Foreign Investors Keep U.s. Real Estate Moving

While many of the latest conversations around the U.S. real estate market have focused on affordability and interest rates, one segment continues to move forward: foreign investors.

While domestic buyers remain more cautious, investors from abroad are driving much of the transaction volume in many U.S. markets. One reason is that foreign buyers view risk, financing and timing differently. Perhaps the most important difference between the two is the role of interest rates.

Foreign investors may be less affected by U.S. mortgage rates

International investors are often less affected by interest rate fluctuations than domestic investors. One reason is that some of those investors purchase properties with cash, and those who do take out loans typically view U.S. mortgage rates as more attractive than those in their home country. For example, several key Latin American markets still see significantly higher mortgage rates, with Mexico and Brazil in the 10-11% range, and Colombia in the 12–13% range.

Mortgages in Argentina, too, are elevated relative to the U.S. Even in countries where rates might be lower than in the U.S., such as Canada and Israel, investing there could be less attractive due to higher down payment requirements, lower rental yields, or fewer deductible expenses.

Additionally, financing options might look very different in other countries.

First, many international investors are used to adjustable-rate mortgages, but with a fixed-rate mortgage in the U.S., they might prefer to lock in a consistent payment so they can more easily predict cash flow. In addition, unique loan products like DSCR and other non-QM loans enable scalability for investors, including foreign nationals. Would-be purchasers may qualify for these types of loans based on a property’s ability to generate cash flow, not based on the borrower’s personal finances or U.S.-based income.

On top of that, there is no formal limit on the number of DSCR loans someone can secure, enabling investors to scale and build their portfolios.

Currency, seasonality, and time horizons

Changes in currency also impact how global investors see the U.S. market.

When the U.S. dollar weakens, foreign currencies can go further when used in the U.S. real estate market. A prime example is the British Pound, where we’ve seen Brits climb among the top five foreign buyers in the U.S., per the latest report from the National Association of Realtors, after not being on the list in years prior.

With better exchange rates, U.S. properties become more accessible and favorable for international investors, reinforcing cross-border demand.

Seasonality is another key element for U.S. homebuyers. They tend to buy around school calendars and are therefore concentrated in the spring or early fall. Real estate investors, on the other hand, buy year-round and some even look for off-season opportunities when there’s less competition.

Finally, foreign investors think in longer time horizons than domestic homebuyers. They view U.S. real estate as one of the world’s greatest wealth preservers and growth vehicles. Over a sufficiently long time horizon, U.S. real estate has trended upward.

Bringing it all together

Combine appreciation with monthly cash flow from investment properties, and you have a winning combination for a long-term investment strategy. In a slower market, that perspective is helping keep U.S. real estate moving.

Yuval Golan is the founder and CEO of Waltz, a fintech-proptech-wealthtech startup.

This column does not necessarily reflect the opinion of HousingWire’s editorial department and its owners. To contact the editor responsible for this piece: tracey@hwmedia.com