8 things to consider before investing In US property from abroad
June 9, 2023 • 6 min read
Table of contents
- 1. Consulting with a licensed tax-structuring specialist before proceeding to the tax-structuring process
- 2. Setting up a US entity based on your citizenship country's regulations
- 3. Setting up a US bank account
- 4. - 5. Financing
- 6. Considering what could happen if you take an adjustable rate loan
- 7. Gathering a team and virtual system to help on-site while you're abroad
- 8. It's time for the US real estate investment!
- [Ready to start investing?](https://www.milo.io/mortgage/mortgage-for-foreign-nationals/)
In 2019, foreign buyers accounted for $78 billion worth of U.S. real estate transactions.
If you're an investor living outside of the United States, you may want to know if you can start investing in US property too. Well, you can — but there are some rules you have to follow, or else you risk penalization from the Internal Revenue Service (IRS).
Below is a list of 8 factors that all foreign national investors should consider when deciding whether toinvest in US real estate from abroad.
1. Consulting with a licensed tax-structuring specialist before proceeding to the tax-structuring process
Investing in US property from abroad as a foreign national is completely possible, but there's one major caveat. You need to go about the structuring process correctly — this is what determines how you will pay taxes on your investment property in the US (you're already going to be paying 10% on the gross purchase price come tax time, so you don't want to make the dent bigger). It might be worth paying a licensed structuring specialist to guide you through the structuring process.
2. Setting up a US entity based on your citizenship country's regulations
This is where the structuring process comes into play. In the US, we'd typically refer to an entity of this kind as an LLC or C-Corp. However, the specific entity that you form depends on your own country's regulations.
You can create a subsidiary of an existing foreign company and incorporate it in one of the 50 states, as well. (Most people choose to incorporate new businesses in Delaware because of its tax haven status, but you have to choose what's best for your business.)
3. Setting up a US bank account
Next, you need to set up a US bank account. The process is multifaceted, but make sure you choose a bank that's suitable for long-distance communication and property investment.
4. - 5. Financing
Option 1: Cash at hand You can pretty much do anything in this world with enough cash, including investing in US real estate. In 2017, 23.6% of all California home sales were all-cash. According to the California Association of Realtors, about 3% of that year’s housing purchases went to international buyers.
Obviously, capital limitations make all-cash impossible for many buyers. The process also lacks the benefit of leverage (or higher ROI). But the point is that it is an option.
Option 2: Private Lenders Your other option for financing your investment property is going through a private lender. Traditional mortgages will charge larger down payments and higher rates for foreign investors, so it doesn't typically make sense to work with them.
On the contrary, a reputable private lender has the capacity to qualify you at a fair rate based on the property you're investing in. Things like credit and social security numbers may not be relevant when there are other pieces of the puzzle.
6. Considering what could happen if you take an adjustable rate loan
Some private lenders may offer you an adjustable rate loan, but those can get tricky. Say your interest rate jumps in three years — will you be prepared to pay a higher rate when the time comes, or will you have the standing to quickly refinance your loan to avoid adjustment?
7. Gathering a team and virtual system to help on-site while you're abroad
Arguably, the hardest part about investing in US property from abroad is actually the long distance itself. You'll want to organize a team of individuals who can be on site to manage the real estate. Whether you're flipping or renting, you'll want to make sure these are people you can trust. Similarly, a virtual system can help you connect to the property, see live updates, and even perform security.
8. It's time for the US real estate investment!
Now it's time to buy your US real estate based on the financing option you selected. This is often considered the easiest part of the whole process since you've already maneuvered through the structuring process, and secured financing.
At Milo, we specialize in assisting our clients seamlessly achieve homeownership without ever having to travel to the US.
Contact one of our loan consultants today for an in-depth overview of our process.
The opinions expressed in the Blog are for general informational purposes only and are not intended to provide specific advice or recommendations for any individual or on any specific security or investment product.
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