How can an Indian citizen buy real estae in US?
Member since 2009 · 5 posts · 0 votes
Hi,
I am an Indian citizen living in Pune, India. Am looking to buy an investment house in US.
Have been to various parts of US a couple of times, especially South Bay, Silicon Valley and Baltimore.
My budget is $100k, and can do a downpayment of $50k. The property should be in a decent neighbourhood, and want to also give it on rent.
But generating income from rent is not the primary motive, the main motives are:
1. A long term investment with appreciation in the next 10 years.
2. Rent to offset the monthly payments, especially since I can do a 50% downpayment.
3. Decent neighbourhood so that I can have some bragging rights back here in Pune, Mumbai. So a small 2 BHK apartment in a nice University area would be great.
How should I go about this?
You don't need "lots of lawyers, agents, banks, tax consultants already familiar with FIRPTA for the Indian investor." You need A lawyer and AN agent and A CPA. Not lots, just one good person of each specialty you trust. Do you know anyone who's done this? Your best source for referrals is a personal reference.
The real estate business is full of people with their interest in mind. They range from out and out scammers to people who will sell you a deal that will cost you money. Its a lot like the first time I flew into Bangalore via Mumbai. Thirty hours on places, dead tired, know nothing about where to go and I fly into Mumbai international. Lots and lots of people there willing to "help me" get to the domestic airport. You'll need to watch out to avoid that sort of "help."
Read in the Rental Property forum about expenses, especially the "50% rule". That says the expenses (which do not include debt service, that is, the principle and interest payments on your loan) will be 50% of your gross scheduled rents. That 50% figure does include both vacancies and large capital items like roofs and heaters. As a long distance investor, this is really the very best you can do if things go right. Little items that would be 10 minutes to fix with $5 in parts will cost you $100 when your property manager calls a handyman. You'll have a hard time checking on the PM from that distance.
It sound like you want the remaining money left after expenses to just be break even. That is, the 50% left after the 50% for expenses would just cover your P&I payment. That means you're earning nothing for a return on the cash you have tied up. Personally, I would like to see some return, especially for as big as down payment as 50%.
What you're really doing is "speculating". You're speculating on appreciation on the property to generate a long term return. As the name suggest, that's very speculative. I seriously doubt we'll ever see the kind of appreciation we had from 2000 to 2007. Personally, I don't think we're totally done with the fallout from that bubble.
Long term (i.e., from the 1890's or so), appreciation has tracked inflation. There have been some major disruptions -- the great depression, the change in lending after WWII, and the recent bubble. Other than those, appreciation after inflation has been zero over the long term (10 years or longer). The source for those statements is the long term, inflation adjusted Case Shiller data. Over shorter periods, there are variations. For specific areas where something is happening, e.g., redevelopment, new employers, there can be huge variations.
I'd suggest you start your search by first finding an area where you think you want to invest. Most major cities are going to have agents, lawyers, CPAs, PMs, etc who can satisfy your needs. So I'd focus first on selecting an area then on finding the right people in that area.
You also hint you're going to use this property yourself. Do you mean you expect to move here at some point in the future and occupy the property? If so, I'd keep that aspect separate from the investment. Property you occupy is, IMHO, not an investment. Its an expensive toy little different than any other toy we buy. For some people, its their only form of "savings". They buy a house, live in it for 20-30 years, largely paying off the loan. They then sell it, saying "look at the money I made". Even 2% appreciation adds up nicely over 20-30 years. It also looks like a great return when you compare the sales price to the purchase price.
The real comparison, though, is more complex. At the least, you need to compare sales price to the total of the payments plus any down payment. All too often, that comparison shows a net loss because the appreciation has been less than the interest rate. If you add in all the money you've spent on taxes, insurance, maintenance, and improvements, the net is even worse. Nevertheless, for someone who doesn't have any savings, the lump of cash they get when they sell the house is a big deal. If you've managed to save up enough to put 50% down on a house, you're a saver already. So, if you're looking for a place to live, look at that from the perspective of where you want to live, what sort of place you want, and what you can personally afford.
With that out of the way, appreciation vs. rental income. While its hard to make a general rule, the most profitable rentals tend to be lower end. The price to rent ratio has to be pretty low to make the rental profitable. Those places tend not to appreciate as well as better neighborhoods. In a nice neighborhood, though, you'll tend to find situations where the rent doesn't even come close to covering the expenses and the debt service. To meet your criteria, you're going to have to be at the lower end of "nice neighborhoods" but at the upper end of "good rental areas".
So, I'd start your search by looking at some big cities where you'd like to live. Then, start looking at neighborhoods. Look for listed property prices, which are easy to find on realtor.com. Look for rents, which are easy to find on craigslist. Do the math on what you're seeing and find some neighborhoods that seem to work for you. Then, start making phone calls. If the people who talk to don't understand foreign investors, ask for referrals to someone who does.
I suspect in most areas this is going to take some work. But real estate investing is hard work. It takes a lot of time and effort to find the right people and to find good deals. Its easy to find bad deals, and there are plenty of them out there and people to sell them to you.
As a foreign investor you will have several challenges when investing.
There are some banks that will work with you if you that much to put down. Finding these banks or mortgage companies can be quite challenging though.
Another consideration is that as a foreign investor not residing in the US, you will not have some of the deductions allowed to residents of the US. This is not to much of a concern until you go to sell the property.
Others may be able to help you locate a property that might fit your requirements. I happen to believe that over the course of ten years most properties will appreciate though it will vary by location and property type.
Hi Abeer-
If you know someone in US that you can trust, how about partnering up with them? You and a partner can form a LLC and you can invest as a foreign partner in it. My dad, who lives in India, is investing with me. He will invest the money and I will find properties to invest in. You can look to something similar with a business partner that you can trust.
Thanks!
Easy enough. Get a tourist visa, fly to the USA, pick something out, and wire the money to pay for it.
You get a tax number from the bank that will receive the money.
Interview property managers while you are there.
An escrow company handles the transfer on the west coast.On the east coast, you will probably use a real estate lawyer.
Money goes to the escrow company, not directly to the seller.
Be sure to purchase title insurance.
Financing will be your problem you will have to get a loan in your area because to get a loan here in the US you have to have a social security number. Other than that just look on the internet for a real estate agent and then have them handle the deal.
Brian Haskins
Thanks a lot for all the replies.
I would prefer to be in areas where Indians have are already purchased properties, since there it will be easier to buy as real estate agents, tax lawyers, rental property managers will already be familiar with foreign owners and their issues.
How can I find out about these areas?
Abeer,
There is a pretty big indian population in Chicago (especially near Devon street), New York and Houston. There are also Indian attorneys, real estate agents etc in those areas.
Hi Abeer-
I am from Chicago, so if you need some attorney's or realtor's information in Chicago, just let me know and I will get that information to you.
Thanks!
Citizen's of India are scattered into every corner of the USA. I suspect that there isn't a city anywhere in the country that doesn't have at least one convenience store, restaurant, gas station, and a motel owned by an Indian national.
You'd have to look awfully hard to find any sort of real estate service that couldn't or wouldn't do business with a foreign national.
If you want to only have rentals that rent to Indian nationals, there will be a population in any big city, but I'd better warn you, it is seriously against the law, here, to discriminate based on race or nationality.
I guess my last post was misunderstood. The intention was to find out which areas are popular where Indian Citizens staying in India are buying properties for investment purposes. Such areas will have lots of lawyers, agents, banks, tax consultants already familiar with FIRPTA for the Indian investor.
I will be willing to rent out to anyone who pays the rent, is willing to do minor fixes himself, and will not trash the property.
The major objective is a long term investment in US for self use + investment. Maximising rental income is not required.
Rental income will be used to just pay EMI, property management charges, taxes and maintenance on a 50% loan, so that after downpayment, the property sustains itself.
Hey Max,
Thanks for the offer, will get in touch with you.
Abeer
You don't need "lots of lawyers, agents, banks, tax consultants already familiar with FIRPTA for the Indian investor." You need A lawyer and AN agent and A CPA. Not lots, just one good person of each specialty you trust. Do you know anyone who's done this? Your best source for referrals is a personal reference.
The real estate business is full of people with their interest in mind. They range from out and out scammers to people who will sell you a deal that will cost you money. Its a lot like the first time I flew into Bangalore via Mumbai. Thirty hours on places, dead tired, know nothing about where to go and I fly into Mumbai international. Lots and lots of people there willing to "help me" get to the domestic airport. You'll need to watch out to avoid that sort of "help."
Read in the Rental Property forum about expenses, especially the "50% rule". That says the expenses (which do not include debt service, that is, the principle and interest payments on your loan) will be 50% of your gross scheduled rents. That 50% figure does include both vacancies and large capital items like roofs and heaters. As a long distance investor, this is really the very best you can do if things go right. Little items that would be 10 minutes to fix with $5 in parts will cost you $100 when your property manager calls a handyman. You'll have a hard time checking on the PM from that distance.
It sound like you want the remaining money left after expenses to just be break even. That is, the 50% left after the 50% for expenses would just cover your P&I payment. That means you're earning nothing for a return on the cash you have tied up. Personally, I would like to see some return, especially for as big as down payment as 50%.
What you're really doing is "speculating". You're speculating on appreciation on the property to generate a long term return. As the name suggest, that's very speculative. I seriously doubt we'll ever see the kind of appreciation we had from 2000 to 2007. Personally, I don't think we're totally done with the fallout from that bubble.
Long term (i.e., from the 1890's or so), appreciation has tracked inflation. There have been some major disruptions -- the great depression, the change in lending after WWII, and the recent bubble. Other than those, appreciation after inflation has been zero over the long term (10 years or longer). The source for those statements is the long term, inflation adjusted Case Shiller data. Over shorter periods, there are variations. For specific areas where something is happening, e.g., redevelopment, new employers, there can be huge variations.
I'd suggest you start your search by first finding an area where you think you want to invest. Most major cities are going to have agents, lawyers, CPAs, PMs, etc who can satisfy your needs. So I'd focus first on selecting an area then on finding the right people in that area.
You also hint you're going to use this property yourself. Do you mean you expect to move here at some point in the future and occupy the property? If so, I'd keep that aspect separate from the investment. Property you occupy is, IMHO, not an investment. Its an expensive toy little different than any other toy we buy. For some people, its their only form of "savings". They buy a house, live in it for 20-30 years, largely paying off the loan. They then sell it, saying "look at the money I made". Even 2% appreciation adds up nicely over 20-30 years. It also looks like a great return when you compare the sales price to the purchase price.
The real comparison, though, is more complex. At the least, you need to compare sales price to the total of the payments plus any down payment. All too often, that comparison shows a net loss because the appreciation has been less than the interest rate. If you add in all the money you've spent on taxes, insurance, maintenance, and improvements, the net is even worse. Nevertheless, for someone who doesn't have any savings, the lump of cash they get when they sell the house is a big deal. If you've managed to save up enough to put 50% down on a house, you're a saver already. So, if you're looking for a place to live, look at that from the perspective of where you want to live, what sort of place you want, and what you can personally afford.
With that out of the way, appreciation vs. rental income. While its hard to make a general rule, the most profitable rentals tend to be lower end. The price to rent ratio has to be pretty low to make the rental profitable. Those places tend not to appreciate as well as better neighborhoods. In a nice neighborhood, though, you'll tend to find situations where the rent doesn't even come close to covering the expenses and the debt service. To meet your criteria, you're going to have to be at the lower end of "nice neighborhoods" but at the upper end of "good rental areas".
So, I'd start your search by looking at some big cities where you'd like to live. Then, start looking at neighborhoods. Look for listed property prices, which are easy to find on realtor.com. Look for rents, which are easy to find on craigslist. Do the math on what you're seeing and find some neighborhoods that seem to work for you. Then, start making phone calls. If the people who talk to don't understand foreign investors, ask for referrals to someone who does.
I suspect in most areas this is going to take some work. But real estate investing is hard work. It takes a lot of time and effort to find the right people and to find good deals. Its easy to find bad deals, and there are plenty of them out there and people to sell them to you.
Non US citizens are having a really hard time getting financing for homes these days. Your best bet is to find a way to pay cash.
As a foreign investor you will want to consider estate taxes as well. You are not entitled to many of the exemptions that US citizens have for estate tax purposes. I would suggest contacting a good tax attorney familiar with international tax issues. Besides FIRPTA, there are tax treaties and other issues that may effect you. FIRPTA only addresses some of the specific laws enacted for foreign investments in real estate, but there are newer regulations as well dealing with foreign investments.
If you're still considering investing in the USA, it is a great time. In many cases, prices have fallen over 50% and rents are rising. [LINK AND SOLICITATION REMOVED] I'm an Indian originally from Mumbai (Bombay).
The Economic Times ran a front page article on Monday, May 23, 2011. "US realty turns hot property; Indians snapping up big housing deals"
Why are you not Investing in India ? It is fast growing economy and realestate apparciating around Mumbai, Delhi, Banglore - even Pune -
I have email from foreign Investor - who has four hosues - in Atlanta , Georgia --all paid for cash and can not get financing .
What is your objective ? Why do you want to invest in Real Estate ? Why USA ?
You can invest in good stocks in India and get 15 % plus return.
You have no understanding of RE Investements--Its headache- many investors do not even recommend buying and managinga cross stateline --and you want to manage from India ?
You do not need agent or alwyer --just cash or partner-- hosue does not have to be enar university - any good location with employment abse and transporattion is good--
May be you should spend three - four days --going through all the posts here for last six months on investing
I sugegst --invest in India -so you can have control.
Like one of the previous poster, anywhere you go waving money, you can find someone who will do business with you.
I recommend that you do the work yourself. Research areas. Interview agents who can give you information that allows you to make intelligent decisions.
Here's one of the places where I would start:
http://www.housingpredictor.com/2011/best-investors-markets.html
Yes, Indian citizens can definitely buy a investment property in US. Foreign investors, especially Chinese, have been huge investors in US real estate market as it provides them healthy rental income, good appreciation and a secure investment process.
You should start with finding a good real estate consultant in India who can help you with managing your finance and investment from India. I have worked with myah dot in who specialize in helping Indian investors invest in US real estate.
Hi Abeer,
I was searching for answer to a similar question. Did you buy property in US? If yes, can you share your experience?
Thanks,
Tania