U.S. Surgeon living in Toronto was looking to purchase a Flix-and-Flip property in Oregon as an investment, mainly to earn rental yield.
How We Helped
Fortunately for our clients, situations like this are our specialty. We secured a loan for ARV (after-repair-value) using a short-term bridge loan. Being an expat meant that our client had no W2 and lacked U.S. credit.
What real estate investment earns 150% return? Fix-and-Flip!
In our never-ending crusade to bring awareness to the U.S. residential real estate market, we want to introduce you to the first part of our Launchpad Series – Fix-and-Flip. In each part of this series, we will be sharing more about the new programs we have to offer and why you should be excited about them.
What’s Fix-and-Flip or Fix-and-Hold?
A Fix-and-Flip home is when an investor purchases a property, “fixes” (or renovates) it up, then “flips” (sell) it for a profit shortly after. The investor can also choose to keep and rent it out at a higher rental amount than they would have received in its initial state; this is called a Fix-and-Hold.
How is it used?
A Fix-and-Flip is often used for investors who have a good eye for value, feel comfortable with the intricacies of construction, and have knowledge of a specific area. The U.S. property market is red hot right now, and investors are interested in getting involved. However, many may not have sufficient capital to go the buy-to-rent route as they cannot afford a market-priced property. In that case, purchasing a discounted property, fixing it up, and selling at a higher price would be the perfect solution. It would also be good if investors are well-versed in the area and are able to spot undervalued properties accurately. The “get the worst house on the best street” strategy has resulted in many success stories.
The Market
Fix-and-Flip is more popular than ever. During the first quarter of 2021, 32,526 single-family homes and condos were flipped, and the average house flip generated a gross profit of $63,500! Given U.S. foreclosures are +5% month-on-month, we can expect a larger share of discounted properties to enter the market, meaning that it is prime time to snap up low-cost properties for flipping.
The average time to flip a house is also at the lowest level since 2013, significantly reducing holding costs (recurring costs that you spend from the time you purchase a property until you sell it). Furthermore, in the current low-interest-rate environment, the U.S. for-sale housing market has been experiencing record increases in prices; this translates to higher revenue when selling the flipped property. Overall, low costs and high revenue makes the fix-and-flip market very attractive to investors now.
The Problem
Historically, Fix-and-Flip and Fix-and-Hold loan programs were only available for U.S. citizens who were living in the U.S with strong U.S. credit – until now! Most overseas investors have never considered Fix-and-Flip because of their distance from the market and how daunting renovating a home in a foreign land seems. However, in reality, the project is not as formidable. The U.S. is very transparent, and there are many reliable general contractors in major cities that can help you with flipping your home. In places like Pittsburgh (deemed the best market for house flipping in 2021), contractors are plenty (J Francis Company, Main Street Renovations, etc.). What is better is once you find 1 reliable general contractor, they will likely have good recommendations for others (e.g., plumbers), and very soon, you will have a team that will take care of home flipping for you.
Our Solution
Let us introduce – America Mortgages Fix-and-Flip loans!
Our AM Fix-and-Flip program is available to both Foreign Nationals as well as U.S. citizens living abroad! Our Fix-and-Flip loan programs have a unique twist; America Mortgages can structure these mortgages, allowing our clients to obtain the ARV (after-repair-value) financing required to acquire and renovate. We also have the knowledge and experience to refinance the property, once completed, to a long-term standard mortgage.
How it works
Let us walk you through the process. Let’s say Mr. Smith, a foreign national living in London, wants to buy a house in Pittsburgh with the intention of fixing and selling it. The house is in decent condition, so it will only need standard rehab. He obtains an AMNR Fix-and-Flip loan.
The table below shows a breakdown of the Costs, Fees and Income Potential.
Fix-and-Flip Property sale price
$100,000
Rehab Costs
$20,000
Down-payment
$15,000
Max possible amount financed using AMNR Fix-and-Flip loan.
$85,000 (85% LTV)
Interest rate
8% p.a.
Monthly interest rate costs
567
Holding or Carrying Costs (5-month estimate)
5,000
Closing Costs
$5000 (Conservative rule of thumb: Closing costs is 5% of property sale price)/td>
Total costs after 159 days (the average time to flip a house in 2021)
$132,835
After-Repair-Value
$222,500 (Average house price in Pittsburgh)
Potential Profit
$89,665
Return on Investment (ROI)
67.05%!!
We see that Mr. Smith earns a whopping 67.05% ROI! This is high compared to other forms of investing, such as buying stocks, which earn you a return of 10% per year on average. Even though, in reality, there may be some other associated costs that can decrease one’s potential profit, it is still much higher than other alternatives. In the fourth quarter of 2020, the average ROI was slightly lower than the one in our above example but still relatively high at 40.3%.
Given how high the ROI is, many investors have already contacted us regarding this loan product.
To really drive home the point on why you should care about our new product, home flipping is good because investors do not need to be concerned about selling the property given the ample demand for Fix-and-Flip properties. Many home buyers want to purchase a home that is already in a liveable condition because it saves them the effort of doing refurbishment works. Homebuyers also prefer residing in more established metropolitan areas, but the scarcity of land in these areas often means there are few new housing projects. As a result, most turn to Fix-and-Flip projects because it gives the feeling of having a newly built home.
Get in touch with us today to find out all about our AM Fix-and-Flip program for Foreign Nationals today! www.americamortgages.com
This “Stunning Deterioration”, as Bloomberg puts it, is a strong reflection of how inflation and the Delta Variant are worrying consumers. As seen from last week’s article, fast-rising rents are taking up an extremely large portion of peoples’ disposable incomes and it is a very real issue. The prices of goods and services (measured by CPI) are also at record high, and we all know it is only going to go higher.
U.S. Consumer Price Inflation Rate
Rising prices are bad news for low-income individuals and fixed-incomers because it erodes their purchasing power. Hence, it is not surprising that their sentiments lean on the negative side. The rising number of Delta variant cases and several states (California, New York) reinstating mask mandates have dashed peoples’ hopes that the pandemic will end soon and has triggered negative emotional reactions which further dragged down the Consumer Sentiment Index.
Why should we pay attention to the fall in this index?
This index is indicative of how people are viewing the future environment and, specifically their confidence. Lower consumer confidence has serious negative implication on the economy. Lower confidence could also create a negative feedback loop – businesses will look at a fall in consumer spending and delay investments. Consumers will look at delayed investments and have even more negative assessments about the economy.
Given how consumer spending is almost 70% of aggregate demand in the U.S., a fall in it will undoubtedly erase all the economic recovery gains made in the past few months (Just look at Australia as an example).
All in all, lower confidence could mean reversing back into the economic recession, which we were in the majority of last year. Except, this time, it could be much worse. Given how high inflation is currently, if the U.S. economy plunges, we could be entering an era of stagflation (high inflation, high unemployment). The 2020s could very likely be the new 1980s…
In conclusion, despite the ‘summer of joy’ we’ve enjoyed so far, this index signals a potential ‘winter of discontent’ ahead.
Well…not “hedonism” in the pleasure-at-all-costs-kind-of-way but Hedonic pricing, which is how CPI is constructed. Without getting too deep into the math behind it, we can say that it tends to underreport the actual number.
As most of you have seen, July CPI was +5.4% year-on-year. While that is certainly high and higher than expectations, we feel that the number is too low OR will really surprise on the upside in the future.
Rents (or Shelter as it’s defined) are about 30% of the CPI basket. Meanwhile, in July, rents rose 8.7% year-over-year for 2 bedroom apartments. and overall 2.5% month-on-month. Elsewhere, The Fed expects future rental prices to rise 4.5% in coming years! Yes, the Fed expects future rental inflation to be 4.5%.
The largest single-family homeowner in the U.S. with over 80,000 units which it rents out, Invitation Home, says new lease rentals rose +14%! To put it in a different way, if a home was $1,000 to rent a month last year, it would cost $1,140 a month now!
Meanwhile, exogenous events such as the Delta Virus outbreak globally will put further strain on the global supply chain, causing cost-push inflation.
Last but not least, does anyone think that used cars costing more than new cars in America makes sense?
So, if you ask me if 5.4% is a real number…I would say no.
2020s are the new 1980s
Many of you would have heard us discuss this over the past 18 months – the upcoming economic cycle will be very similar to the 80s recession, where rental yields skyrockets since no one could afford to buy a home (high rates + recession).
Buying rental property right now in the U.S. is one of the best trades we can have at the moment!
In this week’s Deep Dive, we will look at what the Key Drivers of Property Prices are and make an argument on which U.S. cities represent the best projects for future price appreciation.
The utility of owning a home is greater than any other possession – a roof over your head, it provides a sense of security for present and future generations, the sense of incredible accomplishment that “I have MADE IT in life,” and the list goes on.
However, as an investment, we need to think about its ability to produce income (dividends/rental income, etc.) and future price appreciation.
We start this discussion by digging into what factors drove property prices in the past, what ‘new’ factors exist today, and (drumroll….) we will try to take a stab at where they will be in the future.
We will also introduce a new proprietary index: AM Job Prospect Index
First, what drives property values up?
This is a vast topic that can get very granular – see below for a snapshot of a 2019 article written by the New York Fed about Forecasting Home Prices.
But we will try to keep it simple.
Liquidity is plain and simple. The world has seen an unprecedented fiscal stimulus and monetary easing over the past 20 years.
A commonly accepted money base is M2 (Money in circulation, checking deposits, and savings deposits less than $100K).
Let’s look at M2 money supply over the past 10 years. You can see the amount the U.S. has grown its money base dwarfs any other country, and in fact, it is 4x the growth rate of the U.K. In absolute terms, the current M2 supply in the U.S. is almost twice that in Japan.
Now that we have identified the global macro drivers, we can look into where the money is flowing into – specifically real estate and, more importantly, why.
It’s not surprising that the top 5 states in terms are GDP are:
California
Texas
New York
Florida
Illinois
This is consistent with our most popular destinations for real estate investments (see below).
Within this context, we take another cut at the data and look at which cities in those states represent the highest contributors to the overall national economy:
Here are the cities with over 2% contribution to U.S. GDP:
New York City (8%!)
Miami
Fort Lauderdale
Fort Worth
Dallas
Houston
Seattle
Chicago
Los Angeles
San Francisco
Atlanta
Now we look at cities with the highest GDP growth rates (over 1% y-o-y growth 2018-2019):
Seattle
Los Angeles
San Francisco
San Jose
Austin
San Antonio
Portland
You can see that these cities naturally are attractive given the size of the economy; hence the probability of finding meaningful employment is higher. Now, the list likely looks much different 2020-2021, which I’m guessing will magnify the growth potential in the Texas cities even more!
Next, we will look at why these cities.
We have identified 3 main factors that raise the demand for properties in an area – 1) Economic prospects, 2) Gentrification 3) The China Effect
1) Economic prospects
AM Job Prospect Index
Our multifactor algorithm includes factors like the number of big companies moving to these cities, market capitalization of the new companies, new headquarter size, etc.
Using our “AM Job Prospect Index, in general, job prospects of U.S. cities appear to be better than other global cities. The average job prospect index for the U.S. is 70, but only 30 for other cities (the higher, the better). In the U.S., cities with the best job prospects are Austin, Dallas, Miami, Los Angeles. Austin, TX specifically, has the highest value as numerous big companies are setting up headquarters there– Tesla, Google, Amazon, SpaceX are just a few. Tesla’s new manufacturing plant in Austin alone will hire more than 10,000 through 2022. We can expect plenty of people to move to these cities, meaning increased demand and elevated home prices in these areas.
2) Gentrification
Gentrification is the process of changing the character of a neighbourhood through the influx of more affluent residents and businesses. When wealthier residents move into a neighbourhood, they often renovate homes, making them more aesthetically appealing and equipped with better facilities, which increases the value of the property. The addition of new and more “hip” businesses in the city also aids in job creation and can attract more people, increasing the demand and prices of homes.
According to the NCRC Research report, taking into account the number of neighborhoods gentrified and the intensity of gentrification, New York, Los Angeles, San Francisco, Houston, Austin, Miami are the most gentrified cities in the U.S. (arranged in order). Therefore, we can expect home prices to appreciate in these cities.
3) The China Effect
Instead of the usual demographic factors like immigration, we’ll look at the percentage of the population who are Chinese. Why do we do so? China has experienced rapid growth in recent years, and its people have gained a significant amount of wealth. It’s no surprise that according to the National Association of Realtors annual report of International Buyers of U.S. residential real estate, China was ranked #1 for the past 5 years.
Excluding predominantly Chinese cities, we see that the average percentage of Chinese the U.S. cities (9.85%) is higher than those in other major cities (8.25%). Thus, we can expect Chinese investors to be more inclined towards U.S. cities, demanding more houses and driving up prices in U.S. cities more than other cities. They will typically choose areas with a significant Chinese population as it offers a sense of familiarity. U.S. cities with the highest percentage of Chinese population are Los Angeles, San Francisco, New York, Seattle.
Based on the abovementioned factors and looking at the “top performers” in each category, prices will likely appreciate the most in Texas, Los Angeles, Miami. This is also in line with the price appreciation data provided by Case-Shiller Home Price Index and Zillow. Prices appreciated by 35.07% in Austin last year!
In summary, the conclusions in this report are consistent with our previous 2 reports. There is a tremendous amount of value in the Texas cities, with its abundant jobs, high wage growth, low taxes, easy of travel, strong ethnic mix, and the list goes on.
New York will always have a premium, and Los Angeles and San Francisco will always have specific attributes which make them unique.
HOWEVER, the high cost of living, home prices, and state taxes are quickly driving residents to other states. Almost every metric we see supports this argument. Gentrification in the U.S. is real and is happening much faster than we can imagine. Just look at new home sales from the largest home building company Lennar. They cannot sell enough homes, and it’s the Gentrification Effect we discuss above.
One area that the U.S. has lagged behind its low-cost international peers over the past 10 years is the vocational workforce – smartphone manufacturing, assembly, etc. This was a growth engine in the 80s before the Japanese began their auto manufacturing dominance. But slowly, the U.S. economy retooled and prospered again. Then in the early 2000s, the steel industry lost millions of jobs to low-cost manufacturers overseas, and those jobs have not returned.
The current trend of technology companies moving major offices inwards (See Texas) not only helps the local economies but it reflects a bigger theme – vocational employment. It may not be assembling smartphones, but it will be something else – smart cars, smart cities, smart grids, distribution centers, cloud kitchens, drone deliveries, and so on. Technology is clearly the growth driver going forward, and if you are thinking of real estate as an investment, you should look at states that offer this type of value. Right now, it is clearly Texas, and I suspect there is still more room to go here.
In next week’s Deep Dive, we will be bringing in a U.S. Tax Accountant who focuses specifically on U.S. Expats to explain how the tax regime on owning U.S. property is not as bad as you think and, in fact, could be the easiest and most flexible in the world!
Keep your eyes peeled and subscribe to our newsletter, so you don’t miss out! www.americamortgages.com
This week in Part 2 of our Deep Dive Series, we look at the Relative Income Potential of the popular U.S. investment destinations compared to major cities in the world.
Investing in residential properties or buying-to-let is a form of a business, and as a business owner, making a profit is of priority. A common metric that we use to measure the profitability of a real estate investment is rental yield. Net rental yield measures the profit you generate each year from your investment as a percentage of its value.
Same as what we did last week, we shall compare data sets from 2 sample groups:
1. Major global cities:
Toronto
Vancouver
London
Sydney
Melbourne
Shanghai
Beijing
Hong Kong
Singapore
2. Top U.S. residential real estate investment destinations:
New York, NY
Miami, FL
Orlando, FL
Ft Lauderdale, FL
Ft Worth, TX
San Antonio, TX
Austin, TX
Dallas, TX
Houston, TX
Seattle, WA
Chicago, IL
Los Angeles, CA
San Fran, CA
San Jose, CA
Atlanta, GA
Portland, OR
Las Vegas, NV
On average, the net rental yield of popular U.S. real estate investment destinations is 3.49%, much higher than that of other global cities – 1.39%. This means that on average, for a property that costs USD 500 000, you can earn approximately USD 17,450 if this property is in the U.S. and only USD 6,950 if this property is in other global cities. This is after accounting for property taxes. We see that investing in the U.S. can earn you 2.5 times the income you will earn in other cities!
In the following chart, you will see the disparity in the profit flow more clearly.
Now, if we look at the net rental yield that takes into account both local property and rental income tax as part of the costs, we can see that the results are similar. U.S. destinations, on average, have a much higher yield than other global cities (3.40% vs. 1.36%).
Note: Even after considering income tax, investing in the U.S. can still earn you 2.5 times the income you will earn in other cities.
Myth Buster – The common misconception that the U.S. tax regime makes investing difficult and not feasible is unfounded. Even adjusting for taxes, U.S. residential real estate is superior investment.
To further strengthen our point that the income potential of U.S. cities is much higher than other global cities, including your home cities, take a look at the table below. If you live in the cities stated in the row, you should definitely not buy-to-let in the cities highlighted in red as the income potential in those cities is worse than your home. Instead, it would be best to invest in the cities highlighted in yellow, where yield is much higher.
Net Rental Yield differences between Major Global Cities and U.S. Residential Real Estate Investment Destinations
Let someone else pay for your mortgage.
To make things better, in some U.S. cities, you can even pay off a sizeable portion of your mortgage loan with your post-tax rental income. Using the AM debt coverage ratio, we see that in cities such as Orlando and Fort Worth, without considering other maintenance costs of your home, your annual post-tax rental income can cover all of your annual mortgage payment (with some to spare). This is rare in other global cities. In Hong Kong, annual post-tax rental income can only cover 17% of the yearly mortgage payment.
The following diagram shows the debt coverage ratio comparison (the higher, the better).
Solely based on net rental yield, you should always consider Orlando, Fort Worth, San Antonio, and almost never San Francisco. It is interesting to see some overlap with last week’s affordability rankings, where Fort Worth and San Antonio were at the top and San Francisco at the bottom.
Just like affordability, rental yield is also just another aspect of property investment. It is important to consider other factors too – growth potential of the city, capital gains, and future price appreciations – which we will discuss in our next report.
To summarize, we see that U.S. real estate properties are outperforming other major global cities in terms of affordability and income potential.
Next week, we will get an even bigger picture by understanding the factors that drive property value growth and why these factors will affect U.S. real estate investments more than other major global cities. You won’t want to miss out!
Stay tuned for next week’s continuation of our Deep Dive series. Email Us
In our never-ending crusade to acquaint and educate the world of the investment opportunities in U.S. residential real estate and the ease of securing financing, we launch “The Deep Dive Series.” We investigate major themes, dispel major misconceptions in the U.S. real estate market, and use data to confirm our thesis.
Over the next 5 weeks, we will publish a series of reports on the following theme:
Making a case for U.S. Residential Property Investment.
Week 1 – “Cheap as Chips”
We compare at the relative affordability of the major U.S. real estate investment cities vs. major global cities.
We investigate what drives property prices and why these factors are more constructive in the major U.S. real estate investment cities vs. major global cities.
“Cheap as Chips”
This week is Part 1 of our Deep Dive Series where we look at the Relative Affordability of the major U.S. investment destinations compared to major cities in the world.
When investors look at where they should buy real estate, most will typically choose where they live. This is rational because you know the market, the financing landscape and can physically see the property at any time.
However, if the assumption is to earn the highest risk-adjusted return for an investment property, then it would be irrational to not explore all real estate investment opportunities that could offer you the highest return.
Of course, as a primary home, there are other considerations to motivate a homeowner, such as not worrying about a “roof over your head.”
This is particularly true in Asia and ingrained in the culture, but in many countries like Germany and France, homeownership hovers around 50-60% vs. say Singapore, where homeownership is over 90% (admittedly the highest in the world).
When buying anything, you look at the absolute price of the asset and the associated costs (which include mortgage rates, stamp duties, taxes, etc.), what you can afford, adjusted for the risk (to include research time), its income potential and lastly what you think the asset will be priced in the future.
Let’s start with the price and cost of U.S. real estate vs. major global cities.
We compare datasets from 2 sample groups.
1. Major global cities:
Toronto
Vancouver
London
Sydney
Melbourne
Shanghai
Beijing
Hong Kong
Singapore
2. Top U.S. residential real estate investment destinations:
New York NY
Miami FL
Orlando FL
Ft Lauderdale FL
Ft Worth TX
San Antonio TX
Austin TX
Dallas TX
Houston TX
Seattle WA
Chicago IL
Los Angeles CA
San Fran CA
San Jose CA
Atlanta GA
Portland OR
Las Vegas NV
If we look at the major global cities where majority of our clients live, we will find that the affordability of a 1500 sq. ft house is really low.
AM Affordability Index*
*Our proprietary index includes factors such as, taxes, pension contributions, debt repayment, inflation, currency and others.
Using our proprietary AM Index, 0 represents a house that is very unaffordable and 100 represents a house that is very affordable. Affordability only ranges from 0 – 24 in our client’s home cities.
Now, looking at the data for popular investment destinations in the U.S. for real estate investors. We see that the average affordability is drastically higher. This is particularly so for San Antonio, Chicago, and Fort Worth.
For example, if you live and work in Vancouver and earn the median income, the affordability index of 1500 sq. ft house in your city is at a meagre 12. However, the affordability index of a same-sized house in Fort Worth is at a whopping 94!
Read – if you live in Vancouver, buying a Fort Worth Texas investment property is 8x “more affordable” than back home!
You will see this graphically in the following charts, and the results are very clear and obvious.
Solely based on affordability, when purchasing property for investment income, you should always consider Chicago, San Antonio, Fort Worth, and almost never San Francisco.
Now, we know there are many other considerations when buying property besides just being cheap and affordable – like historical price appreciation vs. future price expectations, net rental yield, ease of securing financing, friction costs of doing the research – all of which we will discuss in our upcoming reports.
In summary, when deciding where to invest next, it’s best to get out of your comfort zone and be open-minded to the opportunities.
Hopefully, Part 1 of our Deep Dive Series has showed you that U.S. properties are more affordable that you think. In fact, they could be up to twelve times more affordable than your own city, e.g. Hong Kong residents buying in Chicago!
Next week, we will illustrate the net income potential of U.S. real estate investment cities vs. major global cities, i.e. how much you can earn from renting after financing costs… the results will shock you!
Still not convinced?
Supporting Charts
Price Differences between Major Global Cites and U.S. Residential Real Estate Investment Destinations:
How do I invest in U.S property without traveling there?
The house-buying experience is often synonymous with physically travelling to the location and exploring every aspect of the house in person. The very idea of investing in property that you’ve never seen physically is unusual – for some people. The “old” way of investing in Real Estate is becoming synonymous with the “old” way of buying socks in a store and not online. With the right partners in place – Mortgage Broker, Realtor, Property Manager, buying a property outside of the city, state, or country where you live is not only possible, it is almost as common as buying “socks” online these days.
Let’s first dispel the notion that the best property to invest in are those that are in the same country code as you. Location absolutely matters, but not in the traditional sense. Global real estate investors in the ‘know’ will tell you the most important factors are asset location and yield – their own proximity to their investment shouldn’t be a factor. Another thing they’ll probably tell you would be that the U.S is by far the best place to invest right now.
Why the U.S?
For one, it’s extremely easy – anyone can buy and own property in the U.S, regardless of citizenship. There are no restrictions (or stamp duties/extra costs) that prevent an individual of foreign citizenship from owning or buying a home in the U.S.
For another, the International Investor Survey done by AFIRE (Association of Foreign Investors in Real Estate) found that the U.S. continues to lead the world in terms of offering the best opportunity for capital appreciation. The same survey also found that 58% of respondents felt that the U.S is the most stable for real estate investment. Moreover, mortgage rates are expected to stay low for some time, resulting in the ability to secure cheap loans and fuelling demand for property within the U.S.
Can I do it?
The answer to this question would be quite different if it was 20 years ago when the ability to build a portfolio in markets beyond where you live was something you could do only if you were extremely wealthy. However, what seemed impossible is easily achieved these days, thanks to the Internet making the world a much, much smaller place. The key to success here is trust in the right partners.
It is essential that you find people you can trust throughout the process – look for licensed realtors and property managers with local expertise in the markets you find the most appealing. Whenever possible, ask associates for referrals, do website searches, find locals in real estate directories and check references. If you do decide to opt for financing, it’s all the more important you find experts who understand the situation and have experience with these transactions.
American Mortgages has proven results-driven solutions for U.S Expats and Foreign Nationals. We understand the requirements of our international borrowers and provide tailor-made mortgage solutions to purchase, refinance or release equity regardless if you have U.S. credit or prior investment experience. Speak to us today to understand how you can obtain a mortgage for U.S property without leaving the comfort of your home. Visit us at www.americamortgages.com to find out more.
A bridge loan is a type of asset-based, short-term loan, typically taken out for a period of a few months to a couple of years pending the arrangement of longer-term financing or an exit such as the sale. It is usually called an asset-based bridge loan in the U.S, a bridging loan in the United Kingdom, or a “caveat loan,” or a swing loan.
What are the benefits of a bridge loan?
Let’s say you’re selling your house and need money to buy another house, but you’re short. In this case, a bridge loan can take care of the financing issue that emerges before your current home sells. Bridge loans fill the gap where traditional lenders cannot provide the speed of funding and flexibility of terms required by the borrower. It is used when financing is fundamental, and a favorable rate is not accessible – think of them as a form of secured debt upheld by collateral.
In addition, bridge loans fund faster than bank loans. Good opportunities don’t last long, which is why using a loan with fewer requirements that closes quickly is an excellent choice. It allows investors to grab a fleeting opportunity before someone else snatches it up.
How can you use a bridge loan?
1. Purchase transactions
In residential real estate, bridge loans are used to rapidly close on a deal before a long-term loan or mortgage with a lower financing cost is acquired. When a homebuyer wants to buy a new property before selling their previous home, a bridge loan can be used to pay off the old mortgage and purchase the new home.
2. Liquidity
Let’s imagine a scenario. Like many of our clients today, Covid has impacted your business and you need capital now. You’ve applied for a loan with your bank, but the lender tells you that it could be weeks before you get your funds or you may not qualify based on current cash flow. You don’t want to play the waiting game. Anything can happen in the time it takes for a “standard” mortgage to be approved and disbursed.
On the other hand, if you own real estate you could use a bridge loan and receive funding with a much shorter turnaround — even as quickly as a week depending on the complexity, location, LTV, and structure.
3. Flexibility
Bridge loans can give you the flexibility you need to buy your dream home in a competitive market. At America Mortgages, we provide U.S. short-term “bridging” loans for overseas borrowers and are certain to find you the right mortgage.
Often America Mortgages Bridge financing is a cheaper alternative to the standard hard money or private lending options, while just as flexible underwriting and fast with the turn around to fund.
America Mortgages provides bridge loan financing for companies, developers, and individuals on a global scale. These interim financing services have been designed to assist real estate investors with financial solutions that offer quick relief in challenging times when liquidity or cash flow is an issue. America Mortgages Bridge has normal terms of 12-36 months with interest-only payments.
4. Delayed purchase exit
Using a bridge for purchase is almost “same-as-cash” and could get your offer accepted when other offers may be tied to “traditional” financing. The big question, how do you exit out of a higher interest bridge loan? The answer is simple; Delayed Purchase.
In a delayed purchase transaction, you can take out a “traditional” mortgage on the property immediately. This allows you to have the advantage of being a “cash buyer” and gives sellers the chance to know the transaction will close while giving you the time and flexibility to obtain a long-term permanent mortgage. Depending on the loan program, this normally needs to be done within three months of closing.
Bridge loan Case Studies
Here are two case studies of America Mortgages Bridge financing solutions:
Canadian investment fund purchases hotel in Texas. Read More.
Chinese National closes US$5.6m purchase with GMG Bridge Loan. Read More.
Get in touch with us today to learn more about the structures and options of short-term bridge financing solutions www.americamortgages.com
America Mortgages Inc. is a mortgage broker focusing only on U.S. Expats and Foreign Nationals living overseas. We offer over 150 U.S. bank and lender programs direct to our international clients. America Mortgages is wholly-owned by Global Mortgage Group Pte. Ltd. an international mortgage specialist based in Singapore.
