By Mike Kalis

June 2016



Thanks to a rocky recent history, American real estate has been dubbed the “land of milk and honey” for foreign investors. Countless people from across the globe are scooping up American houses like they’re hotcakes, spending an average of nearly $500,000 per purchase, which far surpasses the average U.S. home price of $255,000.

On top of that, foreign buyers typically put down larger down payments and face higher interest rates because their assets are more difficult to verify. While American prices may be low, the financial stakes are still very high for overseas investors. That milk and honey can easily turn sour if buyers aren’t strategic throughout the purchasing process.

This potential rip-off goes much deeper than the list price of a property; the catch is in the quality of the home. All too often, foreigners fail to do their research, overlooking the need to thoroughly inspect the house and its surrounding area before pulling out their checkbooks.

Before working with my company, a current client of mine found herself in this very predicament. While living in Australia, she purchased a home in Missouri for a mere $30,000. She signed on the dotted line without ever seeing the property in person or researching the neighborhood. With such a favorable price, she just couldn’t resist what seemed like a low-risk, high-reward deal.

She packed up all her belongings, flew to the other side of the globe and arrived at the doorstep of a home that was not only located in a seedy part of town but was also essentially unlivable in its current state. Water damage, wonky floors, crumbling walls—it was falling apart.

She called a repairman to assess just how bad the damage was, and the night before he was scheduled to do his inspection, an arsonist set the house on fire and nearly burned the whole thing to the ground. The buyer didn’t have insurance, and the costs to repair the home skyrocketed to $60,000. In a neighborhood where homes were selling for between $30,000 and $40,000, her best plan was to cut her losses and walk away from her bad investment.

AVOID THE RIP-OFF

Our Australian client lost a lot of money and time, but situations like these can easily be prevented. Here are three tips for international shoppers who are looking to purchase property in America’s buyer-friendly market:

1. See for Yourself

The ideal move is to travel and see the property with your own eyes, or ask someone you know and trust to do it for you. This is the best and only way to determine whether the property and its surrounding area are as advertised. Meet your agent face to face to establish a personal bond, and pick the brains of the locals. Ask the guy working at the gas station down the road about crime in the neighborhood. Ask the lady walking her dog about the community and local schools. Be a smart shopper by building a knowledge bank of firsthand experience and information.

2. Read the Reviews

If traveling isn’t an option and you don’t know a single person where your potential investment property is located, consult a credible third party like Zillow. More often than not, online reviews are just as reliable as personal recommendations, and a site like Zillow will allow you to compare price listings, learn about schools and educate yourself on crime rates. An agent might tell you crime rates are low and you’re getting a great deal, but if Zillow shows a catastrophically different estimated price and a laundry list of police reports, you know you’re getting scammed.

3. Take the Safe Bet

Don’t be greedy about your return. As my Aussie friend illustrated, investing in the cheapest thing you can find can easily backfire. Instead of buying a $30,000 home that you believe should be worth more, why not search for a home in the $70,000-$100,000 price range that you know is a sure bet? You may only get a 7 or 8 percent return, but you’re much more likely to see appreciation and be in a better area that’s worth the investment.

As you pursue American real estate, call on those around you and remember to utilize your resources. The last thing you want is to be ripped off in a prime economy that promises endless opportunity. Be smart and take the necessary precautions so you can enjoy living in the land of the free and the home of the brave.