Recently I’ve been reading articles about the large number of foreign investors spending billions of dollars buying real estate in the United States. Some of the articles are simply stating facts and others are obviously written to stir up emotion about all of “our land” selling off to foreigners. I enjoy reading the user comments following these articles because they usually represent part of the reason the articles are true in the first place. The comments are usually full of outrage of “How can we allow this sort of thing?”
Personally, I’m grateful that foreigners can buy U.S. soil. Otherwise my Grandparents who all arrived from various places around Europe could not have got their start here. But besides that, there are a couple of reasons why I do believe there is a sobering message in these articles and it’s not what you might think.
Back in the early part of the real estate crash beginning in 2007, we got very busy buying residential real estate. I believe we bought 5 homes in 2007 and, for us, a record 19 properties in 2008. We continued to buy every year through 2012 with 2013 being the first year we had not bought any new properties since we began in 2003. The article that got me thinking about this was a recent one that said that the early years of the crash were largely supported by mom and pop investors who were stabilizing the market by buying the excess glut of foreclosures hitting the market at unprecedented rates. It was said that these small investors probably saved the market from complete melt down by simply stepping in and not only lowering the vacant house inventory, but also making that inventory immediately available in the rental market. Very quickly, foreign buyers began getting in on the action along with huge corporate investors who are able to buy properties in blocks of over 1,000 units at a time. Still, the small investor keeps plugging away, increasing their holdings by two or three properties per year building a portfolio of really good investments for themselves.
So where is the problem? In these articles, there is an emphasis on the “foreign” buyers somehow being bad for our country. The fact that foreign buyers are finding the U.S. a good market to invest in should be an indication that we are still a good investment option. One of my conclusions to those complaining about foreign investors buying up the U.S. is “The reason they are buying it is partly because we are NOT!” As fast as we are buying, there’s still more out there and someone is going to buy it. If we don’t someone will. Why not the Chinese, or Canadians, or anyone else for that matter. Incidentally, Canada accounted for nearly a fourth of all international sales, followed by China at 9% and India, Mexico and Britain each with a 7% share. Together, these five countries accounted for 53% of the transactions.
Here’s the “Sobering” part! One of the articles stated that while foreign investment into U.S. properties is at its highest, U.S. consumer debt as a ratio to income is also at it’s highest point ever. So while our foreign counterparts are finding America to be the land of opportunity, we as a society, have become more consumer and debt oriented than we have ever been in history. So much so that not only can we not afford to invest in real estate as an investment, many cannot even afford to own a home for themselves. Ironically, as more foreign investors purchase more and more real estate, some may even find themselves renting from not just “out of state” landlords but possible “out of country” landlords. The irony being that consumer behavior is more likely the culprit rather than “foreign” investors.
Double Down on tragedy. – To make matters even worse is a “kick ’em when they’re down” new federal law called “Dodd-Frank” which I just recently learned about that went into effect this past January. It is designed to “protect” homebuyers who are purchasing homes on private contracts from owner finance sellers. In effect, it places all of the same financing qualification requirements on a home buyer using private financing as a bank would require. Sounds good, but, the reason most un-qualified buyers resort to private financing is because most owner finance “sellers” are willing to overlook bad credit, or lower income/debt ratios than what banks do. The whole law is designed to place the burden of determining whether a buyer can actually “afford” what they are buying onto the seller. As if an adult can’t figure out for themselves whether they can afford a particular home. Now, facing penalties (pretty stiff ones too) owner finance sellers cannot risk selling to buyers with marginal qualifications. Thus removing the possibility of home ownership for even more people.
I began to wonder, “Have we reached a point where we are moving towards becoming a peasant society within our own country?”
The other day I was called by a prospective renter inquiring about one of my properties. It’s one of my “lowest end” properties. It’s nice, but very small and designed for a fixed income tenant. Of course I have to provide all the utilities and cable T.V. in the price or no one would be interested. At $550 for everything, it’s as low as I can go without operating in the red. The prospect told me he was trying to figure out if he could afford it with a take home pay of $250 every two weeks…………….. ( I shake my head in amazement)
We are choosing to spend more than we earn. We are relying on the government to insure that someone else determine for us whether we can afford what we are buying. ie: Dodd-Frank. We can’t figure out if we can afford a $550 “all inclusive” rent on $500 wages. We complain when foreigners are buying “our” real estate when we can’t hope to buy it ourselves because of our self inflicted consumer debt. Even if we don’t have “excessive” debt, we aren’t willing to invest into real estate assets ourselves because of the “riskiness” of it.
If this is our “best” we need to just shut up about “foreign investors”. At least they are taking advantage of the opportunities we are ignoring.