Savvy Memphis investors are reaching out to international investors with turnkey rentals. International investors have always been attracted to real estate investments in the U.S. Today, ultra low prices and mortgage rates along with the security that real estate offers make U.S. real estate more attractive than most other investment options.
The National Association of Realtors recently released statistics showing international investment is up 24% since 2011. The majority (55%) of these investors come from five countries. Those countries are India, China, Canada, the United Kingdom, and Mexico.
The same report found residential investors primarily interested in positive cash flow rentals in Atlanta, Chicago, Charlotte, Houston, Indianapolis, Kansas City, and Memphis.
Special Appeal of Memphis Real Estate
A News & World Report ranks Memphis as the 10th best city for real estate investing. Additionally, Memphis is a city of renters. Almost 50% of people in Memphis rent rather than own. Rents are on the rise. Over the past three months, 2 bedroom house rents have gone up 4.1% and 4 bedroom house rents are up a whopping 13.3%. This trend is expected to continue and it will continue attracting international investors seeking turnkey rentals.
One major Memphis investor that buys distressed properties, rehabs them, puts a qualified tenant in place, and flips turnkey rentals has seen purchases by foreigners grow approximately 30% in the past year alone.
Legal Issues for Foreign Investors
There are no laws preventing foreign investors from owning as much real estate in the U.S. as they want. However, there are tax and legal considerations when investors live across the border. One thing you don’t want to do is get involved with foreign laws and foreign taxes. As an example, most Americans invest as a limited liability company (LLC) or limited liability partnership (LLP). Foreign investors will want to set up a business entity to make investments. However, Canadian tax code doesn’t recognize LLCs or LLPs as partnerships. Therefore, Canadians typically use a Limited Partnership for investing.
According to the Association of Foreign Investors in Real Estate (AFIRE), in 2012, foreigners invested more than $25 billion in U.S. real estate. Canadians continue to be the largest investors at $9.1 billion and prefer investing in southern states. European investors were next at $8 billion, followed by Asian investors that brought $4.4 billion to the closing table.
While it is far from becoming law, in April, President Obama proposed changing the tax laws to allow foreign retirement funds to invest in U.S. real estate free of U.S. tax. Currently, U.S. based retirement funds are able to this and Obama’s proposal is to extend this right to foreign retirement funds. If this happens, foreign investment in U.S. real estate will skyrocket.