Foreign Investor Questions

[Shaun Lapsley]

My best friend is from China. He has a number of foreign investors trying to get into the US market. If anyone could please give me some insight as to where to start, legally, I would greatly appreciate it.

We would be looking to both buy and hold, or potentially flip, but I am still in the process of getting my team in place.

thanks for any advice !

[Engelo Rumora]

Originally posted by @Shaun Lapsley:

My best friend is from China. He has a number of foreign investors trying to get into the US market. If anyone could please give me some insight as to where to start, legally, I would greatly appreciate it.

We would be looking to both buy and hold, or potentially flip, but I am still in the process of getting my team in place.

thanks for any advice !

Hi Shaun,

The best way for foreign investors to buy in the US is through an LLC.

The biggest hurdle is with the bank accounts and getting the investors accustomed to how the banks operate here.

Thanks and have a great day.

[Shaun Lapsley]

@Engelo Rumora  ok, thats a start thanks . do you have any additional info ?

[Engelo Rumora]

Originally posted by @Shaun Lapsley:

@Engelo Rumora  ok, thats a start thanks . do you have any additional info ?

Sure,

Please go into a bit more depth as what you mean with "Where to start legally"?

Thanks

[Jared Rine]

@Shaun Lapsley

I think you need to be more clarifying in your questions.  @Engelo Rumora hit it on the head. I work with many foreign investors who need financing. Some of these groups consist of many investors. Most set up a US based entity, usually in an LLC structure. Usually there is then someone who is their on the ground representation. I've seen it where this person acts as their asset manager and is NOT part of the LLC, and others where this person is a majority managing member of the LLC.

Moving money is not that large of an issue (we can help here too), but they do need to understand how banks operate in the US.  

Unless they are taking down all cash, they will also need to understand where to get non-recourse financing and seasoning times to refinance conventionally, depending on their exit strategies.

I would probably start with seeing or talking to an attorney and setting up entity structure.

[Steve G.]

@Jared Rine  . . . how do you overcome the requirement for an overseas investor to be physically present when opening a US based bank account?

When I set mine up (in Dallas), I was in Texas for an Expo. I needed to be physically present, and have proof of identity, along with several utility bills to prove where my home residence was. 

Is this still the case, as it's one of the biggest issues I faced initially?

The OP may find your response helpful!

Thanks

[Hattie Dizmond]

@Steve G. If you use an LLC structure, whoever functions as the Manager of the LLC can open an account for the LLC. That individual is the only one needed to be present. In Texas, and I would assume it is the same in the other states, an LLC has to have an agent in the state. Sometimes your lawyer fills that role. Other times, the manager of the LLC will function as the agent. Bottom line, someone will have to be local.

[Steve G.]

@Hattie Dizmond thanks for putting that reply together, and I'm sure it'll come in handy for the other overseas investors too! 

Of course the "Agent" will charge a fee for their service, but any idea "how" they charge for their fee's? For example, would it be based on a per deal basis, or hourly? (I'm guessing both or either, but would like to understand more).

Thanks

[Hattie Dizmond]

If it's an attorney simply acting as an agent, it's generally a monthly fee. They would then bill hourly on top of that, if they were required to actually do something. If your agent is also acting as the Manager for the LLC, that's generally a paid position. So, you would be paying them some kind of "salary". That would be negotiated between you and them and anything you both agreed on is ok. For that matter, you could simply make them an equity partner in the LLC, so that they would profit based upon some % of the LLC profits. This can be done using Class B shares, which would not give them a voting right in the LLC.

There's a great discourse on LLC's at the website for Lone Star Land Law. I love their site, because they discuss LLC's and other entities & strategies in terms of real estate investing.

[Bob Green]

Greetings all,

There are non-recourse loans available for foreign investors who open a US bank account and able show 6 months reserves or 12 months reserves in some cases. No tax returns or social security #'s required either.

[Paul Sundin]

I would agree that in most situations an LLC makes the most sense (from a legal standpoint). However, there are still may tax consequences that need to be examined.

The three main US tax issues that foreign investors need to be aware of are: (1) income tax; (2) estate tax; and (3) gift tax. Some of these issues are rather straightforward, but depending on your tax situation there may be entity structures that you can implement that will make the investments more effective and tax efficient.

Many foreign investors will find themselves being assessed tax at the same rates as US individuals. These rates begin at 10% and go up to the highest rate of 39.6%. Rental real estate will often generate depreciation expense and other direct expenses, so most investors will only pay rates at the lowest level of 10% (if they pay tax at all). The US tax code also has a very favorable long-term capital gains rate of 15% (subject to certain income) that may apply upon the sale or disposition of the property.

In addition to federal taxes, investors will also have state taxes to consider. The US has of course 50 states, but only 43 have a state income tax. But some states impose a transfer tax and other assessments that can complicate the situation. Navigating state tax law and filing the applicable tax returns is certainly not easy.

[Bill Exeter]

Planning for the exit strategy is also important.  FIRPTA withholding requirements may come into play, depending on how the ownership is structured, so make sure that you address this issue when speaking with your tax/legal advisors so that you know what you will be confronted with upon exit/sale/exchange off the properties.

[Sky Mikesell]

i have and do work with a number of international investors.  we help them get their llc's set up and even help them get financing on the property.    If you need any help getting financing we can help point you in the right direction. 

good luck getting your team in place.