The collapse of the American housing market has opened up investment opportunities for UK buyers with some homes selling for less than £30,000. So what’s the catch?
By Emma Lunn
The property particulars certainly look tempting: a three-bed house with two bathrooms for just £41,995. Or how about a three-bedroom family home with one bathroom for £29,495?
But where are these dirt-cheap properties? Over the pond in Detroit, US, that’s where.
There were a record 2.9m foreclosures – or repossessions as well call them – in the US last year, with some areas, such as Detroit and Atlanta, hit worse than others. That figure is a 2 per cent increase on the number of foreclosures in 2009 and a 23 per cent rise on the 2008 statistics.
But while the collapse of the US property market might spell disaster for American homeowners, it’s created a once-in-a-lifetime opportunity for UK investors keen to get their hands on a piece of US real estate.
And it’s not as hard as you might think. There are companies that specialise in acquiring BMV (below market value) properties and selling them to UK investors.
Foreclosed properties in certain states are selling at a 40 to 50 per cent BMV and UK-based foreclosure specialists claim these can deliver significant returns to cash-rich investors. And one day, if the US property market recovers, perhaps capital growth too.
The Belgrave Group is a UK-based property investment company with a large selection of available BMV properties in Detroit and Atlanta. As well as helping you buy a property at a bargain price, the group will arrange refurbishment of your property, find tenants and manage the tenancy.
But you’ll have to cope with more American jargon to get involved. The group refer to its package as a “turnkey”solution.
This basically means the company does all the work behind the scenes in terms of red tape and administration: all the buyer (or his tenants) has to do is show up once the transaction is complete and “turn the key”.
Nigel Gough, director of the Belgrave Group, says that in the past, buying foreclosed properties in the US has been out of the question for UK investors due to the sheer logistics of the research, conveyancing and management.
"The turnkey solution we've created overcomes this issue and meets the latent demand for a property sector with exceptional yields and the prospect of very strong capital appreciation in the years ahead,” he says. “The ability to buy properties at up to 50 per cent BMV is currently generating investors net yields of up to 15 per cent, which is very rare for such a low-risk, low capital outlay investment."
What’s the catch?
Sounds great, doesn’t it? However, one of downsides is that you’ll need cash, not a mortgage on your US property. Although, in theory, you could remortgage your UK property to raise the funds if you had enough equity.
Secondly, you’re entering the unknown. Although companies such as the Belgrave Group sound like they are offering a win-win deal, you’ll need to ask them some serious questions before you sign on the dotted line:]. Aare tenants likely to be easy to find and if not, what will the managing firm do about it? And what about ongoing costs such as insurance and maintenance?
You need to ask yourself some questions too. Can you afford to lose the money if it all goes horribly wrong? And what will you do if you want to cash in your investment in a few years time but the US property market is still in the doldrums?
In the end, as with all investments, it comes down to risk and reward. A £30,000 or £40,000 investment for yields of up to 15 per cent sounds brilliant – but remember there is no guarantee you won’t lose the lot.
Gough maintains the risks are worthwhile – but you need to act now: “Since Belgrave started in 2009, house prices have gone up by a third. It is going to be steady growth over the next five to 10 years,” he says. “Once foreclosures slow down then property prices will start to go up again. The opportunity to pick up properties at bargain basement prices won't be around forever.”
But bear in mind this is the kind of language used to describe a host of investment bubbles in the past, so you would be well advised to tread carefully when considering this opportunity.
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