Basic Guide for Foreign Buyers of Real Estate in the USA
As the Great Recession slowly but surely fades with hopes of an eventual recovery on the horizon, foreign buyers and investors are beginning to look for opportunities in the US real estate market again. Although the housing market’s steady recovery is still a “work in progress,” many foreigners acknowledge that US real estate is “for sale,” plus the dollar is historically weak, so many buyers they are trying to take advantage of the bargains on residential and commercial properties. here. However, a foreign buyer investing in the US must exercise extra diligence in planning acquisitions due to nuances in tax laws, ownership rules, money transfer rules, and many other factors. There are many aspects to consider, I will focus on a few key points:
(1) ALL DOCUMENT: Before you transfer even a dollar here, make sure you can verify where the money is coming from. Any transfer of more than $10,000 to the US, including all your cash real estate purchases, will be reported to federal authorities, and when the feds ask questions, you need to make sure you can prove the legal sources of your cash. . Under the Patriot Act of 2001 and the Money Laundering Control Act of 1986, escrow and title companies, brokers, and banks are required to report to federal authorities any large deposits and money transfers over of $10,000. Make sure you have documentation supporting your sources of income, taxes paid abroad, bank statements, investment statements, in other words, the paper record.
(2) FINANCE OR ALL CASH? If you plan to buy all cash, you will have many advantages, as “all cash” buyers can enjoy greater discounts from motivated sellers in many areas. All cash buyers can close deals very quickly, and some sellers prefer to deal with buyers this way. However, I recommend that you plan acquisitions with a real estate investor adviser to see if buying with some form of financing will be more financially beneficial to your investment strategy due to the improved ROI from leverage and spread of risk across multiple properties.
If you’re looking to finance your US real estate acquisition, prepare for tough times. Real estate financing is hard enough even for Americans these days, but for foreigners it’s even harder. There are only a handful of institutional lenders that will consider loans for foreign nationals, but all will require a large down payment (at least 30% or more) and verification of income from your country. If you have a US work visa, such as H or L, and have an established credit history in the US, you may qualify for regular financing with as little as 3.5% down, although you will still be considers him a “Foreigner”.
If you’ve established a relationship with your bank in your own country or another foreign bank, you may want to consider getting financing from them and then bringing the loan proceeds into the US as an “all cash” purchase, again, just make sure to have documentation of where the money came from.
Alternatively, there are many private lenders who will lend up to 65% of the asset value at 9-12% per year regardless of your immigration status, and if you’re looking for commercial property, you may be able to finance that more easily as well. Because commercial lenders write loans primarily based on the merits and income of the property itself, rather than the borrower.
(3) CONTROL YOUR ASSETS: In the US, you can hold title to property in many different ways: as an individual, corporation (whether domestic or foreign), limited liability company, partnership, living trust, pension fund, or many other forms of entity. Each of these forms has advantages and disadvantages, especially when it comes to taxing rental income received from your investment property, transferring ownership to related or unrelated parties, estate planning, and many other situations. You should decide BEFORE you buy property in the US how you will own the property, spend some time with an expert international tax advisor to learn about your options.
Investing in real estate is a very practical undertaking. You need to think about the details before buying the first property. It’s very difficult to run a rental business when you don’t see what’s going on yourself. I’m working with a lot of investors and I’ve owned a lot of rental properties, and I can tell a lot of horror stories about property management companies embezzling money from out-of-town investors, renting out units for cash but reporting them vacant, overinflating repair bills, etc. How do you plan to physically control your investment while living in India or Russia and owning property in the US?
(4) BEFORE ENTERING, PLAN YOUR DEPARTURE. Are you planning to sell for a profit? How long before selling? Did you account for future capital gains tax? Will you take the money out of the country? If you plan to sell for a profit but reinvest the proceeds in another property, you should become familiar with tax-deferred 1031 exchanges that allow you to trade and consolidate property for years and decades without paying a penny of tax until final disposition. . It is a great tool for smart investors that can make you very rich, but again, you should plan this strategy in advance and consult with a knowledgeable person. Also, when you sell property here as a foreign person, you are subject to all kinds of withholding regardless of whether you made any gain, including the 10% withholding under FIRPTA just because you are a foreigner, the 3 1/3% withholding in California because the property is not owner-occupied, etc. But you can avoid some of these holds by learning the rules and planning your title hold strategy ahead of time!
(5) VISA CONSIDERATIONS: One major misconception I see among many foreign buyers that I’d like to address here: Don’t assume that owning US real estate will automatically entitle you to a US visa. You can own $10 million worth of US property. but you may still be denied an entry visa. So, be sure to get your visa status first, and then come to the US to search for areas of interest and specific properties. NEVER BUY PROPERTIES ON SIGHT!!!
(6) WHY REAL ESTATE? Finally, ask yourself honestly: why are you investing in US real estate? Because of the visa, the passive income, the future appreciation of the market or because you are thinking of making it your future home? If visa and investment potential are your main decision factors, consider some alternatives that can provide you with similar ROI (return on investment) and visa opportunities, such as EB-5 visas ($1 million minimum), ” Regional Centers” ($500,000 minimum), E-2 Small Investor Visas ($200,000 investment), etc. Or you can combine several strategies, depending on your preferences and access to capital.
Bottom line: your real estate investment here should be a RESULT and the FINAL STEP of a serious planning path. Measure seven times, cut once, as we say in Russian. It’s much easier to avoid costly mistakes before you enter this market than to waste time and money undoing mistakes made in the course of a hasty and poorly planned real estate adventure. Happy investing!