FOREIGN REAL ESTATE INVESTORS
Foreign Investors have been borrowing money to buy real estate from the start of this country’s history. From 1776 to now, the United States has valued the entrepreneur spirit and drive above all else. Here at Socotra Capital, we understand foreign interest in the U.S. intimately: both principals of Socotra are the sons and grandsons of immigrants. The same is true of much of our staff as well. We have heard the stories of how their families came over, and how difficult it was to secure financing for real estate for investment or starting a business.
Foreign investment in U.S. businesses and real estate shouldn’t be hard.
Here at Socotra Capital, we don’t lend on businesses. We lend on real estate, and on the stories and intentions of those seeking to secure a piece of the American dream. So long as it is for a business purpose, if it’s a deal and it makes sound financial sense, we’ll help you make the deal happen. That is our goal, our mission.
Are you looking to purchase a single family residence to hold as a rental or an apartment complex? Maybe you would like to purchase a property to start a new family restaurant. Or you have a business plan and want to cash out your free and clear residence for that business purpose.
No matter your goal, we welcome our foreign investors as family. That is what we do at Socotra Capital. We help everyone secure their share of the American dream.
Foreign investment isn’t just going into commercial real estate, or even luxury homes.
The idea of foreign real estate investment likely brings to mind wealthy financiers buying up luxury penthouses, and while there may be some truth to that, investor interest is increasingly focused on middle-class single family homes.
Between April 2015 and March 2016, foreign investors purchased 214,885 homes in the U.S., with a total value of $102.6 billion. That averages out to $477,465 per property. While this sounds pricey for many regions of the United States, 42% of the homes were purchased in Florida and California, both of which are renowned for their extremely high home prices.
Last year, the Washington Post reported that Chinese buyers have been increasingly targeting middle class markets. In the article, a property broker in New York estimated that the number of Chinese buyers picking off properties in Brooklyn and Queens has doubled in the last five years.
As the U.S. market becomes increasingly impacted and once popular alternatives such as Hong Kong and Ontario pass taxes targeting foreign homebuyers, Chinese interest in all levels of real estate will likely only increase.
Why is China in particular investing so heavily in foreign real estate?
As with investors anywhere, Chinese investors are driven to diversify their portfolios. Simply investing solely in their own country’s markets could prove disastrous, especially given the slowly eroding value of the Chinese renminbi versus the dollar.
Chinese nationals looking for overseas opportunities have found limited options. Volatility in Europe in the wake of Brexit and increased nationalism has made European investment a somewhat riskier proposition than it once was. Meanwhile, the United States is expected to experience further growth in its economy, and interest rates are incredibly low.
Despite the occasional political push against foreign investments, there’s a very practical motive for Chinese investors to purchase American homes—these homes provide a potential exit strategy for loved ones and friends in a country known for its unpredictable political and economic policies.
Regardless of the motivation for individual investors, and in spite of the government’s recent efforts to prevent money from leaving China, it’s likely that China will continue to be a heavy hitter in the U.S. real estate market for years to come. In fact, a study conducted by the Rosen Consulting Group and the Asia Society estimates that Chinese investment in U.S. real estate could top $50 billion by 2025.
But, it’s getting harder to move cash from China to the United States.
As noted earlier, China is trying to crack down on citizens sending money overseas. As a consequence, many Chinese buyers are now struggling to successfully transfer the capital needed to buy American homes. While many have already safely harbored large amounts of funds in overseas accounts, many are faced with an uphill battle to get money into the United States.
Such investors are often able to assemble cash from other sources, but it can be difficult to come up with all of the funds needed. However, banks won’t touch foreign-based home purchases. This is where lenders like Socotra Capital can help. We have loan documents specially tailored for the purpose of providing large-scale homebuyers with the equity-based loans they need to purchase attractive properties in California’s bustling real estate market.
We would like to advise that lending funds versus direct ownership of American real estate has its advantages, as managing a passive investment is much simpler and requires less effort. Additionally, market volatility creates uncertainty, which is why we prefer lending on real estate with healthy equity protection, versus direct ownership of the actual asset.
If you are a foreign investor in China or elsewhere looking to take advantage of California’s climbing property values, contact us today to learn more about your investment options, and how Socotra Capital can help you make the most of your investment capital.
Are you a foreign resident looking to support your student in the U.S. by investing in American real estate?
Parents all over the world choose to send their children overseas to the United States in order to secure a first class college education. But, some of these parents—particularly those in China—occasionally run into a serious complication: it can be very difficult to send money to their children in the US. There is also the natural risk that comes with sending cash to a young person who hasn’t necessarily developed the financial management skills needed to budget appropriately.
However, there is a solution to both of these problems that foreign investors have been taking advantage of for decades: property investment. Typically, these parents purchase American commercial and residential real estate in areas close to where their children live and go to school, and leasing the properties out. Some or all of this rent money is send directly to the investor’s student, providing the student with a dependable monthly stipend.
This approach solves a number of challenging problems in one go:
- Countries such as China that restrict sending currency outside the country typically grant some leeway when it comes to buying foreign real estate.
- Rather than struggling to send money multiple times a year for several years, the number of international financial transactions is minimized.
- There’s no need to risk sending a lump sum to a young student, only to have them spend it unwisely.
- If it’s necessary to provide the student with a place to live near their college or university, an investor who purchases a home or multifamily unit can choose to let their child live there rent-free.
There’s no need for foreign real estate investors to obtain American citizenship or a green card. But you will need to apply for an Individual Taxpayer Identification Number (ITIN). To do so, fill out a Form W-7, Application for IRS Individual Taxpayer Identification Number.
Depending on your circumstances, it may also be wise to hire a real estate attorney experienced in handling US real estate purchases by foreign investors.
We will structure our hard money loan according to your wants and needs.
Investment in American commercial enterprises also offers foreign parents the opportunity to immigrate via EB-5.
It’s not unusual for parents of students in the US to unexpectedly discover a desire to move to the United States and embrace the country’s distinctive culture. For those with the investment capital, the United States’ EB-5 Immigrant Investor Program offers the opportunity to do just that.
Back in 1990, the US Congress sought to combat a stagnant economy by creating the EB-5 Program, which provided an incentive for foreign entrepreneurs to invest in the American economy. Under the program, if a foreign investor invests $1 million in a new commercial enterprise that will provide at least 10 permanent full-time jobs, the investor is eligible to apply for a green card, and can also secure green cards for their spouse and any unmarried children under the age of 21. The investment can be halved to $500,000 if the business is in a “Targeted Employment Area,” which are typically geographic areas with high unemployment or in rural areas.
If you take advantage of the EB-5 program while your student is still early in their education—before they turn 21—you can grant your child the opportunity to pursue a career in the United States after they graduate, and bring your family over to the United States as well.
Even if you have no interest in living in the United States, the EB-5 program is a great way to secure a life in the United States for your children, who will likely have grown to love the country they’ve spent years studying and living in, and who perhaps hope to stay there after they graduate.
It’s important to keep in mind that the EB-5 program isn’t limited to the super-rich. In a New York Times article about Chinese participation in the EB-5 program, Daniel Chang, the head of the Asia desk at Sotheby’s International Realty noted that EB-5 “is really for middle-class and upper-middle-class Chinese, and many are doing it for their children.”
For those who don’t quite have the necessary capital to invest in American real estate or take advantage of the EB-5 program, Socotra Capital can help you finance your real estate purchase or business venture. Take advantage of our growing economy while establishing a stable source of income for your child, and potentially secure US citizenship as well.
These are just a few of the ways that Socotra Capital can help foreign residents invest in American real estate and businesses. To learn more, call Socotra Capital at (916) 277-9311, or email us using our contact form.