A Basic Guide for Foreign Buyers of US Real Estate
As the Great Recessions slowly but surely fade with the hope of an eventual recovery looming on the horizon, foreign buyers and investors are beginning to look for opportunities in the American real estate market again. Even though the housing market’s stable recovery is still “in progress,” many foreigners acknowledge that US real estate is “for sale,” plus the dollar is historically weak, so many buyers are trying to snatch the bargains on residential and commercial properties. here. However, a foreign buyer investing in the US must be more diligent in planning acquisitions due to nuances in tax laws, title holding 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 came from. Any transfers of more than $ 10,000 to the US, including your cash real estate purchases, will be reported to the federal authorities, and when the feds come asking questions, you need to make sure you can prove the legal sources of your cash. . Pursuant to the Patriot Act of 2001 and the Money Laundering Control Act of 1986, escrow and securities companies, brokers, and banks are required to report any large deposits and transfers of excess money to federal authorities. of $ 10,000. Make sure you have documentation to support your sources of income, taxes paid abroad, bank statements, investment statements, in other words, the paper trail.
(2) FINANCE OR ALL CASH? If you plan to buy all for cash, there are many benefits to be gained, 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 like this. However, I recommend that you plan acquisitions with a real estate investment advisor to see if buying with some form of financing will be financially more beneficial to your investment strategy due to the improved ROI from leverage and the spread of risk among various properties.
If you are looking to finance your real estate acquisition in the US, be prepared for tough times. Real estate financing is difficult enough even for Americans these days, but for foreigners it is even more difficult. There are only a handful of institutional lenders who will consider foreign national loans, but all will require a large down payment (at least 30% or more) and income verification 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 be able to qualify for regular financing with as little as 3.5% down, though still be considered a “Foreigner”.
If you have established a relationship with your bank in your own country or another foreign bank, you may consider obtaining financing from them and then bringing the loan funds back to the US As a “cash” purchase, again make sure you have documentation about where the money came from.
Alternatively, there are many private lenders that lend up to 65% of the asset value at 9-12% annually, regardless of your immigration status, and if you are looking for commercial property, you may be able to finance it more easily as well. Because commercial lenders write loans primarily on the merits and income of the property itself, rather than the borrower.
(3) CONTROL YOUR ASSETS: In the US, you can be titled in many different ways: as an individual, corporation (domestic or foreign), limited liability company, partnership, living trust, pension fund, or many other forms of entity. Each of these ways has advantages and disadvantages, especially when it comes to taxing rental income received from your investment property, transferring the property to related or unrelated parties, estate planning, and many other situations. You need to decide BEFORE you buy a 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 is very difficult to operate a rental business when you do not see what is happening yourself. I am working with many investors and have owned many rental properties, and I can tell many horror stories about property management companies embezzling money from out-of-town investors, renting units for cash but reporting them empty, over-inflate 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 YOU ENTER, PLAN YOUR EXIT. Planning to sell for profit? How long before selling? Did you account for future capital gains tax? Will you get the money out of the country? If you plan to sell for profit but reinvest the income in another property, you should familiarize yourself with the 1031 tax-deferred exchanges that allow you to trade and consolidate properties for years and decades without paying a penny of tax until final disposition. It’s a great tool for savvy investors that can make you very wealthy, but again, you need to plan this strategy in advance and consult with a knowledgeable person. Also, when you sell a property here as a foreign individual, you are subject to all kinds of withholding regardless of whether you made any profit or not, including a 10% withholding under FIRPTA just for being a foreigner, a 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 retention strategy in advance!
(5) VISA CONSIDERATIONS: Major misunderstanding I see among many foreign buyers that I would like to address here: Do not assume that owning real estate in the US will automatically entitle you to a US visa. You can own $ 10 million worth of property in the US, but you are still denied an entry visa. So be sure to get your visa status first and then come to the US to search for specific areas of interest and properties. NEVER BUY PROPERTIES IN SIGHT UNSEEN !!!
(6) WHY REAL ESTATE? Finally, ask yourself honestly: why are you investing in real estate in the US? For visa, passive income, future market appreciation 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 give you ROI (return on investment) and similar visa opportunities, such as EB-5 visas ($ 1 million minimum), ” Regional Centers “($ 500,000 minimum), E-2 visas for small investors ($ 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 FINAL STEP of a serious planning route. Measure seven times, cut once, as we say in Russian. It is much easier to avoid costly mistakes before You enter this market to waste time and money undoing the mistakes made in the course of a hasty and poorly planned real estate business. Happy investment!
