The BRRRR Method of U.S. Property Investing for Overseas Investors

U.S. Mortgage | Property Investing

The BRRRR (Buy, Rehab, Rent, Refinance, Repeat) real estate investment strategy is a popular approach that involves finding a mispriced/distressed property, fixing it up, renting it out, and then using a Cash-Out Refi to pull cash out towards another property purchase.

The mindset shift focuses on 2 things: finding a mispriced property, “forcing” appreciation, and then pulling cash out of the increased valuation in the form of a Cash-out refinance.

Yes…this is achievable as a Foreign National, Non-U.S. Citizen or U.S. Expat living overseas, AND it can all be done remotely!

America Mortgages and its parent company, Global Mortgage Group, are the world’s ONLY place you can obtain a U.S. mortgage outside the U.S. 

Speak to our Loan Officers to learn how an overseas investor can use leverage to lower your cash investment and increase your returns for your U.S. real estate investments! 

Don’t believe us?

Watch a recent interview with one of our clients, a young Singapore-based couple who used our loans for the BRRRR Method and built a 11-unit cash-flowing rental portfolio in only 3 years – all remotely from Singapore. They have recently quit their jobs and are now full-time U.S. real estate investors!

Here is how it works.

BUY

The key to the BRRRR method is purchasing a mispriced property. There is a fine line between distressed and mispriced. The more distressed, the cheaper it will be, so there is a higher potential for “forced appreciation,” but you will have to spend more on refurbishment.

Financing the initial purchase can be tricky since all lenders will require an appraisal on the property, which needs to meet certain criteria. A distressed property will unlikely meet this criteria, but a mispriced property may.

One option is to use a Short-term Bridging Loan to purchase the property and then use a traditional loan to refinance. Bridging loans are based on the asset value of the property and are more flexible in terms and conditions. This is a common approach to the BRRRR method.

Another option is, of course, to pay for the home with cash and then refinance.

REHAB

This takes a little expertise, but costs of renovations and materials are very inexpensive in the U.S., and it is fairly easy to get everything at Home Depot, IKEA, etc. You will need to find a good contractor in the neighborhood, but generally speaking, most of the REHAB should be cosmetic and nothing foundational. That includes painting, flooring, changing bathrooms, kitchens, etc.

The key to the BRRRR strategy is calculating the After-repair Value since that will be the value that you refinance once the rehab is complete.

A common rule of thumb is the 70/30 rule. If the ARV value is $300,000, you should not pay more than 70% or $210,000.

RENT

Finding rental comps is fairly easy – even if it’s for short-term rentals (Airbnb, VRBO, etc.). This does require some work, but Zillow and AirDNA are good places to start your research. 

Choosing tenants requires a little common sense, but a simple checklist would be:

  • Good credit score (if they don’t pay their banks, they won’t pay you on time)
  • A stable job with a steady income (name of company, position, how long they have been there, etc.)
  • No criminal record
  • Positive references
  • Young family (families don’t normally have time to host parties)

I personally use the 1% rule in real estate investing, and only in the U.S. can you find these deals. Here is how it works – multiply the purchase price of the property (ARV) by 1% to determine the base level of rent. In this case, financing will need to be less than 1%. More later.

REFINANCE

Here is the big mindset shift – to use a Cash-out refinance towards the next purchase, which often means your net initial outlay is ZERO!

You can qualify for our AM Rental Coverage Plus loan program by using the rental income of the property to cover the mortgage costs.

REPEAT

The final step in the BRRRR method is to repeat the steps again. There is no rush here, and it’s important to learn from the entire process.

Pros and Cons of the BRRRR Method

Pros – With a limited cash outlay, you can start to build a portfolio of cash-generating assets, “force” equity appreciation, and use debt to your advantage! Remember, debt is not taxed in the U.S.!

Cons – This takes work, but we think the satisfaction of seeing your assets “Pay You” is worth the effort. Work includes research, building a team on the ground, finding the properties, and maximizing cash flow, to name a few. 

Example (for illustration purposes)

Home price: $200,000

Nearby comparables: $250,000 – $300,000

Renovation costs: $30,000

After-repair value: $310,000

After-repair monthly rent: $2,500

Scenario 1 – All cash payment

  • Purchase price = $200,000 + Rehab $30,000 = $230,000 cash outlay
  • After-repair value = $310,000
  • Cash-out refinance using AM Rental Coverage Plus =  70% x $310,000 = $217,000
  • Monthly mortgage = $1,700
  • Gross monthly rental income = $2,500
  • Net rental income = $800
  • Now, you have $217,000 towards your next investment.

In this scenario, you spent $230,000, and then borrowed $217,000, which means your total cash outlay was $13,000.

  • With $13,000 spent, you are now earning $800 monthly!
  • After 12 months, you will have earned $9,600 in passive income (Yes, 74% return!)
  • After 16 months, the property would have paid back your entire investment!

Scenario 2 – Bridging loan to purchase

  • Purchase price = $200,000
  • Bridging loan = 70% loan to value x $200,000 = $140,000 loan = $60,000 down payment
  • Bridging loan term = 12 months @ 12% per annum, interest-only
  • Total Bridging loan interest = $16,800
  • Down Payment = $60,000
  • Rehab = $30,000
  • Total initial outlay = $90,000
  • After-repair value = $310,000
  • Cash-out refinance using AM Rental Coverage Plus =  70% x $310,000 = $217,000
  • Monthly mortgage = $1,700
  • Gross monthly rental income = $2,500
  • Net rental income = $800
  • Pay back Bridging Loan = $217,000 – $140,000 = $77,000
  • Subtract Bridging loan interest = $77,000 – $16,800 = $60,200
  • Now you have $60,200 towards your next investment

In this scenario, you spent $90,000, then borrowed $60,200, which means your total cash outlay was $29,800

  • With $29,800 spent, you are now earning $800 monthly!
  • After 12 months, you will have earned $9,600 in passive income (Yes, 30% return!)

It gets better!

In both scenarios – after 12 months, you can renegotiate a higher rent once the lease term ends and refinance the loan to a lower 30-year fixed-rate mortgage at a higher property value!

Money in GOES UP + Money out GOES DOWN = MORE MONEY!

There are strategies for finding the best states and cities to invest in. If you want to learn how to identify which city to start your BRRRR Method journey, please feel free to contact us!

In conclusion, the BRRRR method offers a great opportunity for investors from overseas to invest in U.S. real estate. America Mortgages, along with Global Mortgage Group, is your go-to for getting U.S. mortgages abroad. With success stories like the couple who built a rental portfolio from afar, it’s clear this strategy works. For those keen on making the most of their investments, our team is here to help. Reach out today at [email protected] to learn more about how the BRRRR method can boost your real estate journey.

www.americamortgages.com

What just happened? + How to bet alongside Blackstone!

U.S. Real Estate Market 2024

What a year it’s been and the resiliency of asset markets in the face of everything that was thrown at it was truly amazing!   

We are living through unprecedented times with technology and crypto experiencing another bull market, U.S. elections in 2024, and potential rate cuts around the world. Could we be “back to the races” again this year?

One exercise that we all do at the beginning of the year is to adjust our personal investment portfolio to reflect what we expect to unfold in the world over the short, medium, and long term.

For many, including myself, that means increasing the allocation to crypto and U.S. real estate investments.

The simple key to making long-term money is to create a portfolio of non-correlated investments, and there is no better time to increase your U.S. real estate investment exposure.

Our goal in 2024 is to bring more education, experience, and strategies to our client’s real estate investing.

We are living through unprecedented times, and we want to be there for you on your journey as an international real estate investor.

Message me if you want to know what I recommend as your real estate exposure vs. your overall portfolio.

U.S. Real Estate Market – What Just Happened?!

In a year that saw:

  • 10-year Treasury yields at 5%
  • 30-year mortgage rates at 7-8%
  • Inflation as high as 6.5% 

How did:

  • Home prices rise across the country; in some metro areas 10-15%
  • S&P +25%; Nasdaq +55%

How did everyone get it wrong?  

In hindsight, it is clear to me that the extent of the positive impact of various layers of government stimulus going back to COVID (including the Fed’s BTFP) was severely misunderstood and underappreciated.  

Now, with inflation and employment (Fed’s dual mandate) seemingly under control, most of the world now expects around a 75 bps cut in Fed Funds rates (echoed by the Fed’s new dot plot).  

Hat’s off to our GMG Research team, which mid-2022 called for a supportive U.S. property market in 2023, but never did we expect a rising market to this extent.   

Our thesis was simple – it was based on the fact that: 

  • 24% of homeowners have their mortgages < 3%
  • 63% are locked-in < 4% and 
  • 83% of homeowners have mortgages < 5%
  • Severe lack of supply 

Existing Homes

In any marketplace, you need supply and demand. For U.S. real estate, the supply is Existing Homes and New Homes. Existing Home Sales are about 90% of Total Home Sales in the U.S.

Given that 83% of existing homeowners have a mortgage < 5%, they would have to be under financial stress to sell, given their new mortgage would cost 7-8%. As you can imagine, Existing Home Sales is at a 13-year low!    

New Homes

It’s widely known that there is a major shortage of homes in the U.S.; between 3-6M units, depending on what you read.

Lack of Homebuilder Motivation

With higher borrowing costs, higher commodity prices, and higher wages – there is no financial motivation for homebuilders to increase their development, given the lower margin potential from higher costs.  

More importantly, demand and affordability will be dampened by higher-for-longer mortgage rates. 

Remember, the large homebuilders are all publicly traded companies with CEOs compensated on share price performance. 

Higher profit => Higher EPS => Lower PE => Institutional Buying => Higher share prices => Higher CEO bonuses!

Sun Belt is Rising!

Elsewhere, the national reshoring of manufacturing is happening; it’s happening now, and it’s happening fast!

States like Georgia, Texas, and Florida are experiencing an unprecedented influx of employment seekers to match the growing opportunities.

Between January 2020 and January 2023, rents for a two-bed detached home increased about 44% in Tampa, Florida, 43% in Phoenix, and 35% near Atlanta. 

Why is this important for you (international property investor)?

Many Americans will not be able to afford a mortgage even if rates fall to 5-6%, so they will have to rent.

In the states mentioned above, we are seeing gross rental yields of 12% already!

I have no doubt that rental yields in these states will be 15% sooner than we think.  

You know who else knows this?

Wall Street, aka Private Equity (aka Blackstone and its pals)

Single-family homes are the next big institutional investment opportunity given its sheer scale and for the reasons I mentioned above.  

There have been many articles published this year about how institutions may own up to 40-60% of single-family home supply by 2030!

Hear Bobby Kennedy Jr’s speech on this

As an investment banker for over 20 years with Blackstone as its client, I can assure you if there is money to be made, they are going to make it!

The Perfect Storm to Invest in U.S. Real Estate

  • Extremely supportive supply demand
  • Low-entry price point
  • Ease of transaction
  • High leverage (even for foreign nationals living overseas)
  • Tailwind of institutional buying and 
  • Plenty of ways to maximize cash flow (lower tax)

Home prices will certainly go higher, given the expectation of lower rates in 2024!

If you are interested in taking your first step in owning a U.S. real estate investment property, send me a private message, and I can walk you through the entire process:

  • How to find the right city to invest in
  • Which cities have the highest rental yield
  • Setting up an LLC and bank account
  • U.S. tax specialist specializing in international investors
  • Property manager
  • Realtor….and, of course,
  • Financing for foreign nationals or expats living overseas

2023 In Review

Bank stuff…

Silicon Valley Bank was put into receivership after it failed to raise needed capital. SVB’s closure was the largest bank failure in U.S. history since the 2008 financial crisis. This led to the collapse of cryptocurrency-focused Silvergate Bank and Signature Bank as well.

The implosion of these three small-to-mid-sized U.S. banks ignited contagion fears across the globe in the months that followed, prompting the Federal Reserve to set up a US$12B emergency lending program – known as the Bank Term Funding Program (BTFP). More on this later.  

The programme couldn’t save First Republic Bank from closing down and was ultimately sold to JPMorgan Chase. 

This was just an amuse-bouche for what happened next as Credit Suisse collapsed with UBS paying only CHF 3B to save the company, a deal brokered by the Swiss government. Google “AT1 bonds,” and the story gets even crazier. 

Crypto stuff…

  • January – BTC $16,000; ETH $1606; SOL $9.9
  • February – Kraken shuts down
  • March – SVB collapses; Arbitum launches ARB token
  • April – ARK refiles Bitcoin ETF
  • May – DOJ investigation on Binance for Russia sanctions
  • June – SEC sues Binance CEO; Blackrock files for spot Bitcoin ETF; Fidelity, Wisdom Tree, VanEck refiles Bitcoin ETV
  • July – Blackrock CEO says BTC “could revolutionize finance”; Ripple won ruling
  • August – Paypal launches stablecoin, Grayscale wins lawsuit with SEC, 
  • September – Nomura launches Bitcoin fund
  • October – 1st ETH futures ETF launched
  • November – SBF found guilty; Blackrock files for spot Ethereum ETF; Binance settles lawsuit and CEO steps down
  • December – BTC $40,000; ETH $2,396; SOL $105 

Bad actors were removed, Binance settled, Ripple won, Bitcoin spot ETF (only a matter of time), and MicroStrategy bought $600M of BTC at $42K last night!

AI stuff…

It’s mind-boggling that ChatGPT reached 100 million users in just 2 months after launch. Just guessing here, but it must be the fastest adoption of any form of technology, language, or service in the history of humankind. The scary thing is that it’s only getting started. It’s now a necessary tool for nearly all organizations (ChatGPT is writing this now…just kidding).

An event prescient of things to come was the Hollywood strike, which, at the core, was about protecting Hollywood jobs from AI. The delay of Dune 2 till March 2024 was the biggest disappointment to me personally. 

Nvidia, the only company that is able to make chips capable of crunching AI’s large language models, saw its stock +200%. The rest of the tech incumbents went along for the ride: Meta +250%, Tesla +100%, Google, and Microsoft, both +50%+. 

Fun stuff….

  • Taylor Swift’s x ERAs tour is generating more GDP than many small countries. I’m a massive Swiftie, so bummed I couldn’t get tickets.
  • Taylor Swift x Travis Kelce
  • Barbie x Oppenheimer
  • Coronation of King Charles III and Camilla

Sad stuff…

  • Hamas and Israel
  • Hawaii forest fires
  • Titan x Titanic
  • Matthew Perry, Tina Turner, Sinead O’Conner

Crazy stuff…

  • Twitter rebrands to X
  • George Santos gets expelled from the House of Representatives
  • Kevin McCarthy gets ousted as Speaker of the House
  • Torrential rain flooded Burning Man (I was supposed to go)
  • The Cricket World Cup breaches 1 trillion viewing minutes globally
  • Watching Harvard and UPenn botch their response to the ME events
  • Ozempic, a diabetes drug popular with Hollywood actors to lose weight, became mainstream to the point its manufacturer, Novo Nordisc, was the largest market cap stock in Europe, larger than LVMH!
  • Even crazier, General Mills had to research the impact Ozempic had on their business, given the potential lack of calorie consumption.

Sports stuff…

  • Messi-mania goes nuclear in Miami
  • Inter Miami is the most searched sports team on Google
  • Lebron surpassing Kareem in most points scored
  • South Africa wins the Rugby World Cup
  • Australia wins the Cricket World Cup

Update of our Global Financing Capabilities

  • International Residential Mortgages
    U.S.,  Canada,  Mexico,  U.K.,  France,  Spain,  Portugal,  Italy,  Dubai,  Singapore,  Japan,  Thailand,  Australia
  • International Asset-backed (Bridging) Loans
    U.S.,  Canada,  U.K.,  Singapore,  Thailand,  Philippines,  Australia
  • Asian Real Estate Structured Debt Financing
    Most of Asia
  • Listed Share Financing
    Most of Asia and the U.K.

I want to thank all our stakeholders for joining us on our journey to disrupt how international investors secure financing for global real estate investments.  

We wish you abundant health, wealth, and happiness in 2024!

Happy Hunting!

[email protected]

[Report] 2023 Foreign Buyers of U.S. Real Estate

Foreign Buyers of U.S. Real Estate

Considered the “bible” for foreign investor trends in U.S. residential real estate, the 2023 National Association of Realtor’s report on Foreign Investments has just been released, and the results are eye-opening!  

This is why we got into this business in 2017!  

Problem: Foreign Investors found it difficult to securing financing for their U.S. real estate investments. 

That is when we started on our journey to fix this!  

Watch our DemoDay Presentation! 

Before we start… 

 If I told you that in a year that saw: 

  • Interest rates rising globally (in the U.S., rates tripled!) 
  •  Russian-Ukraine conflict 
  •  Other Geo-political concerns 
  •  Inflation concerns 
  •  Supply chain issues stemming from Covid-19  

And I said U.S. real estate purchased by foreigners was ONLY 10% LESS THAN the previous year. 

Would you believe me? 

Of course not! 

Frankly, this report surprised me but states the resilience of the U.S. real estate market, especially with foreign investors and overseas investors.  

If you have any questions about this report or anything real estate financing-related, please feel free to reach out to me directly at [email protected] or my personal mobile +65 9773-0273. 

Sincerely, 

Donald Klip, Co-Founder

Donald Klip, Co-Founder 

America Mortgages

Before we begin, I want to thank our summer intern, Angelina Hong, who is currently reading the Classics at the University of Oxford in the UK and the author of this report and many of our previous articles. We wish her the best in her future endeavours! 

International Buyers of U.S. Real Estate: 2023 Highlights 

In the ever-evolving landscape of global real estate investment, the United States remains a sought-after destination for international buyers. The year 2023 has brought about significant changes and trends in the international real estate market, with foreign buyers continuing to play a vital role. This article explores the statistics and key factors driving the international buyers of U.S. real estate in 2023.

Key Statistics (April 2022-March 2023): 

$53.3 billion of foreign buyer purchases 

84,600 foreign buyer existing-home purchases 

Average foreign buyer purchase price rose to $639,900 

Top foreign buyer: China 

Top destination: Florida 

Part I: Strong U.S. Housing Demand, Tight Supply, Soaring Home Prices 

The United States housing market has experienced its own set of dynamics. In 2021, it witnessed the highest levels of home sales since 2006. However, 2022 saw a slowdown and normalisation of the market due to various factors. In response to inflationary pressures, mortgage rates were raised, which impacted housing demand. 

As of the end of March 2023, the housing market faced challenges related to supply. Unsold homes were 4% above levels seen one year prior. The median price of existing homes also hit a notable milestone, reaching $375,700 in April 2023.  

Part II: International Buyers 

Purchases of Existing Homes 

The 2023 statistics reveal a shift in the international buyer landscape. The number of existing homes purchased by foreign buyers decreased to 84,600, marking the lowest figure since 2009. This decline represents a 14% drop from the previous year, with 14,000 fewer foreign buyers participating in the market. 

The dollar volume of foreign buyer purchases also decreased by 9.6% to $53.3 billion, reflecting the impact of market dynamics. 

READ – still $53 billion of demand, despite the issues mentioned above!

Origin and Destination 

The origin of international buyers continues to diversify. Asian buyers maintain their dominance, representing the largest group with a market share of 38%. Latin American buyers follow closely behind, accounting for 31% of the market. European and Canadian buyers hold 14% and 10% of the market share, respectively. 

China remains the top country of origin for international buyers, representing 13% of the market. Chinese buyers stand out with the highest average purchase price at $1.2 million, often investing in expensive states such as California and New York. In contrast, Mexican buyers tend to purchase less expensive properties, with Texas being a preferred destination. 

The top 10 countries of origin of international buyers: 

  1. China
  2. Mexico
  3. Canada
  4. India
  5. Colombia
  6. United Kingdom
  7. Australia
  8. Germany
  9. Venezuela 
  10. Israel

In terms of destinations within the United States, Florida remains the top choice for international buyers, with a significant 23% share of the market. California and Texas closely follow, each with a 12% share.  

The top 10 states for international buyers:  

  1. Florida
  2. California
  3. Texas
  4. North Carolina
  5. Arizona
  6. Illinois
  7. New York
  8. Ohio
  9. Pennsylvania
  10. New Jersey

Financing 

Foreign buyers continue to exhibit a propensity for all-cash purchases, with 42% choosing this payment method, compared to 26% among all buyers of existing homes. Those foreign buyers residing abroad are more likely to make all-cash purchases. 

Property as a Real Estate Investment  

Foreign purchases of U.S. real estate saw 6% increase from the previous year, indicating a growing interest in real estate investment for various purposes. 

READ: Year-on-year INCREASE in property purchased for investment purposes!!!

The majority of foreign buyers prefer detached single-family homes, with 76% making such purchases. Additionally, foreign buyers tend to gravitate towards suburban areas, with 45% choosing this type of location. Interestingly, more than three-quarters of Asian Indian buyers opt for suburban properties. Conversely, Canadian buyers are more likely to purchase properties in resort areas for use as vacation homes. 

Part III: Reasons for Not Purchasing U.S. Property 

Despite the allure of U.S. real estate, some international clients cite their perception of hurdles for investing in this sector. 

Here are the common misconceptions, the actual facts and our solutions: 

Cost of properties  Not at all. See the following chart on price comparisons to global cities  
Difficulties in finding suitable properties      This can be an issue with time zones, which sites to look at etc. We have fixed this – AM Property Finder. 
Immigration Laws  As a foreign real estate investor, there are NO restrictions!   
Challenges in obtaining financing      This is all we do. Check out our Foreign National loan programs. 
Property taxes      You earn income, you need to pay taxes; however, there are many ways to deduct expenses to maximise your rental income
Exposure to U.S. tax laws      The reality of U.S. taxes is MUCH EASIER than perception. Some states, like Texas, don’t have state taxes, which is why it’s one of the most popular investment destinations. Also, there are many ways to deduct expenses to maximise your rental income
Maintenance fees      Any real estate investment will have maintenance required, but that is why you pay a small fee to the property manager. AM Concierge service can introduce you to our preferred managers to make your investment seamless and hassle-free.   
Currency transfer difficulties      No issues here. AM Concierge service has partner remittance firms that help our clients. Even in China we have viable solutions from our partners.   
Insurance  Insurance is a small percentage of the rental income you receive, and we have partners to help you with this.   
Exchange rate concerns  If you are funding the mortgage payments in your home currency, you may experience a currency loss, BUT you can easily hedge this, PLUS you will be earning USD rental income.   
Home Price Comparison

America Mortgages Concierge Services: 

  •  Property Finder 
  •  Property Management 
  •  International Remittance Solutions (including China) 
  •  Property Taxes 
  •  Tax Advice and Filing 
  •  LLC company set up 
  •  Immigration Consultants 

In conclusion, the 2023 statistics on international buyers of U.S. real estate demonstrate a changing landscape influenced by global economic conditions, supply and demand dynamics, and evolving buyer preferences. While challenges persist, the U.S. remains an attractive destination for international real estate investment, drawing buyers from diverse backgrounds and motivations. 

Contact us at [email protected] and seize opportunities in the thriving U.S. property market. Visit www.americamortgages.com for more information.

Our Parent Company Offers International Property Loans in 15 Countries!

International Property Loans

Here are our 3 types of real estate financing solutions.

1. International Residential

In these countries, we offer onshore financing options. Our value-added is our relationships with local in-country banks, which we have developed over many years and would be hard for an international borrower to access.

Our partners are traditional banks, regional banks, wholesale lenders, and private banks, to name a few. Depending on the country, the minimum loan amount is $500,000 ($150,000 in the U.S. and Thailand).

In the U.S., our service is through our wholly-owned subsidiary, America Mortgages.

Available in these countries:

The AmericasEuropeMENAAsia
USAUKDubaiSingapore
CanadaFranceHong Kong
MexicoSpainJapan
PortugalThailand
ItalyAustralia

2. Global Bridge Lending 

This has been by far our most popular financing request this year, especially since traditional bank lending has been curtailed globally and the need for liquidity is required. These loans are normally first-lien, 1-3 years in tenure, and use the value of the underlying asset to qualify. Loan amounts range between $1-100M.

Here the value proposition is fast funding times, high loan-to-value, and flexibility. Typical use of proceeds are: to purchase more property, make personal investments, improve cash flow, make debt repayment, refurbishment, and cash out before sale, to name a few.

Available in these countries:

The AmericasEuropeMENAAsia
USAUKN/ASingapore
CanadaFranceHong Kong
SpainThailand
PortugalPhilippines
ItalyAustralia

3. Structured Real Estate Credit

These are larger, more complicated structures, often involving multiple levels of the credit stack. The minimum loan amount is $50M (lower on a case-by-case basis). Typical use of proceeds are: acquisition financing, last-mile development financing, construction loan, special situations, and distressed opportunities, to name a few.

Available in these countries:

The AmericasEuropeMENAAsia
USAUKDubaiSingapore
CanadaFranceHong Kong
SpainThailand
PortugalAustralia
Italy

Our corporate material:

Global Mortgage GroupAmerica Mortgages
GMG Corporate ProfileAM Corporate Profile
International Loan ProgramsForeign National Loan Programs
Global Specialty LendingU.S. Expat Loan Programs 
Global Bridging LoansHigh Net Worth Loan Programs

Please feel free to contact me directly if you have any questions relating to real estate financing anywhere in the world.

Donald Klip
Co-Founder
Global Mortgage Group & America Mortgages

[email protected]

5 Reasons Why U.S. Housing Prices will not Crash but Surprise us!

US Mortgage Lenders

1. Lack of investment by homebuilders

According to data from the U.S. Census Bureau, fewer homes were built in the U.S. in the 10 years following the 2008 financial crisis than in any decade since the 1960s.

From 2010 to 2019, a total of 6.8 million new privately-owned housing units were completed in the U.S., significantly lower than the 9.7 million units completed in the 2000s and the 8.6 million units completed in the 1990s.

A major reason for the drop in new housing construction following the 2008 financial crisis was partly due to the housing market crash, which led to a decline in demand for new homes and tighter lending standards (Dodd-Frank).

2. Higher input costs

Additionally, builders faced various challenges during this period, including higher land and labor costs, regulatory hurdles, and a shortage of skilled workers for construction.

These issues are only more pronounced now with higher wages, higher input prices such as lumber, concrete, etc., and of course, financing costs as of last year!

3. Massive lack of housing supply to meet demand

Last year, Freddie Mac published an article, “Housing Supply: A Growing Deficit,” noting as of the fourth quarter of 2020, the U.S. had a housing supply deficit of 3.8 million units.”

Meanwhile, the National Association of Realtors projects that the housing deficit is closer to 6.8 million homes.

Lastly, a report published by the Fed last year, “Volatility in Home Sales and Prices: Supply or Demand?” find that a 30% increase in the monthly number of homes coming onto the market would have been necessary to keep up with the pandemic-era surge in demand​.

4. TikTokers need more space at home

However, there is a new dynamic that has arisen over the past 3 years, which is how labor is defined and its impact on housing. Many workers are now choosing to work from home, and also, the younger entrants into the labor force are now earning income from alternative methods, all requiring some “extra space” at home and not an office to go to (TikTok, Amazon sales, Crypto trading, etc.) – this is all very supportive of housing demand.

5. Stability

The stability of the U.S. housing market cannot be underestimated. Post-COVID, when mortgage rates were lowered to historically low levels, most homeowners took the opportunity to refinance their homes to take advantage of the interest rate savings. Fast forward to today, 50% of all mortgages outstanding are under 4%, fixed for 30 years​; 40% of all homes are owned free and clear, and nearly 100% of all borrowers have mortgages lower than the current rate!

Will we see a crash? NO!

We feel given the structure of the supply-demand landscape, there is no impending crash, but we feel the market will be supported faster than expected.

In summary, whether you say we are 4M units short, 6M units short, or 30% short – we are short, making this a great opportunity to start building your U.S. rental portfolio, given rental income and yields will continue to rise.

Why Rents Increase in the “Bizarro World”

Bizarro World

The “Bizarro World” references Bizarro Superman, a supervillain who lives in a world where everything is opposite. Here’s a great explanation from the TV show Seinfeld. 

This reminds me of the world we live in now; mortgage rates double in 10 months, and yet, rental yields continue to increase double digits, year-on-year. 

I have been telling our clients over the past few months that it is a great time to be owning a home in the U.S. for investment income. Most of us have lived through a few economic cycles, and for most of my career, 30-year fixed rates were between 6-7%, which is when I got my first mortgage in 2006, similar to where rates are now.  

However, back then, you owned homes almost as leveraged equity, not like what it’s meant to be, more similar to a bond. 

When academics say real estate is an inflation hedge, that is a peculiar concept since we have not really seen any inflation since the 70s, so not many of us know what that means in real life.    

Till now….

This world is very different. Good or Bad, the fact is that there are significantly more people who need housing, millennials are unable to afford homes, and the rising rates have squeezed out the marginal buyer, and all of the above need to live somewhere. 

My colleagues hear me say this ad nauseam, 

“We will be in a world where 30-year fixed-rate mortgages are 7%, but rental yields are 10-15% very soon”.

I will try to explain why in this report. 

A few days ago, on October 13th, Redfin reported that the Median U.S. Asking Rent rose 9% year-over-year in September to $2,002, the slowest growth since August 2021 and the first single-digit increase in a year. Sure the article makes it sound bearish.

Wait a minute? (sound of car screeching on the pavement).

Mortgage rates have doubled since the beginning of the year, and yet rents are still rising 9% a year. (As recent as May, rents rose +18% year on year!)

While visually, it does look like rents are falling, but that was from an outlier peak of 18% in May….my personal view is anything that has growth in this world is POSITIVE!

Mortgage Rates Ghrap

In some cities like Oklahoma City and Pittsburgh, rents rose by more than 20% year-on-year (not a typo). More below. 

THE PROBLEM – HOUSING SHORTAGE

A housing shortage is not something you can really see. We hear it on the news or read it in the papers, and we think…how can that possibly be an issue. 

Can’t homebuilders just build more homes? 

The NABM/Wells Fargo Housing Market Index dropped three points to 46 in September, the lowest reading since May 2014!  

Meanwhile, “Application to Build” declined to 1.52M units, the lowest since 2020. 

Number of Building Permits (SAAR)

Number of Building Permits (SAAR)

One could also conclude with higher borrowing costs, homebuilders are discouraged from starting new projects, which is not helping the undersupply situation. 

Another aspect of this is the financial incentive.   

Like many other issues in the U.S. economy, there has been a focus on shareholder returns, dividends, share buybacks, etc., and hence the underinvestment in housing development since the Financial Crisis in 2008.  

In fact, fewer homes were built in the U.S. in the 10 years following the 2008 financial crisis than in any decade since the 1960s! Think about that for a moment! 

In the normal world, high mortgage rates tend to bring down values, and of course, there are some parts of the U.S. that are seeing a relatively faster decline in home prices, like San Francisco. I would argue that is city-specific, as the local economy hollows out and the homeless situation and cost of living is untenable for most. 

Across the nation, there are indeed fewer sales and more price cuts on listed homes. 

However, in this “Everything-is-weird” economy, the doubling in mortgage rates hasn’t caused home prices to fall as much as you would think, all things equal.   

In fact, I really don’t think we are going to see any substantial collapse in home prices in the coming years because many owners bought when mortgage rates were low and can simply stay put through this phase of the economic cycle. 

Also, there was less speculation, and investors put more equity in the properties during a time of tight supply. This will keep many families locked out of homeownership and forced to rent.

Here are some mind-blowing data points: Around half of all mortgages outstanding are under 4% fixed for 30 years, and about 40% of all homes are owned free and clear. Think about that for a moment!

Last month, Philly Fed President Patrick Harker discussed his recent research report with most major news outlets, “Unpacking Shelter Inflation”, September 2022, that the housing shortage is a key inflation driver. Read: “…housing shortage…”

In another research report by the Fed, “Volatility in Home Sales and Prices: Supply or Demand?”, Anenberg and Ringo, June 2022, write:

“We find that a 30% increase in the monthly number of homes coming onto the market would have been necessary to keep up with the pandemic-era surge in demand. Since new construction typically accounts for about 15% of supply, our estimates imply that new construction would have had to increase by roughly 300% to absorb the pandemic-era surge in demand. This is a very large, unrealistic impulse to housing supply in the short-run, suggesting that policies aimed at reducing bottlenecks to new construction would have done little to cool the housing market during Covid-19.”

Read again: “…new construction would have had to increase by roughly 300% to absorb the pandemic-era surge in demand.”

Here is yet another report, this time by Freddie Mac. “Housing Supply: A Growing Deficit”, Kater, May 2022. I give a little more weight to Freddie Mac since they are actually buying the loans. Their thesis is that:

“As of the fourth quarter of 2020, the U.S. had a housing supply deficit of 3.8 million units. These 3.8 million units are needed not only to meet the demand from the growing number of households but also to maintain a target vacancy rate of 13%. Between 2018 and 2020, the housing stock deficit increased by approximately 52%.”

Read yet again! “…U.S. housing supply deficit of 3.8 million units.”

I always take stuff like this with a grain of salt because academics look at things from a 10,000 ft altitude and through the lens of an Excel spreadsheet, but the gist is that every Think Tank in the world seems to claim there is a shortage of housing supply and since they have a few more tools (and PhDs) at their disposal for this that I do, I will take their conclusions at face value.  

Here is a neat graphic from The New York Times, The Housing Shortage Isn’t’ Just a Coastal Thing Anymore” Badger and Washington, July 2022.

The Housing Shortage has Spread to More Parts of the Country.

Housing Shortage Map
Source: Up for Growth analysis of U.S. Census Bureau and U.S. Department of Housing and Urban Development data. Shortage percentages reflect estimated housing units needed to meet demand as a share of existing housing units. Metros with a surplus have enough housing for existing residents.

Let’s look at recent city-specific rental prices:

Top 10 HIGHEST Year-on-year Change in Median Asking Rent (%) *

HIGHEST Change in Median Asking Rent

Top 10 LOWEST Year-on-year Change in Median Asking Rent (%) *

LOWEST Change in Median Asking Rent

Top 10 HIGHEST Median Asking Rent *

Top 10 HIGHEST Median

Top 10 LOWEST Median Asking Rent *

Top 10 LOWEST Median

* From Redfin News: “Rental Market Tracker: Rents are Growing Half as Fast as They Were 6 Months Ago,” by Lily Katz, October 13, 2022 Methodology – Redfin analyzed rent prices from Rent.com across the 50 largest U.S. metro areas. This analysis uses data from more than 20,000 apartment buildings across the country.It is important to note that the prices in this report reflect the current costs of new leases during each time period. In other words, the amount shown as the median rent is not the median of what all renters are paying but the median cost of apartments that were available for new renters during the report month. Currently, Redfin’s data from Rent.com includes only median rent at the metro level. Future reports will compare median rent prices at a more granular geographic level.

DEMAND IS DIFFERENT NOW

Single-person households accounted for 80% of the new household units that have formed since 2020. Think your one-man Crypto trader or Tik Tok marketer. Meanwhile, the number of Gen Z adults living alone almost doubled from January 2020 to early 2022 (sounds like a lot of COVID breakups), likely using the stimulus income to get started. The point here is that the way labour formation is defined now makes this current real estate cycle and how it interacts with the overall economy very different from past cycles.   

Another quirk of the world we live in is Video Conferencing. While we can imagine a world where we go back 5 days a week but in reality, my view is that how we work has changed forever and there are clear benefits for being able to Zoom. What this has done is artificially increased the living space needed (globally). That is to say, adding a corner or a room just for Zoom calls etc, driving up demand for overall living space.

SUMMARY

In summary, the makeup of the labour market, as well as the supply demand imbalances in real estate, are very supportive of higher rental prices and rental yields over the long term. 

As a non-resident buyer of U.S. real estate hoping to earn income, this is the perfect storm and has only happened BECAUSE rates are rising.    

We may see rates come down in the future where borrowers can easily refinance into a lower rate, but what if prices do not come down or there is a sudden price surge next year? These are all crystal ball-type guesses but what I want to leave with you in this report is that the lack of supply is a major long-term driver of higher rental yields, which is positive for any U.S. real estate investor.

U.S. real estate is considered a safe haven for many – low entry price point, no stamp duties, ease of gentrification, available tax deductions, USD income, ease of travel, quality of schooling, and the list goes on.  

If you have any questions about this report or about anything U.S. real estate or mortgage related, please feel free to reach out to me directly at: +65 9773 0273 or email me at [email protected].

“Ex-post, Ex-ante” + Family Office uses bridge loan to buy Retail/Office building

Bridge Loan
Ex-post, Ex-ante" + Family Office uses bridge loan to buy Retail/Office building

Ex-post

The worsening energy crisis in Europe has taken the front page of most media channels this week as the Nord Stream 2 pipeline, a 1,200 km natural gas pipeline from Russia to Germany, remains close, which is driving the Euro to a 20-year low vs. USD. The BBC reports that the annual energy bill for a typical UK household is £1,971. From 1 October, however, that’s due to rise 80% – to £3,549!!! Can you imagine paying USD4,000 a month for electricity?! The new incoming PM, Ms. Truss, will certainly be making this a top priority. We really hope for a mild winter in Europe for everyone’s interest. 

Meanwhile, the Yen is now close to a mind-boggling ¥145 vs. USD, a 24-year low! Oil at $82 is a very critical level and, technically speaking, could break lower, which could give some breathing room to the economy. Seeing Oil go from $120 a barrel in May 2022 to $85 now shows how volatile the world is and also how quickly demand can fall for the most popular commodities. 

Oil Edges Higher After Deep Selloff Graph

In the US, Nonfarm payrolls were +315,000 in August (seasonally slow) vs. +526,000 in September, slightly lower than expected but a big month-on-month decline. Meanwhile, unemployment is at +3.7%, slightly higher than expected. The tight labour market while companies are announcing hiring freezes is peculiar. Could this be a recession where employment is less affected? ISM Manufacturing for August was 52.8, unchanged from July – not the decline I was hoping for to give us a little breathing room. 

US Rates30-year fixed 6.12%15-year fixed 5.32%
30-year jumbo 5.10%5/1 ARM 5.95%
* Reference only. These rates are Conforming rates, not applicable to Foreign Nationals. 

Ex-ante

I’m really keeping an eye on oil prices…I have a sinking feeling that Oil is such a consensus overweight for most hedge funds (and institutions) that technical breakthrough support (say $80) will see a further decline in oil prices which is good news for everyone! European energy prices are now generally 15-20% of GDP, and someone has to pay for it – the public or private sector. If the public pays for it, it will have to run a fiscal deficit of 15-20% of GDP, so more debt on top of the already growing debt problem. The private sector gets tricky, especially for countries that have piled on loads of debt in a short period of time. One country that sticks out is Sweden, with over 150% of private debt to GDP. Nationally, Sweden’s debt service ratio is 27% (highest on record). It appears Sweden, France, and South Korea are the most interest-rate sensitive countries, relatively speaking, according to BIS data. Watch this space. The negative soundbites on the European banking sector are going to get louder and more frequent.  

Buy now! Why now? 

We are in a perverse cycle where rising rates are actually squeezing up rental yields. The marginal buyer cannot afford to own given rate rises, and the Millennials also cannot afford and must rent – AND, to add to that, there is a 3.8M housing shortage according to the Fed. If you read last week’s “Ex-post, Ex-ante,” places like New York are seeing double-digit percentage increases in rents, BUT 39% of residents are looking to move given the high cost of living. It won’t be long where we are in a world where rates are 7-8%, BUT rental yields could be 15-20% (some parts of Texas can net you low teens yield already).

Look at this chart below from a Bloomberg article (7 September) US household debt service ratio has fallen from around 13% at the time of the last housing crisis to 10% now, according to the Fed. The amount households are spending to service their mortgage debt has been cut almost in half, from 7.18% in 2007 to a recent 3.89%! 

Household Debt Service Ratio

LOANS OF THE WEEK!

1. Indonesia family uses bridge loan to purchase $5.4M Retail/Office to maximize cash flow

Location: San DiegoPrice: $5,400,000
Property: Storefront Retail + OfficeLoan Amount: $3,500,000
Cap rate: 4.05% / 100% leasedLoan to value: 65%
Use: InvestmentRate: 8.5%
Loan: AM USA Bridge+Term: 3-year interest only

– Client was offered a bank loan at 5.75% but given that it is cash-flow based he would not be able to cover the 1.25x cash flow coverage typically required and would be able to get around 40% LTV. Our knowledge was valuable. We knew that California is a tough market as it is with very low CAP rates but the added increase in interest rates is making it even harder to achieve higher loan amounts.

– Our solution: Use a bridge loan with higher leverage, interest-only payment to get into the property. Then position the tenants for renewal of their lease agreements and refinance when rates come back, allowing for more leverage to be supported by the cash flow. Good news is the client is using this strategy to purchase more yielding assets in the US. Loan managed by our Head of Sales, [email protected]

2. Canada tech entrepreneur buys $1.25M condo in Miami

Location: MiamiPrice: $1,250,000
Property: CondoLoan Amount: $875,000
Use: InvestmentLoan to value: 70%
Loan: AM Foreign National+Rate: 6.875%
Term: 30-year fixed

– Client wanted to start building rental portfolio in the US to earn income and to begin developing a credit footprint for future family and business opportunities. Given the nature of his business, he was not able to find bank financing in Canada and we were able to find a mortgage which used his Canada credit and income to qualify.  Funded in 43 days with the help of our Canada-based loan officer, [email protected]

3. UK family buys $850K Boston condo in son’s name to develop credit

Location: BostonPrice: $850,000
Property: CondoLoan Amount: $595,000
Use: InvestmentLoan to value: 70%
Loan: AM Foreign National+Rate: 6.875%
Term: 30-year fixed

– Client bought condo in son’s name to rent out while his son attends boarding school on the East Coast.  The intention is for him to stay in the condo upon graduation from university in 4-5 years or continue to rent out to bolster his income while starting out on his career, meanwhile developing US credit for himself.  Our UK-based loan officer provided a hassle-free experience throughout their mortgage journey, [email protected]

Schedule a call with us at [email protected] to find out more! 

www.americamortgages.com

“Ex-post, Ex-ante” + When rates will fall

U.S. Home Prices will Fall

Welcome to our newly revamped weekly product, where we do a quick summary of salient news over the past week and what to expect the following week and beyond. It took a while to think of a catchy name for our weekly and we hope you like it. We also plan to include our house view of the major macro events and, of course, how it all relates to the global real estate markets, in particular the US.

Contents:

  • Ex-post; Ex-ante
  • Will rates decline? Yes, starting in March!
  • Why US home prices will not collapse
  • Buyer’s Guide to California
  • Loans of the week! 

Ex-post

Last week saw major headlines with UK printing a 10% inflation number and Europe continuing to see hefty price increases in energy costs, with Germany at €700 ($696) a megawatt-hour, up from under €50 in January. 

In the US, mortgage applications dipped slightly for the week ending August 12, 2022, down 2.3% week on week. Things are generally slower in all areas of the economy in August, and this is no different. 

30-year fixed rate 5.45% mortgages are down 50 bps from June 2020 highs of 5.98%

* This reference rate is for conforming Fannie Mae loans, not applicable for overseas borrowers.

Ex-ante

This week, all eyes will be on Jackson Hole, where Fed chair Jerome Powell will speak on the economic outlook at 10 am Washington time. We cannot see Powell becoming incrementally dovish at this stage, while there could be an outside chance of being less hawkish. As a firm, our house view is that given the fact that the “reputation and credibility as an institution” is under pressure, the Fed will risk over-tightening in this economic cycle – right or wrong. To us, tightening into a recession is extremely heavy-handed, but Powell certainly does not want to be remembered as Arthur Burns 2.0. 

The Trillion-dollar question is IF rates will be cut, and if so, how much?

If you look at the Eurodollar implied futures curve, you will see that the market is expecting rates to peak in March 2023 at 3.93% and then start to decline to 3.51% by December 2023, and drop to 3.03% a year later. That is to say; the market is expecting 90 bps of decline in Fed Funds by December 2024! The charts also imply that rates are expected to stay under 3% thereafter.  

3-month Eurodollar Futures Yield Curve

3-Month Eurodollar Futures Yield Curve
Credits: Barchart.com, GMG Macro Research

ISM Manufacturing Index – US 30-Year Mortgage, YoY%, 18-Month Lead Inverse”

One area of potential concern is US industrial production, which is at risk of significant contraction (below 50 on ISM Manufacturing Index is a contraction). If so, this could trigger deeper recession concerns. The next the Institute of Supply Management (ISM) report will be out September 1st. 

If you look at this chart, it appears that the ISM Manufacturing Index (black line) lags the inverse of the US average 30-year mortgage rates (red line) by about 18 months. If the US manufacturing economy pans out in this manner, the Fed may be forced to make deeper cuts and we could see a bigger decline in rates than the market is pricing in, giving another opportunity for US home buyers who are waiting for lower rates! 

Mortgage Rates Graph
Credits: TradingView, GMG Macro Research

Home Prices

There is no impending collapse. We see strength in housing prices.

As we read in the media that home prices are softening, housing starts declining, home prices are falling, and it paints a doom and gloom picture, but we cannot see a collapse in housing prices and a repeat of 2008.  

Did you know that 40% of all homes in the US are held free and clear without a mortgage?

The average outstanding mortgage is 33% of home values. There is simply too much equity in the market for a collapse. Since 2008 underwriting standards have been significantly more stringent with more regulatory oversight. More importantly, most of the outstanding mortgages were printed when rates were below 4%!

Sure, in some cities, there will be softening as residents gentrify out to lower cost of living areas. It’s no surprise that San Francisco, Los Angeles, and New York City are at the tops of those cities where there are significant outflows of residents.  

According to a Redfin article on July 18, 2022, here are the:

Top outflow cities in 2Q2022:

San Francisco48,718Top destination: Sacramento
Los Angeles  40,632Top destination: San Diego
New York City 48,731 Top destination: Philadelphia

Top inflow cities in 2Q2022:

Miami12,614Top origin city: New York City
Tampa7,939Top origin city: Orlando
Phoenix11,464Top origin city: Los Angeles

Buyer’s Guide to California

Over the past 2 weeks, we have published a Deep Dive into what drives overseas buyers to California. In Part 1 – Education. We look at the top 50 public and private high schools in the state, average SAT/ACT scores, Median Income and Average Home prices and conclude the cities with the top schools tend to have the strongest property price appreciation and rental reversions.

In last week’s Part 2 – Demographics. We look at the Asian population in each of these schools and conclude the schools with the highest Asian population is another driver of home prices where the top schools are located.

This week, in Part 3 – Taxes and Benefits. We will conclude the report with a tax guide for overseas investors, how rental income is taxed and various deductions that are allowed.  

Finally, to wrap-up our Buyer’s Guide to California, we will be hosting a webinar with Susan Kim, our Private Client US Concierge Partner and top real estate experts in San Francisco, Palo Alto, Los Angeles, and Orange County to give you an on-the-ground discussion on the respective cities, where the value is now and in the future. Stay tuned!

Loans of the week!

1. Switzerland Family Office purchases luxury condo in New York

Client wanted options outside of their private bank which did not require pledging assets.

Type: Luxury Condo

Price: $20M

Loan Amount: $11M (55% LTV)

Use: Second home

Loan type: America Mortgage HNW+

Qualification: Using borrower’s liquid investment portfolio as a reference without encumbrances. (Example Fidelity account)

Term: 5-year fixed / 30-year amortized

Interest-only: Fixed for 5 years

Rate: 7.875%

2. UK technology entrepreneur purchases home in Atherton (near Palo Alto)

UK-national client attended Stanford and plans to move their children there in 3 years to attend high school. His goal was to rent out the home to tech executives or AirBNB in the interim.

Type: Single-family home

Price: $10.9M

Loan Amount: $6M (55% LTV)

Use: Investment

Loan type: America Mortgage HNW+

Qualification: Using borrower’s liquid investment portfolio as a reference without encumbrances. (Example Fidelity account)

Term: 5-year fixed / 30-year amortized

Interest-only: Fixed for 5 years

Rate: 7.25%

3. Singaporean family purchases home in San Antonio for rental income

Father attended the University of Texas and, after reading our Deep Dive report, decided to own a home where he could take advantage of the strong USD and rental income currently in San Antonio and potentially will move there for retirement.

Type: Single-family home

Price: $350,000

Loan Amount: $245,000 (70% LTV)

Use: Investment

Loan type: America Mortgage Foreign National+

Qualification: Based on overseas income and credit

Term: 30-year fixed

Rate: 6.875%

Thank you and feel free to contact us if you have any questions.

www.americamortgages.com

Buyers Guide to California Pt 2 – Demographics

Buyers Guide to California
Buyers Guide to California Pt 2 - Demographics Matter

CALIFORNIA

Californication, Red Hot Chili Peppers

In last week’s “Buyer’s Guide to California Pt 1 – Education Matters,,” we discussed why Education is an important driver of where overseas borrowers choose to invest in real estate. 

In that report, we looked at the top 50 Public, and Private high schools, average ACT/SAT scores, Median Household Income, Average Home Prices, and Rental Yield.

We argued that when looking at where to make your US property investment, the quality of education in the nearby city/area is a factor in the decision since there is always a notion of “can I live there one day” and “maybe my children can go to school there”. Popular cities in the US will undoubtedly have good schools in the city or in the vicinity. 

“Popularity as a living destination” in turn drives demand, home value appreciation, and strong growth in rental income.

This week we focus on Demographics.

An under-appreciated factor in determining where to own is what city has the most culturally similar population. It’s much easier when you have neighbors that speak your language and share similar cultures and values. 

We will answer these questions (and much more)!

  • Which high schools in California has the highest Asian population?
  • Which cities have the most Korean-born residents?
  • Which cities have the highest total Asian population and the respective top schools?
  • Does the highest Asian population determine how home prices will behave?
  • Which California cities have the highest: Hong Kong, China, Taiwan, India, South Korea, and Philippines-BORN residents?

Demographics matter!

In this study, we solely focus on the Asian population in schools. Asians have been the biggest group of immigrants over the last 60++ years, spurred mainly by the Immigration Act of 1965 but also the Taiwan Relations Act of 1979, the Luce-Celler Act of 1946 as well other obvious political issues of the time.

In addition to the above reasons, many immigrants just wanted a better life for their families, they studied hard, and slowly communities grew around the top education destinations.

Here is the Asian population (>40%) for the top 50 Public and Private Schools in California.

You can also see that these cities have the highest Home Price to Median Income ratios, highlighting the center of attraction for Asians moving to the US.

Note a common rule for affordability is for a home price to be UNDER 3x your income!

Public High Schools

Public High Schools - Demographics

Private High Schools

Private High Schools - Demographics

Takeaway – You can see cities where the top schools are located have very high Home Price to Income Ratios which highlights the property value growth driven by families moving to these cities, in particular Asians.

The next study is very interesting!

Our team looks at which California cities have the highest overseas-born residents, specifically from:  China, Hong Kong, Taiwan, South Korea, Philippines, Vietnam, and India.

You guessed it, many are in the cities where the top schools are

Top Cities Taiwan & China Born Population
Top Cities Hong-Kong & Phillippines Born Population
Top Cities India & Korea Born Population
Top Cities VietnamesePopulation

We only used cities with over 20,000 population.

*Refer to full chart below

Here is same chart in Alphabetical Order

Illustrating popular cities ranked by multiple demographics

Popular Cities Ranked by Multiple Demographics

Cities in California For Asians
Average Price to Income Ratio

As you may observe in this report, the cities with the highest Asian immigrant population tend to be where the most demand is, especially when compared to household income, and it’s no surprise it’s also where the top high schools are.

That is to say, the schools and cities mentioned in last week’s report on Education being the main driver of price appreciation and rents are very similar to the cities mentioned in this report.

While this study is not meant to be a rigorous analysis by any means, it is close to my heart since I moved from Singapore to San Francisco when I was 16. My parents had the same thought process…strong Hong Kong population and good schools. I ended up finishing high school in San Francisco and attended UCLA.

Stay tuned for the final part of our Buyer’s Guide to California, where we take a quick look at the general carrying costs for a rental property, including taxes, deductions and other administrative costs. 

Finally, we will be hosting a webinar with our California Partner for a real “on-the-ground” discussion along with a panel of real estate experts for the Bay Area, Palo Alto, Los Angeles, and Orange County. We are still finalising the exact details, but this will be in September. 

Have a good weekend!  If you want a copy of the spreadsheet with the data from our research, please contact us. We are happy to share our findings.

www.americamortgages.com