if a property is worth $100,000 and has a 10% rental yield, it means that it can generate $10,000 per year. 

The average rental yield in the US is between 7%-10%, depending on the state. And how does that rental yield compare to other Western countries? Let’s take a look:

Germany – gross rental yields 3.36% 

France – gross rental yields 4.12%

Norway – gross rental yields 4.28%

Spain – gross rental yields 6.08%

Italy – gross rental yields 6.28 

Buying investment properties in USA is not only a good way to protect money from inflation (as we’ve already mentioned) but can also serve as a sort of “personal investment fund” that offers regular yearly returns. The most recent information shows investment properties in USA can generate a yearly ROI of:

• 10,6% for housing properties
• 9,5% for commercial properties
• 11,8 for real estate investment trusts (or REITs)

Need help financing investment properties in USA? Look no further than NRI!

8. Diversify Your Portfolio

We’ve all heard that famous saying — Don’t Put All your Eggs in One Basket. This is true for most things in life, including investing. Whether you’re a foreign real estate investor looking to expand into new markets or are just someone who’s looking for a safe place to put your money, you will not go wrong with choosing to invest in US real estate.

Diversifying your investment portfolio is one of the best ways to mitigate risk and ensure your assets stay protected, even in the case of drastic changes in the global economy, different markets, and so on. And, as we’ve talked about above, making a US real estate investment does not only protect your money but can also grow it.  

9. Status Symbol Luxury Real Estate That Never Fails

There’s no better place than the US to find expensive properties that are impossible to fail. Now, it’s important to note that this type of real estate is not for everybody. It’s extremely expensive, and only a small majority of people can afford to buy it. However, those who can afford the high price are guaranteed to safeguard their money from inflation and can also make a huge profit. Let’s give you some examples so you can better understand what we mean:

• A penthouse apartment on 150 Charles Street in West Village, New York City, was sold for $29 million in 2016. Only eight years later, that 4,500-square-foot (or around 410-square-meter) apartment has almost doubled in value and is worth $52 million. 
• A house on 9 East 71st Street in New York was sold in 2021 for $51 million. After renovation, this 28,000-square-foot house (or around 2600 square meters) is now worth $65,6 million. That’s a 15 million dollar increase in value in just two years.
• Located on the 27712 Pacific Coast Highway in Malibu, the Rosebud is a 40,000 square-foot (or around 3,700 square meters) oceanfront estate. The estate was built over a period of 15 years, and it reportedly cost around $100 million. In 2022, it was sold for $200 million.

Luxury real estate in the US, especially in places like Los Angeles, New York City, and Miami, rarely fails. Yes, the price of entry is extremely high, but it allows investors to protect their money from inflation and those luxury properties are only going up in value.

10. The Most Popular Country for Migrants

We’re all aware of the popularity of the American dream. Just the idea that there is a country where, if you work hard, you’re almost guaranteed to become successful drives millions worldwide to move to the US. Or, to be more precise, the most recent statistics show that since the year 2000, and through legal immigration, between 1,5-2,5 million people have moved to the US. And according to numerous estimates, illegal immigration is at least just as big as a legal one. This means that we can safely say that between 3 and 5 million people move to the US each year (legally or illegally). The US has also experienced a population growth of around 0,6%, from 2010-2022, which is an increase in population of more than 19 million people.

Now, the big question is, what does migration and population growth have to do with real estate? The answer is quite simple, and it has to do with the most basic principle of supply and demand. 

Real estate exists for people.

This constant influx of people through migration drives demand and is one of the main reasons why the US real estate market has steadily increased in value over the past half a century. When demand is increasing, the supply will always try to follow, especially in a capitalistic society like the US. 

Take a Look at the Numbers!

And lastly, we come to what some would argue is the most important reason to invest in US real estate — the numbers. We’ve discussed them throughout the article and mentioned high returns, rental potential, and prices ranging from extremely affordable to tremendously expensive. But, what we haven’t done, and we’ll now do for your convenience, is put everything under a single roof, so to speak. 

Low Barrier to Entry 

Contrary to popular belief, the US real estate market has a relatively low barrier to entry (i.e., you don’t need exuberant amounts of money to invest in US real estate). We’ve said this part of the article is all about the numbers, so let’s give you some to illustrate our point. And to do that, we’re going to briefly review investing in Milwaukee real estate:

• The price of an average home in Milwaukee (at the time of writing) is around $187,274
• The price of an average home in Milwaukee went up by 8,2% since 2023
• The US inflation rate in 2023 was 3,4% (investment properties in USA beat inflation)
• The average rent for a 4-bedroom house (2000 square feet or 185 square meters) is around $1,700 per month (a decrease of 2% since last month but an increase of 10% since last year)

So, for an average home that costs $187,000, you can get $1,700 per month in rent. This means that in Milwaukee, you can get a rental yield of just around 10% (i.e., the property is able to generate 10% of its value per year). Now the question is, how much money would you need to get started on it? Well, let’s take a look:

Because of how open the US is to foreigners and because of the strength of the US financial system, nonresidents can easily get mortgage loans. Now, for investment loans, you’re looking at a down payment between 10-25%. 

This means that at the low end (and if you find the best mortgage lender), you would need less than $20,000 to enter the US real estate market as a foreigner.

We can connect you with mortgage lenders anywhere in the US. Book a call or contact us to find out more.

There Are a Lot of Tenants Out There

In the US, there are currently around 44 million rented-out households. And with the average number of people per household 2,6, we can safely say, with a small margin of error, that there are about 114 million renters in the US. The renters in the US make up around 35% of the entire population. Those are just the numbers for housing rental properties and don’t consider commercial or short-term rentals. And because this part of the article is all about numbers, let’s talk about those two.

As of the most recent estimates, there are around 1,9 million short-term rentals (vacation, Airbnb investing rentals, etc.) in the US. The short-term rental market in the US is projected to reach a value of almost 9 billion dollars by the end of 2026. This market offers a lot of investment properties in USA for foreigners. The average daily rate is projected to reach $348, potentially allowing investors to make around $84,000 per year in revenue.

We’ve also promised to talk about commercial real estate in the US and share some numbers about those. So, here you go:

• In the US, there are 5,9 million commercial properties as of 2018
• The number of commercial spaces has increased by 89% since 1979, and the total number of commercial properties has increased by 56% during the same period.
• The average price for a square foot of commercial space in the US is $37,35 
• The rent for an average 1,500 square feet (139 square meters) retail, commercial property can range between $1,250 and $3,500 per month (this means that an average commercial property can generate between $15,000 to $42,000 in rent per year) 

With these great numbers, the only thing that makes sense is to start looking for the best place for rental property in the US. Check out the linked article to learn more.

Rent Is on the Rise

One of the most important things about investment properties in USA is how much money they can generate or how big the rent is. Again, as this part of the article is all about the numbers, let’s give them a look:

• The average asking rent in the US is $1,900 per month
• The average rent for a single-family house is $2,020 per month
• The average rent for a condo or apartment is $1,660
• In the past four years, the rent in most US states has gone up by at least 10%
• On average, the rent is now 29,4% higher than it was four years ago
• The average rent in the US has increased by 3,4% since 2023 (the rent prices rose the same amount as inflation, 3,4%)
• San Jose, New York, and Boston have the most expensive rental market, with average rents being over $3,000

The shortages of affordable rental properties (supply), barriers to homeownership, and a constant influx of people through migration (demand) have all led to the increase in US rent prices. Many experts are predicting that the market will surely stabilize in the next couple of years. But, before that happens, there is now. And now is a perfect moment to invest in US real estate.  

NRI’s mission is to help foreigners invest in US real estate!

Low Unemployment Rate and Good Average Salary

The unemployment rate coupled with the average yearly salary are two main factors for determining the purchasing power of a population. And why is purchasing power important? It’s important because it gives foreign investors in US real estate a broad picture of the population’s ability to actually pay their rent. It’s also a good metric to gauge the economic stability of a country (or, in this case, the USA’s economic stability). So, what are the numbers telling us here? Let’s take a look:

• The unemployment rate in the USA is 3,7%
• The average annual income in the US is $76,770

Now, those numbers do look good, but in a vacuum, it’s a bit more difficult to determine how good they actually are. So, let’s compare them to some other Western countries and see how they fare:

• Canada — unemployment rate is 5,8% and average annual income is $52,960
• Australia — unemployment rate is 4,1% and average annual income is $60,840
• Belgium — unemployment rate is 5,5% and average annual income is $53,890
• Netherlands — unemployment rate is 3,6% and average annual income is $60,230
• France — unemployment rate is 7,4% and average annual income $45,290
• Germany — unemployment rate is 5,8% and average annual income $54,030
• United Kingdom — unemployment rate is 3,8% and average annual income $49,240
• Italy — unemployment rate is 8,2% and average annual income $38,200
• Spain — unemployment rate is 11,6% and average annual income $32,090
• Portugal — unemployment rate is 6,6% and average annual income $25,950

(data for Q4 2023 and Q1 2024)