Making a case for U.S. Residential Property Investment – “Cheap as Chips”

America Mortgages - U.S. Residential Property Investment

America Mortgages introduces….

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.
  • Week 2 – “It’s not Apples to Apples.”
  • We look at the relative income potential of U.S. real estate investment cities vs. major global cities.
  • Week 3 – “Let’s Look Under the Hood”
  • 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.
  • Week 4 – “Its Bark is Worse Than Its Bite”
  • We dispel the misconception that owning U.S. property is burdened with taxes and complications when it’s probably the easiest and most flexible in the world.
  • Week 5 – “Bringing Everyone to the Table”
  • In the final report, we expand on the above topics and combine them into a comprehensive mosaic to be published and distributed. 

“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:

TorontoVancouverLondonSydneyMelbourne
ShanghaiBeijingHong KongSingapore

2. Top U.S. residential real estate investment destinations:

New York NYMiami FLOrlando FLFt Lauderdale FLFt Worth TX
San Antonio TXAustin TXDallas TXHouston TXSeattle WA
Chicago ILLos Angeles CASan Fran CASan Jose CAAtlanta GA
Portland ORLas 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.

There are other cities in the world that you can consider aside from your home country, but we argue the best cities for real estate investments are in the U.S.

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:

Supporting Charts - Price Differences between
Toronto Residents Chart
Vancouver Residents Chart
London Residents Chart
Sydney Residents Chart
Melbourne Residents Chart
Shanghai Residents Chart
Beijing Residents Chart
Hong Kong Residents Chart
Singapore Residents Chart

Stay tuned for next week!

Is There An Age Limit For Getting A U.S. Mortgage?

Age Limit - U.S. Mortgage

Becoming a real estate investor is often seen as one of the universal signs of personal financial achievement, no matter what your age. While, technically, in the U.S., there is no age limit for getting a mortgage, there are some age-related home buying guidelines you should keep in mind.

HOW OLD IS TOO OLD TO GET A MORTGAGE?

Because a mortgage is a legally binding contract that allows you to finance the cost of a home over a long time, some people might wonder if there are age limits involved. For example, if you’re 75, could a lender refuse to let you take out a 30-year mortgage? After all, the average life expectancy in the United States is 78.6, according to the Centers for Disease Control and Prevention.

The good news for seniors looking to buy a house is that it is against the law for a mortgage lender to discriminate against you based on age. The Equal Credit Opportunity Act (ECOA), which came out of the Civil Rights Act of 1964, says lenders cannot deny you credit based on age, as well as other criteria like race, color, religion, national origin, sex, or marital status. The Fair Housing Act of 1968 adds even further protections, specifically stating that it’s against the law to discriminate in any residential real estate transaction.

However, there are some instances in which a lender could consider a lendee’s age indirectly. According to the Consumer Financial Protection Bureau, a lender may look at whether you are close to retirement age and make a decision based on your having enough income to handle the loan. But again, in this instance, the disqualifying factor is not your age but rather your ability to manage loan payments.

HOW YOUNG IS TOO YOUNG TO GET A MORTGAGE?

Can age be a discouraging factor when it comes to getting a mortgage if you’re closer to high school graduation age than retirement? Lenders can’t deny a mortgage application solely because of age, but states have laws that determine the age at which a contract can be negotiated. For example, in Virginia, you must be 18 to enter into a legally binding contract, including a mortgage.

Your age may also affect your ability to meet other requirements for being approved for a mortgage loan.

Lenders evaluate your income to see that you have enough to make the mortgage payments. If you’re under 18 or even in your early 20s, it’s unlikely that you’ll have a job in which you make enough to take on a mortgage. Lenders also typically require you to have a specific credit history, meaning they may not have enough credit history to meet the lender’s requirements. Young people who haven’t had time to build a credit history by using credit cards or taking out loans are likely to fall in this category.

Finally, homebuyers typically need to make a down payment. For example, the minimum down payment for a non-citizen is 30%. U.S. citizens living abroad and purchasing a second home or investment property may be able to put down as little as 10% if they still maintain a U.S. credit score.

THE RISKS OF TAKING OUT A MORTGAGE AT AN OLDER AGE

Just because you can legally take out a U.S. mortgage at any age doesn’t mean it’s always the wisest move. A mortgage is a long-term commitment, and you want to make sure you’re ready for it. If you’re a senior and thinking about taking out a mortgage, consider the following risks.

Mortgage debt can hamper your day-to-day finances. When people retire, they typically live on a fixed income. There are no more promotions to look forward to or year-end bonuses to give your finances a boost. Some seniors may find it challenging to make those mortgage payments month after month, along with their other expenses on a fixed income. If a financial crisis hits, they could experience a financial disaster. The Consumer Financial Protection Bureau points out that this did happen during the Great Recession of 2007-09. Many older homeowners struggled to pay their mortgages and eventually foreclosed on their homes.

Unexpected repairs can throw your budget for a loop. Your mortgage payment isn’t the only thing you’d have to worry about. Most homeowners at some point experience the sticker shock that comes with appliance replacements and major repairs. If you’re living on a fixed income, replacing a roof or buying a new furnace may be too much to handle on top of homeownership’s regular costs. Also, keep in mind that if you’re handy around the house and have been able to do your repairs, you might not be able to do as much physical work as you age. In that case, you’d likely have to pay someone to do the jobs you used to be able to do.

You’ll likely have less time to build equity. One reason people buy real estate is so they will have something to pass down to their heirs. If you buy a house at an older age, there’s a higher chance you won’t live in the house long enough to build a lot of equity. In that case, if you die and your house is left to heirs who want to sell it, there may not be much of an inheritance for them to split.

THE BOTTOM LINE

Age plays a role in many of our biggest decisions. Whether we’re thinking about marriage, starting a business, or retirement, we often consider whether the timing is right to pursue these goals. While age can’t legally deter you from buying a house, you should always weigh the pros and cons of real estate investing.

America Mortgages has programs that do not require income proof, which may help obtain a mortgage at an older age where income may be sporadic.

For more information, please contact [email protected].