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Indians Go To America to Buy Houses

With the real estate situation in India getting too hot, it seems our folks have found better opportunities elsewhere.

Rohit Prakash, based in Austin, Texas , has for long been doing brisk business helping Americans and foreigners buy and sell property in the capital of one of America’s biggest states.

Recently, he set up American Full House to cater to Indians looking to buy homes in locations that have seen a huge price drop. An Indian buyer who contacted him sometime ago is close to doing two deals in a suburb of Los Angeles at $82,000 and $85,000 each for a three-bedroom condominium. At the peak of the housing boom, these properties were selling at close to $250,000.

A 3 bed flat at $82,000 near Los Angeles? That’s about Rs. 35 lakhs. In comparison the apartment I live in (I rent) is at the outer edge of Gurgaon and sells for 1.2 crores, for a 3 bedroom.

I couldn’t find anything of that sort on Craigslist for California, but I saw this house – a 1400 sq. ft, 3 bedroom house on a 7,500 ft lot at El Monte for $289K. That, in comparison with the 2 cr.+ ticket size for that kind of land (house or no house) in NCR (and the same for most of developed India), is cheap.

Expect more of this as US prices come down; that Indians will consider buying. Of course, the rental yields don’t make sense for India, but we are very big on capital appreciation. It would make a lot of sense though to set up a fund that will buy and hold such properties, perhaps next year. Gives me ideas!

  • Manish J. says:

    82k for a condo in LA? I’m pretty sure it’s on the out-skirts of LA in a place called the Inland Empire.
    82k sounds like a sweet heart deal when compared to the peak of 250k, but they are just like internet stocks except much more illiquid.
    p.s. nice new theme.

    • deepakshenoy says:

      Thanks Manish!
      Ah, that explains it. Everything I saw around LA was at least 300K and those were for 1 bed/2 bed type condos. The inland-empire piece is probably where it’s at – the sucker therefore is the Indian buyer 🙂

  • Ruchir says:

    1. Any current data on rental yield in US? (you are one data rich person!)
    2. Is it legally possible?

  • Arpit says:

    There is also an opportunity to be a front for the buyers. Real-estate in India is a seller’s market and one often gets a feeling of being cheated due to lack of information available about property in India. This creates a space for an agency that seeks to reduce the information asymmetry in real-estate market between buyers and sellers in India. It could be funded purely as a media house/subscription. The potential is HUGE!

  • But why would Indian investors buy assets at such low prices? If the investment was attractive enough wouldn’t local investors pick them up first? Is it that liquidity had moved elsewhere despite the abnormally low interest rates in North America?

  • Sameep says:

    Florida is probably about 15-20K cheaper. Trulia is a great site for real estate prices. It has most of the listings. I had researched it a while back , but the taxes for expats are very high . I think we as expats have to pay about 35% as tax on rental income , plus HOA (home owners association) fees which is about 200-300 dollars per month. I’m not sure whether we are subject to further tax if we try to bring the money back to Inida.

  • Amit says:

    The only problem is a Indian resident, I dont think I can invest more than 25K USD a year outside India.

  • DJ says:

    Hmm, if anyone wants to do this, please do consider your currency risk! I wonder what the annual cost of hedging fx risk on $200K would be.

  • DK says:

    Property rates in California are pretty high. But if you look elsewhere, esp. here in Texas, this type of investment really makes sense.
    My dad was seriously looking out for such an opportunity. The maths of it also made pretty decent sense. For example, http://www.trulia.com/property/3004777411-3228-Peppertree-Pl-Plano-TX-75074 (near Dallas) . This is pretty close to where I live. Price is about $200K. EMI would be around $1200. Houses next to this rent out at $1500-1600. Rental yields are ok..
    I don’t understand the part where you say “we are very big on capital appreciation” . Do you believe that there is scope for major capital appreciation in US Real Estate?

    • deepakshenoy says:

      Thanks DK. Yields in the US are tough to quantify because of eventually high maintenance costs, but I get the point.
      I say “we are big on capital appreciation” where we = Indians. I don’t think there is scope for major capital appreciation in INR in India or the US

  • raag says:

    What about the legal and visa requirements? If I bought a house [assuming I was a servant at Kanimozhi’s house and she was in a very generous mood one day] in Dallas and the consulate in Chennai refuses to give me even a business visa, how do i execute the deals (purchase, rent etc)?

  • Manish J. says:

    I hear both sides of the “great investment opportunities” in housing in India and the US.
    1. In India…we hear great stories of condo’s for 80k in LA. What a great price, etc…
    2. In the US…I get emails from friends asking me about great housing deals in India. About 3 years back, someone emailed me saying he had a decent amount of money that he wants to invest in South Bombay. The amount was $200k…that might barely get you an enclosed garage.
    People will through around terms like rental yields and currency risk. Bottom line if the deals were so awesome why wouldn’t the local’s buy them.
    If you think you can easily rent an 80k condo in LA, remember that type of individual probably does not have a strong credit rating. Also, the expenses can be quite high if you have to fix things in the unit.
    Would you invest in DLF stock which is off ~ 80% from its peak? Why not? If you can’t take that risk how can you justify blowing 80k on a condo in LA? Where there are many more unhidden issues you will encounter.

    • deepakshenoy says:

      Manish, that’s a good point. Why wouldn’t the locals buy is an interesting point of view, and it’s hugely a matter of luck – I’m sure the Japanese thought prices in the rest of the world were darn cheap in the late 80s.
      My deal of course isn’t that it’s a great investment. I think US prices still have a way to go and there are already cash buyers for REOs and distress sales. But the deal is they are attractive to the Indian lover of property, and that comparatively, we seem to be pricing the India story much too high when it comes to property prices.
      I also remember BLR in 2002. We got offered a commercial office space of around 1500 sq. ft. for 40 lakhs, renting for 45K per month; I did not have the money (Ok, I was broke) but the yield came to some 13-14%, and no local was buying it, even those I spoke to who had the 40 lakhs. The price there in 2007 when I left BLR was over 2 cr. for the property (yields had of course dipped).
      But a 13% yield was fantastic even then compared to fixed deposits, and you got a 3 year lock in. Locals aren’t necessarily the best judges – sometimes people from outside see value where it’s not apparent. Of course, you do need a lot of luck – 2002 was when BLR was just recovering from the dot com bust and 9/11 so it wasn’t quite obvious that the software company renting the premises would survive.

  • Siddharth says:

    Deepak,
    Outside investors putting money where locals not willing to is interesting point but then to really make up substantial profits you will have to be a mass investor. I dont believe anyone can invest 82K usd and come off with decent gains few years down the line. There are so many overheads when you may count will make investing in India much more lucrative.
    Whatever capital appreciation was due has already happened for example where I live in Aberdeen UK. prices have fallen down and plenty RE in negative equity already. One has to keep in mind when you come across such dirt cheap deals as you say. The price sustainability and appreciation is directly related to the area (post code for example in UK).
    A new-built 1bed flat across my place is costing £192k and 2bed flat (20+yr old property) in my area costing £117k.
    If it was only for one $82K property you may endure so much hassles from point A in India to point B in USA and return way as well. Plus US has double taxation, and being resident Indian you are liable for GOI taxes, so basically FOR CERTAIN one will be stiffed by both the countries taxmen/women!
    And why more locals arent buying> I believe the reluctance of retail banks to provide mortagage for deposit less than 30% currently. However there are exceptionally 10% and 20% deposit mortagage are available but with very high from bank of England interest rates. almost 5% difference.
    Cheers

  • The responses to the original poster are correct. The condominiums mentioned in the article are in the Inland Empire (commuting suburbs for LA). This includes Riverside, San Bernandino, etc. The $82/$85k deals were for 3 bed/2 bath. There are many in the $50-60k range as well (2 bed/2 bath). At the current time, we are also actively working Las Vegas in the $45-$80k range for condos. It is very common for us to be buying these homes that have dropped 60% or more. Plus after renting, the ROI is in the 6-8% range.
    Currently the RBI allows $200k per year.
    Following is an article from my blog. There’s a lot more info and data that can be found there.
    “How (and why) an Indian should go about investing in USA Real Estate”
    This should prove to be good information for anyone considering purchasing property in the USA but is confused or intimidated.
    To begin, foreign residents can buy and own USA property directly, but many investors prefer to own through a holding company, an LLC (limited liability company) usually set up in a tax friendly state like Texas, Delaware, or Nevada. In order to own property and collect rents or proceeds from sales, foreigners need to obtain a US Tax ID number and set up a bank account – both of which as very easy once you have your LLC. Further, an LLC provides liability cover and generally is considered the best for tax efficiency. The LLC is a very simple holding company with you as the owner and title to all property is purchased in this name.
    Having American property in a holding company also allows you to easily sell, pass through inheritance, or bequeath your portfolio (or part) without having to transfer the actual property title, avoiding taxes and fees. It also avoids probate complications in the event of the demise of the owner. You should not consider buying real estate in the USA without forming an LLC; it is simple and something that can be accomplished in a few days.
    We are in the process of buying US Properties for foreign investors, especially Indians. Cash transactions.
    The main factors making the US so attractive at this time are the incredible prices available, particularly for foreclosed properties bought from banks. As a result we are able to find and buy properties at a fraction of normal price — 40%, 50%, or even more off prices from the past few years. After the excesses of recent years, US citizens are being largely excluded by the banks from obtaining mortgages and loans, and it’s showing no signs of changing.
    Cash buyers of USA houses, condominiums, flats, apartments, and commercial real estate are getting once-in-a-lifetime prices.
    The low prices are not reflected in rental returns. In fact, the rental market has strengthened! Rents have remained buoyant, because homes are a necessity of life even when people walk away from a mortgage or are evicted by foreclosure. They still have to live somewhere. Net rental returns of 7-8% after all management expenses are not uncommon, making the cash flow part of the investment incredibly compelling for overseas investors.
    The US Fed can be thanked for tanking the US dollar which, as I write this, is close to a three year low . Your increased buying power in US Dollars makes a compelling argument now for securing some cash flow into the future in US dollars. Once recovery takes hold in the US and the dollar rises, returns can be compounded.
    Property prices in America will rise again when Americans can access mortgage lending and when existing home stocks are filled and new construction takes place. The growth of US households particularly is strong enough to deplete reserves of housing stock and reduce vacancy rates within the next 2-3 years.
    The credit market is not likely to bounce anytime soon though. We expect excellent buying conditions throughout 2011 and see this as a once in life time opportunity for savvy property investors.
    Rohit Prakash
    President
    American Full House, LLC

  • Indian Investor says:

    Buyers Beware!!! Its a terrible idea to invest in USA right now. prices are in a declining pattern. Unemployement is around 10 % and buying/spending is all time low. The govt is expecting private sector to help in the bailout but thats not happening.

  • Sharon Thompson says:

    What are the specific rules for an individual Indian citizen to buy real estate in the United States. Will I need a US tax ID number? An address in the US? Thank you for any information you can provide. Best regards,
    Sharon

  • Fred says:

    Why on earth are we allowing all of these Asians to buy property in the USA. Soon there will be a pressure group to allow them green cards to emigrate or at the very least, tens of thousands of them will be illegal immigrants with homes to live in. They will become slum landlords with communities rapidly looking like India. They will bring business practices that have no ethics, crime and frankly, the USA will become as big a hole as India. Cant believe we are allowing this to happen. This is not good business, they are not good for our economy and certainly are lethal to our way of life. What are we doing? We are allowing ourselves to be colonized through the back door. Keep them out. Try buying a home in India. Good luck, wont happen. Try moving to India, Good luck again, cant happen. They dont want us, we surely dont want them.

  • Sujit Tandon says:

    Dear Deepak
    Please advise how a Pvt. Ltd. Co. incorporated in India can invest in US. What are the statutory limits and compliance from both countries.

  • James says:

    I hope all these Asians trying to cash in on American misfortune lose their shirts. These people wouldnt give a nickel to contribute to the welfare of people in their own country, they wont in the USA either. Money is their god, and I sure hope he lets them down.

    • Well, for the longest time we all thought Money was the only god in America! When the Asian countries were in trouble, it was the west that preached to them and gave them money on extremely onerous terms. Oh yes, and we need to contribute more, I so agree.

  • Sharon says:

    I also agree. Up here in Canada we have seen Indians and Chinese buying up whole neighbourhoods. They cram several families into a single family dwelling, turn the area into cramped, dirty neighbourhoods, requiring double the garbage pickup, double the health care, double the welfare, double the school costs as English is rarely understood. You should learn from Canada, Europe. It is very short termism to think that Asians are any solution to a countries financial problems. The social and longer term issues are huge.

  • So here’s a follow up almost two years later… as predicted we have momentum in the USA. As of the last report (Case Shiller, April 3, 2013) prices are up 10.2% year over year. I can tell you that Indians are getting much more interested in buying houses in the USA. Just this week we had a seminar in Mumbai that drew over 100 people. Sales for us have been brisk. We have single family homes starting at US$40,000 (2/1 & 3/1) and up that are yielding 11-14% in cities like St Louis, Kansas City, Indianapolis, and others. These are already-rented cash flowing homes.
    Real Estate is always about buying low and selling high. The USA with it’s low prices and high rental yields is becoming the favored destination for capital. I have seen foreign hedge funds buying such residential rental properties in bulk – 30 to 40 at a time in Atlanta and Phoenix.
    We’re talking high yields and good capital appreciation. Another thing to consider is that the inflation rate in the US is about 2.2% so the real yields are much higher than elsewhere.
    With the RBI’s LRS, this really make sense as a good diversification play as well.
    I’d love to help anyone who is interested. Google us!