Rising interest rates have many foreign real estate investors spooked. They are worried that they will no longer be able to get favorable terms on their U.S. investment property mortgages and, as a result, will miss out on a great opportunity to extract equity from their properties.
But the reality is that interest rates are still at historically low levels, and, as a result, now is still a great time to refinance your residential investment property in the U.S. – even though rates are on the rise.
Why Now Is a Great Time To Extract Equity From Your U.S. Investment Property
If you’re a foreign investor with residential property in the United States, now is a great time to consider extracting equity from your investment. U.S. property values have been rising for the past several years, the demand for rental property is growing, and interest rates are still at historically low levels. That combination provides a rare opportunity to take advantage of increased equity and low borrowing costs.
Property Values are Still Rising
Despite the recent rise in interest rates, home values continue to appreciate across most markets in the U.S. According to the latest data from Zillow, typical home values have increased on a month-over-month basis for 99 consecutive months (August 2014 through October 2022). If you wait to extract equity from your property until values have plateaued or begun to decline, you could leave money on the table.
Rents are Rising Too
In addition to appreciating home values, rents are also on the rise across most markets in the U.S., thanks partly to the ongoing shortage of rental units relative to rental demand. Single-family rents increased by 10.2% year over year (September 2021 vs. September 2022). CoreLogic reports that even though rents are decelerating month over month, they remain at more than twice the pre-pandemic growth rate.
You Can Still Get Attractive Financing Terms
Even though interest rates have risen in recent months, they remain historically low by any other measure. In addition, companies such as Lendai are still willing to offer attractive financing terms for U.S. residential properties for foreign investors – such as low fixed rates and extended repayment periods – to borrowers who qualify. Now is still a great time to lock in low financing costs on your investment property while rates remain relatively low by historical standards.
Benefits of Extracting Equity From a Rental Property
A lump sum of cash reserves can be a useful tool for investors, providing the capital to take advantage of new opportunities as they arise. And for foreign investors looking to extract equity from their U.S. rental properties, there are several benefits to doing so.
First, raising cash through equity extraction can provide a valuable reserve of funds. Additional capital can cover unexpected expenses or have money available for another investment. Equity extraction can also help investors consolidate multiple loans into one lower-interest loan amount, saving on interest payments in the long run.
Finally, extracting equity can be a way to leverage additional investments. Investors can grow their portfolios quickly and efficiently by using the lump sum of cash from equity extraction to purchase additional rental properties. And with the added rental income from these new properties, they can further pay down the original loan, freeing up even more cash for future investments.
Extracting equity can be a smart move for foreign investors looking to maximize their return on investment in U.S. rental properties. With the right strategy in place, it can provide the cash needed to take advantage of new opportunities, consolidate debt, and grow a portfolio of rental properties quickly and efficiently.
3 Ways to Turn Equity into Cash: Home Equity Loan, HELOC, Cash-Out Refinance
Turning your equity into cash can be a great way to finance a major purchase and expand your portfolio. An investor’s loan-to-value (LTV) ratio, down payment, and debt-to-income ratio, and credit score (for American citizens and residents) will determine their loan options.
There are three main ways to convert home equity into liquid assets to know about. However, a cash-out refinance is most relevant to foreign investors:
- Taking out a Home Equity Loan
- Obtaining a Home Equity Line of Credit (HELOC)
- Refinancing with a Cash-Out Refinance loan
Home Equity Loan
Home equity loans are secured second mortgage loans that allow homeowners to borrow a lump sum with fixed interest rates based on the difference between their equity in the property and its market value.
HELOC
A Home Equity Line of Credit (HELOC) is a flexible financing option that allows borrowers to access money like a credit card during the draw period pay it back over time with monthly payments, making it an interesting option for American investors.
Cash-Out Refinance
Foreign investors with rental properties in the U.S. may benefit from a refi transaction, as it provides them access to more capital upfront that can be used for purchasing additional properties. This could also result in a better return on investment over a period of time.
A cash-out refinance is often the most cost-effective option for foreign investors, as it typically has a lower interest rate compared to other types of loans or lines of credit with higher interest rates. This helps reduce the total cost of borrowing while also allowing them to use their home equity to obtain cash when they need it most.
Additionally, cash-out refinances are generally easier and faster to secure than other loan options, making them an attractive choice for foreign investors who may not have access to traditional financing in the U.S. To learn more about replacing existing debt or cashing out your equity based on the current value of the property visit Cash-Out Refinance.
7 Tips for Foreign Investors to Refinance Investment Properties
For foreign investors, refinancing an investment property can be complex. There are many factors to consider when attempting to refinance, and if not done correctly, it can come at a great cost. Fortunately, there are some tips that foreign investors can follow to make the refinancing process easier and more successful:
- Research your intended investment area’s current real estate market to understand any potential risks or rewards associated with refinancing.
- Get familiar with the legal regulations and tax laws that apply to foreign investors in the U.S., including restrictions on ownership and transfer of properties and taxation rules that may affect you differently from domestic investors.
- Calculate all relevant costs associated with refinancing (including origination fees, closing costs, and points) and factor these into your decision-making process.
- Consider potential risks associated with volatile exchange rate fluctuations that could affect your investment returns over time when deciding whether to refinance.
- Develop a comprehensive plan for financing the property (including refinancing) before making any final commitments so that you can weigh up all available options and make informed decisions.
- Consider seeking expert advice from an experienced attorney specializing in U.S.-based real estate investments or a financial advisor knowledgeable about international investments and exchange rates between currencies if necessary.
- Identify potential lenders willing to work with foreign investors and compare their loan terms, looking particularly at interest rates, repayment schedules, Pre-Payment Penalties buyout options, and any other conditions that may apply to you specifically as an international investor.
How Lendai Can Help You Extract Equity from Investment Properties
If you’re a foreign investor looking to extract equity from your investment property in the US, Lendai can help. Lendai is a global tech company that offers digital solutions to create a simple, fast, and efficient online financing process.
Lendai’s unique A.I. algorithms and online platform are transforming how foreign investors access U.S. financing. And because Lendai partners with the best real estate professionals, you can be confident you’re getting the best possible service.
