The United States facilitates international investments including the purchase of real estate, for which the procurement process is quite similar to that of American buyers.
There are some basic and specific practices in the United States that any foreign buyer needs to know in advance, and some variations in the market that any international investor should know. Tax policies, credit checks and funding will be different for all foreign buyers.
While this guide will help you get started, it is no substitute for the expertise of experienced real estate agents, attorneys, mortgage brokers, tax specialists and accountants you will want to consult along the way.
Before you start your property search, it’s important to think ahead to how you’ll use the home :
– Will this be a vacation home?
– A home to stay in while doing business in the United States?
– A principal residence for immigration to the United States?
– A home for your children while they attend college in the States?
– An investment?
– An eventual long-term residence?
Simply buying a home in the United States does not give foreign owners any rights or privileges regarding legal stay or status to reside on the US territory beyond the limits granted by a visa, green card, or a simple tourist trip less than 90 days.
If you are interested in residing longer than the standard 90 days visa, I can put you in contact with immigration lawyers in Los Angeles, New York, or Miami.
By determining the primary use for your property and how long you plan to own it, you’ll be able to provide information to your real estate agent that will help guide the search and sale.
How real estate transactions are conducted in the United States may differ from your home country. Each federal state in the US has its own set of rules for the purchase of real estate, including the type of purchase contract used, the method of closing the sale and even the functions and titles of the people involved.
Several important U.S. real estate practices to understand :
In the United States, information on the sale of a property is shared by Real Estate Agents using an exchange service called MLS. This is actually a database of properties currently available on the market. Almost all new properties for sale are listed on the MLS within 24 hours of signing the Listing Agreement. This ensures that the entries are then available for all agents, and therefore differs from the practice in many other countries, where buyers must go from one agent to another to find a property.
However, a number of listings in certain markets such as the luxury market remain especially “secret” (off-market “pocket” listings). Therefore, it is important to have a real estate agent who is in the know about both MLS listings and pocket properties, like Stephan Illouz with good interpersonal contacts and an address book that works for you.
In the US, unlike in some countries, the sales commission is always paid by the seller and then divided equally between brokers and agents of both the buyer and seller. Typically, commissions range from 5 to 6 percent, depending on the property and the market.
Buyers don’t pay commissions to have an agent working on their behalf, and it is therefore always advisable to work with an experienced broker or agent who will protect your interests in the transaction. Stephan Illouz specializes in helping international buyers achieve their real estate goals and lifestyle needs.
In the United States, real estate agents need licenses to operate by passing a state exam. The licensing laws of each state differ regarding how much education is required, the type and depth of licensing examinations, and whether continuing education courses are required once an agent becomes licensed. The licensing system was designed to ensure real estate agents are qualified to guide consumers through the maze of finding, evaluating and financing real estate.
Foreign buyers must also consider issues such as exchange rates, international transfers, banking systems, taxation issues and multinational accounting, and import restrictions/export for foreign exchange and household items.
Foreign buyers, in particular, should take the time to find qualified and experienced professionals to walk you through the real estate purchasing process.
If you do not speak English fluently, or prefer to speak in your native language, choose the agents, lawyers, inspectors and bankers who will speak your language. Although it may be possible to get translated copies of standard real estate documents, it is likely that you will sign the English versions when it comes time to close the deal.
To buy a house, be prepared to prove who you are.
Although you do not need to be a US citizen or resident of the United States or have a green card, you must obtain an Individual Taxpayer Identification Number (ITIN) which corresponds to an individual identification number taxpayer.
This is a number assigned by the Internal Revenue Service to foreign nationals who are not eligible for a Social Security number (Social Security Number) and must file tax returns once the acquisition of a Property conducted on US territory.
An ITIN can be issued by the Internal Revenue Service or an authorized professional accountant approved by the IRS. You will have to complete a W-7 form (in English) or a Form W-7 (SP) (in Spanish) to request your ITIN. On the Form W-7, you will be required to give a reason for your application.
Depending on your nationality, you will also need a valid foreign passport, a visa, or two or more current photo identifications such as a driver’s license to verify who you are and your country of origin.
Qualified foreign buyers can generally obtain financing from US banks for the purchase of a property in the United States provided a deposit of 30% to 40% of the amount of the acquisition.
Banks in the US are happy to provide loans to foreign buyers, but they usually require a promise of extending the customer relationship beyond the loan.
Many banks require a specific minimum amount of deposit in their accounts (minimum $ 100,000) and others set loan limits of $ 1 million to $ 2 million.
You may also be required to present a minimum of three months of bank statements and some banks also often want to obtain evidence of sufficient reserves equivalent to at least 12 months of coverage of mortgage payment, maintenance and taxes in addition to the deposit of $ 100,000 mentioned above.
Before applying for a U.S. mortgage, you must first establish credit and earn a good credit score. You can start building your credit score by opening U.S. bank and credit card accounts. You’ll also want to be sure to report all income on your tax returns. Lenders use this income information to determine how much money they’re willing to loan you to buy a home.
Stephan Illouz and Coldwell Banker Residential Brokerage have relationships with all the major banks in Los Angeles that grant housing loans to foreign investors, and we can help you find a lender and mortgage terms that best suit your needs.
Of course, you will probably not need financing.
Do not hesitate to contact me if you want more details on the different options and possibilities for financing a property purchase in Los Angeles.
International buyers are usually asked to provide the following documents:
– Credit References
Usually at least four references from credit sources will be required for mortgage loan applications. These documents must come from financial professionals such as accountants, bankers, and insurers. These letters should always be written in English.
The letter of reference from your main bank must mention and confirm that you have in your bank account the sum you want to invest.
This is very important – in 2012, real estate agents in the United States indicated that most of the transactions that failed with foreign buyers were due to the fact that buyers were not adequate credit history.
– Appropriate Visa or Passport Copy
– Verification of Rent / Mortgage payments (for last 12 months)
– Proof of regular income / employment
International buyers, just like US buyers, will be asked to verify their employment when applying for a mortgage.
– Adequate Closure Fund
You will need to show that you can afford the purchase of the property and that you have sufficient funds on reserve to cover the first full year of credit payments, insurance fees, taxes, etc.
– Insurance
Every US lender requires borrowers to purchase homeowners insurance to protect the home from any potential damage and natural disasters.
Insurance costs vary depending on the size of the property and the state in which it is located. The costs tend to be significantly higher in states prone to natural disasters, such as Florida and Texas.
Tax liability is different for foreign nationals than it is for US residents. Here’s a quick breakdown of major distinctions:
While the federal tax on long-term investments (although detained for over a year) is 15% for US residents, foreigners pay 30%.
Under the Foreign Investment in Real Property Tax act of 1980 – (FIRPTA), income tax is withheld immediately at the sale, transfer, exchange or donation of real property made by a non-US resident. The rate varies from state to state plus the federal fixed rate of 10%.
The IRS requires a “Statement of Withholding on Dispositions by Foreign Persons of US Real Property Interests.” In addition, many states request a “Nonresident Real Property Estimated Income Tax Payment Form.”
The tax liability of an international buyer will differ between countries depending on the tax treaty the country signed with the United States. Therefore, it is best to consult a tax advisor in the country of residence of the buyer, who is a specialist in tax treaties and their provisions.
The tax rate for US residents on capital gains is 20% (if the property has been held for more than a year), but it could be higher if you are from certain countries. Check with a local tax specialist before you buy.
US law requires that foreign nationals identify themselves to pay taxes in the United States on any net rental income.
If this statement is not made in a timely manner – and the appropriate forms filed with the IRS – a tax of 30% of gross rental income will be required. Even if the owner initially suffered tax losses, and should not, therefore, pay taxes to the government, he or she must still file their tax returns in order to make the “election” required by law.
The good news is that international buyers who finance their purchases with a 40 to 50% down payment will generally not pay income taxes on their rental income for the first 10 to 15 years since the United States are very generous when it comes to expenses that can be deducted from rental income.
Thus, mortgage interest, common charges, depreciation, property taxes, insurance and amortization of closing costs can all be claimed as deductions against income which will allow in the first years that your property can generate negative taxable income and you will not have to pay taxes.
It is not necessary to be physically present to close the transaction. Indeed, in the event that you do not want to go to the signature or if you can not get there, you can then provide your representative (usually a broker) with a “Power of Attorney” and the representative will close the deal on your behalf.
The “Power of Attorney” is simply a written document authorizing and mandating a third party to represent you to sign on your behalf the acquisition of the property. This is a very common practice in the US and very simple, which allows the buyer to not return to the United States specifically for the closure if it can not.
International buyers should consider whether it suits their interests to buy under the name of a US company, or LLC (Limited Liability Company). While there are benefits to buying through an LLC, such as tax incentives, some treaties between a foreign country and the United States can sometimes undermine these benefits.
Thus, it is highly recommended for foreign buyers to do research in advance, and enlist the help of tax advisers specializing in international tax law.
Here are 7 things you need to know about the LLC in the United States:
1. It takes a week or two to form an LLC
2. The LLC must be created in the same state as the property purchase
3. LLC is required by law to file local, state and federal tax returns
4. An LLC can be created between associated foreign nationals and residents of the United States
5. At the time of sale, owners can sell or transfer their shares in the LLC to a buyer
6. A US-based LLC can be owned by a Foreign Corporation for additional benefits
7. The LLC can protect your wealth (lawsuits, accidents …). It is the equivalent of the French SCI
How to avoid the US Estate tax?
When a non-US resident dies, his or her estate will be taxed by the US government at about 45%. This can be avoided if the foreign buyer sets up an LLC – which owns the property – and a foreign company that owns the LLC itself.
Since the property in this scenario is owned by the foreign company, the IRS will not be able to tax it upon the owner’s death. This can be a huge source of tax savings and it is not very expensive or time-consuming to implement, especially if you seek help from a professional.
It is to your advantage to work with a professional Realtor® in the US such as Stephan Illouz who has the expertise, training and experience, to help international buyers. He will protect your interests while making the process of finding and buying the property as rewarding and effective as possible.
Stephan Illouz specializes in catering to the lifestyle needs of his customers and helps them in all aspects of finding the perfect home, or investment property.
He will help you find the most desirable properties available, either in the open market or off-market – then negotiate the best prices and how to buy these properties for you as an international buyer.
If you are a buyer looking for luxury lifestyle, you can often get much more for your money here in Los Angeles than in Paris, London, New York, Tokyo or Hong-Kong and investment in US real estate is an excellent way for many international buyers to keep their money safe and appreciating in a politically stable country.
As a real estate agent who specializes in luxury homes in the LA area, I would be more than happy to assist you in purchasing a home in any one of the following exclusive communities: Bel Air, Beverly Hills, Beverly Park, Beverlywood, Brentwood, Cheviot Hills, Hancock Park, Holmby Hills, Malibu, Pacific Palisades, Santa Monica, Sunset Strip & Hollywood Hills, Trousdale Estates, Wilshire Corridor, West Hollywood, Westwood and all of the Westside of Los Angeles
If you’re looking for a great luxury home or investment property or if you have any questions, call me on my cell phone at +1 424 279 2477 or send me an email at [email protected]
Stephan represents buyers, sellers, landlords, tenants, both US residents and international clients from all over the world. Whether you’re looking to buy, sell, rent or lease in the Los Angeles area, feel free to contact him.
Stephan Illouz | CA DRE# 01968942
Coldwell Banker Realty
301 N. Canon Dr, Suite #E
Beverly Hills, CA 90210
