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July 23

INVEST IN THE USA

buy, invest, lifestyle, tips and tricks

It's not a secret that investing in prime real estate markets is rising all across the United States. Foreign buyers' purchases of Florida residential real estate increased to $24.2 billion ($19.4 billion in 2016); this accounts for 21 percent of Florida's dollar sales volume. This trend is especially noticeable here in South West Florida, where, for example, Canada accounts for 22% of buyer share, Europe accounts for 23%, and China accounts for 10%.

In general, the US is friendly to international buyers, and the process is equal to US residents. But there are some basic practices that all foreign buyers should understand before investing. Credit checks, financing, and tax policies will all be different for foreign buyers.

Common Real Estate Practices In The US - our MLS

In the US, most real estate sales are posted to the Multiple Listing Service (also known as the MLS), allowing active listings are available to all agents. This differs from many other countries where buyers have to go from agent to agent to find a property. However, several listings in specific markets – the luxury market in particular – remain "pocket" or "silent" listings. Hence, it is essential to have real estate agents working for you – like Ben Nathan – who know about both MLS listings and pocket properties.

e Commissions

The US's sales commission is always paid by the seller and then divided equally between both the buyer's and seller's brokers and agents. Generally, commissions range from 2 to 5 percent, depending on the property and the market. In the US buyers don't pay to have an agent working on their behalf. Therefore, it's always advisable to work with an experienced broker or agent who will protect your interests in the transaction. The Agency specializes in helping international buyers achieve their real estate goals and lifestyle needs.

Buying Your Home

Identify Yourself

Before purchasing a home, be ready to prove your identity, sounds st. Although you don't need US citizenship, you will need an Individual Taxpayer Identification Number. The Internal Revenue Service assigns this number to foreign nationals who need to file income tax returns - this is required by all real estate holding in the USA. To verify your identity and country of origin, you will also need a valid passport or several photo identifications, such as a driver's license. Though real estate ownership isn't tied to immigration or visa status, there are rules about how long you can stay in the US. If you're not a citizen, make sure to review US visa requirements before purchasing.

The Fun Part

There are various real estate marketing in the USA, and you'll want to research the right one for your investment. Do you want a large estate for horseback riding and hunting, or do you want a stylish multi-million dollar condo in downtown Sarasota? Ben Nathan specializes in lifestyle and Architecture, so don't hesitate to contact Ben directly for guidance. Whichever property style you choose to buy, it should reflect your desired lifestyle. Don't purchase a property for the sake of ownership – you want to secure a home that suits you. Finding the right home should be a fun experience, give Ben Nathan a call to start the journey.

Financing and Mortgages

During the 2008 financial crisis and the years that followed, financing for foreign nationals presented challenges. However, over the past few years, banks have significantly loosened their financing restrictions to facilitate international buyers' investments.

Generally, foreign buyers can obtain financing for properties with a 30% down payment. Note that each state is the difference so it's in your interest to verify state requirements.

Nowadays, banks are able to offer mortgages to foreign buyers, but they usually require a relationship with the customer beyond just the mortgage. Some banks, such as HSBC (which offers financing options to many foreign homebuyers), require that international buyers hold a $100,000 deposit with the bank.

Generally, banks also want to see a 12 months' reserves to cover the mortgage payments, maintenance fee, and taxes in addition to the $100,000 mentioned above.

Ben Nathan has relationships with many prominent mortgage banks, and he can guide you through the lenders and mortgage terms that suit you best. Please contact Ben directly for more details and financing options.

NOTE: YOU DO NOT HAVE TO BE IN THE US TO CLOSE THE DEAL

When you officially close on your property, and the property is transferred to the new owner, neither the buyer or seller need to be in the US. Instead, the buyer or seller can provide a representative (usually a broker) with "Power of Attorney" to finalize the transaction on their behalf. This is a common practice which is convenient if you do not want to return to the US for the closing. Talk to me about that possibility if it may interest you.

Verification Documents

International buyers are typically asked to provide the following documents, so it's good to get them in order ahead of time.

Credit References

Usually, a minimum of four references from credit sources are required for mortgage loan applications. These documents must come from finance professionals such as accountants, bankers, or insurance officials. This is very important, US realtors reported that most of the foreign deals fall through because the buyers lacked adequate credit history.

Proper Visa or Foreign Passport Copy

Verify your documents are valid aren't expiring anytime soon.

Verification of Rent/Mortgage Payments

If you are renting or carry mortgage payments, the government will require proof for a period of (at least) 12 months before starting your loan application.

Proof of Employment

International buyers, just like US buyers, will need to verify their employment and income when applying for a mortgage.

Sufficient Closing Funds

There are a number of costs to consider, besides the sales price. You will need to show sufficient funds to purchase and the additional funds for your closing costs, initial payments, insurance costs, taxes, etc.

Insurance

US lender legally requires borrowers to purchase homeowners insurance to protect the home from any potential damage. Insurance costs vary based on property size and state. These costs tend to be higher in states like Florida that are prone to natural disasters.

Everything You Want To Know About Taxes

Tax liability is different for foreign nationals than it is for US residents. Here's a quick breakdown of major distinctions:

  • Under the Foreign Investment in Real Property Tax Act of 1980 (FIRPTA), income tax is withheld immediately after a non-US-resident sells the property. The rate varies from state to state, but the federal rate is a flat 10%.
  • While the federal tax on long term investments (holding property for over a year) is 15% for US residents, foreigners pay 30%.
  • The IRS requires a "Statement of Withholding on Dispositions by Foreign Persons of US Real Property Interests." Many states will also request a "Nonresident Real Property Estimated Income Tax Payment Form."
  • We recommended you seek the expertise of a professional tax accountant to assist with these forms.

Consult a Tax Specialist in Your Home Country

As an international buyer, you overall tax liability will differ based on your home country's tax treaty with the US. That said, it's best to consult a tax advisor in your primary country of residence, familiar with tax treaties and provisions. In the US residents are subject to 20% in Capital Gains, but it could be higher for a number of foreign residence. Check with you local tax specialist before you purchase.

Rental Income 101

The US laws require all foreign nationals to pay US income taxes on all the net income earned from rental property. A foreign national that fails to submit the tax return in a timely fashion will lose the ability to claim deductions, and the IRS will demand a 30% tax of the gross rental income. Even if the property owner is initially incurring tax losses and doesn't owe any taxes to the government, they must still file their tax returns to make the "election" required by law.

Maximize Your Deductions!

The good news is that international buyers typically don't pay income taxes on their rental income for the first 10 to 15 years if they are able to finance their real estate purchases with 40 to 50% down payment. More good news, when it comes to expenses that can be deducted from rental income, the US is very generous. Mortgage interest, property taxes, insurance, common charges, depreciation, and closing costs can all be claimed as deductions against income. This means you will generate negative taxable income, and you will not have any tax liability during the early years of your investment.

Establish an LLC

International buyers should ask themselves if it's in their interest to purchase under and LLC (Limited Liability Company) or the name of a domestic US company. Although there are many benefits to buying a property through an LLC, certain treaties between a foreign country and the US can detract from those advantages. Foreign buyers should do their research ahead of time, and consult with a tax adviser specializing in international law. An excellent place to start your research is www.irs.gov.

Here are six things you should know about LLCs in the United States:

  • It takes about one week to form an LLC.
  • Both foreign nationals and US residents can form an LLC.
  • The LLC has to be registered in the same state as the property you purchase.
  • The LLC is required by law to file local, state, and federal tax returns.
  • At the time of sale, property owners can sell or transfer LLC shares to a buyer.
  • A US-based LLC can be owned by a Foreign Corporation for added benefits.

Tip – If You Want To Avoid the US Estate Tax

When a non-US-resident dies, his or her estate will be taxed by the US government at roughly 45%. This can be avoided if the international buyer sets up a Limited Liability Corporation (LLC) – which owns the property – and a Foreign Corporation to own the LLC. Since the property in this scenario is owned by the Foreign Corporation, the US would not be able to tax it upon the owner's death. This can be a huge tax savings and is not very expensive or time intensive to implement, especially if you solicit professional help.

Find a professional real estate agent

It is in your best interest to work with a local real estate agent who understands international buyers' complexities and financial needs. A knowledgeable real estate agent will protect your interests and make the purchasing process more efficient and rewarding.

Ben caters to each of his clients' lifestyle needs and will help you navigate through the entire purchase process of your next home or investment. In addition, Ben's global network of contacts and major media outlets opens many doors for his clients. He will help you find the most desirable properties available, and then secure the best price and purchase terms on properties for you as an international buyer.

Conclusion

While real estate in prime markets like Miami and Manhattan is extraordinarily expensive and vulnerable to the IRS (Internal Revenue Service), South West Florida presents itself as a very smart investment. If you're a buyer of the luxury lifestyle or planning for retirement, you will yield higher returns here in Florida. To put things in perspective, the London and Hong Kong real estate market is about 50% more expensive than Manhattan. That said, investing in Florida real estate is an excellent way for international buyers to keep their money safe (and appreciating) in a politically stable country.
Just make sure you get all your paperwork in order ahead of time, and that you find the right real estate agents to guide you in your search. Please contact Ben Nathan to help you navigate your next investment property or home here in South West Florida. 

About the author 

Ben Nathan

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