Pros and Cons of foreigners buying US real estate

7 Replies

I've spent a good portion of my adult life living and working in Africa, although I'm a US citizen. My family and I have been back in the US the last two years, but we're hoping to move back to Africa later this year. One of businesses I would like to pursue is helping facilitate investors from Africa and the Middle East purchasing Real Estate investments in the US.

For those of you who have done this yourself or facilitated others doing so, what are the three biggest pros for foreigners buying Real Estate in the US? Prices? Return? Safe economy?

Then, what are three biggest cons I'll need to address in the process? Taxes? Legal issues?

Mike

@Michael W.

The pro's are that if you set up your business and align yourself with the right turnkey providers you can do well.  The thing we see as an issue is people who we work with that do what you are referring to require such a hefty " fee " for bringing the buyer that it makes the numbers look not as good.  

Financing will be tricky and creative so you will need to find a US company that will make loans to foreign investors.  They will most likely be high interest with less then stellar terms.

Good luck

Originally posted by @Michael Wentzel :

I've spent a good portion of my adult life living and working in Africa, although I'm a US citizen. My family and I have been back in the US the last two years, but we're hoping to move back to Africa later this year. One of businesses I would like to pursue is helping facilitate investors from Africa and the Middle East purchasing Real Estate investments in the US.

For those of you who have done this yourself or facilitated others doing so, what are the three biggest pros for foreigners buying Real Estate in the US? Prices? Return? Safe economy?

Then, what are three biggest cons I'll need to address in the process? Taxes? Legal issues?

Mike

Great advice from Curt above,

A few big cons IMO are: currency (For example the Aussie $ was $1.20 no too long ago and now its $0.80 on the USD), bank account set up (Patriot act issues) and delays with paperwork due to time zone differences.

Pros, well that's easy lol

Great value, great net returns and although it mind sound corny its a once in a lifetime opportunity IMO.

I definitely wouldn't be freezing my a.. in Ohio if I didn't believe this to be the case.

Its summer and surfs up in Sydney hahaha

Thanks

Educating your potential investor as to the Risks and Rewards. In all probability they know nothing about real estate in the US. For myself I will not take an investors money until I know he/she understands the risks. All you have to do is have a deal go bad and your investors turn into sharks.

It is not like the stock market that posts values daily.

Make sure that you have an exit strategy before you start.

Find yourself a US Attorney that knows SEC rules and regulations, especially with foreign investors. What kind of a business structure are you going to form both in US and in your country?

What kind of liability are going to have in your home country if a deal goes bad in the U.S?

If a deal goes bad in US can your assets in Africa be attached? What kind of legal action can your investors take against you?

Start small. Do one deal and see how it goes. Work out the kinks.

I have a fellow investor who has a foreign investor wire US funds to a title company in Atlanta and then closes the deal. No business structure at all. I am not saying that is the right way or wrong way, just  stay on the right side of regulations.

Legal and accounting fees are substantial when you first start out. Because the IRS is always changing regulations you need a knowledgeable team advising you. In January 2014 new IRS regulations went into effect for owners of rental properties. Most investors do not know of the changes, but when they file their 2014 taxes on rental property and find many of their deductions are not allowed, then panic sets in.

A big pitfall in cross-border investing is tax treatment of income and backup withholding rules from the IRS. I recently dealt with a property manager who was fined by the IRS for failing to withhold tax from payments to foreign investors. Additionally, few people know that Canada and several other countries do not recognize LLCs; instead they will tax them as C-corporations which causes double (or even triple) taxation.

That is a great thing to do; however, what @Christian Carson  said will not apply as you are still a US citizen so you should have been filing a US tax return every year.

I used to work international contracts so I was working with people doing exactly what you are talking about doing.

There are no major cons to it, assuming you have found the right people in the US to work with. Not sure what kind of properties you are wanting to facilitate? Let me know and I can guide you more specifically. But trust is the hardest thing for foreigners to find, so if you can find that for them and be that for them, then you have the hardest part out of the way.

Taxes and entity structuring is a MUST, and done correctly, otherwise there will be big hits to them. But that is easy if you have a professional to work with who specializes in international investors. They are out there. Don't let any of your folks not go through that professional, so as to avoid things getting quirky, and everything should be fine.

Again depending on the type of properties you are looking to work with, the whole process can be fairly easy and smooth. Then the hardest part is just how many people are in the chain between the buyer and seller, but that's nothing major.

@Ali Boone  I had read some of your posts as I dug through the forum on this subject and hoped you would chime in. Thank you. Appreciation to the rest of you as well. I have a lot to learn and you're helping me.

Here is a fuller picture of what I'm hoping to do... I would like to get my Real Estate license before I leave the US. My understanding is that this will allow me to accept referral fees from Realtors. I will be marketing and networking where I'm living in N. Africa. Hopefully this eventually leads me to a few people who would consider parking some of their cash in US Real Estate. I would educate and coach them through the process. But in the end I'm going to hook them up with a Realtor in their desired market to finish the deal. I am guessing that I will also need lawyers and tax advisers to put them in touch with. I would be compensated by the 25% referral fee off of the Realtor's 3%. That isn't much on a $150,000 house, but would be significant on a million-dollar apartment complex.

I have other sources of income to live off while I give this a try. Do you see any holes in my plan?

Mike

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