There are different ways to invest in this sector., depending on the needs of each individual. However, buy properties–whether houses, apartments, or condo-hotel units, for example–, to later rent them, has several benefits. Which is it?
Buying a property in the United States and then renting it generates an immediate and short-term return, which can be monthly or quarterly, for example. The most notable advantage, in addition to obtaining income, is that it will be in dollars–a very strong, stable currency and the best store of value in the world–, which is especially attractive for Latin American investors.
Depending on the type of property in which it is invested, different expenses will have to be considered in order to understand what net profitability will be obtained, such as public services, repairs, insurance, and taxes, among others. Even, the alternative of hiring a Property Manager to be in charge of maintaining the property is always in force. This can result in a net rate of return of the order of 7 to 11%– or even more–, depending on the Real Estate product chosen.
For the foreign investor, one of the preferred options is to buy a property -an apartment or condo-hotel-, where a Management agreement (administration) is usually offered from the moment of the sale, where the management company is in charge of all maintenance costs, taxes, insurance, repairs, and even to promote and rent the property. In traditional units such as apartments or offices, the cost of the administrators is generally double what those same administrators charge for a condo-hotel.
In addition to the profit that can come from renting a property, the investor usually benefits, in the medium and long term (3/5 years), from the appreciation of this property, given that, for reasons of demand, the trend of the properties in those periods, is to increase in value, which has historically happened in the United States.
Between April 2021 and April 2022, property values rose 18.8% in the United States, according to the Federal Housing Finance Agency. This represents an increase compared to the historical average of 4.3% since 1991, 4.7% since 2000, and 7.7% since 2021. It can be observed, through these numbers, the gradual but significant increase that is generated in the prices of the properties.
This can vary from state to state, and even by region. For example, property values in Florida increased by almost 30% in the first quarter of 2022, compared to the previous year. The state with the lowest valuation was North Dakota with 10%.
Between 1940 and 2000, the median home value quadrupled even after adjusting for inflation. In each decade of this period, property values increased, rising 43% in the 1970s and falling 8% in the 1980s. The only time the values went down was in 2007 and 2010, due to the Great Recession. An exceptional event and, measured in historical terms, very short-term.
Another outgoing benefit of buying properties to rent them is that which results from the loans. An investor can buy a property with a 25/30 year credit with a down payment of 40-50% and for the rest of the balance obtain a mortgage. When this property is put up for rent, someone else (a tenant or guest) goes to work to pay off that loan for the investor. That is, whoever rents the property will be paying the owner’s debt.
In this way, the investor can pay for their properties with the income obtained from their rental. Simultaneously, debt is reduced, income improves, and property is valued.
4. The First Economy of the World
Another advantage of buying properties in the USA to rent them is the certainty of operating in a profitable market, where occupancy levels are normally high and sustained. For example, apartment occupancy levels in the United States in the first quarter of 2022 were 97.6%, according to RealPage. This number is accompanied by increases in the value of rents.
Additionally, the United States is a country with strong legal security and economic stability, and this brings several advantages. In addition to being the largest economy on the planet.
The real estate market, supported by a solid economy, is a great option to combat inflation, which in the United States was 3.8% on average between 1960 and 2021. In 2022, there was a rise above this average, and it reached to be 6.5%, a high number for the country, but still insignificant compared to the rates of some Latin American countries. The country’s goal is to return to annual inflation of 2/2.5% by the end of 2024.
In Real Estate, the investor protects himself, because as prices increase, the value of his assets also increases. It is further protected if the investor leverages, boosting his profitability by buying one or more properties with credit at low and even fixed interest rates.
In turn, if the investor buys the property to later rent it, in a market where rental values also rise even more than inflation. As an example, in 2022 the average rent in the United States increased by 14%, although in some cities or states this value may be even higher (in Miami, rent increased by 24.61% between July 2021 and July 2022, according to the Washington Post , and increased by 45.8% in May). In this way, you are protected, and you are always one step ahead of inflation.
In addition to all the benefits already mentioned, buying properties in the USA to rent them also gives the owner freedom. On the one hand, the freedom of having a property title in your name, which will allow you to sell it whenever you want, in a market with global access (in which countries like China, Arab and Asian countries decide to invest in Real Estate, not only Latin Americans) and be the one who enjoys its appreciation. On the other hand, the freedom of being able to use the property for vacations, which is especially feasible when that asset is used for short-term rentals.
Finally, it is a great option to intelligently and adequately diversify the natural risk of an investment portfolio, with the concrete possibility of being able to access tax benefits, which for professional reasons we always suggest knowing from the expert hand of an American accountant. .
Buying properties in the United States and allocating them to their income can generate great profits for the investor over time, who will also be able to enjoy all these benefits with the certainty that their money is working for them, in a currency that acts as the largest store of value in the world, in a safe and strong country with the largest economy on the planet.
Specialist in real estate developments based in Miami, and with operations in different States of the United States
David William is a talented author who has made a name for himself in the world of writing. He is a professional author who writes on a wide range of topics, from general interest to opinion news. David is currently working as a writer at 24 hours worlds where he brings his unique perspective and in-depth research to his articles, making them both informative and engaging.