Buying real estate in the U.S as an Indian investor

Navigating the U.S. real estate market can seem like a daunting endeavor, especially for Indian investors looking to expand their portfolios abroad. With a dynamic landscape that offers a range of investment opportunities, understanding the nuances of property investment in the U.S. is crucial. This guide aims to demystify the process, offering insights into making informed decisions and leveraging the potential for significant returns. Whether you're a seasoned investor or new to the real estate scene, this article will provide you with the foundational knowledge needed to explore the U.S. market confidently.

Overview of Indian investment into the U.S. real estate market

Indian investors are making significant strides in the U.S. real estate market, marked by their strategic investments and the keen ability to identify lucrative opportunities. As one of the top five foreign buyers in 2023, Indians accounted for 7% of the total foreign buyer segment, investing $3.4 billion and purchasing 5,900 homes. This trend underscores the U.S. market's appeal, offering stability and potential for high returns.

Comparative Market Analysis In India, the cost of real estate varies significantly, with price per square meter ranging from $1,097.56 to $1,856.43 in cities like Kolkata and Chennai, escalating to as much as $3,136.90 in Delhi, and reaching up to $7,659.12 in Mumbai. Monthly rental rates also vary considerably, from $199 in Chennai to $573 in Mumbai. This stark contrast in property and rental values between India and various U.S. cities highlights the attractiveness of the U.S. real estate market for Indian investors.

For context, in the U.S., the price per square meter and average rental income in key cities are as follows:

• Chicago: $1,950 per square meter with an average rent of $1,777.
• Philadelphia: $1,780 per square meter with an average rent of $1,563.
• Los Angeles: $4,740 per square meter with an average rent of $2,100.
• New York City: $3,460 per square meter with an average rent of $2,500.

These figures indicate a potentially higher return on investment for Indian investors in the U.S., considering the comparative cost of acquisition and rental yields. The average purchase price of homes bought by Indian investors in 2023 was $576,400, with a median of $515,600, highlighting their focus on high-value transactions.

Investment Destinations and Preferences California emerges as the preferred investment state for Indian investors, capturing 20% of their investments, followed by Pennsylvania (14%) and Texas (9%). The diverse investment choices, from urban centers to suburban communities, reflect the strategic approach of Indian investors to maximize returns and capitalize on the growth prospects of different regions.

Navigating U.S. Property Investment for Indian Investors: Understanding Residency and Property Types

Investing in the U.S. real estate market requires a nuanced understanding of both residency status and the types of loans available, which are influenced by whether one opts for conventional or non-conventional financing. Additionally, the choice of property—be it a primary residence, investment property, or secondary home—plays a pivotal role in determining the appropriate financing route.

Conventional vs. Non-Conventional Loans Conventional loans are not insured or guaranteed by federal government agencies and conform to the loan limits set by Freddie Mac and Fannie Mae. They typically require a higher credit score and a lower debt-to-income ratio (DTI).

Examples:

• Fixed-Rate Mortgages: Offer the same interest rate and monthly payment throughout the life of the loan. Ideal for investors who plan to hold onto their properties long-term.
• Adjustable-Rate Mortgages (ARMs): Feature interest rates that adjust over time based on market conditions. Suitable for investors expecting to sell or refinance before rates rise.

Non-conventional loans are backed by government entities and include programs that make it easier for specific groups of people to purchase a home. They often feature lower down payments and more flexible qualification criteria. Foreign nationals can be eligible for non-conventional loans in the United States, but eligibility and the specific conditions or criteria vary significantly depending on the lender, the type of loan, and the residency status of the borrower. Here's a general overview of how foreign nationals might access these loans:

FHA Loans

• Eligibility: Generally, FHA loans are available to those with lawful residency in the U.S., including permanent resident aliens (green card holders) and some non-permanent resident aliens who have a valid Social Security number, are eligible to work in the U.S., and who meet the other requirements for FHA loans.
• Conditions: Non-permanent residents must prove that they intend to occupy the property as their primary residence, have a valid visa, and provide evidence of employment in the U.S.

VA Loans

• Eligibility: VA loans are typically available to U.S. military veterans, active service members, and their spouses. For foreign nationals to be eligible, they would generally need to be spouses of service members or have served in the U.S. military themselves.
• Conditions: Eligibility criteria include serving sufficient time in the military, receiving an honorable discharge, and meeting the loan program's credit and income requirements.

USDA Loans

• Eligibility: These loans are targeted at rural homebuyers and are generally available to U.S. citizens and permanent residents. Non-permanent residents can qualify under certain conditions, similar to FHA loans.
• Conditions: Applicants must meet income eligibility, purchase a property in a designated rural area, and intend to use the property as their primary residence.

How property impacts your loan

Primary residences are homes where the buyer intends to live most of the year. Loans for these properties often come with the best interest rates and terms because lenders assume they're less risky.

Investment properties are purchased to generate income through renting out, flipping, or building equity. Financing for these properties usually requires larger down payments and comes with higher interest rates due to the perceived higher risk. DSCR loans are particularly relevant here, as they focus on the property's ability to generate rental income.

Secondary homes or Vacation homes must be lived in by the owner for part of the year but cannot be rental properties. Loans for these properties are slightly more expensive than those for primary residences but less so than for investment properties.

Understanding the interplay between residency status, loan types, and property categories is critical for Indian investors. For example, non-resident visa holders might find non-conventional loans like FHA loans more challenging to qualify for, steering them towards conventional loans or specific investment property loans like DSCR.

Exploring mortgage programs for Indian Investors

Many lenders offer loan programs specifically designed for foreign nationals looking to invest in U.S. real estate. These are not government-backed (non-conventional) and may have different criteria, including:

• Down Payment: Higher down payment requirements, often 30% or more.
• Credit History: Some lenders may require a U.S. credit history, while others may accept credit reports from the investor's home country or require substantial assets as proof of financial stability.
• Income Verification: Proof of income can be more challenging for foreign nationals, so lenders might look at income history, assets, and sometimes the potential rental income of the property being purchased.

Traditional mortgage routes might not always align with the financial profiles of Indian investors. Non-Qualified Mortgage (Non-QM) programs offer alternative financing solutions tailored to meet the needs of foreign investors. These include:

• Full Doc (Personal Income) Programs: Ideal for investors with steady, verifiable income sources, looking to leverage their financial standing for investment purposes.

• DSCR (Rental Income) Loans: Suited for investment properties with potential for generating significant rental income, focusing on the property’s income rather than the investor's personal income.

• Bridge Loans: Short-term financing options providing immediate funds with the property as collateral, perfect for investors looking for quick investments or awaiting long-term financing.

Understanding these programs and how they can be utilized based on an investor's financial situation and goals is vital for successful U.S. property investment.

The Mortgage Process on a U.S. Property for Indian Investors

The process of acquiring property in the U.S. for Indian investors involves several key steps, from selecting the right lender to navigating the closing process. Recent trends show a preference for all-cash purchases among Indians, aligning with the overall trend of foreign buyers in the U.S. This approach, coupled with strategic market selection and tailored financing solutions, empowers Indian investors to achieve their real estate objectives in the U.S.

Here’s a streamlined overview of the process once you’ve found a property and made an offer:

• Research and select a lender: Start by identifying lenders experienced with international clients, focusing on those offering loan programs tailored to foreign investors. Milo, as a specialized direct lender, provides customized financing solutions for Indian investors looking to invest in the U.S. market.

• Loan processing and underwriting: Upon acceptance of your offer, your loan application moves into processing and underwriting. The lender reviews all documentation in detail to finalize the loan terms.

• Appraisal and inspection: An appraisal is required to confirm the property’s value, while an inspection assesses its condition. These steps are crucial for ensuring the investment is sound.

• Closing: The final step involves signing a multitude of legal documents to transfer ownership and finalize the loan. Closing costs, which include various fees, will be settled at this time. International investors may often complete this process remotely.

Streamlining U.S. property investment for Indian investors

For international investors eyeing U.S. property investment, partnering with a specialized direct lender like Milo can significantly streamline the process. Milo's tailored financing solutions cater specifically to the unique needs of international investors, simplifying the journey from application to closing. By focusing on strategic property selection and leveraging expert guidance, Indian investors can navigate the U.S. real estate market with confidence, unlocking opportunities for growth and diversification in their investment portfolios. With the right approach and resources, the dream of owning U.S. property is well within reach.

The opinions expressed in the Blog are for general informational purposes only and are not intended to provide specific advice or recommendations for any individual or on any specific security or investment product.