The Client

Our client, Digby R, is a senior investment banker living in London. He is planning to make a switch from banking to be a CFO of technology and wanted to buy a place in Los Angeles to rent it out in advance.

How We Helped

Unable to find any bank that could help him given his ‘overseas’ income and the late nights trying to research almost made him give up. Then he reached out to America Mortgages on a referral by a former customer.

We managed to get him an incredible rate for a Foreign National at an incredible 3.35% for a shorter-term fixed period, which was perfect for his timing. Digby is now an owner of an incredible property in Pasadena and he is ever so grateful!

Loan Details

Nationality	Property Value	Loan Amount	LTV	Rate	Term
U.K. Citizen	$2,600,000	$1,600,000	60%	2.85%	3-year fixed, 30-year amortised

City, State	Property Type	Purpose	Loan Type	Home use
Pasadena, California	Single-Family Home	Purchase	Residential	Investment

In short, a CAP rate on a commercial property is simply a way for investors, lenders, and other real estate professionals to quickly see the strength of the subject property and the likely one year unleveraged (meaning the property is purchased with cash) return that the property may generate. Like any other investment, investors need a way to compare one property with another and have a way to measure which is the stronger (less risky) investment – or vice versa, if they are willing to take on more risk, for more potential return; the CAP rate is that measurement.

The lower the CAP rate, the stronger (and more expensive) the property is. In a major market, think San Francisco or LA, you can expect to see CAP rates in the 4%-5% range. CAP rates can be in the higher single digits in a tertiary market and increase into double digits. In the most basic terms, an investor looking at a building with a 4% CAP should expect that building to yield approximately 4% in one year. An 8% CAP will be a property with a higher risk profile, hence the higher potential return required by sponsors (8%).

The CAP rate is usually always published on real estate presentations or websites, though it can be easily calculated. Take the Net Operating Income (NOI) of the property and divide it by the current market value as per current market prevailing rates.

CAP rates should be used as a quick basis for measurement to compare properties but not fully base a decision on. The reason for this is that CAP rates fluctuate based on the calculated NOI of the property, which can change based on the year, location, expenses for the building, etc. The CAP rate can also be adjusted based on who the intended reader of the information is. In summary, the CAP rate should be used as a quick measurement of a properties’ strength. If the estimated returns fit your investment profile, you should dig deeper into the property’s details.

Tags CAP, CAP rate, Capitalization Rate, Commercial property, commercial real estate, commercial real estate for foreign nationals, commercial real estate for us expats, properties’ strength, Real estate, San Francisco

The Client

Our expat client traveled to Sydney after university and met his current wife and has been there ever since. He’s now a founder of a successful technology company in Australia.

How We Helped

Our client’s peculiar situation is that his net worth is high but does not earn that much in salary, as with most founders.

He came to our site, and it immediately resonated with him since our clients ARE ONLY U.S. Citizens and Foreign Nationals living overseas. Our U.S. Expat specialists knew the exact lender and program to match our client’s requirements.

Loan Details

Nationality	Property Value	Loan Amount	LTV	Rate
U.S. Citizen	$2,350,000	$800,000	34%	2.75%

Term	State	Property Type	Purpose	Loan Type
30 year fixed	Portland, Oregon	Single-Family Home	Refinance	Residential

Is there a bubble?

Through the first half of 2018, existing-home sales are down slightly by 2.2%, while new home sales are ticking up 7.4%. Home prices continue to increase by 5%. Distressed property sales have fallen to historic lows, making up only 3% of total sales in recent months. The one area of concern is increasing housing unaffordability, which has still been inching higher. After reaching a cyclical low of a 63% ownership rate in late 2015, the rate increased to 64.4% in the second quarter of 2018 as three million additional households became homeowners this time, bringing the total to 77.9 million. The total number of renter households has remained roughly the same at 43 million for the past three years.

Comparing the current U.S. housing market with its performance in 2007-2008, where sub-prime mortgages dominated, today’s market is more disciplined, driven by common sense underwriting of mortgages, strong U.S. economic indicators, and jobs growth.

Yet even with the increase in mortgage rates and higher home prices, the homeownership rate has still been inching higher. After reaching a cyclical low of a 63% ownership rate in late 2015, the rate increased to 64.4% in the second quarter of 2018 as three million additional households became homeowners this time, bringing the total to 77.9 million. The total number of renter households has remained roughly the same at 43 million for the past three years.

Is the US housing market headed for another bubble?

The short answer – No. Although no one can predict the future, the U.S. housing market is far from becoming a bubble. The U.S. housing market is on solid ground, well supported by consistent growth, strong demand, and a business-friendly regulatory environment. The robust U.S. economy and relatively low-interest rates (5% range is still low) create strong drivers for homeownership.

Developers in many regions of the U.S. unable to keep up with demand. In stark contrast to the 2008 bubble, we saw an overheated market with an over-supply of new homes combined with widespread subprime mortgage financing. In this sector or the U.S. housing market, today’s growth has been entirely different with clear developer caution and discipline to not get ahead of themselves with a speculative inventory.

What will drive tomorrow’s housing market?

The fundamental drivers of the appetite for homeownership and investment are job creation, population growth, housing permit issuances, and housing affordability. These four highly-correlated factors create a win-win scenario for development alone.

The lack of supply and the accompanying home prices quickly rising are the sources of market headaches. However, the supply shortage is a much better problem to have, compared to a demand shortage. The current problem also is an indicator of no meaningful price decline nor an impending foreclosure crisis. Rather, there is a good possibility for solid home sales growth once the supply issue is addressed.

Hot VS. super hot

The two hottest housing markets, for example, Denver and Seattle. These markets are said to be slowing down, from being super-hot to now just hot without the extra adjective. The months’ supply is less than 2 months in Denver and Seattle, and sales are falling. It is not because the buyers are going away, but because there is not enough inventory, and people are consequently being increasingly priced out.

Home prices in both markets have grown at around 10% for each of the past five years. That is an exceptionally fast price gain. The national job growth rate is 1.6%, and the labor market is very solid in both cities, with a 2.8% job growth rate in Denver and 3.0% in Seattle. The problem is, not enough homes were built or listed for sale to meet the demand. However, if more homes are built and people choose to put their properties on the market to take advantage of this growth, more inventory is introduced, then home prices will not go out of bounds.

These two cities and the U.S. housing market, in general, are benefiting from the country’s exceptional economic performance, due in part to 2018 tax reforms. Many U.S. corporations support the current federal government’s pro-business, predictable regulatory environment, and job-creation mandate. All are propping up the U.S. housing market for the foreseeable future.

Bubble?

The word “bubble” is on many home buyers and investors’ minds, and it is worth laying out why today’s conditions are fundamentally different compared to a decade ago. Back then, lending standards were so loose that they were almost non-existent. By contrast, today’s lending standards are still stringent, or asset-based as evidenced by a mortgage default, and foreclosure rates are at historic lows. On the supply side, there was overbuilding with 2.1 million housing starts during the bubble years. Today, we are just scratching 1.3 million.

The U.S. housing market is benefiting from the country’s exceptional economic performance, due in part to President Donald Trump’s 2018 tax reforms. Many U.S. corporations are supportive of the current federal government’s pro-business, predictable regulatory environment, and job-creation mandate.

Although no one can know the future, the U.S. housing market is far from becoming a bubble. It is easily characterized as the opposite – sustainable, measurable growth based on sound fundamentals. The good news is – all data suggests that the probability of a nationwide home price collapse is not foreseeable future.

Investing and obtaining a mortgage as a NON-U.S. citizen

Now that we explained why we don’t believe there is an impending bubble, now may be the perfect time to invest, and obtaining a U.S. mortgage loan is easier than you may think.
Purchasing a house in the U.S. as a foreign citizen is simple if you plan to pay in cash (or having all the money saved to buy the home in one lump sum). If you’re not in the financial position to purchase a home with cash or find leverage is a better option for you, you’ll need to obtain a mortgage loan to purchase the property. This is where the process becomes tricky. Fortunately, America Mortgages’ primary focus is on the U.S. market, and its only focus is these types of mortgages.

Most U.S.-based mortgage lenders look at a borrower’s U.S. credit history to determine their eligibility for a mortgage loan. As a non-U.S. citizen, you don’t have a U.S. credit report, making it difficult for lenders to analyze the risk of loaning you money to purchase a home. That means your lender will elevate your risk factor as a borrower. This doesn’t have to be the case. Nor do you have to stay up late at night in Asia, calling lenders, brokers, and banks to find someone who will understand your situation.
It may take you longer to find a lender who is willing to work with you, and it may take longer to get approval for your mortgage loan. You might also pay a higher interest rate. We understand the complexity of analyzing risk, calculating foreign income, and alternative sources of acceptable credit verification. We do it all day, every day. It’s not difficult if you know the terrain, and in most cases, we can find a U.S. mortgage loan for every client.

Credit: data points and statistics provided by Forbes, NAR, U.S. housing stats, Aug-Oct 2018.

For more information on mortgage loans in the U.S., please submit your details on our contact page or email America Mortgages at [email protected].

Tags Bubble In The U.S. Housing Market, Distressed property sales, hottest housing markets, obtaining a mortgage as a NON-U.S. citizen, Purchasing a house in the U.S. as a foreign citizen, U.S. credit history, U.S. housing market, underwriting of mortgages, US housing affordability

The Client

A married Chinese couple with a five-year goal of having their children study in NYC purchase a luxury condo. They were non-U.S. citizens with no U.S. credit looking for 65% LTV.

How We Helped

The pair were looking for a safe, investment grade condo near NYU for their twin boys to study at the same university as their family in 5 years. There was a luxury two-bedroom Washington Square condo within walking distance to NYU that they wanted to buy.

The property was being sold as “fire-sale,” and clients needed to act quickly as there were multiple back-up offers.

As time was of the essence, the clients did not have time to organize their financials. America Mortgage suggested a quick close with a Bridge and then, within six months, refinance into a long-term, fixed mortgage at a significantly lower rate.

Loan Details

Nationality	Property Value	Loan Amount	LTV	Rate
China. Citizen	$8,600,000	$5,600,000	65%	7.99% interest only

Term	Address	Property Type	Purpose	Loan Type
24 months	New York City, New York	Condo	Purchase	Bridge Loan

A 1031 exchange is simply an exchange of one investment property for another, where the capital gains taxes on the property sold are deferred. The strategy is named after the section in the IRS tax code, section 1031. A 1031 Exchange is a very popular and commonly used strategy in buying and selling investment properties. Investors can defer the capital gains taxes to a future period where it may be more advantageous to pay them.

An investor considering using a 1031 Exchange should engage a 1031 Exchange agent and their CPA early in the process. There are very specific timelines and requirements that need to be met for the exchange to be successful. A miss on a timeline or property detail could void the exchange or result in a sponsor’s tax event.

This article will touch briefly on two of the main requirements for a successful 1031 exchange: timeline and debt replacement.

There are two main periods in a 1031 Exchange. The first is the 45 day period where you must identify three potential properties to exchange for and notify your exchange intermediary of those properties. The intermediary will receive the cash from your property’s sale and hold onto that cash throughout the exchange process. If the cash from the sale goes to the sponsor, the exchange is void.

The second timeline is within 180 days after the sale of your property, and you must close on purchasing one of the properties you had previously identified to your intermediary. It’s important to note that both time periods run concurrently. If the sponsor takes the full 45 days to identify replacement properties, they will have fewer days to close on the property they ultimately choose.

Debt replacement is often an area where investors find themselves in a taxable event. If there is any mortgage debt on the property being sold, that debt needs to be “replaced” on the new property. If the debt is lower on the new property, the difference will be counted as cash to you and could be taxable. For example: if you sell a property with a $1M mortgage balance on it and only have a loan of $700k on your new property, the difference of $300k is considered cash to you and could be taxable.

This article intended to quickly highlight a few key parts of a 1031 Exchange. Any investors looking at utilizing this strategy should engage a qualified exchange agent and their CPA for further advice on the process.

The Client

Our client is a Canadian attorney and real estate investor looking to shift his real estate portfolio for multi-family U.S. property in California for retirement income. The property is a three multi-unit home in Venice Beach (2) and Long Beach (1), California, with net yields of 16%.

How We Helped

To secure the yield needed, the client required a mortgage below 5%.

Although the client earned excellent income and was an experienced real estate investor, the lack of U.S. credit created issues each time he approached a California bank or broker for financing.

As AMFNLite Program allows the borrower to use a “local” credit report, it solved the issue of not having U.S. credit. The rate required was merely an adjustment in LTV, giving the borrower a fixed rate on each property below 5%. (Also see Can a Canadian Buy a House in the USA?)

Loan Details

Nationality	Property Value	Loan Amount	LTV	Rate
Canada Citizen	$4,200,000	$2,500,000	60%	4.35%

Term	Address	Property Type	Purpose	Loan Type
3/1 ARM	Venice Beach, California	Single-Family Home	Purchase	Residential

Tags Canadian

The Client

Our client was referred to us by a friend of America Mortgages. He’s been living in London for five years and has slowly accumulated a rental portfolio in the U.S. His thesis is that college towns offer the best rental yield opportunities. Our client did his MBA at the University of Chicago, so he was very familiar with the landscape.

How We Helped

Finding mortgage options as a U.S. citizen living overseas can be challenging, especially if you have been away from home for an extended period. The good thing about our client is that he still maintained an almost-perfect credit score of 810 and was a very high (and stable) earner – exactly what a bank wants to lend to!

Loan Details

Nationality	Property Value	Loan Amount	LTV	Rate
U.S. Citizen	$1,050,000	$735,000	70%	3.35%

Term	Address	Property Type	Purpose	Loan Type
30 year fixed	Chicago, Illinois	Condo	Refinance	Residential

After a 4-month process with a major U.S. bank, our Expat client gets denied due to lack of U.S. income. BUT, America Mortgages saved the loan with an even lower rate and closed in 30 days!

Our client is a senior partner at an U.S. law firm based in Hong Kong for the past 2 years. He was living previously in New York but grew up in Florida. In August last year, he decided to take advantage of the low interest rates and buy a second home in Ft. Lauderdale.

Our client has almost perfect U.S. credit and a high-income earner. He naturally goes to his bank in New York (let’s not guess here) and after 4-months of late night calls, not having emails replied back, speaking to call centers and having to explain that there are no zip codes in Hong Kong – his loan was rejected after finding out his income was actually earned in Hong Kong. Unreal, right?

We hear this story literally every day!

He did a search online and gave us a shot. Needless to say, being able to speak to a mortgage specialist in his own time zone was already a big deal.

We got him into a 30-year fixed mortgage at 2.75% at 80% Loan-to-value! He said the rate was even lower than he was quoted at his bank.

Since he had all the paperwork completed already we were able to fund the loan in under 30 days!

He’s now referred us to 5 of his Expat friends in Hong Kong.

America Mortgages, Inc. is a U.S. 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 clients around the world.

America Mortgages is wholly owned by Global Mortgage Group Pte. Ltd. an International Mortgage Specialist based in Singapore with offices and partnerships around the world.

Speak to our U.S. mortgage specialist to learn more. [email protected].