16th May 2011
Over the pond British investors can buy three or four-bedroom properties for as little as £30,000 in cities such as Detroit and Atlanta.
And you don't even have to do the legwork yourself. The Belgrave Group, based in the UK, sells foreclosed (or repossessed) homes to British buyers that its US team buys from banks. It carries out refurbishments to bring the property up to standard, oversees the legal work and finds tenants.
A US property management team then manages the tenancies.
The group claims current market conditions – record number of foreclosed properties in America, low property prices and a seemingly endless supply of tenants – offer a once in a lifetime opportunity for shrewd investors.
The extraordinary collapse of the real estate market in the US, coupled with high unemployment, has meant foreclosed properties in certain states are selling at 40% to 50% below market value (BMV), offering a significant return on investment to cash-rich investors seeking high yields and capital appreciation in the medium to long-term.
The Belgrave Group specializes in properties in Atlanta and Detroit, which have seen above average levels of foreclosure and unemployment and therefore offer some of the best deals. The typical price for a property is £30,000 to £40,000 and many, once let out, are yielding in the region of 12% to 15% net per annum.
In many cases, rents for "Section 8" tenants (those on housing support) are paid straight into the owner's account by the US Government, providing additional peace of mind to investors.
Nigel Gough, director of the Belgrave Group, says: "For the majority of investors, the ability to buy foreclosed properties in the US, however attractive, has been out of the question due to the sheer logistics of the research, conveyancing and management – great in theory but very difficult and time-consuming in practice.
"The turnkey solution we've created overcomes this issue and meets the latent demand for a property sector with exceptional yields and the prospect of very strong capital appreciation in the years ahead. The ability to buy properties at up to 50% BMV is currently generating investors net yields of up to 15%, which is very rare for such a low-risk, low capital outlay investment."
Does all this sound too good to be true? As with any investment, it's wise to proceed with caution and know what you're getting into.
Melanie Bien, director of independent mortgage broker Private Finance, suggests asking certain questions before signing on the dotted line: "Is the value of the property fair or is it over-inflated? Are tenants likely to be easy to find and if not, what will the managing firm do about it?
"If there is a glut of such properties, they might not be easy to rent," she warns, "You should assess the investment in terms of income and capital appreciation – will you get enough of both to make it worthwhile? If not, you should stick to something closer to home that may be easier to monitor and a market you understand better."
Jim Rehlaender, manager of Schroder Global Property Securities fund, said it remained positive on the outlook for the property sector and still see good value in property securities across the regions. Conditions in the underlying property markets continue to improve, and most sectors and regions are seeing only modest new supply – favourable for the supply/demand balance."
For those wondering about the ethics in buying repossessed property, Minful Money's mindful man Ken Eisold reassures: "Anyone who buys such a property is not hurting them — any more than they have been already hurt. There is ethical issues about the conditions under which foreclosures take place, however, and a lot of attention here has been given to sloppy or unscrupulous agencies.
"The real issue, I think, is risk. The reason for so many attractive real estate sales is that the housing market has tanked. So if you are looking to buy a place in which to live, these are great opportunities. But as investments, beware. It will be several years before you can hope to unload the property, and cash in on your investment. In the meantime, you have to pay maintainence, taxes, etc — something not stressed in the offering statement."
The community seem to agree with Ken Eisold, and do not see US property as a sound investment choice, from This is Money: Bill from Aberdeen asks: "Sounds to good to be true. Why would someone pay $1000 a month in rent when they could buy the same property for just over 3 years rent?"