U.S. Housing Market Masterclass

Hi, everybody, this is Robert Chadwick with America Mortgages. Thank you always for joining our regular webinars. Today we have something special — my co-founder Donald Klip is joining us. We'll be talking about the strategies that come into effect if interest rates get reduced, and we do think rates will be reduced in the U.S. as we come closer to the elections. Donald will also cover the market trends for the U.S. This is our first masterclass, and we're going to try to continue it as a series.

Thanks, Robert. It's good to be part of the action. There's been a lot in the news about how unaffordable housing is — it's going to play into the upcoming elections. But I want to lay the foundation for how we're thinking about the U.S. real estate market and why, structurally, we don't see that prices and rental yields can fall. We're expecting them to increase quite a bit, and there's a structural reason for this that I don't think can be fixed anytime soon.

Is this the best time to invest in U.S. real estate? The answer is yes, and we're going to lay down a systematic approach to explain why. In any investment there's always a reason — a hot tip, you like Apple because you like the phone, gold or Bitcoin for certain reasons. We need to apply the same rigour to real estate.

Go back to the dot-com bubble bursting in the early 2000s. Two things happened close together: China entered the WTO in 2001, joining the global marketplace, and the Fed lowered rates to 1%. That did to asset prices worldwide what we still see today. U.S. home prices rose about 55% on average between 2000 and 2007 — doubling or tripling in places like LA and Seattle — laying the foundation for the bubble.

After 2008, the government instituted bank regulation that made bank lending more restrictive. But market forces still wanted to buy property, so wholesale lending grew — a bank that doesn't take depositors and offers mortgages with a lot more common sense. So the fraud and bad actors were taken out of the system, rates stayed low, and asset-price inflation took off. In a world of currency debasement, you want scarce assets — gold, real estate, and crypto.

Why is real estate scarce when you can build? Unlike Singapore, where housing is subsidized, U.S. home builders are listed companies whose CEOs are compensated on share price. When housing collapsed, the last thing they'd do is build a thousand homes — so they played catch-up for years. From 2012 to 2022, about 6.5 million more households were formed than homes built, per the Census Bureau, leaving a current shortage of around 5.5 million homes. That's an unfortunate situation for renters, but an incredible opportunity for investors.

Of existing homes with a mortgage, 80% are fixed for 30 years under 5%, and 40% are fixed under 3%. So those owners aren't selling — if they buy a new home the rate is higher, and selling triggers capital gains or a 1031 exchange. Those existing homes are stuck; nobody's moving. And new homes are in short supply because builders aren't building. Meanwhile institutions like Blackstone and Blackrock are buying single-family homes at scale — so isn't it smart to invest alongside them?

Work-from-home was already growing 2.5–5% a year; COVID took it to 100% overnight, and those habits don't reverse. One of the most underappreciated aspects of the U.S. is how easily you can move state to state — if you can't afford California, you rent a U-Haul, drive to Texas, get a job, and the kids go to public school. People migrate to lower-cost, lower-tax states like Texas, Florida and Georgia. No surprise Dallas is the headquarters of the most Fortune 500 companies.

There's also a new movement to earn side income — the gig economy, drop-shipping, TikTok. When a couple or two roommates rent, they now say let's add 200 more square feet for lighting and a camera. That extra square-footage demand adds up. All these factors drive a massive increase in demand, especially in lower-cost-of-living states, at the same time supply is severely constricted. We know what happens when demand outstrips supply — prices go up.

Here's where it gets interesting. Look at the G7 rental yields — not exciting, around 4%. Japan is popular but yields are meager. Asian nations including Australia barely above 4%. The U.S. averages 8%, ranked 12th in the world — and above it are only smaller Latin American countries nobody buys to invest in. So 8% U.S. dollar growth, a market supply shortage and massive demand — I'll take that any day.

Look at the city-center rental yields: Detroit around 32%. People can't believe it, but it's public — just go on Zillow. Each city represents something different: Detroit is industrial, some are college towns, Miami is where people move because it's cool, Atlanta I like. In the U.S. there's something for everybody — trophy assets in Miami, Beverly Hills and Park Avenue, and affordable starter homes you can buy for rental income.

There are different strategies. The BRRRR method — buy, rehab, rent, refinance, repeat — has been popular. The numbers I'll show are an actual client of ours who used our loans: in three short years they owned 15 homes and quit their job to travel the U.S. The key is to find a somewhat mispriced home in an area with transparent pricing — if all the homes are $200,000 and this one's $125,000, that's interesting.

They bought three homes for a cumulative $390,000, put $20,000–$30,000 into each, and two years later they reappraised at $570,000. They used our loans to refinance 60% — about $341,000 — so their net outflow was roughly $50,000 while earning $4,300 a month in rent. Take off the mortgage, tax and costs and you're still around $2,500, so you make your money back in about two years and it's all upside. That's how you use debt to your advantage.

The next strategy is student housing — Blackstone is onto this. No new four-year universities are being built, but applicants have surged, in fact 15 times more since 2000, while student housing hasn't kept up. Blackstone spent $13 billion in 2022 on off-campus housing near Austin, and beds go for around $1,300 a month. The top college towns we like include Austin, Ann Arbor and Provo — find the supply-demand problem, own as much as you can, and ride the trend.

A more old-fashioned play: I like Atlanta — the busiest airport in the world, geographically easy to get around, benefiting from three things beyond low cost of living. One, the World Cup coming to the U.S. Two, it's the Hollywood of the South, with tax incentives drawing film production. And three, nine EV factories are being built across the southeast corridor — Georgia, Louisiana, Tennessee and the Carolinas — each hiring thousands of potential renters. So Atlanta combines capital appreciation with rental yield.

The most popular question is: should I buy now? If you can make the numbers work now, they only get better. Example: a $500,000 house, 75% LTV even as a foreign national, so a $375,000 loan and $125,000 down, fixed 30 years at 8% — payments of $2,500 against $4,000 rent, a decent cash flow. In two years, assume the home rises 5% a year to $550,000; you refinance at 75% and, if rates fall to 6%, your payment drops to $1,800 while rents rise. So you can wait for rates, but if it works, pull the trigger — prices aren't staying where they are.

Super insightful, Donald. When do you think U.S. interest rates will go down, especially as we near the elections, and what do you think rates will come down to?

The U.S. economy is gangbusters — a lot of that COVID rebound is accelerating. But there's an election coming. Do I think they'll cut? I do — no more than two times in the second half of this year, maybe just one; it's well-telegraphed by Jerome Powell. The underlying issue is people can't afford anything. If you're a wage earner you're forced to rent — but put on a different lens: that means landlords have the pricing power in this new world.

You're spot on. Our more sophisticated investors tend to be buying now because they realize that when rates go down, people rush back into the market — especially owner-occupiers sitting on sub-4% rates. As soon as rates drop you'll have a frenzy, similar to COVID, so investors who buy now get almost instant equity when the market churns. With that, I'll start my slides on the loan options for foreign nationals and expats.

Our only focus is U.S. mortgages for foreign nationals and expats — 100% of our clients fit this criteria. In all our loan programs, no U.S. credit is required (we prefer home-country credit, and places like the UAE now have a reporting agency). No AUM is required — we don't need you to fund a U.S. bank account for the loan term, unlike one major international-mortgage bank. Foreign income is allowed, and we lend in all 50 states.

A foreign national can get up to 75% on a purchase and up to 70% on a cash-out refinance. A U.S. expat gets treated as if walking into a U.S. bank — no W-2 required, same market rates. Once you submit documents we issue an approval in 72 hours, so you have a pre-approval letter ready for that perfect property. The average U.S. closing time is 30 to 45 days, and you don't have to travel — there are at least four ways to sign in the country you live in.

We offer 30-year amortization regardless of age — the U.S. is probably the only place where you can't discriminate on age, so whether you're 19 or 99 you can get a 30-year, or even a 40-year, mortgage. Our ten-year interest-only lets you fix the rate for ten years paying only interest, then it converts to a 30-year principal-and-interest loan — a 40-year total tenure with surety of payment. And we're proud that 97% of our loans get approved; if not, it's normally the property, not the borrower.

Here are our loan programs. Our most popular is pure common-sense underwriting — no personal income required; you qualify on the rental income, determined by an appraisal that also supplements the rent with comparisons, normally one-for-one. Loan amounts as low as $150,000 at up to 75% LTV, so you're only looking at a $200,000 purchase — almost anybody can be a U.S. real estate investor. If gross expected rent is $2,400 and the total payment is $2,400, the loan qualifies; we even have a program that dips below that for a rate premium.

Our Investor Plus mortgage uses income with slightly better pricing, but no tax returns — doing loans worldwide, going through many countries' tax returns would be a nightmare. Instead we use an income letter from your employer or accountant stating two years plus year-to-date, on an easy template. No U.S. credit or residency, from $150,000, 30-year fixed, 75% financing, 30–45 day closing, at a debt-to-income ratio of 43% or less — so on $10,000 income, a payment of $4,300 or below qualifies.

Our U.S. expat mortgage is very popular — we see a lot of fallouts from big U.S. banks that discover halfway through that you earn in euros and can't accept it. Foreign-earned income is allowed; we need two years of tax returns just as you'd file in the U.S., no W-2 required, minimum credit score of 680, loan amounts from $150,000 up to $5 million, at a debt-to-income ratio below 43%.

For high-net-worth clients with complicated tax returns, we don't want your income — we qualify you on a two-month average of your liquid portfolio (cash, bonds, stocks, crypto). No AUM or pledge required; the day after closing you can trade or sell it. Loans from $3 million to $100 million, LTV around 60%. And our AM Student+ program: if your child studies in the U.S., we qualify on the property's projected rental income even though your child lives there, and you can add them to the loan to build U.S. credit.

Should I wait until interest rates get lower, or buy now? You should not wait, because rates may or may not fall — we think they will — but we can almost be assured prices are going up. Even though rates quadrupled in the last two years, property prices still rose across the board. Imagine what happens when rates do go down.

You marry the property and you date the rate. Our investors with big portfolios are jumping in now, because they know as soon as rates drop there will be a frenzy. You can always refinance the property, but you're not always going to get the best purchase price.

Which areas are great for buying now? Look in the mirror and do your homework — what are you buying it for? If it's a place to visit your child at university using our AM Student+ mortgage, that's a different rationale than buying purely for appreciation. Detroit has 30-some-percent rental yields; I personally like Atlanta, and the southern states like Texas and Georgia interest me because they're cheaper. But do your homework.

I agree — look at global markets like Canada, where prices have skyrocketed to a point where you can barely be a real estate investor without a big checkbook. On the risk of waiting: during COVID, when rates were cheap, people bid 10–20% over asking from fear of missing out. When rates drop we'll see that again, so the biggest risk is paying more for the property. Your net cash expense is more sensitive to the property price than the interest rate.

Are there age restrictions for retirees? No — besides very long fixed tenures, the U.S. has no age restrictions, so you can go as high as you want. What are the four ways of closing as an expat in Hong Kong? It depends on the state and title company, but on average: the U.S. embassy (easiest, though appointments are hard); a remote online notary (RON) where allowed; a power of attorney where allowed; and simplest of all, flying to the U.S. to sign — which can even carry a small tax deduction if it's for an investment property.

Does being an expat without a W-2 affect rates and terms? No — we don't require a W-2; we make it look like you're living and working in the U.S. What's the maximum LTV for foreign investors, and is it income-dependent? The maximum is 75% and it is not income-dependent if you qualify on the property's rental income, which is our most common program. If you're buying for a daughter at school, most student loans qualify on the property's potential rental income.

Does the rental-coverage-plus program require tax returns? It does not — it qualifies only on the property's rental income, which is the proper way to qualify an investment property. Do you provide loans to renovate and flip? Yes and no — it's very difficult for a foreigner to qualify unless they have extensive experience, roughly five prior projects, to get a fix-and-flip loan.

Can you connect foreign investors with local realtors and a support network? New investors need more handholding, and this is where we come in — we have the pieces of the puzzle: accountants who set up LLCs and give tax advice, a trusted realtor network in the major cities, and a trusted property manager operating in most states, quite reasonably priced. We have those relationships and are happy to share them so you can build your on-the-ground team.

We act as a financing partner for your journey into U.S. real estate investing — but use us for information, as a sounding board, for tips. Aside from the financing, we're trying to educate people outside the U.S. on how amazing this opportunity is. Let's take advantage of it.