The United States is the world’s largest economy. For this reason, investing in real estate can be very profitable.

In 2020, foreign buyers purchased $74 billion worth of U.S. residential properties. The majority of purchases were in Florida, California, and Texas. 

2020 International Transactions

In the United States, there are regulations one must follow to buy real estate. Let's find out more.

Understand American tax law

To provide an outstanding service to your clients, it is important to be informed. Having a strong understanding of American tax law can save you a lot of time and trouble. Your best course of action is to tell your clients to offset property-related expenses against income for U.S. income tax purposes.

Annual tax returns

U.S. property owners and foreign investors need to file annual tax returns. The foreign property owner does this with the Internal Revenue Service (IRS). Luckily, the IRS has several tax deductions and benefits for property investors. Help your customer take full advantage of these gains. Tell him he needs to offset expenses like the ones below.
A failure to do so may cost your client 30% of all gross rental income.

Federal tax

Another tenet of U.S. tax law your customers will want to avoid is the federal tax known as the Estate Tax or the Death Tax. This is especially true if your customer is wealthy.

Let's put it in layman’s terms. When an individual, with an estate in the U.S. dies, the IRS taxes them at 46% of their estate. This applies whether your customer is American or a foreigner. However, for foreign buyers, there is an exemption of $60,000.

Let's steer clear of this hefty fee that will affect your customers' heirs. A good strategy will be to use a foreign corporation, located in another country, to buy the property. This way your customer can also maintain a more inexpensive life insurance policy. Through the policy, the payout will be sent to loved ones who will be inheriting the property. Additionally, the policy will pay any taxes incurred with the owner's death.

Here is a great reference document for summarized information on real estate transfer taxes by state in the U.S.A.

Capital Gains tax

If your client buys a home and a dramatic rise in value causes them to sell it a year later, there will be capital gains tax to consider.  Most often foreign buyers are purchasing for the long-term, but it is wise to tell them about the conditions and restrictions of this law.

Financing conditions and options for property buyers in the U.S.

There are many options available to get financing for an American property.

Financing through a bank

Secure financing through an American Banking institution can be challenging. Your customer may have to jump through some hoops. If he decides to go this route, keep in mind that loan-to-value ratios may be lower in the United States, than in his home country. Sometimes 50 – 75% of the value of the property is in question.

If your customer gets financing through a bank, he will most likely be signing for a shorter term. Here, interest rates are generally adjustable, rather than fixed.

Your client can open a bank account as a non-citizen and/or non-resident. If he plans to do so, Bank of America or Citibank offer many solutions for non–residents. Your customer will only need a passport and U.S. address.

Corporate bank account

The easiest route to your clients will be to open a corporate bank account, or better still to incorporate a U.S. company.  An employer identification number (EIN), is provided this way, as well as a wide range of banking options.

How to get a loan when purchasing overseas?

For foreign buyers who are also non–residents, the traditional method of getting financing from a mortgage lender is not viable. His best bet is to apply for a land loan, but even then, for foreigners, the process of getting approved for a land loan can be onerous. Individual banks set their own terms with varying rules, regulations and interest rates.

If your customer has a Green Card or valid work visa, it’s much easier to apply for a mortgage. In every case, the financial institutions he deals with will want to ensure that he is able to pay back the loan. He will most likely to subject to an international credit check. Additionally, he needs to have all valid documentation on hand. This includes:

Different rules may apply in different U.S. states

This is only an introduction to U.S. regulations for foreign property buyers. Regulations are likely to be different state by state. It will be wise to have a brochure with the full explanation for your customer, according to your state. We always recommend that readers seek the advice of a local real estate lawyer and an agent in the local market when they are considering purchasing a property abroad.

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