What You Should Know About Investing in U.S. Properties From Abroad

by | BiggerPockets.com

How many of you are either U.S. citizens living abroad or not a U.S. citizen and wondering if and/or how you can invest in U.S. real estate?

If you are wondering if it is possible—yes, you can absolutely invest in U.S. real estate (and should!).

Investing in U.S. real estate is not difficult, but there are some extremely important things you need to be aware of in that process because if you do something incorrectly, you could end up facing severe tax implications and other headaches.

To help you buy U.S. real estate in the easiest way possible with little complication along the way, I’m going to offer you the most basic of basic to-do lists to help you get started.

The major differentiation that must be made in this discussion is whether you are actually a U.S. citizen living abroad or whether you are a foreign national wanting to buy U.S. property. This differentiation is only relevant for the structuring process and financing options, not so much for the process of buying a property itself. For each of these categories, I will briefly explain the structuring process, the financing options, and then the buying process.

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U.S. Citizens Buying U.S. Property From Abroad

You have it the easiest. Ultimately, you don’t have to do anything different than you normally would for structuring or financing properties in the U.S.

Structuring

Just as if you were living in the United States, when you find a property you want, you can buy it in your own name or in an entity’s name (e.g. LLC).  An entity is not required to be set up for you to buy residential properties, so you can do it however you want, but you are free to buy in your personal name as a U.S. citizen.

If you are wondering whether you should buy a residential rental property in an LLC’s name, here is a summary of the information I got about doing that when I was researching it for my own properties: “Should You Put Your Rental Properties in an LLC?” Be sure to read through all of the comments as well because they lend to a lot of additional information for you to consider.

Financing

This is where being a U.S. citizen is the most beneficial. Only U.S. citizens qualify for traditional mortgages, and those mortgages are by far the cheapest financing you are likely to find. The interest rates, especially now, are the lowest of anything else. Traditional mortgages include options like FHA and VA loans, in addition to conventional mortgages. FHA and VA loans are great because they require the lowest down payments, but they do have stronger restrictions about you occupying the property, so those may not work if you are living abroad unless you are planning to arrive back and live in that property.

Conventional mortgages require a minimum of 20% down for single-family homes, or 25% down for multi-family homes, depending on your qualifications. And then, of course, you can use any other kind of financing you want, but being able to get a traditional mortgage is the biggest benefit to U.S. citizens trying to buy residential properties. You will need to get pre-qualified with a lender to see if you qualify for a mortgage, especially since in the last few years the qualification requirements have become much more stringent than they used to be. Also be sure you are strategic in which lender you work with. A hint—the big banks will rarely finance an investment property. They just aren’t wired for it. If you want more information on how to find an investor-friendly agent, check out “The Epic Guide to Finding an Investor-Friendly Real Estate Agent.”

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Foreign Nationals Buying U.S. Property from Abroad

The good news is that you can buy U.S. property, and it’s also a fairly straightforward process.

Note: I am not a licensed expert in any capacity on this process. I highly encourage all foreign nationals to consult with a licensed structuring specialist focused on internationals/foreign nationals buying U.S. property. These experts do exist. They will charge you some money, but I think they are worth every penny. The major risk in you doing it yourself without the help of an expert is that you set yourself up incorrectly and you end up with tax consequences that you can’t get rid of later. Again, the process is straightforward, but it needs to be set up correctly.

Related: Why It’s About to Become a LOT Easier to Invest From Afar in the Next 5-10 Years

Structuring

You must set up a U.S. entity prior to buying an investment property. This is where an expert needs to come in and set you up correctly. The setup is extremely specific to the country where you have citizenship. For instance, the typical setup is your run-of-the-mill LLC, but if you are Canadian, it is actually not an LLC that you need—it’s different one. This is the most I can tell you about the entity structuring—that you need it and you need the right one—as I don’t have expert knowledge on the details of that structuring or the details on setting it up.

The reason your entity structure is so important is because that structure will be what determines how paying taxes on your property will play out. If you are set up wrong, you could end up having to pay tax penalties and/or double taxation between the U.S. and your country of citizenship.

There is a step two in this structuring! First, you have to set up your U.S. entity, then you need to set up a U.S. bank account. The structuring expert can also assist you in this part. It’s very easy, and I don’t know any more details on whether some banks are better than others or not, but I know you have to have a U.S. bank account.

Once you have your entity and your bank account setup, you are ready to buy! But first…

Financing

This is really where not being a U.S. citizen is most hurtful, but it’s certainly not a deal-breaker (both figuratively and literally!). Really, the only thing you can’t do as an international/foreign investor buying in the United States is qualify for a traditional mortgage. As I said before, traditional mortgages are the cheapest ways to buy properties. Just because you won’t qualify for the cheapest ways doesn’t mean there aren’t still options.

Your first option—and the most popular option with international investors—is to pay cash for the property. Obviously, this doesn’t help with leveraging and doesn’t help if you are limited on capital, but you can buy for cash all day long if you want to.

Your second option is private financing. By private financing, I mean private lenders more than private people (although you can certainly take money from anyone willing to lend you money). A lot of people don’t know about private lenders. Private lenders, at least in the capacity I have worked with them, qualify based on the property and not you personally. How worthy of a property are you trying to buy? The main private lenders I’ve worked with have denied properties solely for what neighborhood or general area they are in, and oftentimes they will only work with properties of a certain caliber. I haven’t bought properties to flip or BRRRR using private financing, so I can’t say for sure either way if they will loan on those. But I have personally used private financing on rent-ready nicer properties and it’s been great.

The downsides to private financing are that the down payment required is often much higher than with traditional mortgages—usually 30-50% down—and the interest rates are higher. You have to be careful with the interest rates on these loans, mostly because they can be adjustable-rate loans, and maybe the initial rate is doable for you to still get good returns on your property, but the adjustable rate won’t be. One time I bought a rental property with a loan from a private lender because I had just quit my job and couldn’t get a mortgage, knowing full well that in three years, the interest rate was going to jump so I had three years to get myself to qualification levels for a mortgage so I could dodge the jump. I did it and was able to refinance the property into a conventional mortgage at a nicely low interest rate.

Note: Always be cautious any time you get an adjustable-rate loan! They can be very dangerous, and there is never a guarantee you will be able to dodge the interest rate jump like I did! Do you research and be educated on these types of loans. They are risky.

Not all private loans are adjustable, though. Some are fixed, so be sure to shop around. Yes, the interest rates might be higher and the down payments less desirable, but it’s still a way to buy more than one property for what you would normally pay for just one! Just make sure you do the math thoroughly and know for sure whether leveraging at a particular interest rate is smart.

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The Process for Buying U.S. Property from Abroad

Now that the logistics are out of the way, let’s buy a property! I’m going to tell you right now that I am not going to give you many details on how to best do this process because there is so much I can tell you that there’d be no way to squeeze it all into this article and not disrupt the point of the article.

What I will tell you though is that buying U.S. properties from abroad is no different than if you were living in the United States but far away from where you are investing. For example, I live in Los Angeles and the closest property I own is in Atlanta. The only difference between you buying from abroad and me buying long-distance from Los Angeles is your airplane ride might be a quite a bit longer (and/or more expensive) to go see your property if you need to for some reason.

Related: What Moving Out of State is Teaching Me About Remotely Managing Rentals

The absolute key to buying long-distance is the team you have on the ground working on the property.

If you are flipping properties from afar, this team will be much more extensive and you will need a lot more trust in that team because of the extent of things that have to be done. If you are only doing rental properties from afar, then you still need a trustworthy team, but the extent of what that team does is much less than with flipping, and a slip in trust somewhere isn’t likely to cause as much financial damage. Where the team trust really comes in with rental properties is in the buying. If you can buy right, then managing and trusting property managers can be dealt with fairly easily. Feel free to check out any of my articles or reach out for more information on dealing with property managers. For flipping, not only do you need to buy right, but then more importantly, you have to trust the contractors working on the home.

Always keep in mind the risk factors with any investment property. Depending on what risk factors are relevant to the kind of property you are interested in, you’ll need to weigh those against the fact that you can’t be near the property and decide from there if it’s worth doing.

Like I said, I’m not going into a lot of detail here about how to buy properties long-distance, but if you do want to read more about your options and how you can do it, check out “Out-of-State Rental Properties 101.” The article is obviously geared to buying out-of-state rather than from out-of- country, but there really is no difference in the two—long-distance investing is long-distance investing—so the article should still be of some help to get you started.

Note: I personally have only invested in rental properties so if there are any parts of the flipping process that I left out, it’s because I’m not aware of them. If you are trying to flip properties from abroad, citizen or not, I encourage you to make contact with others doing the same and find out if there are any additional pieces to the process that I didn’t include here.

Has anyone invested in U.S. properties from abroad who are willing to share your stories and any tips/advice from your experiences?

Leave your comments below!

About Author

Ali Boone

Ali Boone(G+) left her corporate job as an Aeronautical Engineer to work full-time in Real Estate Investing. She began as an investor in 2011 and managed to buy 5 properties in her first 18 months using only creative financing methods. Her focus is on rental properties, specifically turnkey rental properties, and has also invested out of the country in Nicaragua.

9 Comments

  1. Gord Stevenson

    As the author said, Canadians need to be careful about double taxation. Traditional consensus was to stay away from using an LLC to hold US property because Canada would see the LLC as a corporation and the income as corporate income. Since the US sees LLC income as personal pass through income there is a mismatch so the Tax Treaty does not allow US tax paid to be recovered through a Foreign Tax Credit. So, double taxation. Traditionally, the consensus was to use an LLP instead because Canada does understand a partnership.

    However, the CRA (Canada’s tax authority) changed their position on LLPs in about May 2016, starting with LLPs set up in Delaware and Florida, but this is likely to spread to other states as well. Now they say an LLP will be considered as a corporation as well. The CRA says that LPs will still be considered as partnerships but an LP (as opposed to an LLP) does not contain liability for the General Partner.

    So, going forward it seems that it may be better for Canadian Residents to hold US rental properties directly in the name of the inverstor(s) and reduce liability risk with increased liability insurance.

  2. Martyn Lockwood

    Hi Ali. Nice read…thank you. I live in Australia and own a few properties in the US. Pretty much like you have stated…inside of a LLC (2 actually) and a personal bank account. I have previously used finance companies that, as you said, required a bigger deposit and a higher interest rate. My wife is a US citizen, soooo….just wondering if you know of a way to use her US status to our benefit when it comes to getting finance. I.e, perhaps we should be doing things under her name..but then we run into the problem of having to set things up again, as, at the moment, everything is under my name. Any thoughts? Thanks again for the article.

    • Ali Boone

      Hey Martyn, great question. Well the thing is that you wouldn’t have to do anything fancy like setting things up, etc. If she’s a US citizen, she could buy/finance just as if she were living in the US. So if she qualifies for a traditional mortgage, you can just buy them in her name directly. If she doesn’t qualify, it would just be a matter of doing whatever would be needed that would get her to qualifying levels.

  3. Ashley Wilson

    Ali- great post!!! We must be on the same wave length with our posts:) I recently posted how I live approximately 9 months of the year outside the US and flip houses with my business partner (my father). Here’s the blog post: https://www.biggerpockets.com/blogs/7285/54016-flipping-from-afar-motivation-to-get-started-and-keep-up-the-momentum?utm_source=newsletter

    Everything you say rings true for me. I am an American citizen, so the points you hit are absolutely true for me. Thank you for highlighting these important points, and I hope this encourages some more people to take the risk!

  4. RJ Mitchell

    HELP NEEDED

    This article applies perfectly to me – I’m a U.S. citizen living in Sweden. The issue is qualifying for a loan. I have worked my entire career outside of the U.S. for a large U.S. multinational conglomerate. I have been filing my taxes each year but I don’t have a easily traceable income (i.e. no W2).

    Any suggestions/thoughts?

    • Ali Boone

      Hi RJ. You’d want to talk to an {extremely} investor-friendly lender and have them instruct you on how to make that work. My cousin ran into a similar problem because he was living in Germany doing post-doc stuff and they had a hard time tracing the income. I can’t remember how they made it work, but it ended up working out. But a lender would need to guide you on that one I think.

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