Foreigners Investing in the USA & Abroad
Daniel HymanBusiness Member
CPA · Milwaukee, WI · Member since 2016 · 2k+ posts · 1k+ votes
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Foreigners Investing in the USA & Abroad
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Investor · Medford, MA · Member since 2017 · 8 posts · 5 votes
9yIf you dont have USA resident status, mortgage companies will require higher downpayment (40%) and mortgage rate which is likely 1%-2% higher. It is difficult to get good homeowner insurance because many insurance companies want to bundle with your primary home/auto etc... Also my understanding is that attorney will withhold taxes when you sell , so I am not sure if you can do 1031 exchange (something that needs to be figured out)... but overall those hurdles are not too big...biggest hurdle is that you dont have boots on the ground so due diligence is difficult which means you will be doing far fewer deals than you would do otherwise.
25 Replies
- Investor · Medford, MA · Member since 2017 · 8 posts · 5 votes9y
If you dont have USA resident status, mortgage companies will require higher downpayment (40%) and mortgage rate which is likely 1%-2% higher. It is difficult to get good homeowner insurance because many insurance companies want to bundle with your primary home/auto etc... Also my understanding is that attorney will withhold taxes when you sell , so I am not sure if you can do 1031 exchange (something that needs to be figured out)... but overall those hurdles are not too big...biggest hurdle is that you dont have boots on the ground so due diligence is difficult which means you will be doing far fewer deals than you would do otherwise.
- Rental Property Investor · Sandefjord, Norway · Member since 2015 · 202 posts · 87 votes9y
Cool idea for a post! I can shed some light on Norway.
Norway:
1. The banks require a downpayment of 15% on investment properties, except Oslo which is 40%. The banks must follow this 9 of 10 times, so they might deviate if the reason is good enough.
Norway is a cap gain market eith very low mortgage interests. (2-3%).
Almost every adult Norwegian own their own property. So ideal rentals are flats near schools and universities. 2 bedroom apartments start at $225K and can go much higher in the biggest cities here.
Norwegians pay their rent. It is very uncommon for a Norwegian not to pay their rent on time. That said, the laws are very tenant friendly here. But in my 4 years of investing in Norway Ive never had any issues that i couldnt resolve with ease.
Our equivalent to the mls is called finn.no and i dear say the norwegian page is much better looking. Every publicly sold property ends up there.
In order to sell a property the SELLER must pay for a technical inspection report and this must be given out for free to every potential buyer.
Contractors are very expensive. The minimum wage in Norway is very high.
The dollar conversion to the norwegian krone is very favorable at the moment. For the owner for dollars that is. The rate is aproximately 8.4kr per dollar now which is close to the highest its ever been. This is primarily due to the low oil prices at the moment. So smart investors with dollars can make a huge gain on the currency fluctuations.
Norways laws are ideal for serial flippers that want to do live-in flips. If you have lived in the property for 12 out of the last 24 months you can sell without cap gain taxes!
- Investor · Shibuya Ku, Tōkyō-to · Member since 2015 · 90 posts · 36 votes9y
As an American living in Tokyo who's been extremely active in the Japanese real estate market since diving in head first 4 years ago, I feel like I could write a book about my experiences... and yet I often feel like I'm still new to the game, and find myself learning something new everyday.
Long story short in REI in Japan:
Japan banks offer 100% LTV loans - including all closing fees, insurance, and taxes - for in excess of 30x your pre-tax annual salary at anywhwere from 1-4.5% over 23-40 years.
There are zero tenant issues in Japan. Zero. All tenans need either an individual or "guarantor company" to back them, who is legally responsible for rent if the tenant doesn't pay.
Property management companies are reliable, do everything for you, and charge less than 5% gross rents. Some are obvioisly better than others, but I've never heard of any screwing people as they can (I know this all too well) in the US, as many are run by larger Japanese companies.
Properties in Japan actually depreciate over time. The majority of the value of most properties however (generally 2/3rds on average) are in the value of the land, and not the building itself. Since the bubble crash 27 years ago land values have stayed mostly flat, with a bit of an uptick the past few years (conversation for a different time).
Tenants must pay 1 month rent to renew their contract every 2 years, however initial leasing fee can run you anywhere from 1-3 months rent, depending on location.
Japan population is slowly decreasing overall, so buying anywhere outside of a few major cities is a recipe for future disaster, no matter the caps they offer now.
Speaking of caps, Tokyo cap rates have been compressed pretty tight over the past 5 years. A few of the other major cities aren't far behind.
The entire closing process is crazy. There are generally no inspections, and no escrow. I actually am in the process of selling a property, and as the buyers just transferred 10 million yen (just under $100k) to my bank account for the down payment. But there's no "in contract" period and they're performing no inspections, and if they don't transfer me the agreed sales amount on the date we agreed to they have to pay me 20% of the sales price in cash and lose the deal (same goes for me if I pull outta the deal early). And yes I'm totally hoping they cancel and have to pay the 20%, but not counting on it.
Depreciation scheduled are dependent on the construction material of the building (concrete, brick, steel, wood, etc.) and the year build.
The tax laws here are antiquated, and quite frankly a bit whacked, for lack of a better word. There are some massively exploitable loopholes, but also a few things you have to be extremely careful about.
I could go on and on but... happy to field any questions people may have!
- 9yBill ExeterBusiness Member1031 Exchange Qualified Intermediary · San Diego, CA · Member since 2008 · 1k+ posts · 1k+ votes
Hi @Daniel Hyman,
Excellent post! We administer 1031 Exchange transactions for U.S. investors selling rental, investment or business use property in foreign countries, and we administer 1031 Exchange transactions for foreign investors that own rental, investment or business use property in the US.
The countries that we administer foreign property 1031 Exchange transactions in our United Kingdom, Australia, Canada and Mexico.
Hi @Nish Gupta,
You can structure a 1031 Exchange transaction when a foreign investor is selling rental, investment or business use property in the United States. The foreign investor will likely be subject to the mandatory withholding required by FIRPTA, which absolutely will complicate a 1031 Exchange transaction, but can be addressed as long as the investor and his or her closing agents are proactive.
The foreign investor must apply with the Internal Revenue Service for a ITIN number (if they do not already have a Social Security number or employer identification number), and then once obtained they must apply for a Certificate of Exemption for Withholding, which requires the submission of the Purchase and Sale Agreement/Contract for both the relinquished property and the replacement property. They will be exempt from withholding once they have obtained this certificate.
The problem is that the sale of their relinquished property usually has to close before they have obtained The Certificate of Exemption. There are still ways to address this, but the foreign investor must ensure that they are working with closing agents/escrow agents that are willing to withhold but not remit the withholding to the Treasury Department until the Certificate of Exemption has been received, a Qualified Intermediary that understands how to work with/through this process, and a tax advisor that has extensive experience in obtaining this Certificate of Exemption.
Exeter 1031 Exchange Services, LLC and Exeter Trust Company4.726 Reviews - Investor · Medford, MA · Member since 2017 · 8 posts · 5 votes9y
thanks @Bill Exeter, really good to know foreign investor can do 1031 exchange if they follow the procedure.
- Investor · Medford, MA · Member since 2017 · 8 posts · 5 votes9y
@Account Closed
do you know any good local CPA/Attorney who can discuss (in english and charge by hour) rules and ways to optimize around gifts/inheritance taxes for Japanese citizens?
- Investor · Shibuya Ku, Tōkyō-to · Member since 2015 · 90 posts · 36 votes9y
Originally posted by @Nish Gupta:
@Account Closed
do you know any good local CPA/Attorney who can discuss (in english and charge by hour) rules and ways to optimize around gifts/inheritance taxes for Japanese citizens?
I know a Really good one but he only speaks Japanese. I do know an English speaking one here, but he has a tendency to play it too safe not point out all your legal options when discussing strategies unless asked a question explicitly... so you need to do some homework first and he can be a good point of contact for what you can/can't do. Happy to put yourself or your friend in touch.
By the way my mom's from Medford!
- @Bill Exeter - could you explain how the 1031 exchange works for properties located in Australia, owned by US investors? Do you avoid capital gain taxes to the Australian Tax Office? If not, why do the 1031 at all? Thx!
- 9yBill ExeterBusiness Member1031 Exchange Qualified Intermediary · San Diego, CA · Member since 2008 · 1k+ posts · 1k+ votes
Hi @Ben G.,
Investors that own and then sell property in a foreign country are subject to the foreign country's tax laws and are also subject to US tax laws. Structuring a 1031 Exchange for the sale of a foreign property would not avoid any foreign tax that would be due, but it would defer the payment of any US taxes that might be due.
The investor should compute her or her US income tax consequences, would then receive a foreign tax credit for the amount of foreign taxes paid, and would owe the net amount to the US. A 1031 Exchange could then be structured if the net amount of taxes due warranted going through a 1031 Exchange.
There are challenges in structuring a 1031 Exchange in a foreign country. We have to work with the local laws, regulations, customs and closing (settlement) procedures, which will not always allow the structuring of a 1031 Exchange for various reasons. Foreign currency risks must be addressed. FBAR forms may be required under certain circumstances. Among others.
Exeter 1031 Exchange Services, LLC and Exeter Trust Company4.726 Reviews - Investor · Rye, NY · Member since 2014 · 80 posts · 35 votes9y
@Account Closed Very interesting read.
- CPA · Milwaukee, WI · Member since 2016 · 2k+ posts · 1k+ votes9y
Thanks for the input everyone. Anyone else care to shed light on how things are done overseas?
My Online Accountant572 Reviews - Rental Property Investor · Singapore, Singapore · Member since 2017 · 8 posts · 4 votes9y
Can shed some light on Singapore.
Here, the banks require a down payment of 20% for your first property, 50% for the second one, 60% for the third one and 80% for the fourth one onwards if it does not exceed 30 years. Crazy, I know, but so is the market. In addition, 2nd and third purchases will have 7% and 10% tax levied (about $70,000 to 100,000 when private properties here cost about 1 million dollars on average.)
Having said that, almost everyone in Singapore owns a house as there is a public housing scheme called HDB Flats, and 80% of homeowners own one this way and in many cases, after waiting about 10 years the value would have gone up by quite a bit. For example, the neighbourhood I'm at, if bought in 2005 new, it will roughly have appreciated from 300,000 SGD to 750,000SGD today. However, it doesn't quite stack up against the private housing prices where values would have increased 4 folds since.
Our market is primarily a capital gain one (Ultra low 2-3% Cap rates here, not too far off Vancouver or Toronto I say but still lower) and a few years back before the restrictions came out, it was increasing very quickly at rates of 8-10% a year. It has been on the decline however ever since due to the restrictions. Mortgage rates are about 2-3%, extremely low.
Tenants here always pay their rents on time, never had to chase one myself and that's a good thing.
Our listing service is called property guru where pretty much everything is listed there and I think it's like the Redfin equivalent.
The biggest difference here is the prices for renovation. It should be much lower compared to the US. We have very low labour costs comparatively and no official minimum wage so most people here just call someone to do everything, almost no one fixes anything themselves here. We have a renovation forum called Renotalk where people spread word-of-mouth referrals for GCs and Interior Designers. It's like a BP for home renovations. $10-20,000 for the whole house including new laminate/vinyl flooring, paint, washroom redo, kitchens, air conditioner and built in wardrobes is about the market price.Finally, no capital gain taxes!
- Investor · Tampa, FL · Member since 2016 · 334 posts · 215 votes9yFor all the folks who googled "how to move to Canada" last November - here are a few things about the Great White North market. Short sales and foreclosures are nearly non/existent. Here's why. Say someone buys a house for 200K and takes a mortgage out for 160K. Then the market gets hit really bad and the property is only worth 120K. In the U.S. that person can give the bank the keys and be done with it. In Canada that person is still 'on the hook' for the remainder of the loan (eg 160K). Banking is 1000x easier compared to the U.S. and a typical closing is 2-3 weeks. However the downside is that nearly all mortgages are 1, 3, or 5 year terms with most people opting for 5 years. (Side note Kiyosaki says this is why he won't invest in Canada). A big driver of pricing is from foreign investment (eg Asia) especially the west coast (Vancouver, Calgary). Real estate is a huge part of our economy so the government is very protective and puts laws in place to curtail or stimulate the market.
- Investor · Minato-Ku, Tokyo · Member since 2017 · 5 posts · 0 votes9y
Originally posted by @Account Closed:
As an American living in Tokyo who's been extremely active in the Japanese real estate market since diving in head first 4 years ago, I feel like I could write a book about my experiences... and yet I often feel like I'm still new to the game, and find myself learning something new everyday.
Long story short in REI in Japan:
Japan banks offer 100% LTV loans - including all closing fees, insurance, and taxes - for in excess of 30x your pre-tax annual salary at anywhwere from 1-4.5% over 23-40 years.
There are zero tenant issues in Japan. Zero. All tenans need either an individual or "guarantor company" to back them, who is legally responsible for rent if the tenant doesn't pay.
Property management companies are reliable, do everything for you, and charge less than 5% gross rents. Some are obvioisly better than others, but I've never heard of any screwing people as they can (I know this all too well) in the US, as many are run by larger Japanese companies.
Properties in Japan actually depreciate over time. The majority of the value of most properties however (generally 2/3rds on average) are in the value of the land, and not the building itself. Since the bubble crash 27 years ago land values have stayed mostly flat, with a bit of an uptick the past few years (conversation for a different time).
Tenants must pay 1 month rent to renew their contract every 2 years, however initial leasing fee can run you anywhere from 1-3 months rent, depending on location.
Japan population is slowly decreasing overall, so buying anywhere outside of a few major cities is a recipe for future disaster, no matter the caps they offer now.
Speaking of caps, Tokyo cap rates have been compressed pretty tight over the past 5 years. A few of the other major cities aren't far behind.
The entire closing process is crazy. There are generally no inspections, and no escrow. I actually am in the process of selling a property, and as the buyers just transferred 10 million yen (just under $100k) to my bank account for the down payment. But there's no "in contract" period and they're performing no inspections, and if they don't transfer me the agreed sales amount on the date we agreed to they have to pay me 20% of the sales price in cash and lose the deal (same goes for me if I pull outta the deal early). And yes I'm totally hoping they cancel and have to pay the 20%, but not counting on it.
Depreciation scheduled are dependent on the construction material of the building (concrete, brick, steel, wood, etc.) and the year build.
The tax laws here are antiquated, and quite frankly a bit whacked, for lack of a better word. There are some massively exploitable loopholes, but also a few things you have to be extremely careful about.
I could go on and on but... happy to field any questions people may have!
Hi Account Closed, thanks for the very indepth account of the Japanese RE market. I have purchased some property in the US and am looking to make my first purchase in Tokyo, in the next few months.
I have been in Japan for a few years now but don't have Permanent Residency, do you know of any banks that will lend to expats without that (still with those great terms)? The loans you referenced, are they for single family units or will they also work for multifamily properties (5-10 units).
- West Virginia, WV · Member since 2017 · 5 posts · 0 votes9y
It is a very calculative and risky step to invest in the countries, other than homeland.
- Attorney · Tokyo, Japan · Member since 2016 · 184 posts · 145 votes9y
@Nish Gupta I've recently met a Japanese tax accountant and CPA who has worked in the US and who seems good based on my initial consultation. Haven't engaged him formally yet, but likely that I will. I'd be happy to pass on his contact if you're interested.
@Michael J. I would say the terms @Account Closed described also apply to borrowers without PR, but you're going to trend toward the upper side of interest rates and have fewer choices in lenders. Also, depending on the lender, they may not be willing to lend at an LTV of 100%.
- Investor · Medford, MA · Member since 2017 · 8 posts · 5 votes9y
Hi @David Gotsill . would be great to get the contact information of that Japanese tax CPA. could you PM me please?
- Investor · Shibuya Ku, Tōkyō-to · Member since 2015 · 90 posts · 36 votes9y
Originally posted by @Michael J.:
Originally posted by @Account Closed:As an American living in Tokyo who's been extremely active in the Japanese real estate market since diving in head first 4 years ago, I feel like I could write a book about my experiences... and yet I often feel like I'm still new to the game, and find myself learning something new everyday.
Long story short in REI in Japan:
Japan banks offer 100% LTV loans - including all closing fees, insurance, and taxes - for in excess of 30x your pre-tax annual salary at anywhwere from 1-4.5% over 23-40 years.
There are zero tenant issues in Japan. Zero. All tenans need either an individual or "guarantor company" to back them, who is legally responsible for rent if the tenant doesn't pay.
Property management companies are reliable, do everything for you, and charge less than 5% gross rents. Some are obvioisly better than others, but I've never heard of any screwing people as they can (I know this all too well) in the US, as many are run by larger Japanese companies.
Properties in Japan actually depreciate over time. The majority of the value of most properties however (generally 2/3rds on average) are in the value of the land, and not the building itself. Since the bubble crash 27 years ago land values have stayed mostly flat, with a bit of an uptick the past few years (conversation for a different time).
Tenants must pay 1 month rent to renew their contract every 2 years, however initial leasing fee can run you anywhere from 1-3 months rent, depending on location.
Japan population is slowly decreasing overall, so buying anywhere outside of a few major cities is a recipe for future disaster, no matter the caps they offer now.
Speaking of caps, Tokyo cap rates have been compressed pretty tight over the past 5 years. A few of the other major cities aren't far behind.
The entire closing process is crazy. There are generally no inspections, and no escrow. I actually am in the process of selling a property, and as the buyers just transferred 10 million yen (just under $100k) to my bank account for the down payment. But there's no "in contract" period and they're performing no inspections, and if they don't transfer me the agreed sales amount on the date we agreed to they have to pay me 20% of the sales price in cash and lose the deal (same goes for me if I pull outta the deal early). And yes I'm totally hoping they cancel and have to pay the 20%, but not counting on it.
Depreciation scheduled are dependent on the construction material of the building (concrete, brick, steel, wood, etc.) and the year build.
The tax laws here are antiquated, and quite frankly a bit whacked, for lack of a better word. There are some massively exploitable loopholes, but also a few things you have to be extremely careful about.
I could go on and on but... happy to field any questions people may have!
Hi @Bill Baldwin, thanks for the very indepth account of the Japanese RE market. I have purchased some property in the US and am looking to make my first purchase in Tokyo, in the next few months.
I have been in Japan for a few years now but don't have Permanent Residency, do you know of any banks that will lend to expats without that (still with those great terms)? The loans you referenced, are they for single family units or will they also work for multifamily properties (5-10 units).
There a couple options for a foreigner without PR loan wise, I can PM you details.
These are for multi-unit buildings.
- Real Estate Professional · Brooklyn, NY · Member since 2016 · 15 posts · 3 votes9y
Hi! Casting Producer from Boy Wonder Productions in NYC here, we're looking to find people who are flipping abroad for the first time, does this apply to any of you? Or do you guys know anybody who is in the process of doing this? Any info on this subject matter helps. Thanks so much!
@Michael J. Curious to hear about your progress with this. Did you have any luck finding a lender open to expats without PR?
@Account Closed I would be interested in learning about the options for expats as well! Would it be ok to PM you for some details?
- Investor · Minato-Ku, Tokyo · Member since 2017 · 5 posts · 0 votes8yActually I have made some progress. With some help from @Bill Baldwin , I was able to find two banks that are willing to work with expats w/o PR: http://www.bankcomm.com.hk/en/ - HK based https://www.surugabank.co.jp/surugabank/index.html - JP Bank
- Turnkey Service Provider · Fort Worth, TX · Member since 2013 · 135 posts · 41 votes8yVery interesting read. Thanks to those who shared their experiences.
- Rental Property Investor · Florida & Shanghai · Member since 2017 · 192 posts · 68 votes7y
Great thread! thanks for the read! In China, where I currently live, there is a minimum deposit of 50% on first residential home, 70% for second and 100% for 3rd...
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