Congress is finally eliminating a 1980’s Reagan era protectionist inspired restriction on foreign investment into commercial real estate and the result will be billions of new dollars flowing into an already robust market.
The law, known as the Foreign Investment in Real Property Tax Act, subjects foreign investors to income tax when they sell U.S. property. It was initially passed in 1980, a time when there were fears that foreign investors including the Japanese might buy up large swaths of the country and its farmland.
There are those who might fear this new influx of capital into the commercial real estate market, as there are growing signs that U.S. markets have again flipped into the dreaded “B” side. Bubble economics or a return to market exuberance? Your guess is as good as mine.
“Life is 10 percent what happens to you and 90 percent of how you react to it.”
If you choose to react to the rising commercial real estate market in fear – by pulling back and waiting to see what happens for a few quarters or years, you risk missing out on a potential long-term boom.
At the same time that foreign funds are growing and flowing into the U.S. markets, we also have a huge number of older, original owner commercial properties coming onto the market. Many of there are baby boomer’s original investments and require complete re-habitation to be market worthy. Many of these sit in ideal location, or in locations with fantastic upside potential with rehab.
Waiting on the sidelines is not going to benefit you in the current market we are experiencing. The odds are that foreign investors (who typically purchase for very long term goals) will be the primary winners while U.S. investors (who typically invest with short term goals) sit out until after the next election – anticipating that some change in political leadership will give them a better edge. Bad idea!
The truth is that location, long term potential, and scarcity will win out over bubble busts and figure heads every time. Investing into commercial real estate now, while adhering to specific long term goals is the best bet NOW! When we take into account the rise of the millennial generation, and the growth predicted over the next 30-years you begin to see that the properties purchased today, in the best locations linked to transportation corridors, will become the stars of the future.
Horizon Resources Inc 