Can a non American own USA property?
Yes foreigners and “non residents” can own US property without restriction.
Do I own the property in my own name?
This ultimately depends on your personal situation and risk profile.
We suggest a LLC (Limited Liability Company) in the US, however some clients have other setups that are recommended by their accountant.
We provide a standard set up that we know is legal, safe and avoids double taxation. However if you have a complex business set up or already own off shore property you would be advised to check with your own accountant regarding US structuring.
What tax will I have to pay?
Assuming you have a standard set up you will pay tax as an individual in the USA and this tax paid will pass through as a credit to your local tax regime.
Having said that, it is unlikely you will pay much if any tax in the early years as your US expenses can be offset against the income received.
- Property taxes, (what we would call rates)
- Loan Interest
- Depreciation (in Memphis it is straight line depreciation over 27 years and almost entire purchase price goes to improvements)
- Property Management Fees
Double taxation, what’s that?
There is a DTT (double tax treaty) between the US and NZ but if your set up is wrong you can still be exposed to double taxation.
We know our structures for clients keep them safe from this. It is a complex area for the uninitiated
If I come on a tour or trip to look at property can I claim that?
Providing you have bought US property or at the least have a property under contract, then your trip becomes a tax deductible expense yes.
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How does the rent get paid and collected?
Your Property Management Company will collect the rents on a monthly basis and will pay all the money collected to your U.S bank account, less their fees and any maintenance expenses. Generally they give the tenant up to the 5th to pay the rent and our management company currently disburses rents to our accounts on the 12th of the same month.
Can I get a US bank account?
In theory you could survive without a US bank account but it makes payment of rents and other things very complicated so our advice is yes you do need one. We supply all clients who we set up with a Wells Fargo bank account and secured credit card. This gives you the ability to receive rents, pay expenses, transfer money and build credit with a national bank.
Who manages my investment property?
Management is without doubt the most critical part of the US investment equation and we monitor this closely. We have tested a number of property management companies personally and have selected the best property manager that will look after our properties and our investors. We have moved managers once and it may happen again. We insist on certain standards from our managers and currently have an excellent company in Memphis. Our Memphis based management staff are in daily communication with them to ensure that they give our investors the best service.
Tell me about vacancy?
We do our own acquisition and only buy in good areas with high rental demand so generally homes are rented in 4 to 6 weeks.
However it must be said that one of the foibles of the US is that vacancy is harder to predict than in NZ or Oz.
We want the tenant who does move in to both pay on time and stay a long time so we will accept longer vacancies to get the right tenant. Don’t be surprised if occasionally over the years you have a lengthy vacancy if a tenant happens to leave at a very quiet time for new tenancies.
How much do property managers (PMs) charge?
The PM’s that we work with, typically charge 10% of rents received.
What are the PM fees to find a tenant?
If the tenant leaves after only 6 months, the PM very often will not charge to find another tenant since the rental agreements are minimum one year. Beyond this time the PM’s will charge 2-4 weeks rent to screen and place another tenant in the property.
What actually happens, how do I buy a US investment property?
Step 1: Complete your set up to be able to purchase property in the US. You can engage us to help you with this or already have your Entity ready to go.
Step 2: Decide if you want to have lending on your property.
Step 3: Sign a purchase agreement and pay deposit money (Earnest money) to a solicitor’s trust account.
Step 4: If finance is required, apply for approval for the lending. This will also be part of the approval process for the current contract. (NOTE: our clients are pre approved for lending but the exact terms can vary).
Step 5: Once you are all approved you will be sent the “closing docs” from the attorney. This is primarily made up of a settlement statement called a “HUD” that show line by line your purchase price, deposit paid, lending and any and ALL other costs such as insurance, share of property taxes etc. You check and sign this then return it to the USA.
Step 6: Transfer your funds to the attorney for payment. He will collect any monies from the lender and transfer title to you.
Step 7: The journey begins!
What soft costs are there above the purchase price?
In the US, we suggest a budget of $1500 – $2000 for legal, closing and title insurance.
Higher priced properties can sometimes be a little higher but generally $1500 is enough for a cash purchase.
NOTE: If you are financing the purchase then there is a loan fee, typically 5% of loan amount. This is in addition to the above estimates. It can usually be rolled into the loan.
Should I invest in this market?
For many of you the answer may well be no!
We have helped people around the world invest in the USA and it definitely isn’t for everybody.
Risk tolerance. If you are likely to lie in bed at night worrying about your house in America don’t buy one. Don’t even think about it. This is forced long distance passive investing and unless that sits well with you stick to term deposits or rentals in your own country.
The US market is not liquid like many other countries so once you are in you are in for a while, (unless you are a bit lucky). Which is our second point.
Investing not speculating. The strategy in the USA is to build a PORTFOLIO of at least 5, preferably 10 homes over a 5 to 10 year period. This is not a flippers paradise. Ignore the TV programmes and gurus, they all lie.
Expect to get sort of ripped off all the time. In America they talk about “nickel and diming” you. It means that rather than stick you with big bills they will create a constant stream of tiny expenses that add up over time. We help you control this but it is part of American culture so if a dollar mistake drives you crazy stay out of the USA.
How do I choose a property?
Well that’s our job to help you with but generally in our market the trends are that the higher the yield the worse the area will be. So your real question is do I want pure cashflow or a mix of cashflow and capital gain. Anything you buy from us will have equity but some areas can throw off 12 to 15% yields and zero chance of any value increase. Where as a 10% rental market will have good growth potential.
Also single family homes are the only asset class that has good resale markets because every home owner is a potential buyer. Duplexes as long as they are large are OK but other multi family and commercial properties are only owned by investors so your resale and therefore capital growth options are muted.