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Sunday, 13 October 2019
Agent Resource Center

The US Real Estate Market for Outsiders

Written by Posted On Tuesday, 07 May 2019 04:21

Home is where your heart is, but your business is where your money is. Have you ever wondered whether it is possible to buy an investment property in the US without being a US citizen? Well, yes, that is possible! But do you have the DNA of a real estate investor? In this article geared towards foreign investors buying US real estate, we are going to cover the ups and downs of investing in real estate when you live thousands of miles away from it. But this doesn’t mean that you can’t move and become a US citizen later.

 

Statistics on foreign investors buying US real estate

closing a real estate dealIn August 2017, China tightened restrictions on how much capital residents can get out of the country. Despite this, China kept it’s first place among the major buyers of real estate in the US, spending $30.4 billion dollars in the year between April 2017—March 2018, according to the National Association of Realtors®. The political shockwave has been felt, however, foreign buyers spending 20.9% less on real estate compared to the previous year - $121 billion dollars. In case you were wondering whether non-resident foreign buyers could qualify for one of the many different types of home loans available for US citizens, let us reveal just that 72% of them paid for their house purchase in full. And they buy quite expensive properties - half of the properties bought were more than $292,400.

Florida and California remain the magnets that attract most real estate investors, followed by Texas, New York, and Arizona. China aside, foreign investors also came from Canada, the United Kingdom, India, and Mexico. I bet you’ve instantly made the link between Canada and Florida - the opposites attract, so The Sunshine State is a favorite for snowbirds. Canadians may qualify easier for a mortgage in the US since the credit check is quite similar. But our home-buying process might be completely different than in developing countries.

Don’t think about adding a US property to your portfolio before learning everything you can about the local market: stay informed, watch the news, learn real estate terms and definitions, and find out the housing needs of each generation. Information is your key to success!  

 

A few rules for foreigners buying property in the US

properties for sale in the USWhile the US is one of the most friendly countries with investors, a few restrictions still apply. First of all, the US has signed different treaties with most countries on this planet, so you might find yourself taxed more than if you bought an investment property in your home country. Moreover, most treaties have a Limitation on Benefits (LOB) article that prevents people from gaining too much benefit - so much as to flood the market, generating inflation. Only six countries have no LOB and these are Greece, Hungary, Pakistan, Philippines, Poland, and Romania. Besides this, Romania has no anti-triangular provisions either on its income tax treaties, which allows anyone to set up an LLC and invest in the US real estate market through that juridical person without losing money. Well, we believe it must be a once-in-a-lifetime investment opportunity to go this way, but it’s good to know all the open doors.

Secondly, as it usually happens with foreign investors, they don’t have too much experience and could end up making a huge mistake. That’s why we can’t stress enough how important it is to use a real estate agent during every stage of the buying process. Some of the best local agents are listed right on RealEstateAgent.com - The Official Real Estate Agent Directory®. Make it the first rule for foreigners buying property in the USA. Don't hesitate to provide Power of Attorney to the agent you’re going to work with. It will save you a lot of money! There’s no need to travel back and forth to the US, especially when you don’t have a visa. That’s right! You don’t need a visa to invest in America, nor a green card, nor a security number. But you might need an individual taxpayer identification number (ITIN).

Speaking of mistakes, any foreign investor should know the pros and cons of living near a highway or an airport. The location of your property makes the difference between profit and loss. The same principle applies with regard to properties near a cemetery - while some people run away from these, homebuyers looking for a quiet neighborhood will not have second thoughts. From time to time, you have to close your eyes and follow your intuition. You could be right, especially if you have the INFJ personality type!

In the third place, don’t try to avoid the IRS. Transparency is of utmost importance when doing business at this level. Every year you will have to file for taxes just like a regular citizen. The tax could be as much as 30%, but keep in mind that, for tax purposes, you can offset expenses against income. You should also get some advice from a real estate lawyer to find the best way to avoid the estate tax (a.k.a. the death tax). However, this tax applies only to large estates of $11.4 million in 2019 and married couples can exempt twice that amount. Be aware that some states have their own limits, and could be as low as $1 million in Oregon, for example.

 

Financing available for foreign investors in real estate

the key to owning a US propertyAlthough most foreign buyers had purchased their properties in cash, you shouldn’t get discouraged. You may qualify for a Foreign National Loan! Keep in mind though that this loan is intended for investment properties, not for residential real estate. Every lender will have their own rules for foreigners buying property in the US, but you will have to prepare at least 20% down, so the loan-to-value ratio is 80%, but lower rates are possible. Expect to pay higher interest rates, too.

The high cost of financing such an investment property is due to your high credit risk - debt recovery in your case might turn out to be impossible. To get a Foreign National Loan you should also be able to prove that you get a decent income in your home country and live in your home country. Since you don’t have a credit score, the lender will try to find more about you from other sources or maybe you’ll want to have all the documents translated in your native language as well - all these could prolong the closing process.

After the sale, the same real estate agent could help you rent that property, but if your investment is more significant, you may want to hire a property management company. However, this decision should be taken once you decide how long you are going to keep that property. One more issue foreign investors buying US real estate should take into consideration is the fact that they might be subject to sale tax when they sell that investment property.

 

Foreign buyers of US real estate should buy these type of properties: 

US skyscrapers- Condotels (condos that can be rented out just like any other hotel room)

- Single-family houses

- Multi-family homes

- Student accommodation (studios)

- Vacation rental properties (by the beach, in the mountains, ready to be rented through Airbnb)

- Properties that rent for no more than 25% above the average local rent

Since getting a loan is so hard, consider buying properties you can afford to pay cash for. They might even have a better return on investment (ROI).

As thousands of foreign investors buying US real estate had done before you, avoid properties sold “as is” and look for those fully furnished instead, since you’ll want to sign a lease agreement as soon as possible. Rely on your real estate agent and ask him/her to send you detailed photos and videos of the property you intend to buy. Vacant land is not a good investment either unless you will build something on it.

As you can see, your opportunities are quite limited. Distance is not the best friend of investors, but it should be O.K. as long as you “don’t go too far”. We will borrow one more rule for foreigners buying property in the USA from traditional real estate investors who say that you should only invest in a property you pass by at least twice a day. To adapt it, let’s say that as a foreign investor, you should only invest in a property you can check on at least two times a week. It shouldn’t be too hard to find one. Are you ready?

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Theresa Hus

THERESA HUS, CONTENT WRITER AT REALESTATEAGENT.COM

Theresa Hus is a member of the content team at The OFFICIAL Real Estate Agent Directory ® producing countless informative and trendy real estate articles monthly for RealEstateAgent.com and its many outlets.

Real Estate with a twist; that's how one could define Theresa's writing. With 16 years of experience in the industry, Theresa is all about coming up with topics that go beyond the basic real estate agent advice and home buyers/home sellers "how to" articles you see around. Her main goal with her writing is providing not only information that will make readers lives easier when dealing with real estate, but a good time through a fresh, fun and insightful read. While the site is called RealEstateAgent.com, Theresa likes to keep away from generic real estate agent content; her articles are all about thinking outside the box, stepping in the consumer's shoes, and warning readers of things they might've never thought of. Sometimes they're quirky and very specific - like an article questioning if you would live in a haunted house if the price was right - sometimes they just contemplate issues that no one bothers to talk about but are very important to a lot of people, like articles regarding the pros and cons of living near a highway or real estate agents specialized in homes for the disabled.

To do that in a responsible way, Theresa is constantly talking with the many nationwide real estate agents registered on The OFFICIAL Real Estate Agent Directory ®, researching the newest real estate niches, trends, and overall best practices.

Specific areas/topics that Theresa is able and willing to share her expertise and knowledge on include:

·         Real Estate Entertainment News

·         Trending Markets Around the United States

·         Advice Columns for Home Buyers or Home Sellers

·         Articles on How to Add Value to Your Home without Breaking the Bank

 

To contact Theresa, please email Theresa@realestateagent.com.

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