Foreigners investing is U.S investment property (Success stories)

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I have a few questions for foreigners investing in U.S investment properties. Can you please share your success stories? I would love to hear about your experience. What were some of the biggest challenges you faced? What are some things that a new investor should look out for? Also knowing what you know now would you do it again?

Thanks In advance!

I live in Auckland, New Zealand which has experienced strong capital appreciation so the rental yields are compressed 2-3% gross yields.

I purchased in Roseville, MI where the purchase price was much less than a deposit here. Have a 10.2% net yield and was able to cash out refinance most of the purchase costs and has put me in a great position to scale.

The biggest hurdle I found was access to good credit facilities for the cash out refinancing. I contacted over 180 lenders before landing with my current provider.

Hey Marty,

I’m in Auckland too. 
That’s an amazing story. I’ve always been fascinated with the US market, but had no idea where to start. 
Did you purchase through a company set up for foreign investors, or do it all yourself?

180 lenders is a HUGE amount to go through. How long did that process take? Did you have to do much renovations to get it to a refi standard?

I was educated by a company by the name of Star Dynamic.

I set up what's called an LLC which is a business entity to purchase the property.

Probably 6 months to contact all those lenders.

No, only spent 500 on some deferred maintenance to get it to an improved standard. In retrospect I should have carried out a cosmetic renovation at a cost of about 10,000. I then could have refinanced for a lot more.

Yea I used a broker, PM me for his details.

Otherwise I’ve heard of a company called Lendai since that specializes in assisting foreigners secure cash out refinancing.

@Jason Shackleton Hi :)

I live in Israel, I help clients from Israel purchase rentals in the US, as for myself, I do fix and flip.

I think the most important key for success when you’re investing remotely is understand how this business works, start with knowing to check what’s the property value.

I had rentals that took too long to rehab and put a tenant in and I learn that it is not PASSIVE income at all. If you want things to move faster and better you need to work for it!

I think that education is first key to success- learn all there is to know about RE investing, find local reliable professionals is second key and buy lower than market price.

Good luck!

@Ryan Spearman

I would also suggest speaking with an accountant and/or attorney prior to setting up any corporations or LLCs. You want to make sure you are setup for tax efficiency. DM me if you want contacts to any of the professionals that work with foreigners. 

Foreigners who plan to invest in the US may have some obstacles before they can start investing.

1) Do they need to apply for an ITIN(Form W-7)
2) They may be required to file a US & State tax return on an annual basis.
3) They may have FIRPTA tax issues upon sale of the property
4) They may have annual withholding obligations(forcing of the filing of the tax return) by their property management company
5) They may need to research any tax treaties between the US and the host country.
6) They may need to determine if their rental income is considered ECI(Effectively connected income) or FDAP(Fixed Determinable Annual Periodic)

Best of luck

You might want to follow the "Deep Dive" series we're doing on our BiggerPockets blog about Metro Detroit cities, City of Detroit Neighborhoods and comparing Metro Detroit to other hotspots investors usually consider:

Also, below is as of year 2020:

Foreign Owners of U.S. Rental Property

All foreign investors owning U.S. rental property are responsible for paying taxes on any and all rental income they earn in the U.S. regardless of any tax treaties that may exist.

Since some of the regulations and requirements can be confusing, we've created this document to summarize the options for a foreign investor.

Foreigner investors can either pay a flat tax of 30% of their gross rental income or elect to file an annual US tax return and reduce their taxes by claiming deductions relating to ownership and managing the property. (i.e. Property Taxes, Insurance, Management Costs, etc.)

With either method of taxation, foreigner investors must have an Individual Taxpayer Identification Number (ITIN).

Obtaining A Taxpayer ID
As soon as possible, foreigner investors need to obtain a U.S. 'Individual Taxpayer Identification Number' (ITIN) for each owner of the property (Each person listed on the property deed). The application is done with IRS Form W-7, and foreigners must provide original certified identification documents.

IRS Form W-7
IRS Form W-7 Instructions

The IRS has 'Certified Acceptance Agents' who are authorized to certify foreigner investors’ original documents and process the application. The W-7 form may look easy to complete, but we highly recommend finding a certified agent to handle it. Certified Acceptance Agents are located worldwide. It normally takes 4-6 weeks for a W-7 to be processed by the IRS.

Here is a link to the IRS website, listing Certified Acceptance Agents by Country:
IRS Certified Acceptance Agents

Upon receiving an ITIN number from the IRS, a copy of the IRS letter showing the new Individual Taxpayer Identification Number (ITIN) must be sent to LPM.

Note: LPM will not manage rental property for foreign owners who do not acquire an ITIN number.

Form W-8ECI
The Internal Revenue Service (IRS) requires property managers to withhold 30% of gross rents to ensure foreigner investors will file a tax return at year end. This is obviously very costly and cumbersome for a property manager and Logical Property Management will not do it.

However, there is an alternative that will exempt a foreign investor from the mandatory 30% withholding.

After obtaining an Individual Taxpayer Identification Number (ITIN), submit a completed IRS Form W-8ECI to Logical Property Management.

Note: Do not send the Form W-8ECI to the IRS. You send it to your property manager.

IRS Form W-8ECI Instructions

By filing Form W-8ECI foreign investors eliminate the mandatory 30% tax withholding as it notifies the property manager (and the IRS) the foreign investor will be filing annual tax returns to report their income and expenses related to the rental property. Most generally, Form 1040NR (Non-Resident Tax Return) is filed with the IRS. Those tax returns are due by June 15th of each year and you should consult with your tax professional.

W-8ECI Form remains in effect for a period starting on the date the form is signed and ending on the last day of the third succeeding calendar year, unless a change in circumstances makes any of the information on the form incorrect. For example, a Form W-8ECI signed on September 30, 2020, remains valid through December 31, 2023. Upon expiration of the 3-year period, you must provide a new Form W-8ECI.

If you do not file a form W-8ECI with your property manager, your property manager is REQUIRED by law to withhold 30% of your income from the rental and forward the funds to the IRS.

Note: LPM will not manage properties for owners who do not file the W-8ECI form with us.
Our business is property management and we do not choose to become tax
collectors and have to administer sending 30% of your funds to the IRS.

Form 1099

At the end of each year your property manager should provide you with a year-end statement of your income and your expenses related to the management of your property. Along with the year-end statement you will receive a copy of IRS Form 1099 that reports your income to the IRS. You will then use your copy of Form 1099 to file taxes through your tax professional.

Legal Disclaimer: The material provided here is for informational purposes only and is not intended and should not be considered as legal advice for your particular matter. You should contact your attorney and/or tax professional to obtain advice with respect to any particular issue or problem. Applicability of the tax or legal principles discussed in this material may differ substantially in individual situations.

Originally posted by @Jason Shackleton :

I have a few questions for foreigners investing in U.S investment properties. Can you please share your success stories? I would love to hear about your experience. What were some of the biggest challenges you faced? What are some things that a new investor should look out for? Also knowing what you know now would you do it again?

Thanks In advance!

 Jason, I would also add most insurance carriers will not insure a foreign entity.  We insure some foreigner investors who hold title under their personal name, but your options are few and far between.  Fewer options can lead to a higher insurance premium.

If you set up a domestic entity, then it opens you up to the full insurance market.

@Marty Neville I feel you, that's why I started to invest in the US 5 years ago. 

The returns in NZ are very low now and the market is not Investor friendly, there are some lenders in the US that lend to not residents. typically the terms would be not as good and require a larger down payment. 

DM me if you want and I can give you the link. 

I don't need to use them because I'm a US/NZ Citizen so can borrow relatively easily.