YOU only need read the slew of recent articles in the global financial press in the last six months to get the idea that US property has arrived in the minds of large institutional investors as a worthy asset class.

Ever since gargantuan investor Warren Buffett said last year he would buy a couple of hundred thousand single-family homes if he could, the housing market has attracted renewed interest from both individual and institutional investors keen to buy property in the USA.

Buffett said he stopped short of doing just that because he couldn't figure out a way to manage the portfolio, but that hasn't stopped other investing giants.

Blackstone has waded into the US housing market and emerged rapidly as the leading institutional buyer deploying some $2.5 billion on 16,000 US investment properties.

“The market is moving much faster than anybody thought possible,” Blackstone's global head of real estate Jonathan Gray said in a recent article from Bloomberg. “Housing is much stronger than people anticipated.”

The company has been buying US property in Atlanta, Chicago, Las Vegas, Phoenix, Northern and Southern California; Miami, Orlando and Tampa, Florida and various other cities, according to the article.

And it's far from the only giant investment house that has been active with Colony Capital and other major players competing in buying property in the USA. The market is even the subject of analysts notes from JP Morgan and others these days.

So what does this mean for individual foreign investors buying property in the USA? Are there still opportunities out there?

Of course, but we think it means you need to be more careful about where you invest. Markets such as Phoenix and Atlanta may be approaching a situation where much of the capital upside is gone already and the yields have dropped to a level (sometimes under 10 per cent in Atlanta's case and perhaps less in Phoenix) where it might not be worth it for some investors. On the plus side though, having so much institutional interest there means if you do find a good deal (although it's getting harder) there's a high likelihood you can sell it for a profit a little bit down the track.

Other US property investors looking for future capital growth - and easier pickings at the cheap end of the market - are focused on Orlando and other parts of Florida. Our sources there tell us funds are buying too, but it's nowhere near the level of competition from institutional investors that there is in Atlanta.

Aside from Florida, the high value markets of Detroit, Kansas City, Indianapolis, Memphis, Las Vegas and others still offer opportunities for those able to find, analyse and execute good deals.

So don't let the big boys scare you off, grab a copy of Buying Property in the USA: A Foreign Investor's Guide and grab your stake of this exciting and buoyant real estate market. Chapter Four of the book takes readers through the real estate markets most popular among foreign investors.

The fourth in our series of podcasts also discusses the characteristics of some of these markets, although in slightly less detail than can be found in the book.


-SD

RealtyTrac just released its list of the 20 best yielding markets in which to by single-family homes for US property investors. Cities in Florida dominated the list numerically, but Memphis actually took top position with a cap rate, or yield, for cash buyers of a bit over 10 per cent.

Ocala, in central Florida, and Port St Lucie, between Orlando and Miama, made the list, as did Orlando itself and Tampa.

Las Vegas, Phoenix, Atlanta, Detroit and Kansas City were among the 20, along with Dayton and Toledo in Ohio.

The composition  of the list is no real surprise to us. These are all cities that were hit hard by foreclosure and the entry price - for now anyway - remains quite affordable while rents have stayed quite high.

Ken and I own property in quite a few of these locations, so it's good validation of our strategy, although the main game remains paying close attention to analyzing deals well and implementing sound management, while avoiding risky locations and properties.

As always, we say the best way for investors to do that is to grab a copy of Buying Property in the USA: A Foreign Investor's Guide. Return to the main page for more details or check out our podcasts and tips.

-SD

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Well, it's taken a bit longer than I thought but we have finally closed on this duplex in Kansas City. The transaction was a bit irregular - not one of the normal REO (real-estate owned) or post-foreclosure properties that we target, but a good deal nonetheless.

It raises a few issues that I hope will be of interest to would-be buyers of US property that it is important to canvas.

We had hoped to get this deal wrapped up over a month ago. Just to refresh the memory of those who read the first few posts on this deal, this one is an old house on a big block in a reasonable part of Kansas City. The property has been divided into two units. It was for sale for $23K with a $5K fee to the buyer's agent for securing the property and overseeing the necessary $15K of repairs.

Let's start with the $5K fee - a lot of of vendors and some investors in US property are adamant about not buying "flipped" property and will obsess about trying to eliminate middlemen from every deal often missing out on the property. In some circumstances that's desirable or even necessary, but there is no golden rule and as foreign investor, sometimes you have to reward a capable middleman or woman as you aren't on the ground in the market yourself. If it still makes a great yield after the mark-up, what's the hassle? In this deal, we have dealt with the agent before and we know that he makes his living by securing properties at below wholesale prices and adding $5K to each one he passes on, plus he arranges property management. Personally, I can live with that - wholesalers or buyer's agents have to make a living somehow and I prefer fees to be spelled out clearly rather than being embedded in the price in a non-transparent manner. In addition, as his skills are in rehab and property management, I feel he brings $5K of value to the deal in terms of providing a binding estimate of rehab costs and only passing on properties in good areas that he knows will be tenanted easily.

As I said before, we normally target bank-owned or real-estate owned properties that are offered to us via trusted wholesalers or agents. This time, although we knew the buyer's agent, the place was not foreclosed on. The owner needed money and was known to the buyer's agent and was willing to sell. The price was well below fair market value and would bring in more than $14K per annum in gross yield, so we were interested, whatever the circumstances. We were a bit more wary than usually given this wasn't a traditionally distressed seller. Ultimately, though, it looks like he didn't have the cash to perform the rehab needed to sell the place conventionally, so was willing to let it go to someone who could for a substantially discounted price. It stacked up on the figures so we decided to proceed, only we hit a snag that many foreign investors in US property will eventually run up against - a problem with title.

The title agency we were using for the transaction did their job well and discovered a lien against the property - a lien is essentially a right to the property that the owner has pledged to another party as security against a debt. Naturally you don't want to be buying a place with lien over it as your ownership of the property would then stand to be disputed by the lien holder. In this case, the lien was given to a former business partner of the owner. Often these hurdles can take months or more to unpick, but this time the two parties remained in contact and with a week or two, the owner of the lien had agreed to relinquish it for $500.

So, we have finally closed and the place is ours. Arguably, now the hard work really begins with $15K of rehab to be done. We have seen detailed pics and are under no illusions about the scope of the work. But under the contract clauses that we insisted on, any cost overruns are down to the agent as we have capped the cost at $15K and insisted that it pass inspection with any defects to be remedied at the agent's expense. The tradespeople he is using have done work on one of Ken's properties and performed an excellent job, so there is a level of trust there. All the same, we will probably release the $15K in installments just to be sure.

Fingers crossed all goes well and we may update the blog again with details of how the rehab and tenant placement went with this one.

A few weeks ago we got wind of a good deal in Kansas City, which we decided to write about as it happened to give our readers an idea of how these things play out. After exchanging some details and preferences with the vendor, this deal seems to be getting closer to fruition. The place in question is a two-storey house on a large block in a decent neighbourhood that we can acquire for $23,000. It needs some $15,000 work and is pretty run down. The idea is to transform this place into a top and bottom duplex and let out each one for between $500 and $600 per month, giving a net return in excess of 25 per cent. The main obvious risk we saw was a blow out in the reconstruction and modification costs, but in this case the contractor has agreed to a fixed price of $15,000 and guarantee the work for a year, as well as remedying any defects that arise in a building inspection. Contracts are yet to be signed, so it's all talk for now, but is certainly looking like another promising deal.