September 24, 2014//
With buy to let finance in this country increasingly difficult to secure, and high UK property prices reducing the real yield on rental properties, savvy investors are starting to look further afield for opportunities.
One sector which offers good yields, combined with the prospect of capital growth, is the US property market. It is becoming increasingly popular with UK investors who want to diversify their portfolio, reduce or balance their exposure to volatile equity markets, or who are tired of receiving poor returns on their savings capital.
It may also be an option for those who are looking to diversify their investments following the liberalisation of pension funds next year
In the past, investors who have bought holiday homes and retirement properties in the US have found that the US is more affordable and offers better yields than buying property closer to home.
Some commentators believe that the US has room for house price growth.Earlier this year Nomura forecast that US National home prices will likely increase by 4.5% to 5.0% in 2014, followed by 3.5% to 4.0% gains in subsequent years.
However, buying individual properties involves a great deal of time and concentrates risk into a single property. An alternative way of investing – and one which diversifies risk – is to buy property via a pooled investment vehicle.
Another advantage of buying with other investors is that no loan is involved. Unlike buying property in the UK, or purchasing a US property on an individual basis, you do not need to take out a mortgage
Instead, your initial investment is pooled with that of other investors, and you own a proportion of a multi-occupancy property. This spreads the risk and means you are able to buy into much larger, potential more profitable, developments. This also reduces the overall effect of any void periods in the rental units, and offers the potential for enhanced capital growth for the property as a whole.However, there are some caveats.
This is not a short term investment – you need to be prepared to tie up your money for around three to five years in order to maximise your earnings potential.
Investing in property is relatively illiquid and selling make take time if you need to exit – although buying into a pooled fund makes the process simpler than if you are having to sell individual properties yourself.
Secondly, you need to pick your area carefully. House prices vary considerably in different states and city regions, and regional markets perform differently.
Finally you need to think about the effects of exchange rates. Buying US property – either individually or collectively – does expose you to the effects of currency fluctuation. This can work in your favour – if the pound strengthens you will be able to buy more for your money – but you need to be aware of this factor.
An increasingly popular option for UK investors is to buy into a pooled scheme which buys and holds multi-family residences. (These are a group of houses or apartments that are owned by one business and the number of units within a residence can vary from a few dozen to the high hundreds.)
Among those companies offering such schemes is CityR, which specialises in investing in US property with potential for itself and for its partners.
Good deals are available on such properties because of the legacy of the world economic crisis. What’s more, the US offers a robust legal structure that protects stakeholders – something that is not always present in other parts of the world, including some European countries.