Are you someone who is a non-US citizen and wondering about making an investment in real estate? Well, here’s the good news! Despite your citizenship, you can buy real estate property in the US as long as you know how to, since there is no citizenship requirement for housing society in the US.
The US has an open economy which essentially implies that domestic entities can build trade and investment relationships with individuals and businesses of foreign countries. While most US real estate investments are made by its citizens, many foreigners are also getting increasingly interested in buying properties there.
Some statistics regarding the US housing economy will help you understand this better. The total value of all residential properties in the US is approximately $33.6 trillion which is higher than the total US GDP of $19.39 trillion for the year 2020. Due to the huge size of the market, residential properties have such a high value that not only attracts domestic communities but foreigners as well.
- Major Challenges That Foreigners May Encounter When Investing In US Real Estate
- Holding Structures
- How to Make U.S. Real Estate Investment Easier For You as a Foreigner
Major Challenges That Foreigners May Encounter When Investing In US Real Estate
The US housing market is one of the best markets in the world. While there are no restrictions on foreigners buying real estate properties in the US, it doesn’t mean the process with be smooth going. There are many serious challenges that foreigners may encounter while considering making an investment in real estate especially if they have no idea of the US housing market.
This can include banking, logistics, tax rules, legal standards, currency exchange, communication barriers, and so on. Some of these may be easier to overcome than others but the key is to have insight into each of them so that you can make your investment journey a little less troublesome as a foreigner.
Obtaining the Right Loan
The primary issue that comes with investing in U.S. real estate is to obtain a loan from a bank or any other financial institution in the U.S. and get it approved. Most of the banks in the U.S. avoid providing loans to foreigners as they have never paid taxes in the U.S. and they also require a credit score to lend to individuals which many foreigners don’t have.
Another reasonable explanation of why banks are less likely to lend to foreign investors is because it’s nearly impossible for them to make it to court if the foreigner defaults on the loan. This reduces your chances of acquiring a loan from a financial institution, making your struggle even harder.
For this, you will have to conduct in-depth research of the U.S. financial market to understand better where you might find the right opportunity. Just be mindful that you will have to provide solid financial evidence at every single step of the process.
When attempting to obtain a loan from U.S. lenders, it’s important to know the costs that are associated with it as follows:
- An appraisal fee
- An origination fee
- Prepaid interest charges
- Closing payment
- Insurance amount
The above costs will most probably be higher for you than for U.S. borrowers as banks consider foreign borrowers risky to lend to. Due to this reason, they will also charge a higher interest rate or demand a significant down payment before they lend to you. Next, there’s the approval process which will surely take longer for foreign investors. As the banks will attempt to verify all aspects of your finances, you will have to prepare extensive documentation and provide your bank statements and yearly tax returns.
Tax Rules and Regulations
The U.S. real estate market requires foreign investors to pay a certain percentage of taxes in the country gained from their real estate income. The total amount of tax that you will be subject to is usually 40 percent of the property value in the U.S. Additionally, you might also be obliged to pay tax in your own country based on its tax rules.
Various holding structures are applicable for foreign investors if they want to reduce their tax costs. Know that the right structure for you totally depends on your investment goals so it may differ from investor to investor.
Individual Direct Ownership
This holding structure allows a foreigner to possess property in the U.S. in their own name. It is very useful when it comes to lowering costs. The only downside of this ownership type is that it is not very beneficial in the long term as it may lead you to liability and property taxes. If you choose to rent out your real estate property, you will need to pay the income tax amount and if any damage occurs to your property, you will be responsible to get it repaired.
Corporate Indirect Ownership
Corporate ownership in the U.S. is fully exempt from tax requirements which makes it the most recommended holding structure if you want to possess property.
How to Make U.S. Real Estate Investment Easier For You as a Foreigner
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If you familiarize yourself with the US market and know the right steps for purchasing property in the US, you are good to go. While there are many hurdles that you will have to face when making an investment in US real estate, the benefits still exceed the difficulties hence making it a worthwhile investment.
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