British buyers snap up US repossessions

The collapse of large sections of the American housing market has given property hunters in the UK a lucrative investment opportunity. Chiara Cavaglieri reports

The world of property can be harsh in the extreme, with one person's misery being another one's profit. Nowhere is this truer than in the land of laissez-faire economics the United States.

The collapse in house prices in many parts of America as a result of the credit crunch and recession provides an investment opportunity for cash-rich Britons unafraid of risk and without moral qualms. Property buyers are taking on repossessed homes – called foreclosures in the US – at bargain-basement prices, then renting them out for impressive returns. But should they hand over their cash in such turbulent times?

Foreclosures accounted for 25 per cent of US residential sales in the third quarter of 2010 – compared with low single digits in the UK – according to figures from online marketplace RealtyTrac. These homes are being sold more than 32 per cent below average sales prices.

On top of this, rental yields of between 12 and 15 per cent after an initial outlay of only £30,000 to £40,000 are being reported by property investment company the Belgrave Group, which was set up to take advantage of the American repossession market. Belgrave currently focuses on buying foreclosures in Atlanta and Detroit – two areas hit particularly severely by the mortgage crisis – and selling them on to investors for between £30,000 and £42,000.

"We will not list properties that fall below 12 per cent net profit – that's what's in the investor's pocket – so these properties can pay for themselves in about six or seven years," says Nigel Gough, a director of Belgrave. "Most of these properties were worth over $200,000 a few years ago and eventually the economy will get back on its feet. So while the rental income pays you back now, you've got property to sell at full market value in six or seven years' time."

Repossessed properties are usually steeped with potential pitfalls for investors, particularly at auction when there is little or no time for an inspection. In areas with high numbers of foreclosed properties, many homes are vacant and at risk of vandalism or even squatters so the damage can be extensive. Investors will also need to fork out for a title search to check for outstanding debts and a property lawyer to determine the foreclosure laws as these differ from one state to another.

Raising finance is yet another challenge, with lenders in the UK and the US unlikely to lend on a foreclosed property, so investors have to be willing to risk a cash lump sum.

"In America, banks are not keen to lend to non-residents at all so that's a further hurdle," says Miranda John of Savills Private Finance International. "It's a cash punt, really."

For investors without a lump sum, opportunities for rental yields on Spanish repossessions could prove more successful as the banks there are far more willing to lend on foreclosed properties.

"The banks are much more innovative and proactive so most will hand on lists of their foreclosures. Some of the larger banks will even offer advantageous lending terms so clients may find they can access higher loan-to-values and lower rates than would be available for a standard purchase elsewhere," says Ms John.

Other legal pitfalls with a foreclosed property include difficulties getting previous owners to vacate the property and unpaid property taxes which may pass on to the new owner. It is usually easier, therefore, for investors to buy from the bank once the foreclosure process is completed. Companies such as Belgrave and Assetz offer to take on the bulk of the buying stress by sourcing and inspecting the properties, refurbishing them and filling them with tenants. All that's left for UK investors to do is collect the rental income every month.

Despite the attraction of cut-price properties, however, David Shaw of investment consultancy Torcana, which specialises in discounted property in Florida, warns against diving in headfirst without a local professional.

"I unfortunately see naive UK buyers getting carried away with what look like unbelievable opportunities in pretty communities, simply because they are cheap and look good. It is not uncommon in Florida for builders to overcompensate with amenities and flair to mask a questionable location," he says.

Mr Shaw says that for stable, long-term rental demand and better resale potential, investors should avoid areas which have over 25 per cent foreclosures in the community and instead concentrate on locations where affluent local professionals live, work and send their children to school.

Finally, investors should keep in mind that no matter what the initial cost, an overseas property purchase is a huge financial commitment. There is no guarantee that investors will see the level of rental income or capital growth that they hope for, particularly when you take into account the economic uncertainty in the US. "Remember that no one has a crystal ball so be wary of anyone who tries to predict what future returns you are going to get," says Jason Witcombe of IFA Evolve Financial Planning.

Unemployment levels in the US jumped to 9.8 per cent last month, its highest rate since April, and house prices declined by 2 per cent in the third quarter of this year, according to the Case-Shiller index of 20 major US cities. High unemployment rates drive down house prices so investors hoping for capital growth may find that another cluster of foreclosures could flood the market.

Buying property involves tying up a lot of money in an illiquid asset so investors need to be sure they are prepared to sit on their asset for some time.

"Also, remember that exchange rates will fluctuate and can go for or against you. This is a risk that Britons investing in UK property don't face," says Mr Witcombe.

Case Study: Zoe Guilford

Having spent much of her time in LA, Zoe Guilford, 34, always dreamt of owning her own place in the US and was looking for somewhere to invest her money. She settled on the US foreclosure market and came across the Belgrave Group. "My Nan lives in Florida for six months of the year and my parents own a property there so I have links there already," she says.

In May, she bought her first property through Belgrave, a three-bedroom house in Detroit for £27,000 cash, which in two months' time was being rented out for $900 (£570) a month.

"The thought of being able to buy a house for under £30,000 was amazing. I know that some day the American market will recover and I'm willing to hold on to them for as long as it takes," she says.

Only a month later another Detroit propertycaught her eye, this time for £29,000, which she now rents out for $850. With total earnings of $1,750 per month for an outlay of less than £60,000, Zoe is more than happy to recommend the US market to anyone.

"If I had the money I would buy another property. It is still a risk, but when you look at the return it is worth it," she says.

Arts and Entertainment
The cast of The Big Bang Theory in a still from the show
tvBig Bang Theory filming delayed by contract dispute over actors' pay
England celebrate a wicket for Moeen Ali
sportMoeen Ali stars with five wickets as Cook's men level India series
Morrissey pictured in 2013
A family sit and enjoy a quiet train journey
voicesForcing us to overhear dull phone conversations is an offensive act, says Simon Kelner
peopleGuitarist, who played with Aerosmith, Lou Reed and Alice Cooper among others, was 71
Robyn Lawley
i100  ... he was into holy war way before it was on trend
Arts and Entertainment
High-flyer: Chris Pratt in 'Guardians of the Galaxy'
filmThe film is surprisingly witty, but could do with taking itself more seriously, says Geoffrey Macnab
Life and Style
food + drinkVegetarians enjoy food as much as anyone else, writes Susan Elkin
Life and Style
lifeDon't get caught up on climaxing
Life and Style
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    1st Line Support Technician / Application Support

    £20000 - £24000 per annum: Harrington Starr: A leading provider of web based m...

    Team Secretary - (Client Development/Sales Team) - Wimbledon

    £28000 - £32000 per annum: Ashdown Group: Secretary (Sales Team Support) - Mat...

    Accountant / Assistant Management Accountant

    Competitive (DOE): Guru Careers: We are looking for an Assistant Management Ac...

    Senior Investment Accounting Change Manager

    £600 - £700 per day + competitive: Orgtel: Senior Investment Accounting Change...

    Day In a Page

    Save the tiger: The day America’s love of backyard tigers led to a horrific bloodbath

    The day America’s love of backyard tigers led to a horrific bloodbath

    With only six per cent of the US population of these amazing big cats held in zoos, the Zanesville incident in 2011 was inevitable
    Samuel Beckett's biographer reveals secrets of the writer's time as a French Resistance spy

    How Samuel Beckett became a French Resistance spy

    As this year's Samuel Beckett festival opens in Enniskillen, James Knowlson, recalls how the Irish writer risked his life for liberty and narrowly escaped capture by the Gestapo
    We will remember them: relatives still honour those who fought in the Great War

    We will remember them

    Relatives still honour those who fought in the Great War
    Star Wars Episode VII is being shot on film - and now Kodak is launching a last-ditch bid to keep celluloid alive

    Kodak's last-ditch bid to keep celluloid alive

    Director J J Abrams and a few digital refuseniks shoot movies on film. Simon Usborne wonders what the fuss is about
    Once stilted and melodramatic, Hollywood is giving acting in video games a makeover

    Acting in video games gets a makeover

    David Crookes meets two of the genre's most popular voices
    Could our smartphones soon be diagnosing diseases via Health Kit and Google Fit?

    Could smartphones soon be diagnosing diseases?

    Health Kit and Google Fit have been described as "the beginning of a health revolution"
    Ryanair has turned on the 'charm offensive' but can we learn to love the cut-price carrier again?

    Can we learn to love Ryanair again?

    Four recent travellers give their verdicts on the carrier's improved customer service
    Billionaire founder of Spanx launches range of jeans that offers

    Spanx launches range of jeans

    The jeans come in two styles, multiple cuts and three washes and will go on sale in the UK in October
    10 best over-ear headphones

    Aural pleasure: 10 best over-ear headphones

    Listen to your favourite tracks with this selection, offering everything from lambskin earmuffs to stainless steel
    Commonwealth Games 2014: David Millar ready to serve up gold for his beloved Scotland in the end

    Commonwealth Games

    David Millar ready to serve up gold for his beloved Scotland in the end
    UCI Mountain Bike World Cup 2014: Downhill all the way to the top for the Atherton siblings

    UCI Mountain Bike World Cup

    Downhill all the way to the top for the Atherton siblings
    Save the tiger: The animals bred for bones on China’s tiger farms

    The animals bred for bones on China’s tiger farms

    The big cats kept in captivity to perform for paying audiences and then, when dead, their bodies used to fortify wine
    A former custard factory, a Midlands bog and a Leeds cemetery all included in top 50 hidden spots in the UK

    A former custard factory, a Midlands bog and a Leeds cemetery

    Introducing the top 50 hidden spots in Britain
    Ebola epidemic: Plagued by fear

    Ebola epidemic: Plagued by fear

    How a disease that has claimed fewer than 2,000 victims in its history has earned a place in the darkest corner of the public's imagination
    Chris Pratt: From 'Parks and Recreation' to 'Guardians of the Galaxy'

    From 'Parks and Recreation' to 'Guardians of the Galaxy'

    He was homeless in Hawaii when he got his big break. Now the comic actor Chris Pratt is Hollywood's new favourite action star