Foreign non resident invest in commercial property. How to?

Question

I have a family member who wants to invest in a commercial real estate deal with me. How do I proceed?

Basically ,this is a residential multifamily property. I will have some stake in it as well.

Can he lend his money to the property LLC, collecting interest and also has some equity in it? He will be limited partner and does not have to sign a loan.

He is a foreigner , live abroad.

Any input appreciated.

Chris Cambridge · Answer

Step one seek proper legal advice.

It seems a lot of people depending on investment dollars from abroad should outright determine if the other party is an investor or a principal. If they want a return on their money treat them one way. If they want bragging rights, "I own a 60 unit in Anytown USA", then they are qualifying for the loan as well, unless all cash. Structure is important. Also consider what happens on exit.

One option for loan qualification is that they have a bank account with a US based bank especially if asking for $2MM+.

Michele Wax · Answer

I have seen a foreign investor loan money to the American investor done in a note to them personally and then the American Investor takes the money to the LLC. The LLC then writes it as a note payable and the terms you decide. The LLC then takes care of the payments of taxes and the loan that is owed and the interest is paid out of llc to owner and then the owner pays back the foreign investor minus the taxes he has to pay out. It is legal but, it takes a little more work for you as the owner. If I confuse you please pm me and i will try to explain better.

Paul Kit · Answer

Thank you all for great advices!

Bruce Lynn · Answer

I would talk to your attorney first about setting up LLC and Series LLC, but before they do it talk to CPA to make sure they are in agreement...or if possible work with attorney who is CPA, or work with an attorney who works with CPAs.

Once the LLC or Series is set up, then get the EIN numbers and then the bank accounts.

Basit Siddiqi · Answer

@Paul KitHaving a foreign investor within an entity does add complexities. He may be required to apply for an ITIN and file a US tax return. Furthermore, you may need to withhold on income earned on his behalf if the entity makes money.

Lance Lvovsky · Answer

@Paul Kit

You need to consult with a CPA on proper tax and entity structuring. If the foreign investor has partnership or LLC interests in the entity, then the entity has additional filing requirements and withholding obligations for a foreign partner. There could be a way to avoid this by structuring a different way. The foreign investor may also have US income tax filing obligations and US estate tax exposure.

Paul Kit · Answer

@Bruce Lynn what would you recommend in order to proceed?

Establish LLc first then open bank account under llc name and obtain EIN number?

Bruce Lynn · Answer

Just as you describe ...probably no different than if they were citizen. Either they can own a % of the LLC based on the money you each put up, or you could set up your % first...say 50/50, and then let them lend money to your LLC. A discussion with what you want to accomplish with your attorney and CPA is probably a good thing, before you do all this. Might depend on if you plan to have one property in the LLC or use it to buy and sell several. You also need to think of exit strategy and how you plan to accomplish that.

Foreign non resident invest in commercial property. How to?

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