When borrowers think of securing a loan to purchase property in upscale real estate markets, they’re more likely to focus on banks and other traditional lenders before turning to private lenders. But this kind of thinking may cause borrowers to miss out on lucrative opportunities in some of the hottest real estate markets in the Western Hemisphere. After all, even the wealthiest people do not want to use their own money when buying investment properties — either domestically or abroad.
Whether the destination is a tourist’s dream, a metropolitan area on the rise or a country experiencing major growth, commercial mortgage brokers need to know that leveraging the assistance of a private lender can give motivated clients an edge in affluent markets around the globe. In fact, it’s precisely the in-demand nature of these markets that makes private lending an excellent option for investors, rather than a backup option if a traditional lender falls through.
“For even the wealthiest borrowers, using one’s own money to fund a real estate purchase is risky. They would rather invest their money in other ways.”
Direct private lenders bring three distinct advantages to the table in competitive, wealthy real estate markets. These include speed to closing, flexible deal terms and fewer regulatory controls. Opportunities in affluent real estate markets can move fast. This is influenced by the popularity of the market (i.e., the sheer number of investors who want to plant their flag) and the scarcity of property in some smaller locations.
When there’s a long list of interested buyers putting together offers, becoming one of the first who can get to the table and close the deal is of utmost importance. Although traditional lenders may have few qualms about approving a loan for property in a popular, high-end locale, they still need months to work through their own red tape. Private lenders, however, can meet this need for speed with the resources and skill set to close in as little as a few days.
Private partners
Even in hot real estate markets, traditional lenders may only be willing to fund a certain deal type. These deals need to meet the bank’s strict internal criteria for use, inspections and other quotas.
Such internal criteria may often rule out opportunities to acquire properties such as raw land — real estate that’s extremely valuable within the context of an affluent market but will not pass muster with a traditional lender that has a blanket policy against land loans. This is especially true in international markets, where traditional lenders will rarely work with borrowers on any type of property, let alone raw land.
Private lenders, on the other hand, have flexibility built into their business models. They can take a step back and examine the merits of a deal in a way that traditional lenders may not be able to. Private lenders will take into account the quality and affluence of the market when evaluating a potential opportunity. Plus, they don’t have arbitrary, internal policy-driven limits that may fund a loan for one borrower and not for another. Simply put, the chances of obtaining the funding needed are higher when partnering with a private lender.
For even the wealthiest borrowers, using one’s own money to fund a real estate purchase is risky. They would rather invest their money in other ways. Instead, they go to private lenders for bridge loans to fund their real estate deals while they pursue other funding sources. Private loans give borrowers confidence that they’re making smart investments with a layer of protection.
On top of that, specialized private lenders are highly experienced in navigating the real estate laws in many foreign countries. Borrowers thus get both financial and regulatory security when they seek funding from these private lenders. This combination, including the faster approval processes when compared to traditional lenders that take months to decide, makes private lenders the go-to sources for investors planning to enter foreign markets.
Caribbean islands
Wealthy foreign real estate markets present a multitude of opportunities for mortgage brokers and their clients. Some of the most breathtaking landscapes — and most coveted real estate — can be found throughout the Caribbean.
Driven by the region’s pristine location and the exclusivity created by its wealthy enclaves, Caribbean countries have vibrant economies that are fueled by the global tourism industry. The islands offer limited inventories of real estate due to their sizes, resulting in premium prices that can reach seven or eight figures for the best locations. This growth isn’t expected to slow down anytime soon either.
One example is the French territory of Saint Barthelemy, better known as St. Barts. Property ownership opportunities are highly sought after on this small island that covers about 10 square miles. The limited space and unique surroundings have fueled the interests of international buyers, driving up the premiums that investors are willing to pay for their own piece of paradise. Villas can cost more than $5 million throughout the island, with the most exclusive beachfront properties easily fetching quadruple the price.
Another popular Caribbean destination is St. Maarten, an independent constituent country with ties to the Netherlands. At just over 13 square miles, St. Maarten presents many of the same opportunities and challenges as St. Barts when it comes to exclusivity and availability. The island continues to attract many of the world’s wealthiest people. This presents an opportunity for both residential and commercial investments. For instance, some Guana Bay villas with ocean views can cost as little as $1 million, whereas luxury cliffside compounds can go for $20 million.
The Cayman Islands, a British overseas territory, boasts one of the highest standards of living in the Caribbean. Developed and raw-land investment opportunities abound in this trio of islands. It’s one of the fastest-moving real estate markets in the Caribbean and a corporate magnet due to its status as a global tax haven. The country levies no income tax, capital gains tax or corporate tax. The largest number of offshore companies in the Caribbean region are registered here.
South America
Investment opportunities in several South American countries also continue to attract attention. These include Brazil, where high-end properties in major cities such as Sao Paulo and Rio de Janeiro are multiplying fast, with a particular interest in luxury apartments in both cities.
For instance, the luxury and ultra-luxury apartment sectors in Sao Paulo expanded quickly in the first nine months of 2021, with sales more than doubling compared to the same period in 2020. In Rio de Janeiro, the luxury home market has grown by 200% in the past five years. Combined with a relatively competitive market and an appetite for new construction, these growing cities are attracting investors from around the world.
Although Peru isn’t the wealthiest country in South America, its real estate market has been on the rise. In 2021, new home sales in the Peruvian capital of Lima were up 44% year over year. With a population of 11 million, Lima is among the largest cities in the Americas, and the demand for residential and commercial real estate continues to grow as a result. The nation has a growing population and a housing deficit that can benefit from foreign investment. Peruvian legislation has allowed for infusions of foreign capital to help fuel growth.
Northern neighbor
While Canada might not be the first country that comes to mind when thinking of real estate investment hot spots, our neighbors to the north have proven to be a popular location for cross-border buying sprees. The country’s high standards of living, economic diversity and stable political climate have attracted new residents and flourishing business opportunities.
Cities such as Toronto and Vancouver continue to grow, creating opportunities for investors to build new housing and commercial properties. Sales of all types of housing in Vancouver — a hotbed for tourism, the entertainment industry and the technology industry — rose by 23% year over year in August 2023.
Rents for a one-bedroom apartment in Toronto, the wealthiest city in Canada as measured by the number of high net worth individuals, have grown by 40% in recent years. Additionally, Canada does not have residency or citizenship requirements to own property, making it easy for U.S. investors to access the market.
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Affluent markets around the world offer opportunities for commercial mortgage brokers to help clients expand their business operations. Private capital can serve as a game-changing entry point into these exclusive investment arenas. In a competitive land and property market, the flexibility and speed that a private lender brings to the table can make all the difference between getting the deal done and missing the boat. ●
