Many British investors are buying property – sorry, real estate – in America. Houses and apartments in the Land of the Free are generally extremely appealing and offer the potential for decent rental incomes and capital gains. But America is not for the low-budget buy-to-let investor. Today I’ll share four US Property hot spots where British investors might consider getting a stake in the American dream.
Denver, known as the Mile High City on account of its altitude, nestled at the edge of the Rocky Mountains, is judged by some to be the fastest-growing city in the USA. An impressive downtown skyline has arisen in just the last 15 years and there are many high-rise apartment blocks under construction just minutes from the city centre.
It is said that many Californians are relocating to Denver because the city offers an equivalent quality of life with lower real estate prices and lower taxes. Denver has a vibrant cultural scene with restaurants that would turn New Yorkers’ heads. There are numerous art galleries and theatres. The climate is gorgeous, with more than 330 days of sunshine per year. Summers are hot and winters are snow-cold, but with brilliant skies.
More airlines are routing through Colorado, so it is well connected with the rest of the USA and the wider world. Hitherto, East Coast Americans flew to Denver on the way to Coloradan ski resorts like Aspen and Breckenridge. Now, Denver is considered a destination in its own right. Amazon.com (NASDAQ:AMZN) seems very likely to locate its second HQ in Denver, with the promise of up to 50,000 new jobs.
Most new condominiums are sold off-plan with developers reportedly pre-selling up to 80 percent of new stock. Condos within walking distance of the busy downtown start at around $400,000. Be aware that, as everywhere in the USA, condos come with significant annual service charges, especially if they have communal swimming pools and – increasingly – gyms. Property prices have doubled over the last five years or so in Denver, and, according to one business-canny resident I spoke to, they are likely to double again in the next five years.
If you love ski resorts and have seven figures or more to spend, check out the glitzy resorts of Aspen and Breckenridge where elegant Swiss style chalets are available. If that is beyond your budget and you like to be near the mountains, consider Mesa County, the seat of which is the trendy former cowboy town of Grand Junction. House prices in Grand Junction increased by 7.5 percent between August 2016 and August 2017.
Ashburn is still considered by Washingtonians as a dormitory satellite of America’s capital district. Yet it has become a salubrious place to live in its own right. It is very well connected to Washington DC by train and there are advanced plans to extend the Washington subway to this beautiful and leafy part of Northern Virginia.
Consider that many world-class American companies have located their global HQs in small towns near Washington where they can assure their executives a high quality of life while remaining close to the key federal government departments and agencies. One example is Bethesda, Maryland, which is home to the HQ of defence behemoth Lockheed Martin (NYSE:LNT). In my view, any salubrious community which is within reasonable commuter distance from the District of Columbia has incredible potential.
If you want to get a train to San Francisco from the south (LA), the north (Seattle) or the east (Nevada) you actually get out at Oakland, which nestles up to its sister city, Berkeley (home to the world-famous university) on the other side of the Bay from San Francisco.
Of course, we would all prefer to buy a decent apartment in San Francisco… But forget it – unless you have at least sterling seven digits to play with (and better two million than one). My point is that, as you cross the ten to fifteen minutes of the Bay Bridge from good-natured Oakland to adorable San Francisco, the price of real estate rises exponentially. Now the possibilities for development within the restricted boundaries of San Francisco are very limited. It is a city running out of space. So, Oakland increasingly has to take up the slack.
Oakland’s hinterland (Mount Diablo) is majestic. You get views of the Bay and some fine eateries. It has its own airport which serves international destinations. And you can always go shopping or clubbing in San Francisco or surfing at Land’s End or Marin County whenever you wish.
Manhattan, New York City, New York
Rents in New York City are high and in Manhattan they are stellar. But, on the other hand, so are wages. I am told that an experienced dog walker in Manhattan (hopefully with references from a few A-listers) can easily make $50,000 a year. So two dog walkers who shack up would be able to share a characterful apartment in Greenwich Village, which will set them back around $3,000-$4,000 a month in rent.
But the young bankers on Wall Street and the hedge fund managers of the Upper East Side will probably prefer to buy in a salubrious part of town. If you have $5 million or more, you are sure to find something nice. The point about a decent condo in Manhattan, so I am told, is that it can only go up in value. Top of the range condos in the Upper East Side are going for $80-$100 million. You’ll need about the same again for the collection of Matisses and Rothkos which are de rigueur in such dwellings.
Realtors and transaction costs
Canny real estate investors in the US try to establish a good working relationship with a reputable realtor (estate agent). Your realtor will be able to help you, not just to buy the property, but also to rent it out at the market rate and, in time, to sell it. They can also advise on taxation issues. Unlike the British, who generally despise estate agents, Americans often have long-term relationships with their realtors.
According to the Global Property Guide, transaction costs for real estate in the USA are low to moderate. A buyer can expect to pay 1.2-2.5 percent of the purchase cost while a seller should reckon on 7.5-8.5 percent of the sale price.
The Starbucks Index
For years The Economist maintained its Big Mac Index as a guide to the relative cost of living in countries across the world. This is a measure of purchasing power parity (PPP). Economists adjust GDP for PPP in order to derive a real comparative measure of the wealth of nations.
The idea behind the Big Mac Index is that McDonald’s standard product is fundamentally the same whether it be served in Tokyo, Cape Town or Montevideo. (Needless to say, a Big Mac is much more costly in Tokyo.) But actually, the quality of the meat and the type of bun and garnish served do vary quite a lot. I therefore propose a new measure of relative PPP: the Starbucks Index.
The outlets of Starbucks (NASDAQ:SBUX) are depressingly ubiquitous in America. One finds them, not just on main streets and in shopping malls, but inside supermarkets and hotels. Supposedly, all their coffee is sourced from the same suppliers – so an Americano in Oxford Street is fundamentally the same product as one served in Trump Tower, New York.
As it happens, I have been patronising Starbucks quite a lot these last few weeks in America. When I say that America is expensive, not just compared to the UK resulting from a weakened pound, but also in comparison to France or Germany, I can now prove that from my Starbucks experiences. A large Americano on the Upper West Side, New York City, costs $4.75 plus 8.875 percent tax, making $5.17. The same beverage purchased in downtown San Francisco costs $5.99 plus food tax at rate of 8.5 percent, making $6.50.
In a nutshell: America is expensive; New York is very expensive; San Francisco is extremely expensive. I am told that you need an absolute minimum $100,000 a year in the city where Andy Williams left his heart just to cover the fundamentals – medical insurance, basic food and the rent for a very modest apartment. That is no sweat at all for the young techies who are bussed daily from San Francisco down to Menlo Park (home of Facebook (NASDAQ:FB), Mountain View (Google (NASDAQ:GOOGL)) and Los Gatos (Netflix (NASDAQ:NLFX). Many of these fortunate people earn over $1 million within a year or two of graduation. No wonder real estate prices are stellar.
UK investors who want to invest in American real estate will need specialist advice. The first step is to decide where you want to buy and then to find a good realtor there. Many UK investors have bought residential real estate in Orlando, Florida because they can generate a reliable rental income from UK visitors who take young families to Disneyland. Virgin Airlines offers a service for real estate investors who own houses or apartments near their destinations in order to match air passengers with available accommodation. There is always, of course, the Airbnb route as well.