How You Can Invest In US Real Estate Market Without Buying Properties
Investing In US Real Estate Market For Foreigners – From Nigeria, Canada, UK, Australia – Foreign Property Investment Guide To Make Low-Risk, Steady Dollar Dividend Returns
This guide is focused on helping foreign retail investors in Nigeria, Canada, UK, Australia or any other foreign countries, who would love to earn a steady income from American real estate market but do not have the capital to buy properties.
Housing is one the biggest driver of wealth in the US. A lot of investors who took advantage of the real estate crash in America are currently reaping a significant return on their purchases, over 300% in more than 10 years, as home prices have rebounded and risen above its pre-market crisis level. As home purchase prices soar higher on a monthly basis, it is even more difficult for first-time investors with less cash to enter the market. In this article, you will see how to explore property alternative investment options that will guarantee safer and quicker returns without following the due process of investing in physical properties.
Let’s quickly do a brief review of US housing market and where the low-risk, high-return opportunities
for foreign investors who don’t have millions to buy homes or invest in property, yet still want to earn great returns from the booming housing market.
Please note that I wrote this guide in 2016 when I discovered these opportunities, I will try to update most of the data here to reflect the housing market trend in 2017 and if you feel some data aren’t close to market realities, please share your comment.
The US Home Market Report:
The U.S. housing market remains surprisingly vibrant. Demand remains robust, and residential construction activity continues to rise.
The S&P/Case-Shiller seasonally-adjusted national home price index rose by 6.21% during the year to November 2017 (3.91% inflation-adjusted), its strongest y-o-y growth since June 2014. This was supported by Federal Housing Finance Agency’s seasonally-adjusted purchase-only U.S. house price index, which rose by 6.54% y-o-y in November 2017 (4.24% inflation-adjusted), a slight increase from y-o-y rises of 6.44% in November 2016 and 6% in November 2015.
All 20 major U.S. cities experienced relatively strong house price hikes, according to Standard and Poor’s, with Seattle posting the highest increase of 12.71% during the year to November 2017, followed by Las Vegas (10.6%), San Francisco(9.04%), San Diego (7.45%), Los Angeles (7.02%), Tampa (7.02%), and Dallas (7.02%). Strong house price rises were also registered in Detroit (6.98%), Denver (6.94%), Portland (6.94%), Boston (6.26%), Charlotte (5.76%), New York (5.71%), Phoenix (5.54%), Minneapolis (5.41%), Atlanta (5.14%), Cleveland (4.13%), and Miami (4.06%).
Washington and Chicago saw the lowest growth in inflation-adjusted house prices at 3.28% and 3.59%, respectively.
The Mountain region had the highest house price increases of 8.9% y-o-y in November 2017, followed by the Pacific region (8.6%), South Atlantic (6.9%), East North Central (6.3%), West North Central (5.9%), and West South Central region (5.8%), according to the FHFA.
The average sales price of new homes sold in the U.S. rose by about 4.3% y-o-y in December 2017, to US$398,900, according to the U.S. Census Bureau. On the other hand, the median sales price of new homes sold increased by a more modest 2.6% to US$335,400 over the same period.
For existing homes, the median price was up 5.8% to US$246,800 in December 2017 from a year earlier, according to the National Association of Realtors (NAR). December’s price increase marks the 70th consecutive month of year-over-year gains.
Demand is rising, new and existing home sales are up while inventories and vacancies are down, because no home occupier wants to move or pay higher mortgage rate on new homes finances.
Besides, all indices that measure the strength of US real estate market (the U.S Homebuilders Sentiment Index, Wells Fargo Housing Market Index, and Construction activity) show that housing markets are attracting a lot of buyers’ interest, while new home turnover is booming alongside.
Why is US Housing Market Booming?
The reason is not far-fetched, the mortgage rate (cost of financing home purchases) is down all year low despite fed rate hike, a factor that has continued to fuel demand for new and existing home. The average interest rate for mortgages was lower in 2016 at 3-4% per annum despite Fed Funds target rate increase in December 2016 to 0.75% after being held at 0%-0.25% for seven years.
On Zillow website,
here are average mortgage finance rates in the US as at 4th, January 2018.
REFINANCE RATES AVERAGES
Low-Cost Opportunities In US Housing Market For Retail Investors:
Having shared some background details about the US housing market and why home demand and prices are surging, you and I know, based on the average home price of $398, 900 ( against $290,400 in 2016 when I first published this article), that buying property in the market is an investment exclusive to multi-billion dollar real estate investment firms.
Do you know how much $398,900 is in Naira, using the current CBN exchange rate of N363/$1? that’s like N144,800,700 as at 6/05/2018. Such capital is only available in the coffers of global property managers.
So, how can a retail investor tap into opportunities in the US real estate or housing market right now without buying physical homes or properties, you may ask?
Here’s how to invest in US real estate market without buying physical homes or properties but through Real Estate Investment Trust (REIT):
Recall, in 2008 global market crisis, the real estate market recorded massive home sell-off which dragged prices down by more than 15% in the same year. As sellers found it difficult to raise cash, smart real estate investors began to mop up foreclosures or homes at bottom prices. The average price of a home in the US as at then was $232,000 (according to a census.gov report).
Now, the price has spiked by 71.9% to $398,900 in 2016 which has not only made these investors enjoy capital appreciation but reap attractive rental income year on year.
You know what? these investors are Real Estate Investment Trust (REIT) who now own both residential and commercial real estate portfolio that generate consistent profit from lease contracts and rental income paid by tenants.
REITs are professional managed property investors that build, develop or buys properties, lease/rent to tenants for rental income. By law, real estate investment trust is mandated to pay out 90% of taxable income in form of a dividend to shareholders which make your cash flow predictable.
The big concern now for you as a retail investor is how to be a shareholder in a growing small cap REITs.
You can spot top performing companies by scanning through REIT stocks that have been paying dividend consistently (without borrowing from an external source) during and after the recession.
This article on Forbes
will help you understand how to find the best diversified real estate investment trust stocks to buy now and enjoy a consistent and predictable profit.
In 2018, here the top 10 performing REITs you can check out:
- Realty Income (Dividend Yield – 4.6%)
- Kimco Realty (Dividend Yield – 6%)
- W.P Cary (Dividend Yield – 5.7%)
- Welltower (Dividend Yield – 5.2%)
- Federal Realty Investment Trust (Dividend Yield – 3%)
While these REITs stocks are some of the best longtime dividend paying stocks so far, it doesn’t in any way become an instant buy recommendation. Take your time to learn more about REIT stocks before investing.
How to get started:
You need to open a US stock brokerage as a non-US investor as this will give you an easier access to buy shares in these REITs.