Pitfalls to avoid when investing in the United States

Pitfalls to avoid when investing in the United States

Due to the strength and growth of the market, investing in the United States can yield much more than in other countries, both in the field of business and that of real estate.

All in all, there are few differences and surprises compared to say a French environment – ​​and even less Canadian – but, however, the usual rules and pitfalls should not be ignored in order to minimize the risks.

“General” risks:

As in all the countries of the world, before investing it is necessary to know the realities on the ground, including the local risks.

There are obviously natural risks (earthquake in California, hurricanes and floods in Florida, etc.) which can have repercussions on the price of insurance, but also on the proper functioning of a business

(a hurricane alert can have painful consequences for customers, for example). Similarly, there are “zone” risks: a district may be considered upscale at one time, and not at all a few years later (and vice versa);

with consequences for both rents and the quality of local customers. It is therefore necessary to find out about the developments in the districts.

Of course, no country is safe from a “systemic crisis” either, such as the subprime crisis in 2008. That said, owners who kept their homes and businesses during this crisis have not had to regret it:

the United States today has a value equal to or greater than that which it had in 2008 (with however some differences according to the States).

The strength of a country can also lead it to have a currency that is too strong, again with consequences on investments, on tourist areas (fewer foreign tourists, etc.), on export facilities, etc.

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In the investment

Know the assets and know your partners

This may seem obvious to most of our readers, but each year hundreds of Europeans invest in the American market without ever having seen the goods they are buying…. a bit like ordering a book on Amazon.

This is the case both for investments in existing companies and in real estate. The so-called “North Dakota lands” case is eloquent in this regard, with thousands of complaints from aggrieved persons (and not only Europeans:

Canadians were also taken in). For the record: the real estate boom in this state (which has become the world’s largest oil producer) has made a large number of people dizzy and lose their common sense.

Often, in court records brought to our attention, the investors had never come to see the reality of their goods, and they had trusted intermediaries whom they had known for a short time.

To put it simply: they knew nothing about the United States, and in many cases they had never set foot there. This was also the case in the case of floodplains sold in Port Charlotte.

A woman (the only one who won her case) had not come to Florida any more than the other plaintiffs.

There are a very small number of scammers in the United States, but… it is often “the opportunity that makes the thief”.

And since they have never (or “not yet”) been sentenced by the courts… no one can give their names!

Not thinking that justice protects you 100%

As quoted just above: if the crooks were condemned each time by American justice… there would be no problem. However, a large number of complaints end in a “settlement”: an amicable settlement.

The formula is attractive: rather than wasting years in court cases and colossal fortunes in legal fees and lawyers… you might as well settle.

So everyone manages, and very few trials end in judicial arbitration: the parties manage without the judge having to intervene. The advantage is obvious.

But the scammers know the procedure better than the newcomer: “I’m going to take his money, and if he’s not happy, I’ll give him 40% back with the settlement that will follow his complaint”.

Do you see the problem? Scammed people find themselves happy to have been able to recover 40 or 50 or 60% of their money… whereas the scammer had fully planned to return this part to them.

These people are quite sure they saved some money…when the scammer just gave them back what he intended to give them back.

Again: there aren’t thousands of crooks, but… bad stories only happen to those who aren’t suspicious enough. Check the pedigree of your partners, and beware of networks and recommendations.

Nothing is free in the United States, and a simple phone number written on a piece of paper can constitute a “customer referral” resulting in a kickback.

Do not hesitate to multiply contacts and advice before trusting someone.

In business creation

Watch out for the American Mirage. This is the very first piece of advice that can be given to investors coming to take over or create a business in the United States:

the “American dream”, too many dreams (and mirages) can be fatal. And it’s very common: probably more than a quarter of investors are victims of it.

The world’s leading economic power, the United States, is a very attractive market where, in the past AND in the future, a large number of immigrants will have succeeded in creating excellent businesses.

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But failures also exist. If Canadians often have a good success rate when they set up in the United States, it is much less obvious for Europeans.

Many leave after several years, and sometimes even after having lost everything in a few months. And, as said above, it’s not due to the number of scammers (who, again, is extremely limited).

This is due to too much haste on the part of the investor, which can have several consequences. From our experience, but also that of professionals (lawyers, accountants, brokers, etc.);

a majority of failures are committed by people who have been warned, but who did not want to see the realities.

Botched market studies, underestimation of the cost of family life in the USA, underestimation of marketing in the USA…

underestimation of the competition, underestimation of the duration of work in a commercial premises… without going as far as the most caricatural examples:

acquisition of a business without parking etc, etc. There is no miracle: even if you have a good business idea, you have to study all aspects of its feasibility.

This is due to too much haste on the part of the investor, which can have several consequences. From our experience, but also that of professionals (lawyers, accountants, brokers, etc.),

a majority of failures are committed by people who have been warned, but who did not want to see the realities.

In the columns of the Florida Mail or other media, but also in the field, you will always see business leaders who have succeeded in their American careers.

But those you won’t see… are those who have already gone back to France or Canada “one hand in front, one hand behind”… as the saying goes!

In commercial real estate

A very large number of businesses are sold every two years to a different investor. Look at the history already: if the trade has been resold 6 times in 12 years, there is little chance that you will escape the rule.

Otherwise you can use this asset to ask the owner to halve the amount of the rent!

Before signing a closing for a commercial space, you have to check EVERYTHING, and be sure that the due diligence has really been done. The checklist is very long.

If you do not have the few days of patience necessary to check (the walls, the team, the finances, the equipment, the stock, the marketing, etc), in this case, do not come to settle in the United States. United!

In real estate in general

Familiarize yourself with all local rules

Including those of the condominium. Be certain that you can put your property up for rent immediately, and without unforeseen restrictions!! The more “upmarket” the city, the more restrictions there are.

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Watch out for flips

It’s good to be able to realize it, but it’s more annoying when you’re a victim of it: you’ve just been sold a property for twice the value it had 6 months before.

It’s not necessarily theft but hey… In any case, you have to look carefully at the cadastral sheet and the history of the house or condo, and never forget that… everything is negotiated… especially in the US!

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