Buying Real Estate in the USA as a Foreigner
Foreign residents can buy and own USA property directly, but many investors prefer to own through a holding company, an LLC (limited liability company) usually set up in a tax friendly state like Texas, Delaware, or Nevada. In order to own property and collect rents or proceeds from sales, foreigners need to obtain a US Tax ID number and set up a bank account – both of which are easy once you have your LLC. Further, an LLC provides liability cover along with asset protection, and generally is considered the best for tax efficiency. The LLC is a very simple holding company with you as the owner and title to all property is purchased in this name.
Having American property in a holding company also allows you to easily sell, pass through inheritance, or bequeath your portfolio (or part) without having to transfer the actual property title, avoiding taxes and fees. It also avoids probate complications in the event of the demise of the owner. You should not consider buying real estate in the USA without forming an LLC; it is simple and something that can be done in a just few days.
We are in the process of buying houses and condominiums for foreign investors, especially Indians, using this investment structure.
The main factors making the US so attractive to investors at this time are the incredible prices available, particularly for foreclosed houses, condominiums and apartment complexes – bought from banks for cash. As a result we are able to buy real estate for you at a fraction of normal price — 40%, 50%, or even more off prices from the past few years. US citizens are being excluded largely by the banks from obtaining mortgages and loans, where credit policy closed down options and is showing no signs of changing. Cash buyers of USA houses, condominiums, flats, apartments, and commercial real estate are getting once-in-a-lifetime prices. Even smaller investors with $60k and above can invest effectively.
The low prices are not reflected in rental returns. In fact, the rental market has strengthened! Rents have remained strong, because homes are a necessity even when people walk away from a mortgage or are evicted by foreclosure. They still have to live somewhere. Net rental returns of 6-8% after all management expenses are not uncommon, making the opportunity even more compelling for international investors.
For any type of investment, the goal is always to buy low and sell high. Highly successful investors are always the “contrary” investors. They are busy buying when everyone else is selling or scared, and conversely they are the ones selling when everyone’s buying! In many countries, real estate has sky-rocketed and perhaps it is time to diversify… take some of the profits, lock it in, and move to areas where values have been hit and hit hard! Further with the global turmoil hitting credit markets, stock markets, and currencies alike – it is no doubt time to think about diversification. Diversification of country risk, asset class, and currency risk is absolutely the prudent thing to do.
Property prices in America will rise again when Americans can access mortgage lending and when existing home stocks are filled and new construction takes place. The growth of US households particularly is strong enough to deplete reserves of housing stock and reduce vacancy rates within the next 2-3 years.
The credit market is not likely to bounce anytime soon though. We expect excellent buying conditions throughout 2011 and see this as a once in life time opportunity for savvy property investors.
