Out-of-Country Investor

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Out-of-Country Investor

Alvin P.
Investor · Singapore, Singapore · Member since 2015 · 17 posts · 7 votes

Hi everyone! I'm an out-of-country investor looking at getting into rental properties, and I'm very excited to get started. I'm looking at Little Rock, Memphis, and Houston. I've been reading through the posts on this site, and trying to pick up as much as I can.

Currently, I'm contacting several turnkey property companies, and trying to see how the best way to setup LLCs is. Apparently one in every state that I'll be owning property in is best - and even better if I have one LLC per property.

Financing is also a big headache, because of higher rates than usual for me since I'm a non-resident, so I might have to pony up much more cash per property that I had imagined.

But it's a journey that I'm glad to have gotten started. Looking forward to learning more from everyone! And if there are any other out-of-country investors, I'd love to hear from you too!

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Michael Sobotka
Real Estate Agent · Buffalo, NY · Member since 2014 · 23 posts · 12 votes
11y

An example of a transaction in Buffalo, NY

$62,500 purchase price.

Rent collects $1600/month

Tenants pay all utilities

I have a lender than can do a 5.99% loan to non-residents, but that is if you can get a Social Security Number.

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  • Dean Letfus
    Specialist · Memphis, TN · Member since 2012 · 1k+ posts · 1k+ votes
    11y

    Your advice about LLC's is not right Alvin. One LLC for every 5 properties or 500K is more than enough and you should set up in the best states for cost and asset protection. We have clients all over the world and have never had one have an issue.

    Hard money loans are higher interest but you can still be cash positive on 50% down until you get your credit score high enough to borrow locally.

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  • Alvin P.
    OP
    Investor · Singapore, Singapore · Member since 2015 · 17 posts · 7 votes
    11y

    Thanks Dean! I've been bombarded by a whole slew of data about LLC (or not), and how many, etcetc. However, it does seem like the first step is to just incorporate my first LLC.

    This is one point that I haven't been able to get good info on though: Seeing that there are out-of-state taxes and costs for LLCs, wouldn't it make more sense to have the LLC in the same state that your properties are in?

    I'm from a country where we have only one state and one city, so the concept of multiple states and different rules and regulations per state can be very confusing!

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  • Dean Letfus
    Specialist · Memphis, TN · Member since 2012 · 1k+ posts · 1k+ votes
    11y

    Hi Alvin. No there aren't out of state costs etc. We set up our clients in 1 of 2 states, neither of which is Tennessee which is where our clients are holding real estate.

    Providing you are only holding rental real estate there are no out of state costs per se.

    The problem with setting up in the state you are buying can be, depending on the state, high costs of compliance, easy to pierce the veil, punitive taxes.

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  • Melodee Lucido
    Real Estate Investor · OR · Member since 2012 · 390 posts · 133 votes
    11y

    Welcome to BP @Alvin P. You have come to the right place for answers to many questions that will arise on your investing journey. Memphis is a great market for cash flow. Also, close by is Chattanooga which is an emerging market with some great growth ahead,

    Huge Success to you in 2015

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  • Kristi Patton
    Little Rock, AR · Member since 2014 · 21 posts · 7 votes
    11y

    @Alvin P. I live in Little Rock and am looking for rental property as well. Arkansas is a very landlord friendly state. I am working with a real estate attorney right now to get our LLC set up and for general guidance. We have referred business back and forth for awhile now and he is pretty sharp in this area. Let's connect and I will send you his contact info!

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  • Chad U.
    Investor · Boca Raton, FL · Member since 2012 · 1k+ posts · 1k+ votes
    11y

    Setting up an LLC in one state and holding property in another generally will incur higher costs since the LLC needs to be registered as a foreign corporation in every state that you intend to do business in (i.e. rentals). Some states have much higher foreign corporation filing fees than others, for instance, California imposes a "franchise tax" of $800/yr for the purpose of doing business there. However, if the state where you are holding properties has low registration and annual filing fees for foreign corporations, than the additional costs may be negligible.

    As for financing for out of country investors, there are a few lenders that cater to foreign nationals, some providing loans with LTV's ranging from 65%-75% and rates of 6-7%.

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  • Tuan Le
    Investor · Houston, TX · Member since 2014 · 142 posts · 32 votes
    11y

    Welcome to BP @Alvin P. 

    How did you come up with Little Rock, Memphis, and Houston as your investment cities?  You should network and find a real estate attorney in each state.  They should be able to help you set everything up.

    I went to Singapore (lovely city BTW!) a few months ago and was talking to a friend who lives there about investing in Singapore.  Housing prices over there are ridiculous high!   

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  • Alvin P.
    OP
    Investor · Singapore, Singapore · Member since 2015 · 17 posts · 7 votes
    11y

    Thanks everyone! Looks like I really need more research in this area.

    Yes! Singapore is a lovely country, but we get $2500/month rent on a $750,000 1-bedroom condo. Boggles the mind!

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  • Michael Sobotka
    Real Estate Agent · Buffalo, NY · Member since 2014 · 23 posts · 12 votes
    11y

    An example of a transaction in Buffalo, NY

    $62,500 purchase price.

    Rent collects $1600/month

    Tenants pay all utilities

    I have a lender than can do a 5.99% loan to non-residents, but that is if you can get a Social Security Number.

    1Reply
  • Engelo RumoraBusiness Member
    Investor · Toledo, OH · Member since 2013 · 4k+ posts · 2k+ votes
    11y
    Originally posted by @Alvin P.:

    Hi everyone! I'm an out-of-country investor looking at getting into rental properties, and I'm very excited to get started. I'm looking at Little Rock, Memphis, and Houston. I've been reading through the posts on this site, and trying to pick up as much as I can.

    Currently, I'm contacting several turnkey property companies, and trying to see how the best way to setup LLCs is. Apparently one in every state that I'll be owning property in is best - and even better if I have one LLC per property.

    Financing is also a big headache, because of higher rates than usual for me since I'm a non-resident, so I might have to pony up much more cash per property that I had imagined.

    But it's a journey that I'm glad to have gotten started. Looking forward to learning more from everyone! And if there are any other out-of-country investors, I'd love to hear from you too!

    Hi Alvin,

    Feel free to check out a blog I wrote for Bigger Pockets a while back about investing from out of state or country.

    I hope your find it useful.

    http://www.biggerpockets.com/renewsblog/2014/07/26/sight-mind-real-estate-investing-afar/

    Thanks and have a great day.

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  • Account Closed
    Property Manager · Baton Rouge, LA · Member since 2014 · 2k+ posts · 195 votes
    11y

    Hello Alvin

    Was just reading what was said by all the people posting a reply to you.  Funny, no one suggested the use of a property management company or an Association of Land Lords.  Yes like regular owners Associations there are associations of income producing property owners.  Absent Land lords depend  on these professionals.  See how they work by going to www.hamiltoninvestmentschdo.com

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  • Dean Letfus
    Specialist · Memphis, TN · Member since 2012 · 1k+ posts · 1k+ votes
    11y

    "Setting up an LLC in one state and holding property in another generally will incur higher costs since the LLC needs to be registered as a foreign corporation in every state that you intend to do business in"

    This is incorrect you do NOT have to do this.  (At least not in any of the states we have operated in).

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  • Chad U.
    Investor · Boca Raton, FL · Member since 2012 · 1k+ posts · 1k+ votes
    11y

    @Dean Letfus 

    Not sure where you are getting your legal/business advice from, but you may want to look into this a bit further.  I'm no legal expert either, but am pretty sure this applies to all states.  Do a search for foreign Corporation requirements, here is one link to start: http://www.bizfilings.com/learn/doing-business-other-states.aspx

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  • Ali Boone
    Real Estate Coach · Venice Beach, CA · Member since 2012 · 6k+ posts · 3k+ votes
    11y

    Hey Alvin! Welcome to US and turnkey investing :) It's super fun and exciting....you'll love it.

    Who are you working with regarding the LLC setup? The thing with that, and I assume you are a Singapore citizen and not a US citizen?, is it is KEY that you work with someone who specializes in international investors. Reason being, every country/citizenship has different rules in terms of the tax hits and structuring requirements and such, so it's not just as simple as setting up any ole LLC. So I want to make sure those are getting set up for you exactly right, otherwise you will get some major hits.

    Financing-wise, what down payments are you getting quoted?

    (I used to work a contract dealing solely with international investors buying US turnkeys, so I've been pretty deep into the logistics of it all. Very easy to do, just has to be done right before any properties are purchased. And I know some cool lending options.)

    0Reply
  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    11y

    @Dean Letfus 

    your advice on LLC's needs a little tweaking...

    @Chad U. is correct about filing as a foreign entity IE one state to the other.. Some states are more strict on this.. And of course its all about protection. IE if you do not register your TN LLC in Alabama you have not legal standing in that state should an issue arise.. you can wing it of course

    @Alvin P. 

    One of my business partners lives in Singapore and together we have invested in quite a lot of US RE.. If you want to ping me I will give you his contact info so you guys can grab a beer and chat.. I have taken him all over the US with me so he has a pretty good first hand feel for these markets.

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  • Dean Letfus
    Specialist · Memphis, TN · Member since 2012 · 1k+ posts · 1k+ votes
    11y

    Hey @Chad Urbshott no not every state is the same. In Tennessee and Arizona for example you do not need to register providing your activity doesn't breach the very vague guidelines. And in states with no income tax they don't care whether you register or not.

    California requires you to register if you own one rental but none of the states we are in require it.  Flipping is different of course but straight buy and hold is no issue.

    Our advice has come from top attorneys in the respective states we invest in

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  • Alex Alex
    Investor · Daly City, CA · Member since 2015 · 1 post · 0 votes
    11y

    I was about to form a LLC to hold my properties in California until I talked to a real estate lawyer. He told me that the major advantage of forming a LLC is to protect my assets outside of the LLC, but the LLC would incur annual costs, and I cannot take advantage of depreciation for tax purpose. In addition, if my LLC holds an asset of $500K total, my $500K is not really protected.

    Instead of forming LLC, he advised me to get Commercial Liability Umbrella Insurance (CLUP) that would protect me on top of the individual home insurances. For a coverage of $5M and up to something like 50 properties, the annual premium is under $1000. Plus, I don't have to worry about having a LLC in each state.

    What do you think?

    0Reply
  • Christopher Hunter
    Real Estate Investor · Cypress, CA · Member since 2013 · 877 posts · 94 votes
    11y

    @Alvin P welcome to Biggerpockets.com 

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  • Chad U.
    Investor · Boca Raton, FL · Member since 2012 · 1k+ posts · 1k+ votes
    11y

    "And in states with no income tax they don't care whether you register or not."

    @Dean Letfus that simply is not true. Florida is a no income state, and they are very strict about registering foreign entities in their state. You just need not publish your registration. I once thought I could get away with creating an LLP in Arizona, due to the extremely cheap filing fees (something like $3) and then use it in Florida. However, when I went to get a partnership agreement done by an attorney was dismayed to learn I needed to register the LLP first - an additional $1000!

    As for the state of Tennessee, this rule also applies.  I found this from a very prominent looking law firm based in Tennessee:

    A foreign corporation must obtain a certificate of authority from the Tennessee Secretary of State before it transacts business in Tennessee. Failure to do so will subject the foreign corporation to liability for triple the amount of taxes, fees, and penalties plus interest and other charges that it would have paid had it registered. Additionally, any foreign corporation without a certificate of authority to do business in Tennessee may not bring a proceeding in any court in the state until it obtains a certificate of authority.  

    And as @Jay Hinrichs points out, you could be leaving yourself legally exposed.  

    Just trying to keep the facts straight for the unsuspecting forum readers coming here trying to get some sage advice......

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  • Dean Letfus
    Specialist · Memphis, TN · Member since 2012 · 1k+ posts · 1k+ votes
    11y

    You have to be doing something considered transacting business. Maybe an LLC is different to an LLP. But buying and holding real estate, liens, notes etc is NOT transacting business.

    In the case of Memphis our advice came from the Tennessee Secretary of State:

    The Tennessee Business Corporation Act (TCA 48-11-101 et. seq.) does not define “transacting business,” but does provide the following non-inclusive and non-exhaustive list of activities that do not constitute transacting business in Tennessee:

    • Maintaining, defending or settling any proceeding, claim or dispute;
    • Holding meetings of the board of directors or shareholders or carrying on other activities concerning internal corporate affairs;
    • Maintaining bank accounts;
    • Maintaining offices or agencies for the transfer, exchange and registration of the corporation’s own securities or appointing and maintaining trustees or depositories with respect to those securities;
    • Selling through independent contractors;
    • Soliciting or obtaining orders, whether by mail or through employees or agents or otherwise, if the orders require acceptance outside Tennessee before they become contracts;
    • Creating or acquiring indebtedness, deeds of trusts, mortgages and security interests in real or personal property;
    • Securing or collecting debts or enforcing mortgages, deeds of trust, and security interests in property securing the debts;
    • Owning, without more, real or personal property (including, for a reasonable time, the management and rental of real property acquired in connection with enforcing a mortgage or deed of trust if the owner is attempting to liquidate the owner’s investment and if no office or other agency, other than an independent agency, is maintained in Tennessee);
    • Conducting an isolated transaction that is completed within one month and that is not one in the course of repeated transactions of a like nature; or
    • Transacting business in interstate commerce.

    We have set up hundreds of clients in 9 countries so we make sure our advice is good.

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  • Chad U.
    Investor · Boca Raton, FL · Member since 2012 · 1k+ posts · 1k+ votes
    11y

    I give up......but I would think for the $100 to register the entity and the $20 annual filing fee in your state, would be well worth the investment just to be on the safe side.  

    1Reply
  • Alvin P.
    OP
    Investor · Singapore, Singapore · Member since 2015 · 17 posts · 7 votes
    11y

    @Jay Hinrichs That's fantastic news, I'll drop you a PM

    @Ali Boone Thanks for the info! I'll drop you a PM. Interesting fact - I actually think I stumbled upon your blog while I was researching this whole thing before haha!

    @Alex Alex Yes, that's one of the ways that I was looking into doing as well. In fact, CA has one of the highest costs of LLCs IIRC (something that I learn from Ali Boone). The article she wrote, and the comments, should shed some light on this. It's on BP too: http://www.biggerpockets.com/renewsblog/2013/08/17/rental-properties-llc/

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  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    11y

    @Alvin P. 

      introduction has been made.

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  • Raymond B.
    FL · Member since 2009 · 2k+ posts · 357 votes
    11y

    @Alvin P.,

    To Make the @ work do the following:

    Hold down the shift key and type the following: @?

    Look below this Window, and you will see a list of list of names of people who have posted in this thread.

    Click on the name of the person that you want notified via an email that you responded to them.

    If you are a Colleague with anyone that has not posted in this thread, and you want them to see your post, hold down the shift key, and type the @ and the first 4 letters of the first or last name.

    Look below this Window, and click on your Colleague's name.

    They will be notified via an email about your post in this thread.

    Raymond

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  • Alvin P.
    OP
    Investor · Singapore, Singapore · Member since 2015 · 17 posts · 7 votes
    11y

    @Raymond B. OH WOW haha. I got it to work. Thanks!!

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