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American property prices are on the rise. Well, at least in some states they are…
The past years (or I would say decades) Asian investors have poured money into cities like London, New York and Los Angeles.
It’s not strange as they want to buy close to their relatives, in places where property prices won’t plunge over the long term.
Even if Asians continue to invest vast amounts into cities like the ones mentioned above, new trends are coming up. And you need to be up to date for your next property purchase.
In this guide I’ll explain the key-info you need to know when investing in US property.
Can foreigners buy property in the US?
The answer to this question is yes, and the buying process is straightforward and transparent, same as in most of the other Western countries.
I’m not saying that you shouldn’t invest in countries like Cambodia (you always need to weigh your risk to your profit potentials), but an investment in the US will probably reduce a lot of the hurdles in comparison with a procurement in Cambodia.
However, you should bear in mind that the US is big and consist of many states that each have their own regulations.
To make an investment in the US might require equally much research as when you buy a property in the EU, comparing as a total.
And you should not only have US as your sole focus when researching about regulations.
In fact, your nationality and country might have regulations that make it harder or less favorable for you to invest in a US property.
One of the most important things to keep in mind is that you need an ITIN number to buy a property.
What is an ITIN (Individual Taxpayer Identification Number)?
As shown in the title, ITIN stands for Individual Taxpayer Identification Number and you normally need one before buying US property.
In short words, an ITIN is used for tax purposes and applied for at the IRS (the US Tax authorities). You can find the application form here.
Unless you are a US citizen, permanent resident, and temporary (working) resident with a Social Security Number (SSN) you’ll need to apply for an ITIN.
The background is that you’ll need to open a US bank account to pay for your property and other costs like taxes. Before you can open a bank account, you first need to get an ITIN number.
Can foreigners get a mortgage in the US when buying property?
Even if many Asian investors buys their US property with cash assets, I’ll explain how a mortgage is usually obtained.
Foreigners are able to get a FIL mortgage (Foreign Investment Loan) in the US, but you’ll be required to provide a lot of information regarding your private finances.
Many Asian investors might get frustrated by the long buying process required. Be prepared to wait for a couple of weeks more in case you forget any documentation.
How much can I get in mortgage as a foreigner?
If you apply for an international loan at HSBC, you can be granted a loan of up to USD 3 million, which will be more than enough in most cases.
They are more than happy to have you as a client, my recommendation is that you give them a call for more details about the loan options you have.
HSBC offers good services such as loan and amortization payments directly online, through your personal internet banking account.
Sometimes, people say that you’re not capable of opening a bank account without a US credit history. But nowadays banks such as HSBC offer help to get your international credit history for opening bank account purposes.
To apply for a mortgage through a US branch is still not an easy walk and often takes long time.
Downpayments when foreigners buy property in the US
Bear in mind that the down payment is set to to at least 30% for foreigners and higher rates apply. But if you can put more money on the table you might get advantages such as tax benefits.
Benefits when buying property with a mortgage
Some of the benefits to use a mortgage are:
a. You can use your savings on other investment (diversifying)
b. In case the property appreciates in value (which it probably does) you’ll get a higher return in comparison to the money put in
Foreigners are able to receive housing loans in the US, but in case you don’t have any US credit history, you’ll need to wait longer, pay higher rates and pay a bigger down payment.
How can foreigners buy property with cash assets in the US?
In comparison with countries like Malaysia, you should be happy that there’s no minimum requirement for your property investment in the US.
If you have sufficient cash assets, it can be great to purchase the property directly with cash assets. As you’ve read above, it takes more time and will cost you more money in case you apply for a mortgage.
What are the benefits to buy a property with cash assets?
Some of the benefits to buy with cash assets are:
a. You reduce the time to purchase the property
b. You can reduce your down payment, as there’s a bigger risk if you pay with a mortgage and you might have problems to pay back the loan or if you become bankcrupt
c. You can reduce fees and taxes
d. You can receive a better offer as you’re capable of buying the property fast, without the hurdles to apply for a mortgage
e. In a bidding war, you’ll be more attractive for the seller who knows you can pay directly with cash
f. You’ll manage to invest your savings in a safer place
The easiest way to pay with cash assets is to open a local bank account in your home country, for example, at HSBC, and then transfer the money to an HSBC branch in the US.
For countries like China where it’s becoming increasingly difficult to get mortgages and transferring cash for property purchases abroad, people have found other ways to make the payments.
One way is to finance a number of properties through crowdfunding and by using different online services.
Can I get a visa or residence permit if I buy a property in the US?
You’ll not be able to directly get a long term visa or a residence permit in case you buy a US property, unfortunately.
Maybe this doesn’t come as a surprise as it’s getting increasingly difficult to get a US residence permit, even for educated people from developed countries.
Nowadays, people get Green cards and working visa through lotteries. I think that explains a lot.
But there’s one way to get a green card for you and your family.
Getting an EB-5 visa
In case you invest at least USD 500,000 in residential projects that create 10 American jobs, you’ll be able to apply for a green card through the so called EB-5 visa program.
The EB-5 program has got increasingly big attention from investors in Asia, who look for a future in the US and are willing to put in the money needed.
Unfortunately, the US doesn’t have any long term visa for retired people (like the Elite visa currently available in Thailand).
Where should I invest as a foreigner in the US?
Asian investors have mainly targeted coastal areas such as in California and New York for property investment.
These places host big communities of Asian people and are the prime spots, mainly due to tradition, and yes, because there’s a lot of things going on there.
But the trend is shifting and Asian investors have started to look for properties in smaller cities and suburban areas.
The big cities have seen property prices skyrocketing, the trend is same in the UK, where people now target smaller cities like Sheffield, Birmingham and York, instead of London.
What is a suburban area?
A suburban area is located in the outskirts, or between and close to two major cities for example.
Property prices have increased moderately in these areas, especially compared with places like San Francisco and New York, where prices have become eye watering.
When you look for a city to invest in a property, pay attention to the following: Recent and coming growth of the population, jobs and property prices.
These are the cornerstones if you expect a good appreciation over a longer time period.
Investing in Florida property as a non-resident foreigner
Florida has seen a big influx of Asian investors that want to enjoy everything it has to offer, from top universities, great weather and low taxes.
But don’t only focus on Miami, you should have a glimpse at other places like Jacksonville, West Palm beach, Orlando and Tampa (just to name a few).
Unfortunately, the Florida market has stagnated a bit. One of the reasons is that foreigners have used Florida (and mainly Miami) as a place to store laundered money.
But I highly recommend to do some research as people in Florida enjoy a great quality of life.
Investing in Texas property as a non-resident foreigner
As mentioned, Asian investors have focused on cities in the coastal areas, leading to less investment in states like Texas.
Dallas is one of the top 5 cities in the US where property prices are predicted to grow a lot, due to the current undervaluation of its properties.
You should also take a look at Austin that has grown remarkably in the past decade, but is projected to grow more. Texas has a great economy and has performed better than a lot of other states, it didn’t suffer as much during the subprime crash either.
If you like country music and smoked ribs, you should consider to make a property investment in Nashville (Tennessee).
Investors predict that Nashville’s economy will do very well in the coming years, and its properties are undervalued.
With property prices that increase by almost 10% a year, you can’t neglect this city…
Buying off-plan as a foreigner in the US
Off-plan properties are not seen very often compared to places like South East Asia. Basically, the only exception is Miami, where investors have notoriously laundered money through, for example, off-plan projects.
Asians like to invest in off-plan buildings, we’ve seen it in countries like Australia, and where the Government promote foreigners to buy Off-plan properties.
But in the US, the more common property type is single family houses and apartments.
Condos are less common compared to cities like Bangkok, in New York, roughly 25% of the residential buildings are condos.
However, when travelling in Miami (especially in the financial districts) you’ll see a lot of cranes building condos, paving the road for foreign investment.
Property tax regulations for foreigners in the US
There are regulations with great importance that you probably are not aware of. For instance, if you have not put a trust on the property, a federal tax of 50% may be deducted in the case of death of the property owner.
So how to avoid this?
I recommend you to consider hiring a tax professional to sort out the tax regulations you need to be aware of and protected from.
You can easily find a tax professional online, but be sure to do due diligence before making your choice.
Capital gains tax for non-resident foreigners
You need to pay a Capital gains tax of 15%, but it also varies depending in which state you buy property.
Should I set up a limited company when buying property as a foreigner in the US?
One solution for foreign investors to buy US property is to buy through an LLC (Limited Liability Company).
There are two main reasons for that:
a. In the event of a lawsuit for example, if you own a property in your name, you might not only risk the assets in your property, but parts of your personal finances might also be at stake.
We all know that lawsuits can be filed quite frequently in the US (you’ve even heard about people suing McDonald’s for millions, when they spilled hot coffee over themselves). A lawsuit could be issued by a tenant for example, in case the person gets injured while living in your property.
If you set up an LLC, the property will be owned through that company, therefore your personal finances will not be affected in case a lawsuit is filed against you.
b. You can also enjoy reductions in taxes by opening an LLC, through so called pass-through taxation. Property owners can get double-taxed in case they don’t own a property through an LLC.
Real estate agencies for foreigners in the US
If you’ve found a real estate agency, check their website and do some screening. Ask people on the internet, check for testimonials and confirm that they are a credible company.
Many real estate agencies know that there’s a big influx of Asian investors in the US, particularly Chinese, and many of them hire agents that can communicate in Mandarin.
If you find it necessary, try to find a real estate agent that have staff speaking Chinese, to make the process more efficient and to avoid communication problems.
Agents registered at NAR (National Association of Realtors)
It’s also important to see if the agent is licensed and a member of NAR (National Association of Realtors). The agent doesn’t necessarily need to be a member of NAR, but it’s not bad if he or she is a member.
In case the agent is a member of NAR, he or she will (often) do their utmost to serve you well and put your interests first.
Otherwise they face a risk to get fined with several thousands of dollars.
Should I hire a Real estate agent?
One of the benefits with Real estate agents is that they can save you a tremendous amount of time. Usually, many properties are listed on the MLS and it can be a hurdle for you to find one that suits all your needs.
If you summarize all your needs to the agent, the screening will take less time. And as we all know, time is money.
The agents can easily detect problems with the property, that you might not be able to see. Hence, it can save you a great amount of money too.
One of the most important things a real estate agent can help you with is to check the title of the property, prior to the purchase.
To check the title is very important to avoid that there are no hidden liens or encumbrances to the property.
That’s everything from me in this article. I hope that you found this article useful. I wish you all luck with your property purchase in the US.