Why property investment in the US is an opportunity you cannot miss, right now

Start investing in US Buy-to-Let property now

Why would someone choose to invest in property across continents, when there seems to be perfectly sound investment opportunities in South Africa?

The South African property market still offers good investment opportunities, but South African house price growth is expected to remain in lower single-digit territory for the year (negative in real terms).  According to FNB, average initial net yields are about 7%.

Buying the right properties in the USA, in the right markets, through trusted partners, can – right now – deliver higher initial net yields of 8% to 12%.

According to Reuters, the Rand has depreciated by more than 8.0% since the beginning of the year (after having lost almost 5% in 2012) and recently fell to a four-year low of 9.3655 against the dollar.  Although the Rand is expected to strengthen by year-end, most forecasters would be banking on a depreciating trend in the Rand over a 6 to 7 year period.  If this happens, investments in the US would appreciate in Rand terms.

The US property market peaked in June/June 2006 and has declined by around 30% through January 2013.  Average home prices across the US are back to their autumn 2003 levels (Cass-Schiller 20-City composite index) after having grown by 8.1% over the last 12 months.  According to this index, “economic data continues to support the housing recovery.  Single-family home building permits and housing starts (new properties being built) posted double-digit year-over-year increases in February 2013.  Steady employment and low borrowing rates pushed inventories down to their lower post-recession levels.”

Atlanta, where YDL operates, has shown strong growth of 13.4% year-on-year.

Despite the uptick, the US property market is suffering a hangover in that foreclosures are still being released onto the market.  The real opportunity is not to buy in the “normal” market, but to take advantage of foreclosures as these can currently be bought at around 50% to 60% of replacement cost.  This means that – over time – their prices should increase as the inherent value of such properties is higher than their current market values.

But, foreclosure numbers are down 25% year-over-year and it is only a matter of time before these will be “mopped up”, especially as hedge-funds are climbing into the market, buying up single-family homes.

Right now, if you invest R900 000 all-in and if you achieve an initial net yield of 8% to 12%, your income return would be between R72 000 and R108 000 per annum (before taking exchange rate fluctuations and capital appreciation into account).  Not many investment opportunities can deliver this level of return.

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