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How to Invest in Real Estate in the US from Out of State or Another Country
How to Invest in Real Estate in the US from Out of State or Another Country? This is a question that I have been asked frequently. During a recent trip to Italy, I was approached by several Italian investors who were inquiring about the possibility of investing in the US by purchasing real estate, anything from single family homes to hotels.
Technology and global exchange mentality have opened up many possibilities to investing across borders, either within the United States (intra-country) or beyond international borders.
How to Invest in Real Estate in the US from Out of State or Another Country?
There are a few points that are actually in
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common either for US or International Real Estate Investors:
- All real estate investors should have a registered business entity or agent in the State they plan to do business in. FIRPTA (Foreign Investment in Real PropertyTax Act) states that Foreign Investors must acquire a US taxpayer identification number (TIN) before purchasing property.
- Understand tax consequences regarding investing in other States, especially respective to the home State or Country. Capital Gains Tax on Sales Income resulting from the sale of US Real Property is taxable. The Capital Gains tax is calculated by using the Sale Price today minus the Original Sale Price, plus Capital Costs, minus Depreciation. Investors should consider doing a 1031 Exchange to defer taxable profits.
- Income Tax Foreign Investors are taxed at a flat 30% federal tax rate on gross rental income, unless they take the “net election” on their income tax returns allowing them to take deductions for regular expenses before income tax is calculated.
- Title can be taken as an Individual, a foreign corporation, a US corporation or trust. Especially international real estate investors should consult with attorneys and title companies, who specialize in foreign investments, and have escrows to accept international funds.
One of the key factors is to partner with local agents, professionals and representatives that can take care of the ground work and due diligence and guide you on how to invest in real estate on foreign ground. Make very clear what your long and short term goals are as an investor and the risk level that you are willing to take. Communication is very important, especially when you have to establish trust in unfamiliar markets.