Investing in US or UK rental properties?

9 Replies

Hi all

I am a dual us / uk citizen and trying to decide where to buy some rental properties. I live in the UK but may move back to the US in the next few years. Regardless, the properties won't be near where I actually live in either country as yields where I would live are poor. I have done quite a lot of research. Here is my opinion so far:

US:

- 30yr fixed principle repayment mortgage, so actually build equity assuming 0 appreciation

- rates around 4.2% right now (also get a small discount through work)

- first 4 properties 20% down, then 25%

- can deduct all expenses plus depreciation

- I have a large liability in USD (student loan) so would be good to have a USD cash flow and avoid FX risk

UK:

- interest only mortgages with 3-5% fixed rates for 3-5 years...then need to refinance (which can be expensive and unpredictable...also interest only so relying on appreciation)

- however, interest only improves the cash flow significantly as the mortgage amounts are tiny

- 25%+ down

- slightly less tax friendly, it seems

- much less space, higher population density and growth...points to higher average appreciation potential

Does anyone have any thoughts? My strategy would be buy / hold / rent for cash flow and assume minimal appreciation. The fixed rate mortgages of the us appeal but the higher cash flow and likely higher appreciation of uk property is also appealing. But having to refinance every 3-5years seems risky, annoying, and expensive.

Would love to hear your thoughts!

Thanks

The U.S. offers much lower prices as a function of rent (a purchase price of less than 10 times annual rents in many metro areas). I have been able to purchase in Atlanta, Georgia for 4-5x annual rents (two years ago I paid as little as 3-4x annual rents for properties). The UK has a serious home affordability issue with borrowers reaching 3-4x annual income for home purchases. Once interest rates rise, prices will have to adjust because there will be a much smaller pool of buyers outside of Hyde Park and other foreign buyer enclaves.

hi Jon

Certainly financing is an important factor when acquiring US or UK real estate. However, I would suggest to look at the fundamentals of the US and UK real estate market first.

Looking at the US, you can achieve 10-12% net rental yield on single-family houses in several cities in the US (sometimes even higher but then there is some other risk coming into play).  So if you are looking for buy and hold and create cash flow, this would be a good option.  Potentially you can do financing and this would be an extra return on top of the 10-12% net rental yield. You would also have some capital gain when you sell in a few years (albeit would be low).

I do not know the UK real estate market so hope someone else can cover that.

I would definitely have to agree with Max on this. There is so much that the U.S. Can offer. The U.S. Is still in the young stages of recovering from GFC. Property prices are low in the states. The UK property prices are rising a lot faster than salaries. 

If you are transferring money to the states from the UK, you'll already make 54 points off of the currency exchange as the Pound is worth $1.54USD. 

But then again, if you end up buying properties in the states, and end up wanting to transfer your rents (cash flow) back to the UK then you'll be taking a huge hit. 

You would have to do some Due Diligence on the markets. Georgia is a phenomenal market if your looking for Cashflow along with Capital growth. But there's a lot of great markets out there. 

Tanya: how am I making 54 points when transferring GBP to USD? This assumes that all prices from uk to us are 1:1 and that we just happen to benefit from a very strong pound...in reality the pound is weak versus recent history (and will weaken further with impending us rate hikes).

Sam: 10-12% gross yield can also be achieved in the UK. I will definitely be using leverage to maximise my cash flow. I will not be selling any time soon!

Max: i don't see your 'prices are high in uk so will correct and soon go low' as a great argument. What's to say rent / income won't increase instead to make the multiples more sensible? By the same logic, maybe Atlanta rents will come crashing down (rather than house prices shooting up). I would love to be proven wrong! Out of curiosity, where in ATL are you finding 20-25% gross yields? I am actually from ATL so have been looking at property in the area.

Thanks guys

@Jon Blownerd I’m a newbie so read my post with a huge grain of salt. From a birds eye view of the question you posed, the responses you’ve received and your rebuttal of those responses, I find the discussion fascinating and think that if at all possible you should exercise diversification. You don’t have to create your portfolio in one or the other country. Perhaps deciding where you will invest first is the decision you need to make. Investing in both countries as you have pointed out has its advantages, disadvantages and appeal. I think yours is a great problem to have. Dual citizenship is a beautiful think!

Best wishes on your successful decisions.

Yeah, thanks. I was thinking about that... May be a tax nightmare though !!

Jon: just to make sure, I indicated 10-12% net rental yield (not gross) :)

Originally posted by @Max Kim :

The U.S. offers much lower prices as a function of rent (a purchase price of less than 10 times annual rents in many metro areas). I have been able to purchase in Atlanta, Georgia for 4-5x annual rents (two years ago I paid as little as 3-4x annual rents for properties). The UK has a serious home affordability issue with borrowers reaching 3-4x annual income for home purchases. Once interest rates rise, prices will have to adjust because there will be a much smaller pool of buyers outside of Hyde Park and other foreign buyer enclaves.

 I agree with Max, 2% deals are still available in the US. I also just talked to a bank that does 15% down on investor loans. 

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