Investing in U.S. commercial or residential properties is an attractive option for foreign nationals to build and preserve their wealth. The market’s sheer size creates many financially lucrative options to meet every investor’s needs.
Whether you aim to diversify your investments, safeguard your investment capital, take advantage of emerging trends, or generate positive cash flow, a well-thought-out, streamlined approach is crucial. Below is a concise guide to the investment process and strategies to optimize returns while managing the risks associated with investing outside the United States.
Step 1 – Pre-planning and tax implications
Before purchasing a property, you should understand the tax implications in the U.S. and your home country and ensure compliance with all governing laws and regulations. This also includes consideration of the ownership structure, risk mitigation through insurance, and the due diligence process you will follow to evaluate each property.
When moving money to the U.S. banking system, your bank will provide forms needed to comply with U.S. banking laws and regulations. Before completing the forms, every investor should consult with their legal counsel and tax professionals.
Step 2 – Estate planning considerations
Prior to purchasing real estate, you should consider how the asset will be incorporated into your current estate planning structure. This includes evaluating the optimal funding structure and how best to title the property. Ensuring your U.S. real estate investments are structured and included in your estate plan will typically require legal advice in the U.S. and your home country.
Step 3 – Determining the appropriate ownership structure
Various ownership structures offer different levels of privacy, liability protection, and tax benefits. A suitably qualified tax accountant with experience working with overseas investors, along with legal counsel, can recommend the optimal structure to suit your needs. Once you’ve selected the desired legal structure, creating, and managing the appropriate legal entities is generally a relatively seamless process in the United States.
Step 4 – Securing financing
Investment mortgages offered to foreign residents come with different terms than typical residential mortgages. Foreign national mortgage programs offer competitive rates and a variety of loan products, including 5/1, 7/1, and 10/1 adjustable-rate mortgages. Mortgages can finance various property types, including vacation homes, investment properties, single-family homes, and condominiums.
Typically, international borrowers will need to provide larger down payments. Depending on the financing and ownership structure, the application process will require additional time to identify, gather, and analyze relevant business and personal documents.
Step 5 – Navigating the buying process
Every real estate market has unique practices. Investors must understand local market conditions and customs, as they vary widely within the U.S. Such knowledge can ensure that investors are competitive when they submit an offer for a property. Screening the market, visiting potential locations, conducting inspections, and submitting offers each require in-depth knowledge of the process and best practices to ensure a successful transaction.
Ideally, the real estate broker you engage should have experience working with international buyers. This includes a willingness to adjust their schedule to accommodate different time zones and conduct online showings if you cannot view a property in person.
Step 6 Managing the investment
Depending on the real estate asset you purchase, engaging a property management team can be a wise decision. This is particularly important if the investment generates rental income as a commercial or residential property and requires hands-on tenant management.
A property management team will assume responsibility for tenant screening, selection, and management. They can also help to mitigate liability and assume primary responsibility for day-to-day management. Prudent property management also requires purchasing property and liability insurance to mitigate the risk of losses and lawsuits.
Ensure the property management firm maintains accurate books and records related to the property, including the income received and expenses incurred. This will make filing state and federal taxes easier.
Conclusion
Real estate can offer a stable source of passive income, significant tax deductions, and protection against inflation. Every stage of the process requires expert guidance, which is critical when a buyer resides overseas and is subject to laws and regulations in the home country and the United States.
By assembling an efficient team of professionals, foreign investors can significantly reduce risk exposure, enhance their understanding of the U.S. real estate market, and increase the likelihood of acquiring properties that meet their investment objectives and support their long-term financial success.
Please contact one of our Valley bankers, who will assist throughout the process.
For informational/educational purposes only. The information in this content is not advice on legal, tax, or investment advice.
