Which USA Investment Location Should You Choose?

With investment property on offer in Detroit, Memphis, Buffalo and Florida we have many conversations with investors who want to invest in the USA but are unsure where to choose.

Rod Thomas There are many factors involved and we completely understand that it can be difficult to make this important decision.

Perhaps the biggest issue is to balance the rental yield with anticipated capital growth.

In this in-depth article, Rod Thomas analyses each location and provides an easy to use comparison for investors needing to select the right investment option.

In our view the five key factors that matter to investors are:

USA Flag

Rental yield
Capital growth potential
Investment timescale
Level of risk
Capital required

Let's discuss each of these in turn, explore the issues and provide you with an insight into each location in the USA

Rental Yield /Annual Income

Some investors value rental income above all else. Others are willing to take a lower income in return for significant capital growth over the coming years. And others look for a balance between the two - a decent income with reasonable capital growth.

In general it's true to say that the higher the rental yield the lower the prospective growth. So this is a critically important decision to make.

Figures below are our best assumptions based on current knowledge of the market. They may, or may not, turn out to be accurate.

Here's how rental yields pan out across the USA Property we offer.

	Location	Annual Return
Higher	Memphis	40% net pa (this is profit on sale, not rental income and assumes 2x deals a year)
	Buffalo, NY	20% net pa
	Detroit, MI	15-16% net pa
Lower	Florida	9-10% net pa

Capital Growth Potential

	Location	Capital Growth
Higher	Memphis	40% net pa (this is profit on sale, not capital growth and assumes 2 x deals a year)
	Florida	30% pa. Timeframe 3-5 years
	Detroit	15%pa. Timeframe 5-10 years
Lower	Buffalo	5% pa. Long term trend

Investment Timescale

	Location	Timescale to sell
Shorter	Memphis	6 months
	Florida	3-5 years
	Detroit	5-10 years
Longer	Buffalo	10+ years (maybe never!)

Of course you can sell earlier than the timescale shown above, however that may restrict the capital growth available.

With Memphis, each property is a six month project so you can naturally stop at any time and choose not to reinvest if you wish to use the money elsewhere.

Level of Risk

The issue of risk is complex and difficult to simplify. We think there are two core risks for investors...

1. Risk of not getting the rental yield that is anticipated.

2. Risk of not getting the capital growth that is anticipated. This in turn breaks down into the risk based on the amount of anticipated growth, and the timescale in which you expect to get it.

Let's take one example : Detroit.

We think that the risk of not getting the rental yield is very small - the demand is there for the properties and it isn't going to disappear. However, the risk of not getting the capital growth is higher as the city is going through difficult times and there is considerable uncertainty about when prices will recover and how quickly.

To make sense of this we are giving each location a risk rating on a scale of 1-5 for both rental yield and capital growth. 1 means very low risk, 5 means high.

What you see from the table is that the risk in not achieving anticipated capital growth is always bigger than the risk in the rental yield. However, the return to the investor through capital growth is also much higher. The eternal conundrum - whether to accept higher risk for a higher return!

	Location	Risk - Rental yield	Risk - Cap Growth	Total Risk
Lower	Buffalo	1	1	2
	Memphis	2	2	4
	Florida	3	3	6
Higher	Detroit	2	4	6

Capital Required

	Location	Capital Needed $	Capital Needed £
Lower	Buffalo	$25,000 - $40,000	£17K - £26K
	Detroit	$45,000	£30K
	Memphis	$50,000 - $70,000	£33K - £47K
Higher	Florida	$60,000 - $150,000	£40K - £100K

The conversion rate has been take at £1 = $1.5

Summary

If you are clear about your investment strategy and available capital then this analysis should help you make an easy decision over which location is right for investment in the USA.

You may also have questions that have arisen and we are here to help. Call our USA Hotline on 0333 444 1440.

If you'd like to have this information in printed format for reference, you can download as a PDF -

USA Investment Choices Report