I was recently traveling abroad (Australia) for my day job and told some longtime friends of mine about the real estate investing I'm doing in the US. They were immediately intrigued by my approach/success and wanted to know if there was an opportunity to invest. I wasn't able to find anything in the forums that addressed my questions, so here's what I'm looking to be answered:
- How can I legally accept foreign currency to do domestic deals?
- Is there a special business structure that I need to form/adhere to in order to make this proper?
- What are the tax implications for me and my foreign investors?
- Is there anything else I should consider by taking on foreign investors?
Thank you in advance for your response(s).
@James Letchford some basic answers here that I hope can get you pointed in the right direction:
- How can I legally accept foreign currency to do domestic deals? - You won't get paid in foreign currency. The foreign investor will transfer funds to your bank, which will be exchanged at a certain rate, so that you receive US dollars. If you are acting as a real estate agent for them, you'll have even less to do with it since they will wire their funds to the title company, who will disperse funds at closing to the appropriate parties. Taxes are paid just like normal.
- Is there a special business structure that I need to form/adhere to in order to make this proper? - Nope. You can use any structure that is already in place to receive money. But consult your tax professional for any advice that they might give you.
- What are the tax implications for me and my foreign investors? - That question is for them to find out. They need to consult their tax professional on their end.
- Is there anything else I should consider by taking on foreign investors? - This will certainly depend on your role, what they want to do, etc. So if they are using you as a real estate agent, and need money for loans, you'll need to find them a financing solution. If they are just giving you money to invest, then a standard agreement would need to be in place for that type of relationship.
Hope this helps in some way. Thanks!
@Andrew Postell This has been hugely helpful. All-in-all, it seems as though it's a pretty straight forward transaction once the money has been wired internationally. We'd have an operating agreement just like I'd have with a domestic partner and taxes would be handled on each of our respective sides. Seems clear enough to me.
Thank you for your detailed response.
The investment vehicle that is created may need to withhold on the foreign investors.
You may need to see a tax treaty between the United States and Australia for the specific withholding rates.
Investing in Real estate is considered effectively connected income. The foreign investors may need to file a US tax return. Filing of the US tax return will allow the investors to get back any withholding(if any was withheld).
It's a pain in the A$$ for the Australian party. They would need to file tax returns in the USA and AUS. Need a US and AUS accountant. They really need to invest a sum that makes it worth wild for them to double up the cost of everything. Then to take on the variable of an exchange rate that is always changing.
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