Imagine that you’re staring at a blank canvass with your paintbrush in hand. The possibilities for what you create are endless.Investing in U.S. real estate from abroad can feel just as exciting and overwhelming—there are countless states and cities to choose from. But choosing the right market is key to your success.
Rather than spreading yourself thin, focusing on one market and mastering it is far more effective. By gaining a solid understanding of the broader U.S. real estate landscape, you’ll be empowered to identify the market that best aligns with your goals. Once you've pinpointed the right market, you’ll be well on your way to becoming a real estate mogul! Following the steps outlined will guide you toward selecting the ideal market and bring you closer to building your real estate empire—no matter where you are in the world.
The U.S. is a vast and diverse country. As such, each city, state, and locality has its own unique real estate landscape. While trends can offer general guidance, understanding the specific characteristics of each market is key to making informed investment decisions. Here are some important factors to consider.
Each state has its own laws, taxes vary by city, and market dynamics change from one place to another, so understanding local regulations is key. For example, California has a housing shortage and passed a variety of measures to increase supply with Accessory Dwelling Units (ADUs). In contrast, other states and cities may have more restrictive policies.
Certain states offer stronger protections and benefits for landlords. It’s important to be aware of this when investing from abroad because each state has its own rules regarding evictions and tenant rights– you want to understand your market’s laws to remain compliant and avoid issues.
Affordable housing costs increase the likelihood of positive cash flow, whereas high-priced markets make generating cash flow more challenging. As a general rule of thumb, pricier U.S. markets tend to be on the coasts (think Los Angeles or Boston), whereas affordable housing is often found in the Midwest (like Cleveland). The coastal markets tend to appreciate faster than the Midwest markets, however. Understanding these dynamics is crucial in choosing a market that aligns with your investment goals.
With these in mind, let’s dive into selecting a market!
Are you starting your investment property market search from scratch?
As a foreign national with no connection to a given city, identifying trends can help narrow your focus to popular U.S. cities and states. By following these trends, you can take advantage of other investors’ research and benefit from potential upside in those markets. To identify trending states and cities, we recommend using the following research methods as your foundation:
Identifying trending states and cities can help pinpoint potential investment opportunities. When patterns show an area is growing, it signals to investors that demand for housing is likely to increase, as it often takes time for housing supply to catch up with demand. Since the 2008 housing bubble, most U.S. markets have experienced a housing shortage, which worsens when populations grow rapidly and markets become more competitive–this is advantageous as a person providing housing.
To verify their viability, dig deeper by analyzing economic data for the areas you're interested in. This will help you determine if the trend is driven by real growth or just speculation.
How do you know if a market is growing or declining? There are several key signals you can look for to determine a market’s patterns:
To gather growth indicator data at the state and local level, you can use the Federal Reserve website. This publicly available information is very chart-heavy, but it provides detailed economic indicators, trends, and analysis that can help you assess the health and growth potential of specific markets.
For those who prefer having everything in one place, the BiggerPockets Market Finder is a valuable tool. It combines data from various sources to give a comprehensive view of city-level information.
Now that you have data points about growth patterns in certain areas, it’s time to assess what’s happening with property prices and rental income in those markets. Two key factors to consider are the median property price and median monthly rent. Median sales price refers to the middle value of all properties sold in an area, giving you an idea of the typical home price. This helps you determine if the property fits your budget. It also provides insight into whether the area has potential for appreciation by examining recent price trends.
Median rental income shows you the middle price point as a baseline what to expect for rent as a landlord in this area. To help determine your cash flow potential, you can use something called the rent-to-price ratio.
Imagine that the median rent in an area is $2,000 per month and the property purchase price is $150,000. Divide $2,000 by $150,000 and multiply by 100 to get the price-to-rent ratio. In this case, the ratio is 1.33%, which is considered very strong. As a rule of thumb:
Markets with higher rent-to-price ratios typically indicate stronger cash flow potential. On the other hand, a lower rent-to-price ratio suggests the market is more expensive, making it less likely to generate positive cash flow. While this may be less important for investors focused primarily on appreciation, it’s a critical factor for those prioritizing cash flow.
It’s time to create a shortlist of cities that align with your investment goals based on your initial research. You’ll ultimately need to gather data from a variety of sources, understand your investment preferences, and use those to make an informed decision.
Start by making a list of the property pricing and economic factors that you’d like to compare across markets. These are some options to consider:
Remember to focus on your investment style and preferences. Some investors may weigh appreciation more heavily than anything else. In contrast, an investor focused on cash flow may value high price-to-rent ratios above all.
With your market data ready, it’s time to take a deeper look at each city through the lens of your most important criteria. Look at cities side-by-side to see if there are any that you can eliminate right away or that become favorites based on your findings. As you compare markets, consider whether one city consistently performs well across multiple categories, or if you find that different markets excel in different areas.
Continue refining your analysis, comparing trends, and weighing your preferences until you come to a decision. If no clear frontrunner emerges, don’t hesitate to dive deeper into further research until you feel confident with your selection.
Think about where you live. Even within your own city, some neighborhoods are more desirable than others. The appeal of a particular area often depends on several key factors that influence lifestyle and property values. In other words, location matters at a hyper-local level.
Although you won’t be living in your investment property, the same thought process applies. It can be helpful to think about your investment from your potential tenant’s perspective because different neighborhoods attract different types of tenants, each with their own preferences and expectations. In addition, neighborhoods vary significantly in terms of resale value, potential for appreciation, and overall demand. Ultimately, it often comes down to factors such as:
Congratulations on finding a great market—that’s a huge win! Now, it’s time to dive deeper and become a local expert.
The next step is to build a trusted team in your chosen market, including local real estate agents, property managers, and contractors who understand the area. You’ll also want to find a foreign-national-friendly lender who can help you navigate financing and close deals efficiently when the time comes. With the right team and resources in place, you'll be ready to start acquiring properties and growing your real estate portfolio with confidence.
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