Should You Invest in Areas with a High Influx of Foreign Investments?

Foreign investment in the United States has hit a record high. In 2015, cross-border investment in land was set to reach $24.1 billion on the year. And what's even more shocking is that this information is based on investments of $5 million or more, and this doesn’t include multi-family development or land used to build hotels.

A shocking figure for larger purchase is overshadowed by $71.6 billion in investment into commercial and multi-family residences.

While many Americans view land prices as high, it is relatively low compared to other parts of the world. The United States is huge in comparison to many countries. The state of Texas can hold all of Germany in its borders with ease. Instead of buying land at home, many foreigners have decided to gobble up land in the United States.

Why Foreign Buyers Are Flocking to the US

This is a difficult question to answer because there are several reasons for the buying spree that is taking place.
Chinese buyers are heading to California to buy land – and lots of it. What these buyers are doing is building small homes on the land that their kids will live in while attending school in the Unties States.

Not only does this make it easier for their children to stay in the US if they wish, it also makes economic sense. Dorms are expensive, and many students do not thrive in a dorm environment. And investors are looking toward the long-term. If their children stay in college or university for 4 – 8+ years, the property and the homes that are being placed on the property:

* Will appreciate in value

* Can be sold for a profit following graduation

* Can be rented for income

With home values appreciating 5.4% per year, an investor will receive a 21.2% - 40%+ return on their investment. Since homes are built on the land, the value of the property also skyrockets, making the purchase a smart decision financially.

This isn’t including commercial land.

So, people are:

* Living on the property

* Long-term investors

* Flipping the property in the future

A lot of these investors are millionaires that send their children to the country for schooling.

Should You Invest in These Areas?

This is a question with a lot of “ifs.” Every investment that you make should be examined in detail based on the current land situation and the area which you’re interested in purchasing land.

Prices Become Inflated

When the demand is high and there are limited properties on the market, prices get inflated dramatically. This happens all over the country and is currently happening in the housing market where we’re experiencing a shortage of properties and an influx of buyers. Unless you’re wealthy, it’s going to be difficult to penetrate the market in many of these areas.

Since prices are inflated, if the area is over-saturated with foreign buyers, you’ll want to take a different approach:

* Find a once-in-a-lifetime opportunity. You may find an opportunity that is below market value and in an area where prices are skyrocketing. In this case, make the investment and aim to flip the property quickly.

* Buy land close by. Foreigners have a way of migrating together, where you’ll find a large population of Chinese residents, for example. When properties aren’t being sold in this area, find areas near these investment hubs that have cheaper prices. Not only will you be investing close to the hub, but you’ll also benefit from investors wanting to buy your property when the nearby area is empty with opportunity.

Land Can Be Scarce

When you have millionaires buying hundreds of acres of land, you’ll find that land opportunities have dwindled. It’s far easier for a rich person to walk in and buy land at a steep discount than it is for the investor trying to buy a small .5-acre parcel.

If land is scarce, you need to be very cautious when buying. While scarce land is optimal, you don’t want to buy at a price that is inflated beyond being reasonable. And if the area suddenly loses its appeal, you’ll find that the prices can drop quickly. A very unlikely but probable scenario would be a major university in the area shutting down. If all of the foreign investors have children in these areas, they will sell the property and relocate to another area due to the university closing.

This may cause the area to lose its appeal and your property value to drop, too.

Buy Before the Influx

Perhaps you have perception. Maybe you’ve noticed an area has attracted a lot of investment recently and you don’t believe that the area has really seen its true potential just yet. When this happens, it’s the same as buying a stock that is bound to soar on news of a new merger.

The area is being developed, foreign investors are flocking to the area, and prices are slowly starting to rise. When all of these factors exist, it’s easy to surmise that the prices will go higher. And if you find yourself in this lucky situation, it’s time to price the market and buy desirable land. Owners of land that is now owned by foreign investors in California hit the market at the right time and were able to sell their properties for unimaginable markups.

It’s like getting in on the gold rush right before the rest of the country found out. But I do caution you on not making an investment you can’t afford. Unless you’re able to lose out on the deal and can withstand a long-term investment, don’t put all of your money into just one property. The good news is that the price of land continues to rise, and this is a safe haven asset since: there is only so much land to occupy, and a growing population raises the demand for land.

Foreign investors are diligent and do their due diligence when making an investment. If you can buy land in areas that have just started to show a lot of foreign interest, it may be time to make an investment, too.