Foreign Buyers Guide

The US is actually a very easy country for foreigners to invest in real estate.  There are no restrictions or taxes by the government specific to foreign citizens and the buying process is very similar if you are a foreign buyer or a US buyer.

The purpose of this guide is to clarify the buying process in the US that helps to explain US real estate purchase practices, evaluate tax issues, and give additional information on what types of properties make financial sense for foreign buyers.

TABLE OF CONTENTS

PART 1 Market Transparency

PART 2 Seller Pays Commissions Not Buyer

PART 3 No Extra Taxes For Foreign Buyers

PART 4 Financing is Possible

PART 5 Taxation Issues

PART 6 You Do Not Need To Be In The US To Close

Part 2: Seller Pays Commissions

By law sales commissions to brokers are paid by the property seller and then divided between the buying and selling brokers so you do not need to pay anything to have us working on your behalf.  You should never work with the seller’s agent directly because they will be representing the seller’s best interests, not yours.

If you have looked at purchasing property in Hong Kong, Singapore, Melbourne, Sydney, or Vancouver you may have noticed that these markets levy an additional duty of up to 30% on the purchase of homes by non-residents.  Luckily, in the US we do not have these extra duties making the properties a better investment over the long term.

Part 4: Financing Is Possible

Foreign buyers who are qualified do have the ability to obtain mortgages to purchase property in the US through retail and private banks.  Additionally we can help you obtain financing directly.

If obtaining financing through a bank in the US terms are usually similar to the following:

30% down payment for a second home and 40% down payment for an investment property.

$3,000,000 loan maximum. At 70% loan-to-value, the property purchase price would equate to $4.2 million.

Some banks may also require foreign buyers to hold a $100,000 deposit with the bank in the interest of developing a long-term relationship outside the mortgage loan.

If obtaining financing directly through us the terms are the following: xx

Part 5: Tax Issues

One advantage to financing is that investors who finance their home purchase usually will not have to pay income taxes on net rental income for the first 10 to 15 years since the US government is very generous in allowing expenses to be deducted from rental income. This is true for both local and foreign investors. Deductions from rent include the following main expenses:

Mortgage interest

Property taxes

Straight-line depreciation of the purchase price over 27.5 years

Foreign nationals must elect to pay US income taxes on any net income (rental revenues minus expenses) derived from rental property. If this election is not made in a timely fashion (for example, if US income tax returns not filed), a tax of 30% of the gross rental income will be assessed. Under this scenario, the investor would not be able to deduct any expenses, including depreciation, interest, property taxes.

The US also allows sellers to defer capital gains taxes on the sale of a property as long as they are exchanging that property for another, this allows the buyer to purchase their next property pre-tax.

FIRPTA witholding is also an issue for non-residents.  When property is sold in the US captial gains taxes must be paid.  To ensure that non-residents pay this tax the IRS witholds 10% of the gross purchase price of the property.  When a tax return is submitted showing the capital gains tax is paid any extra money will then be refunded to you.  We are happy to discuss these issues with you further in more detail.

The new owner does not need to be in the US at the closing of the transaction when the property’s title is transferred to the new owner. Rather, the new owner can provide his or her representative, usually their real estate attorney, with “Power of Attorney” to complete the transaction. Alternately, if purchasing with an LLC, a Letter of Consent achieves the same result of allowing a representative to close the deal on behalf of the new owner. This is quite common and convenient for the buyer who does not want to come back to the US for the closing. Generally, we would attend the walk-through of the property on behalf of the buyer right before closing.