Ever wonder who currently owns your precious childhood home?
Did you ever get the chance to meet the new homeowners when you sold it or were you blindsided by all the foreign paperwork that flew by in a flash?
If you cannot remember, most likely Ms. Smith or the Winklevosses didnât move in.
Instead, a friendly agency, the government, crowdfunding investing services, bank or international firm purchased it instead!
How lovely right?
The home you grew up in and made dozens of memories in could have easily been given up to some foreign government agency overseas not a sweet family that was looking to relive your memories and paint over the height marks you made on the wall.
Yet, although that might sound depressing, itâs actually great for your wallet and sanity! At the end of the day if the process of listing a home can be done in 2 steps, then most donât care who itâs sold to!
Not only institutional retail investors and foreign governments are almost always first bidders since their job is to look at emerging markets and locations they like disregarding budget like a typical family, they probably gave you a great price exactly what you were looking for or even higher just for them to get you out of the house in no time!
As weâve witnessed during the covid pandemic, thereâs been record sales of homes as people relocated out of the city due to taxes and cramped space and into low or 0 taxed states such as Florida or the heartland of America where you can get triple the amount of room for half the cost.
This extreme shortage of inventory has lead prices to gauge as homebuilders cannot keep up with the demand and there arenât enough houses on the market for those who want one.
Similarly to scarcity within a company (read here how trillion dollar companies monopolize on this tactic), this leads homeowners to naturally pay more because they believe they need this home even though they could easily wait a few more months and get a better deal.
If a family is looking to relocate out of their crammed cockroach infested studio apartment in Manhattan to the sunny side of Georgia and find a house they like and seems like this is the one and only, they will purchase it because of scarcity.
It ruins our minds and our bank accounts but at least it boosts the economy and stock market.
Yet with the record sales, there have also been record regrets, especially from Millenails as they thought NYC or San Francisco the most expensive cities in the country were their dream destinations.
As rents lowered and people vacated the city, it was their chance to buy yet a few months in, they are regretting it already.
Housing is one of those purchases that you have to be sure on. After all, it is the top expense for Americans. You cannot regret it because from buying to selling, all the non-refundable fees from the broker to lawyer, taxes, transaction costs, open houses, you name it takes time and hassle you cannot redo.
But alas, there are two ways to reduce the burden of buying a property:
#1: Invest in REITS or Crowdfunding
Instead of purchasing a tangible physical property yourself, invest in a duplex and community through Crowdstreet or Fundrise. I have invested roughly $100k in properties across America and never visited them once.
These are companies that manage these properties, hence the buyers of them if no real family bought them and they manage them themselves as a company/agency. They deal with the tenants, the costs, maintenance, repairs, transaction costs and you just have to pitch in, invest and will get more exposure to real estate in your portfolio.
After all, real estate consistently beats out the stock market and is more liquid than stocks, especially if you go the crowdfunding option. REITS on the other hand, are very similar but are just investing in real estate stocks-real estate managed by real estate brokerages. These are less liquid investments since for equities (stocks) you must pay capital gains or income tax depending on how soon you withdraw the gains from your account.
All in all, I recommend owning some sort of real estate because:
-Tax advantages-charge expenses towards business to pay less in taxes
-Nice exposure
-Less risk = more return
-Always stable
-Less volatile
-Can use leverage
-Consistent return if holding for long periods of time
-Several properties can turn into running a legitimate business
You can read more about the wonderful ways real estate beats out regular investing here.
#2 Let a Company Purchase Yours At Top Dollar
Unsure where to find the best buyer for your home without going through open houses and brokers?
Call up any real estate brokerage firm or foreign property investment holding company to renovate your property and turn it into whatever you want! You will not only get the best deal and get it out of the way fast, you wonât have to go through a brokerage, deal with a lawyer or sell it yourself trying to finesse the best deal
The Anonymous Buyer
Even if you offer a great price on a home in an expensive city, you will most likely be outbid by any anonymous shell company who would rather pay full in cash. The reason buyers who pay cash get to close on the deal and snag the property first is because cash is more appealing as it is immediately cashed into your account. It is the most liquid asset before equities as weâve witnessed above and home owners want to sell the property immediately yet most of the time, a down payment is enough.
Foreign or institutional investment funds donât take out mortgages as families do. They simply buy it all in cash to speed up the deal. Foreign investment is a major source of liquidity in the United States and property sales to foreign buyers totaled 78 billion U.S. dollars in 2019. In recent years, the largest share of foreign residential buyers originated from China and Canada roughly at 12$, followed by Mexico and the total value of US office real estate purchased by European investors includes 2.28bn USD
Shell What?
These foreign companies are mostly compromised of shell companies.
These shell companies were created decades ago initially intended to help oil companies in the Rockies that had oil rigs in Central America fund their operations. They then wanted to limit their liabilities, in this case something happened in those oil facilities in Panama and wanted to distance their liability from whatever happened in Panama to the company in the Rockies.
Over the years shell companies have been used by real estate moguls to amass property and hide the true source of their money from the public, avoiding paying any income tax.
Today countless C-suite companies from Amazon to Microsoft money launder (hide) their funds in tax havens/shelters in random islands in the Bahamas so they pay no corporate tax.
Is this all a problem for me?
Yes or no depending on who you ask.
Basic transparency exists in all countries in the world except in the US. You cannot see who purchases what here and the beneficial owner of real estate. This leads to the issue of homeownership and wealth in America from public housing to homelessness.
Since random agencies and crowdfunding organizations are purchasing properties to their liking at whatever price they choose, this is leaving less opportunity for those less fortunate to take advantage of housing that is at the right cost and location for them.
Pros of Foreign Involvement in US Real Estate:
-Transfer of tech and business
-Boost CPI (Consumer Price Index)-change in price in goods bought and sold in the US
-Increases employment and wages through inward foreign direct investment
-Capital inflow to real estate market and opportunities for Americans to rent from them
-Lowers price sand improves quality
Cons:
-Foreign ownership increases the demand for products leading ot price increases in this case a possible real estate bubble
-Multinational corporations may use their power to influence govât policies and have a negative effect on economic development
-Demise of local communities/not preserved
Currently in the US there is no law reducing foreign ownership that forbids foreign governments, organizations, companies or entities from founding or holding more than a certain stake in real estate or entity so for all we know, Russia could be owning your childhood home!
Policy
The Treasury Department has been asking for information about homeowners across the US for decades. Yet this is seen as an invasion of privacy and doesnât require an answer anymore. With great rates for real estate with the lowest inventory since 2006, many buyers are asking above asking price which mostly includes foreign investors who would do so otherwise the only reason you would pay above asking price for a home you like is if there are dozens of other bidders and fierce competition.
Thatâs the real reason why there is a housing shortage for Americans who really want to live here.
The number one foreign buyer over the last several years is China. Having their economy be back on track almost a few months after covid was announced as a global pandemic is a true accomplishment which has inevitably lead to this influx of the massive capital they have gained throughout this pandemic with thousands of new billionaires.
No wonder the US is attractive as a buyers market. After all, compared to the rest of the world, the US real estate market is cheap especially considering income opportunities.
Donât let foreigners bid up our prices! Americans should get first dibs on our own land.
Ultimately whoever buys your home shouldnât really matter unless you are afraid they cannot afford it which in that case will rarely almost never happen as buyers always go through background checks, have to put down a deposit and prove they can afford it.
At the end of the day, if it really bothers you who purchases your home, then you can investigate into it by asking your broker to only find a buyer that is a family or individual but remember that will not only take longer and cost more, you will most likely get paid less, the house will be on the market longer and I doubt you will get 100% cash offer straight away.
The only people that will pay for your house 100% in cash right away is a foreign entity or institutional real estate investors. Having that much cash isnât strategic especially since mortgage rates are at all-time lows and having over 20% of your net worth in cash is simply money down the drain due to inflation.
Whether you are looking to sell or getting ready to buy, understand that foreign investors are out there looking to buy and not sell. Donât be scared. You can score a great deal by selling it to them just be vigilant if you do care.