Investing in the US real estate market

At this moment in time the US economy, like an array of other European economies, is struggling to pull away from the after-effects of the 2008 economic downturn. Despite the fact that enormous amounts have been set aside for quantitative easing in many areas of the world on the whole these have only just allowed economies to maintain positive growth. However, there are signs that the US property market is beginning to push ahead with renewed interest from overseas investors.

If you are looking to invest in US property how should you approach this particular venture?

Many niche markets in an enormous market

When you look at the size of the USA and the fact that many states are governed like mini countries, this is perhaps the best way to look at the US property market. While there is no doubt that the overall performance of the US economy does have an impact upon general sentiment and gives an indication of general economic movement, the performance from state to state can vary enormously.

Only last week we had the Detroit authorities applying for bankruptcy protection with long-term debt of over $18 billion and this is not the only US state to apply for protection over the last few years. Rather bizarrely, just prior to and just after the state applied for bankruptcy protection, there were signs of life in the property market. This would seem to indicate that in the eyes of many investors Detroit has hit rock bottom and if the bankruptcy proceedings are successful then perhaps the state will get the chance to start again.

Monitoring local economic performance

While in general the US economy is holding its head above water and moving towards stronger economic growth the variation in economic performance from state to state is immense. Using the example above, the Detroit economy has been in freefall for some time now, public services have suffered enormously and the population has more than halved over the last 60 years.

If you looked at the Detroit property market and based your forecasts upon the performance of the US economy overall you would get a totally different picture to that on the ground. This perfectly illustrates that while the US government obviously oversees the federal budget there are significant differences in investments and investment successes between various state authorities. One of the best indicators of the local property market is the number of foreclosures going through because when they start drying up there is a general feeling that interest will move to the “broader” property market.

Is flipping properties still viable?

The fact that the economic performance of US states varies so much means that the likelihood is that at any one given time there may well be opportunities to flip properties from foreclosure auctions into the wider market. Those who see this as “easy money” at the food of the predators because you need to do your homework, you need to monitor the local, national and to a certain extent international economies to get a feel for sentiment and future direction.

Quote from PropertyForum.com : “The very risky and controversial subject of home flipping is being discussed at great length by US investors and US homeowners. This process is defined as the purchase and sale of a property within six months with many investors looking to exploit mispricing of properties and resell at more realistic levels.”

There are obvious risks in flipping properties for short-term gain, the main one being that you are left with a property and your assets are tied up for some time.

Conclusion

Perhaps the best way to look at the US economy and the US property market is to consider individual states as niche markets in their own right. They have autonomy on various tax situations, they have autonomy on laws in their state and to all intents and purposes they are perhaps the most influential body on the local economy. Therefore, to superimpose the performance and the expected performance of the US economy as a whole against one state property market is not always beneficial.

Even in the good times, when the US economy was flying high, there were still many states struggling to make ends meet, many property markets heading south and many states where unemployment was at catastrophic levels. When investing in the US you should choose carefully, do your homework and take account of as many factors available to you as possible.