Foreign investment in the United States real estate is a major source of investment in the United States, facilitated by an open economy legislation (foreign individuals and corporations are free to purchase residential or commercial real estate). In 2013, foreign buyers made up about 7% ($92.2 billion) of transactions in the $1.2 trillion U.S. real estate market.

Financing is Readily Available for Foreign Buyers

During the financial crisis, Foreign National financing dried up. However, over the last couple of years, banks have loosened their restrictions on Foreign National financing. Most qualified Foreign Buyers can obtain financing for properties with a 30% down payment. Here are the terms of HSBC’s Foreign Buyer program as of Q1 2014:

• $100,000 on deposit with the bank (if you withdraw the money after the closing the interest rate increases by 0.375%).
• 30% down payment (40% in Miami).
• $3,000,000 loan limit, which translates to a property value of $4.3 million.
• 12 months’ reserves (mortgage payment, maintenance and taxes) are required to be on deposit (in addition to the $100,000 above).
• HSBC offers 30-year and 15-year fixed rate mortgages.

Depending upon how long you think the holding period will be, you might want to go with an adjustable-rate mortgage that matches the holding period and has slightly lower rates. While banks are offering loans to Foreign Buyers, they require a long-term relationship with the customer beyond just the mortgage. That is why they require as one of their terms that the buyer hold the $100,000 deposit with the bank.

Foreign Buyers do not have to be in the US to Close the Deal

At the closing of the transaction, when the property is transferred to the new owner, the new owner does not need to be in the US. Rather, the new owner can provide his or her representative with “Power of Attorney” and the representative will have the right to close the deal on behalf of the new owner. This is quite common and convenient for the buyer who does not want to come back to the US for the closing.

US Tax

A foreign property owners’ tax liability in his home country will vary depending upon where the purchaser is from and whether that country has a tax treaty with the United States. Consult a tax attorney familiar with your home country’s treaty to get answers to tax-related questions.

The United States government requires that foreign nationals pay U.S. income taxes (state and federal) on any net income (rental revenues less expenses) received from rental property. If tax returns are not filed in a timely fashion, a tax of 30 percent of the gross rental income may be assessed. Even if you’re incurring losses in the early years of your investment and you don’t owe any taxes to the government, you still must file your tax returns in a timely manner or be subject to financial penalty.

The MAGNA network offers a wide range of investment opportunities and can make sure to advice you on your US investment, so don’t hesitate to contact us