Mariano Capellino gave his opinion about how to invest in real estate in the United States in an article published by El Cronista.
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How to invest in real estate in the United States at u$s 300 per sq. m
It looks like the popular expression “Believe it or not!” by Ripley. While at Villa 31 (slums area) units with balcony are sold at u$s1200 per square meter, in the USA, you can get the same meters of land at one-fourth of such amount.
The real estate opportunity is in Detroit which lost 50% of its inhabitants during several years because of reduction in job opportunities. “In the United States, when an area goes through this type of situations, there is a risk of collapse in property prices. In turn, this caused unsafe conditions, high criminal rates and, because of improper administration, the city went bankrupt in 2013 and successfully exited in 2014”, as warned by Mariano Capellino, CEO of INMSA, an investment management company.
This type of crisis was also experienced in other zones in the USA, maybe involving higher values, but a similar collapse took place in Atlanta, Houston and Homestead, a city located in Miami-Dade county, Florida, where it was possible to acquire housing units at u$s350 per sq. m in 2011, today exceeding the amount of u$s 1000.
Nowadays, this is also happening in cities of Spain such as Castellón, Almería and Cadiz, where you can acquire units from 400 euros per sq. m. The difference is that rentals there are about 250 euros while in Detroit, due to the recovery of job opportunities and higher income, rentals reach an approximate amount of u$s 800.
This also happened in Argentina in the year 2002, where housing units were acquired under u$s500 per square meter in the Province of Buenos Aires and the interior. “This is what this business is about: taking advantage of market declines and, as soon as you see the first clear signs of recovery, you access the market so that you can benefit from its strong recovery and appreciation of assets”, Capellino explains.
In his opinion, “this business is about timing rather than location or premium assets, as many would have us believe”. To help you access these hidden pearls, there are real estate operators in the market, but it is important to be careful and analyze in detail the neighborhoods where the purchase will be carried out, to avoid the risk of vandalism, which is a problem still present in some zones.
Hidden pearls
The following neighborhoods offer opportunities and have low insecurity rates and lot of potential for recovery: West Detroit, Corktown, University District, Eastern Market, Dearborn, Lincoln Park and Warrendale, which have been undergoing a recovery process for one year, as far as homes and apartment buildings are concerned.
In order to acquire a property you can resort to national franchising real estate agents. If we have a look at the recent history in this type of assets in such locations, the appreciations in the last two years have exceeded 15% annually, starting from very low levels of near 20% of the value they had in the year 2005.
However, market experts prefer to be conservative and they project recoveries (appreciations) of approximately 10% annually. But the interesting thing is that the rental income must also be taken into account, which may exceed 20% annually during the next five years, because of property’s low value.
Even though Detroit is full of sellers and real estate agents, one must be very careful when operating in a complex market. There are people who acquire units at u$s15,000 in disadvantaged areas, they invest u$s5000 to make repairs and then, they sell to foreigners who are unaware of this situation at u$s70,000 but in high-risk areas. One must be very careful because it is difficult to choose a location, as vandalism is still present in many zones. In the best zone of Downtown and Midtown, it is possible to find values from u$s800 to u$s4000 per square meter. In general, class A zones have already recovered their price and little remains to be done, if compared to the rest.