How to Invest in US Real Estate as a Foreign Investor
Updated: Nov 18, 2020
If you are a foreign rental property investor who is looking to build a portfolio in the United States, this article is for you!
One of the best real estate markets can be found in the United States. There are a lot of foreign investors looking into investing in the US as there is a great rent-to-value ratio in any part of the country. The real estate system in the United States is very unique as financing is usually simple, and the laws are detailed about land ownership. A lot of foreigners would want to invest in the real estate market in the US but have no idea where and how to start.
If you are not yet familiar with the real estate market you are interested to invest in, syndication is a great way to start. What is property syndication? Syndication is a partnership between several investors. Investors combine their skills, resources, and capital to buy and manage a property they otherwise could not afford. Syndications are a great investment for a lot of investors, regardless of whether they're foreign or not. Syndication allows you an opportunity to access great deals and gives you an advantage on other investors' expertise.
If you are a new foreign investor, you may want to take note of the following:
Obtain a US-based LLC - A limited liability company or LLC is a form of a private limited company. It is a business organization that a partnership or entity with the limited liability of a corporation.
Apply for an Employee Identification Number or EIN - This is a nine-digit number that the IRS assigns to organizations. This is used to identify taxpayers who are required to file business tax returns
Operating Agreement with your partners - An operating agreement is a legal document that indicates the organization's terms, and responsibilities, and entitlement of each member.
Apply for an Individual Taxpayer Identification Number or Social Security Number - This is required for individuals to comply with the US tax laws, and to allow an efficient account for tax returns.
Open a US-based bank account/s - A foreigner, non-resident, or traveler can open a bank account in the US. However, the process won’t be easy as it will require you to submit more documents proving your identity. It will require your preparation and patience.
If you have all the 5 items mentioned ready, then you are legally allowed to invest in US real estate. It is also recommended for you to speak and discuss with a CPA who is familiar with the entire process to ensure you get guidance in investing.
Sure, there is no specific law for foreigners restricting them from buying real estate in the US or get a loan, but that does not mean it will be easy to get financing or look for a lender that will lend to a foreigner. As for lenders, it is obvious that it is risky to loan to a foreigner who lives outside the country. It may not be easy, but it is still possible for a foreigner to get a property loan.
Here's a list of things to consider as a foreign investor:
Governmental Restrictions - The government in the US has a list of countries and people with whom the government does not allow US people to do business. You may check the Office of Foreign Assets Control website as they provide searchable databases for countries and people part of the restricted list.
US Federal Security Laws - A foreign investor must comply with the US Federal Security Laws.
Tax Implications - As a foreign investor, you must have a full understanding of the tax consequences and measure the implications toward investment benefits. The US government will require foreign investors to pay taxes in the US for real estate earnings. For some, they may also be obliged to pay taxes in their home country.
In conclusion, foreign investors can buy properties in the US because of the unique housing market. It is a good deal to invest in the US real estate market thus it will also require you to do some work, research, and confidence to become a successful foreign investor.