Investing in property in US can be done remotely and with full transparency.
The USA offers one of the best legal frameworks for foreign individuals or entities to buy properties, yield a stable income, and exit from their investments.
- No restrictions to foreigners owning any sectors of real estate
- No minimum entry level
- No restrictions on reselling the assets to either locals or foreigners
- No price distinction between local and foreign investors
- No cap on the period of ownership; most properties available are freehold
- No difference in tax levels for foreigners and locals
- No restriction on repatriation of funds overseas
In short, a foreigner can buy any real estate that a local can buy, and without any restrictions.
How to do it?
You will need an American attorney, a tax agent, a real estate agent and a property manager. There are some professionals listed online who can help you, but many of them do not offer the whole range of services that the investor needs. For example, an attorney can help you with the legal review of your contract but does not provide services such as sourcing for the suitable property according to one’s budget or attending to property management issues. Some consultancies however do offer a one-stop service.
It is advisable to start investing in the US by forming a local Limited Liability Company (LLC). Advantages are:
- This is how the foreign investor can be regarded without any difference from a local investor from the tax angle
- The investor can do more tax planning to reduce his income tax It shields the investor from some potential legal liability
- The LLC can be set up very quickly in just a matter of days It helps in estate planning and succession issues
- The formation of the LLC can be done online with guidance from your consultant
Searching for property
Your consultant can advise you on the right type of property according to your budget. Some prefer a very solid cashflow for their investment, while some may wish to migrate or use it as a second home for their kids, perhaps, when they study in the US.
It is advisable not to buy any properties online without knowing the person you are dealing with, or having a chance to speak to them or knowing their background.
Also, the investor is advised to appoint a licensed property inspector to conduct an inspection to ensure that there are no serious structural problems with the property before making a commitment to buy it. An inspection would cost around US$500 but it is better to be safe than sorry later.
After you have identified the property, it is time for your consultant to make an offer to the seller’s agent and pay your earnest deposit. Typically, the earnest deposit is around US$5,000 for a property around US$100,000.
The earnest deposit will be accompanied by an offer, which takes the form of a sale and purchase agreement (SPA) signed by the buyer prepared by the agent. The earnest deposit is typically paid to the seller’s agent. If your offer is accepted by the seller, he will sign the SPA and return it to you.
American laws accept e-signing, so you can sign the agreement from the comfort of your own home wherever you are.
After the agreement has been signed by both parties, the investors will appoint an attorney (or conveyancing lawyer) to represent them, and the contract goes through an attorney review period of normally seven days when your attorney can review, amend, include some extra clauses and generally thrash out the final details with the sellers attorney.
Once the review period is over, assuming it is a cash purchase, the parties will fix a date for closing and appoint a closing agent.
It is also at this time that the buyer must prepare to send the balance purchase price to the closing agent.
The closing agent, sometimes called the title company, is an entity that deals with searches on the property, enquiries about the property tax, utility status and other issues about the property. The closing agent is also very typically an insurance company.
It will draw up a closing statement to be signed by both parties or their representatives and sets down in detail how much costs each party has to pay to each other and to other third parties.
The buyer also has the option to buy a title insurance at this stage, which protects the buyer from any defects in the title of the property.
The closing date is the date when money and ownership change hands and the buyer becomes the new owner of the property.
Thanks to technology, the parties’ attorneys and the closing company can close the deal remotely without physically attending at an office. After the closing, the buyer will receive a closing package containing details of ownership and title.
After two weeks, the investor can log on to a government website and see his name recorded as the owner of the property.
It is almost inevitable that a buyer would want his investment to perform. He can authorize his agent to list the property for rent, and appoint a property manager to manage hands-on the property for him. Again, the paperwork can be done online; the tenancy agreement can be e-signed.
If the investor is overseas, it is best to arrange with the property manager to remit the rental back to the investor online. Typically, the property manager will retain a sinking fund to cover for any urgent repairs.
Payment of property & income tax
The property attracts annual property tax which are payable twice a year; in March and August. The owner can pay for this on his own, using a credit card, by logging into the local authority’s tax website.
The buyer’s LLC also has to report and pay income tax. Contrary to many people’s belief that American taxes are high, planning can be done to bring the tax to within around 10%-12% range. Again, payment of taxes can be done remotely.
Selling your property
As mentioned above, there is absolutely no restriction for a foreigner to sell and bring his money back home. The agent will be able to list his property for sale; the costs involved would be the agent’s commission, the attorney fees and closing costs. The process can be done remotely.
The whole investment cycle can be done remotely and expeditiously and moreover, with a great deal of transparency.