Blueprint for New Overseas Investors
Hi All!
I wanted to spell out all the steps I went through in order to be functional as a real investor via a US company in America. I thought this list might be helpful for others who aren’t quite sure where to start.
I’ve just made this journey over the last twelve months and now have four companies and seven houses in five different states. Two of them I’m straight flipping, one is a major fix-and-flip and three are long term rentals.
The list focusses on the business aspects, because this is what was most difficult for me being remote and not an American national. The BP podcast and the forums already have fantastic information on the strategies and methods for investing in real estate.
I’m going to name the companies I use for reference, but I’m not affiliated with them and you can use any service provider you want.
The order of the steps is important because you often need the things above in order to move forwards to the next one:
1. Choose which state you want to invest in, or at least where you want to incorporate first, perhaps as a holding company. I started in Arkansas because I thought I would invest there, but plans have changed and I’m now using a Wyoming holding company owned by a revocable living trust.
2. Get an American address using a post box service. I have one that scans my mail, and then I can choose which ones to mail on to me overseas, and which ones can be either recycled or shredded. I use Anytime Mailbox for this.
3. Get an American phone number that can redirect to your overseas phone via an app. I use OpenPhone and pay $10/m to receive calls.
4. Find a registered agent in the state of your choice. You need this if you are not in the state, and your post box address is not acceptable. This can be combined with step 5 below if you want to use a service provider.
5. Incorporate your entity. You can do this yourself usually, via the commercial authority in your chosen state. Alternatively, this can be combined with step 4 above, if you use a service provider to register your company and act as registered agent. I started off doing this myself, but now use Northwest Registered Agent for both 4 and 5. Northwest also has very helpful guides on their website if you want to do it yourself.
6. Obtain an Employee Identification Number (EIN) from the IRS. I filled out form SS-4, nominating myself as a ‘Foreign-Owned US-disregarded entity Form 5472’. This means the IRS will look past my company and tax me as an individual. I sent it by international faxed to the IRS (they don’t do email ever due to fraud concerns). You can call the IRS to get the number after about two weeks, but you need the formal letter before you can open a bank account.
7. Open a bank account. I used Mercury Bank which allowed me to open the account remotely, after some stringent AML checks. They also gave me a Visa debit card.
8. Send money to your new bank account. I use Transferwise, but there are other providers.
9. Make an operating agreement for your entity. You can do this at any time, and there are lots of templates on the internet. You never know when you will be required to produce it.
10. Start investing!
The above steps are the absolute minimum in order to begin.
Other things that you may want to consider:
10. Choose a CRM, or a platform that will allow you to track your investment properties. I use Podio, but it is not an easy or intuitive system for beginners. There may be much better options out there.
11. Choose accounting platform or system. I have been using Xero to do my books but it’s become too complicated now so I’m moving my books to an accountant who uses QuickBooks Pro online.
12. Learn some important tax basics:
- (a) you need to get contractors to who you will pay more than $700 to fill in an IRS Form W-9.
- (b) look up the Foreign Investor in Real Property Act (‘FIRPTA’), which requires someone who purchases a property from a foreign investor to withhold 15% (usually) of the sales price and give it to the IRS. You can claim it back in due course when you file your taxes.
13. Work on building a credit score. All lenders ask for this and it is difficult when you are based overseas. I found a website called Nova Credit that can convert your local credit history into a US credit score if you come from Canada, UK or Australia. Based on the converted score, an American bank (Amex) gave me a $5K credit card. Having a credit card is the start of building a credit score.
14. Find a reason to get an ITIN and apply. This is actually a torturous process, but an ITIN number is needed by most lenders, even if you are a non-resident, non-US national. However, the IRS won’t just give them when you ask, you need a reason! The default is when you need to file your first tax returns (if your entity is disregarded for tax purposes) but this can be more than a year after you first start investing. I used an application for an exemption to FIRPTA (see point 13 above) as a vehicle to apply for an ITIN.
15. Find an accountant or tax strategist that can give you relevant advice specific to your situation as a foreign investor.
16. Use virtual assistants to help you if possible – with researching, accounting, Podio set up. I use Upwork.
17. You may need to notarize some documents for your business operations. There are several online notary services where you have a webcam meeting with a real notary based in the US. Many states now accept such notarizations, but you need to check with your specific state.
18. Make use of Bigger Pockets to get referrals for agents/property managers/contractors on the ground. Connect with fellow investors 😊. Everyone I have met through the site has been very friendly and so helpful, I really appreciate this plaform.
19. Consider estate planning. The US imposes a 40% estate tax rate on U.S. assets of deceased nonresidents, which applies to all assets over the first $60,000. This is massive. I'm not impacted because Australia has a treaty with the US, but other nationals need to be really careful.
That’s all I have for now, hope the above is helpful for new investors based outside the US. There is a lot of extra work needed to get set up for investing remotely, but it is definitely possible without the use of expensive external advisors.
Happy investing!
They're not really the same. The registered agent will only send you notices when you have to renew your company registration, or the state authorities need you, or I guess if someone is suing you. Important stuff. However, they don't want your utility bills or insurance notices going there. The post box service I use scans my mail and sends me an email notification. That might be 20 different documents per month. Once I've checked it, I can choose if I would like them to shred it or they can courier important documents like Deeds to my overseas address. Also, I need a registered agent in each state where I have an LLC, but I only need one PO location so all mail goes to the same place.
Hi all, I have gone the same way as @Tess L.. Only thing I need to setup is my bank account. And this seems the biggest challenge. Why? I have no possibilities right now to go to the US and visit a bank branch in person. I have thought about Mercury Bank but I'm a bit hesitant to some of stories of people not being able to access their money. Recently I ran into this company Global Jay that says they can open US bank accounts for foreigners without visiting the US. Has anyone heard or worked with them? Ot any experiences with this company? Appreciate the feedback as I'm eager to get my first rental :)
I'm surprised you have heard negative things about Mercury Bank, I haven't had any troubles with them. Even my accountant moved his business banking to them last year.
Global Jay looks like a helpful service, but it isn't a bank itself, and it isn't clear which bank/s they work with. One of the things I like about Mercury is that is allows me to do absolutely everything online, including depositing scanned cheques. That makes it so much easier than most other banks that want to resolve problems by visiting a branch.
Just to mention one situation is where people make more than 50K turnover, accounts are being frozen. Nevertheless, Mercury is not a bank itself, accounts are with Evolve Bank & Trust. I'm looking for a bank account with which I can use Quickbook for administration and have no additional costs in regards of using different currencies. Mercury is good option though. Global Jay will have the accounts open for you at Bank of America.
Thanks heaps for the great post Tess! As a fellow Aussie investing in the US for the past 3 years, I should say the overall experience has been a mixed bag. Some properties have done quite well while some have had huge maintenance issues which wipe out the whole cashflow for the year. Finding reliable local contractors has been the biggest challenge. I primarily use Transferwise's Borderless account for all my banking. Will look into Mercury Bank & also the option to transfer my Oz credit score to the US.
Hi Tess, thanks for sharing your experiences. As a newbie in the game, you had saved me months of random research. Thanks again.
That is incredible info, thanks Tess.
I'm in NZ and have several buy and holds here, but the numbers people talk about on these podcasts just blow anything in NZ out of the water.
Did you devise your investment strategies, and more importantly, find the cities you want to invest in via BiggerPockets?
The RE market in the States seems so gigantic and overwhelming to me, I have no idea where to start
It was a great post indeed. Has anyone found financing for overseas investors (non-US citizen) at a decent rate?
Hey Tess,
A great post! By the way, who did you use for foreigner financing?
This is amazing, Tess you are a Godsend thank you so, so much for sharing!
@Tess L. I'm already in the US but this is awesomely helpful for others in our community. Thank you for posting!