Hello fellow BP community,
I recently came across an opportunity to potentially partner with a foreign investor to purchase rental properties in the US. As I started doing more research on business entities and lending practices pertaining to foreign investor, I came across the BP community which I have to say is one of the most informative sites around and I wanted to give a big thanks for those who had replied to previous posts similar to my current topic - I've learned a great deal since.
I'm currently looking to purchase SFR rental properties in the Houston area with a foreign partner (close friend of mine) who is willing to invest in downpayment while I obtain a mortgage from a US lender and run the business on the ground locally. Below are my questions which I'd love to hear any advice/feedback from fellow BPers:
1.) What are my lending options assuming the funds are foreign sourced? I've read online a lot of challenges regarding obtaining loans for foreign buyers and I'm curious to hear what other's thoughts/experiences are.
2.) This is probably a CPA/Tax professional question - which form of business entity should I pursue to minimize taxation for foreign investors and for myself?
3.) What is a typical and fair compensation/ownership structure? Assuming I manage everything on the ground and carry risk of mortgage?
I would suggest speaking to a CPA before you do anything. Make sure they have experience with international investors. The CPA may suggest the foreign investor to setup a LLC.
The worst decision I've EVER made in my investing life was to partner with a person from out of the US. He origionally reached me trying to buy one of my properties. But my property was in a hot area of Houston, thus a crappy return. He said he wanted a higher return. I told him that requires going to a worse area, which I don't suggest to people not local. He asked if I'd want to partner on one. I said "sure". I found the deal, got the financing, he pitched in 1/2 the down payment and we went 50/50 on it.
Trouble started when he'd try to micromanage how I operated. I ran it just like I would any of mine. He wanted reports and called every day to have me justify why I was doing whatever. I finally said enough. Things got ugly. Lawsuits, etc. I finally bought him out. Gave him all his $ plus a nice chunk just to get rid of him.
Yeah man. never again. If I was to EVER meet someone that wanted to partner, I'd tell them I'd happily take their $ to invest and give them a debt return. And maybe some upside bump on a sale. But NEVER EVER EVER an equity position.
@Bill Y. 1) I've had people from foreign companies, but with US bank accounts invest in my projects. It hasn't been a problem for me with community banks as long as I have been able to guarantee the funds. If you need your foreign buyer to guarantee you maybe can find someone that will hold escrow or even the bank you are using can hold it.
2) LLCs are pass through entities. The tax goes to the personal return of the individual. I would use that.
3) This is all what you can negotiate. I would be very clear on expectations with your investors on what you will provide to investors and when. As @Cody L. poor expectations lead to conflict. That said if the deal goes bad you could still face hassle and legal trouble. We give back equity in cases where we aren't meeting client's expectations.
@Bill Y. you'll most likely want to form an LLC and be treated as a partnership. You might have issues with funding though. I'm not quite sure on that end. You could purchase it in both of your names without an LLC and you would each report 50% of the income/expenses on your returns. The foreign investor will need to apply for an ITIN and will need to file a US tax return. You will need to find a Certified Acceptance Agent to help with the ITIN.
Yeah, and @Kevin Wood knows me well enough to know I'm pretty casual with how I interact. I'm not big on huge legal documents or attroneies, etc. I'm sort of a deal-on-a-handshake guy. Which has been good for me so far -- save that partnership. If I had to do it again, with someone I wasn't actual friends with, I'd go hard on an iron clad workable document.
If you're the one providing the real value, and they're just cutting a check to sponge on your deal, then my suggestion is to make some terms that work for you and if they're not happy move on. Finding people with $ to invest is the easiest part of the game at this point in the cycle.
Free eBook from BiggerPockets!
Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks and techniques delivered straight to your inbox twice weekly!
- Actionable advice for getting started,
- Discover the 10 Most Lucrative Real Estate Niches,
- Learn how to get started with or without money,
- Explore Real-Life Strategies for Building Wealth,
- And a LOT more.
Sign up below to download the eBook for FREE today!
We hate spam just as much as you
Create Lasting Wealth Through Real Estate
Join the millions of people achieving financial freedom through the power of real estate investing