8 Tips for Foreign Nationals Buying Condos in the U.S.
By Milo • 8/3/2021
Interested in purchasing a U.S. condo? We have eight tips to help international buyers approach their condo investments in the U.S. Let’s dive in!
#1. Know How You’re Going to Use the Property
Understanding the property’s intended use is the first step for international buyers shopping for condos. Will this condo be used as a primary or secondary residence, or will you convert the property into an income-producing rental?
The way you plan to use the property will define the strategy you should use to approach the transaction. The overall goals for the condo will depend on how it will be used. For example, a personal property will need to suit your personal tastes and preferences, whereas an income-producing rental should cater more toward market demand.
#2. Choose the Right Market
Your condo’s location will need to meet its designated function. Whether you’re going to live in the condo yourself or convert it into a rental, choosing the right market is imperative for increasing your investment potential.
International buyers should be approaching the deal with market potential in mind. Choosing a promising location poised for future growth will enhance the long-term outlook of your condo purchase. A great way to analyze and compare real estate markets is through local data reports.
Keep in mind that oftentimes residential market reports may not include data for condos. Many data reports specifically examine single-family homes. Make sure that your location data is accurate by making sure any market reports either only cover condo activity or a mix of property types.
#3. Work With a Real Estate Professional
Partnering with a real estate expert that specializes in your target market will streamline your condo purchase. Your agent will be able to serve as a guide, both walking you through the process and representing your interests in negotiations. International buyers seeking condos should also look for an agent that caters to this specific property type.
#4. Finance Your Purchase with Milo
Rather than paying for your condo in cash, taking out a mortgage loan to finance your international real estate investment may be a preferable option.
Obtaining a loan from a digital bank solution like Milo provides you with the financial leverage to maximize your investment. You can keep your liquid cash and cover the purchase with a loan, instead. Milo offers competitive interest rates and a fully online experience, with closings in three weeks or less.
Financing your purchase with a lender that is specifically dedicated to serving international clients, translates into a customer service that understands your background, income flows and pressure points. This will result in an extraordinary customer experience. Moreover, it lets you put your cash towards other areas of your portfolio, or hold onto it in your savings.
#5. Think in Terms of Appreciation, Not Cash Flow
When investing, always think in terms of appreciation instead of cash flow.
Over time, an investment condo’s most substantial financial gains are typically the way its property value increases. Since the amount your condo appreciates and the rate at which it grows depends on the location, shop with the future in mind. Rather than prioritizing its instant potential for cash flow by choosing a market that’s currently at a high, it’s sometimes better to adopt a long-term mindset and consider an asset’s future value.
#6. Let It Appreciate Before Selling
Since you’re already thinking about your condo purchase according to its ability to appreciate value, have a plan to hold onto the property for a few years. When buying a condo, have in mind that it should appreciate at least 6% before you sell it.
This allows you to generate enough income from the sale to cover the expenses and fees paid to purchase and maintain the condo. Think about what you are going to do with your condo as it appreciates. For example, you may choose to live in it for a certain amount of time, and then convert it into a rental property. Having an idea in place will help international investors mitigate losses while their condo is appreciating.
#7. Consider Loan-to-Value (LTV)
Condos are typically assessed as higher risks for lending institutions. Lenders use LTVs, or loan-to-value ratios, to assess the risks associated with financing a condo purchase.
LTV will be used to determine interest, down payment amount, and other loan details. Different types of properties have different LTV requirements, so the type of condo you purchase will impact how much you can borrow for the purchase. For example, condo hotels typically have lower LTV, whereas high-rise condos may have high LTVs at a maximum of 70%. A 70% LTV would require a 30% down payment from the international buyer.
Thinking about LTV can help international buyers better understand their down payment responsibilities, as well as how they are impacted by the property choice.
#8. Remember the HOA Dues
When you buy a condo, there will likely be a community homeowners’ association. International buyers who are purchasing condos with HOAs should be aware of the financial responsibilities owed to the association. Monthly HOA dues and other fees vary according to community, so you’ll need to reference your specific condo association to find out the details.
Besides the money owed, homeowners’ associations also set the rules and guidelines for the community. It’s a good idea to be clear about what authority the HOA maintains over homeowners and how that may impact the long-term outlook of owning the condo. Always review the association’s guidelines when shopping for condos.
These clauses can be as simple as limiting aesthetic alterations, such as an interior renovation, or, perhaps you can’t add a jacuzzi to your balcony. If this condo is going to be an investment rental, you may not mind. However, if this is going to be a primary residence, those limitations may infringe on your goals for the property. Some HOAs restrict residents from hosting short-term rentals, which may impact the property’s potential to generate income.
Being clear about the HOA is a best practice for international buyers shopping for condos.
Ready For Your Condo? Get Pre-Approved with Milo
When it’s time to begin moving forward with your condo purchase, start by securing your financing with Milo. Click here to get pre-approved, which can help you set your budget and make an attractive offer.