How a Foreign National Can Buy Real Estate in America

Opportunities for real estate investment for foreigners is wide and varied in the United States. It doesn’t matter where you’re from and what currency you’d be using to purchase a property, you have a property waiting for you.

There are generally three kinds of real estate investment available to foreigners. These investments include the commercial estate investment and residential property investment. Residential properties are further classified into single family properties, apartments or condominiums and recreational properties. Regardless of what kind of real estate you are interested in, there are all sorts of tax ramifications, financing options and legal requirements that you have to deal with.

Why Should You Invest in the U.S. Real Estate Market?

You’ve probably heard of the increasing number of foreign real estate investments in the United States. This is not surprising. With the troubles that the real estate investment market is facing in the United States, greater opportunities in real estate investment were opened to foreign investors.

With the dollar’s value in its all time low, foreign investors are finding real estate bargains all over the United States. There are no shortages of deals in this market. More and more distressed properties are being sold everywhere and foreigners are pouring in millions buying these foreclosed or distressed properties. The United States real estate has become a fairly attractive long-term investment for foreign investors.

In November of 2006, the National Association of Realtors released a report entitled “Foreign Investments in U.S Real Estate: Current Trends and Historical Perspective”. The report showed that there has been a steady increase in foreign real estate investment in the United States. This is especially after the euro and the loonie became stronger in the face of the continuous devaluation of the US dollar. Prime bargains were opened to foreigners. Many foreigners have now looked into the possibility of retiring or settling in the United States.

If you’re a foreigner, you would find a lot of reasons why you should invest in the United States real estate market. Aside from the fact that the floating exchange rate has given you a lot of leverage over the bargaining table, the financial market is a pretty good reason why you should invest in the US real estate.

The financial market in the United States in relation to the real estate market is quite liberal and the restrictions against foreign investors are pretty reasonable. This is ideal for foreign companies that are seeking to invest in the real estate market in the United States in order to avoid tariff restrictions and are considering setting up an office or a company in the United States.

Furthermore, despite the devaluation of the US dollar and the wide foreclosures of a lot of property, the real estate market remains to be stable, though slightly shaky, due to foreign investors’ capital appreciation. Domestic real estate buyers may not necessarily share the same opinion, but the market has remained to be strong for foreign real estate buyers. This may be largely credited to the fact that there is minimal risk for them.

Why are Foreign Real Estate Investments Safe and Profitable?

There are a lot of investments you can make, but the safest you can make right now is investing your money in real properties. This is another good reason aside from the fact that you can make a pretty nifty profit, if you like, particularly now with the widespread property foreclosures and seemingly continuous US dollar devaluation. This is especially true if you are going to use the euro or the loonie when making your investment.

But why is US real estate investment safe for foreigners?

It is undeniable that stock investments are not a safe avenue at this point. The recession has not only affected the US economy; the same recession has greatly affected worldwide stock investments. Stocks values are dropping. It is also a fact that even without the current economic situation, stock values fluctuates.

On the other hand, real estate investments are pretty stable if you would compare it to stock investments – or even bond or mutual fund investments. With real estate investment, you’d be putting your money in an investment that would grow in value as years go by.

What are the Benefits of Foreign Real Estate Investment?

US state government supports foreign investments and along this line has formulated various tax breaks to encourage foreign investment on real estate. Many of these tax breaks are not available in many countries. In fact, most countries would frown at foreigners owning real properties within their territory.

Foreign real estate investment in the United States is open to everyone. As long as you can afford to buy the property or at least comply with the mortgage requirements and payments, you can secure for yourself a pretty good property in the United States. Again, with the current economic situation of the United States, this is the perfect chance for you to make an investment.

Another great benefit that you can take advantage of is the availability of mortgage financing. Lenders have opened their doors to foreign investors who are looking into purchasing a property. So, you don’t have to actually deplete your bank account. You can actually secure a mortgage loan and gradually pay it off.

I’m Canadian, What Are My Financing Options?

There is a steady increasing rate of Canadian real estate investors in the United States; and accordingly, the government has made certain that they have attractive financing options available to them.

If you’re Canadian – or if you’re a foreigner – you’d find a lot of reasons why you should buy a piece of real property in the United States. For Canadians, the parity of the currencies or the apparent devaluation of the US dollar is a pretty good reason itself. But how do you finance your purchase?

There are various financing options available to you depending on which state you are in. In Arizona, for instance, you’d get favorable financing terms if you are purchasing a property for recreational purposes, that is, you do not derive any income or benefit from your purchase or ownership. You will be required, however, to sign up a disclosure agreement and give a 30% down payment for your loan. To qualify though for a loan, you may be required to show availability of liquid reserves for a period of three to six months. You may also be required to present a minimum of 3-month bank statement.

If you are purchasing a property for investment, you’d probably meet stricter terms. Requirements may be more stringent. For instance, you could be required to give a down payment of more than 30% and you may be required to show one year worth of liquidity reserves.

Regardless of your reasons, if you feel like you can fulfill the requirements of a financing loan, you can then proceed to actually applying for a mortgage loan. Also, keeping yourself updated with the financing terms flux may be a wise idea.

Understanding the Tax Ramifications of Real Estate Investment

The first foreigner to have ever bought a real estate property in the United States was Peter Minuit. This opened the doors to foreign real estate investors. After a couple of centuries later, foreign real estate investment has grown into huge proportions, accounting for billion-of-dollar worth of industry.

The low risk attached to US real estate market, the availability of countless properties, and the steady market liquidity attract foreign investors in droves. The initial snag, however, is the process of understanding the legal ramifications of foreign real estate investment.

What you have to understand is that foreign investment in the United States can take a lot of forms. A foreigner has various options. He can acquire direct interest. He can acquire an interest in the real estate through a partnership, a corporation, or a limited liability company. The latter is the typical structure used by foreign investors.

Limited partnership or Limited Liability Company offers financial protection or indirect asset protection, especially in cases of bankruptcy, law suits and taxes. Foreign investors are generally taxed on the property as if they hold the property in direct interest.

Ideally, you should secure the services of a real estate accountant to help you out with the tax ramifications, but it would help if you, at least, know the basics before you actually talk to an accountant.

There are tax consequences that you have to deal with when you buy a real estate in the United States. You would need an Individual Taxpayer Identification Number which you will use with all your tax transactions. Your investment in real estates can be treated as a portfolio investment and will be accounted for as an investment income which can either be fixed or a periodic income. This is typically taxed at 30% on gross revenues. This tax though does not apply though to all foreign investors. Tax rates would vary depending on the tax personality the foreign investor opted for. For instance, a corporation would be taxed differently.

Other things that you should take note of are availability and requirements of tax refunds and state tax laws on real estate properties as they may differ from federal laws, among other things.

By knowing all these things, you may save yourself from a lot of hassles when you finally approach a real estate accountant. You’d be in same wavelength when you finally get down to talking business. It is, however, very important that you secure the services of an accountant. You’d have an easier time dealing with the taxes ramifications. You’d also have assistance ensuring that you comply with all the accounting aspect of your investment. This is especially true if you are purchasing a real property for investment purposes.

Do You Need to Secure the Service of a Real Estate Lawyer?

If you are considering buying a property in the United States, you need to secure the services of a real estate attorney – someone who could help you with the legal issues concerning your purchase. It is tempting to forego securing the service of a lawyer to save money, but this could cost you a lot of money in the long run. Make sure that you have an experienced and trustworthy lawyer to help you out. Make sure that you have thoroughly checked out his credentials, profile, history of successful cases handled by him, and other factors that would influence your decision. You could check online and look for a lawyer working within the state where you are considering purchasing a property.

Functions of a Real Estate Lawyer

There is no actual distinctive function for a lawyer in a real estate case. However, you would really need the assistance of a lawyer for various tasks. A real estate lawyer would review the sales contract for you. He would also check on the title and other documents relating to the property. A lawyer would also review your mortgage contract and make the necessary adjustments or corrections. You could also get him to review with you the legal and tax issues concerning the purchase. A real estate attorney could also make the necessary adjustments relating to various expenses and costs involved in the purchase. He would assess your eligibility for tax refunds and draft the documents and statements relating to this.

Putting it simply, a real estate lawyer will be your watchdog. He would guide you through the whole process of purchasing a real estate in the United States in order to make sure that you will be legally protected. You will have a capable and trustworthy liaison to help you out with the contract. He will also face legal disputes if any arise.

Tips on How to Invest in Real Estate Successfully

Now, if you’ve fully bought into the idea of real estate investing in the United States, you might just want to know how to go about investing in real estate successfully. If you want to be successful in this venture, the first thing that you have to avoid is overanalyzing. Of course, it is a good idea to carefully think through your actions but it is a bad idea to overanalyze your investment to nonexistence. You might lose a great opportunity.

Before you purchase the property though, it might be wise to check the property value. If it sits well with you and you can reasonably afford the property, go ahead and make the purchase.

If you are considering the property for a quick flip, make sure that the property is in perfect condition and in good area. This is to ensure that you could double or actually triple your return of investment. If you can inspect the property yourself, do so. If not, a good and trustworthy agent can help you with this task.

Another important thing to remember when you’re buying real estate is good financing. You should take your time to carefully consider all your financing options. Foreign investors can email in their queries to various lending institutions. It is a good idea to make sure that you’ve had their terms and rates on paper because they tend to change these terms and charge you with a lot of junk. Your real estate agent can help you with reviewing the escrow charges.

The bottom line, however, is that it is very important that you do your homework before you actually buy a real property. Investing in real properties in the United States can be profitable especially during these times. In fact, it may be the wisest and most perfect investment you can make right now.

5 Ways To Fund A Real Estate Purchase

Whether, one is purchasing, his first home, or has done so before, if it is for his primary residence, or investment purposes, or, for a second/ vacation – home, one reality is the common bond! In order to buy real estate, you have to come up, with the necessary funds, either through, one way, or a combination of approaches, in order, to close – the – deal. There are several options, and, some depend, on your personal credit, the type of property, etc, so, with that in mind, this article will attempt to, briefly, consider, examine, review, and discuss, 5 ways, to fund ant real estate purchase.

1. Personal funds: Some people, either, have accumulated funds, by selling another house, investments, personal business earnings, etc, and, use these, to pay cash for the property, they plan, to purchase. Some home sellers seek these times of buyers, because, they often, proceed, with fewer hassles, and other delays, which might occur, when there is a mortgage, involved.

2. Family and friends: Often, especially, for first – time homeowners, financing a house, and, thus, owning a home, of one’s own, is challenging, because most mortgages require a 20% down – payment, and, with the ever – increasing price of real estate, in many regions, is difficult! Therefore, many seek, alternative approaches. One, which is usually, the first, for many, is asking for monies, from one’s family, and/ or, friends. Often, a young couple, turns to either, one, or both sets of parents, for help. At other times, we see close friends, willing, to assist, in creating, creative financing.

3. Seller – financed: Although it happens more often, in commercial property, or in sales of professional practices (medical, dental, legal), we often witness seller – financing, used, to make a deal, work! Simply, stated, this is when, the existing owner, agrees to, hold the paper, in order to create a deal, and help it, get done!

4. Conventional mortgage: A conventional mortgage is acquired, usually, from, either, a mortgage banker, or broker. This is the most common/ typical way, people buy their personal homes. Usually, someone puts down a down – payment, and finances the balance. A conventional loan is usually, for a term, ranging from about 15, to 40 years, and the individual pays a fixed rate, for the duration.

5. Alternative mortgages, including, variable rate, and/ or, lower amount of money, down: Alternative mortgages, function, much like a conventional one, except, either, the interest rate, is variable (fixed for short period, and adjusts), or the lending institution permits a lower down – payment.

A wise home buyer explores, learns about, and knows, his financing options/ choices, and proceeds accordingly. Will you try to be a better informed consumer?

Can You Use IRA Money to Buy Real Estate?

Yes, you can, as long as the property is used for investment purposes, only. The best deals to make are cash deals. In other words, you sell off some stocks to by a property outright. You might be able to hold a mortgage in the IRA trustee’s name, with the trustee making the necessary disbursements for principal and interest. Interest paid is one disadvantage. Holding a property for long-term investment in this way may not make you any money.

Can You Use IRA Money to Buy Real Estate for Personal Use?

No. In some cases, you may be able to take a one time disbursement without penalty to make a down payment on your first home. But, other than that, you cannot use IRA funds to pay for any real estate that will be used by you or your family members. Some people have made the mistake of using IRA money to buy real estate to be used as vacation property. Even though they rent the property to other vacationing families, they are not allowed to use the property for their own vacation, without risking the tax-free or tax deferred status of the rental income.

How Do You Purchase Real Estate with IRA Money?

You must first have a self-directed account. You find a property that you wish to purchase. You fill out the necessary forms and the account custodian makes the purchase in the name of the IRA trust fund. Any and all funds needed to repair or maintain the property must come out of the account. Any and all profits from rental income or reselling a property must be returned to the IRA trust.

Do I Need a Custodian?

In order to make real estate investments, you must have a self-directed account and you must have a custodian or trustee. The trustee is responsible for preparing the necessary tax documents and insuring that the investments you make are allowed by the IRS. If you want to use IRA money to buy it, you should use extra care when choosing a custodian or brokerage. Most are not familiar with the tax laws and other regulations concerning real estate investments.

How Do I Choose a Custodian?

If you want to use IRA money to buy real estate, you should choose a custodian that is familiar with all of the relevant rules and regulations. They should have been in business for a number of years, in order to insure that they have the experience necessary to conduct transactions on your behalf without risking your tax benefits. Equity Trust is a good choice.

How Do I Choose the Right Property?

This is asked even more often that can you use IRA money to buy real estate. Finding the right property takes time and effort. It also takes some skill, which only comes with experience. If you are new to real estate investing, you should probably contact an investor. If you know someone, that’s great, give them a call.

If not, there are a few investors that are willing to take practically anyone by the hand and show them the way. They make it “easy” for you to use your IRA money to buy real estate and they increase the likelihood that your returns will be significantly better than what you could get with traditional investments. In other words, you can grow your nest egg faster than you ever thought was possible.

How to Buy Real Estate in USA

If you’re brand new to the US real estate market, then buying real estate in USA will not be an easy process at first. While you can find some great deals in the US market today, there is still the possibility of making some costly mistakes.

That shouldn’t stop you from investing, however. It should just make you more aware of the importance of due diligence. Below are the two most important things to consider.

How To Buy Real Estate In USA:

1. Be aware of the tax implications for foreign investors: Your choice to invest in US real estate will most likely depend on the amount of tax that you need to pay when purchasing the property. This includes property, capital gains, and transfer tax.

As a non-citizen of the US, there are certain tax implications that will be involved when you purchase real estate in USA – and additional ramifications when a foreigner sells property in the US.

It’s not all bad news though. There may actually be tax breaks available to you as well. The US is doing its best to encourage foreign investment at this time especially given the tough economic climate.

The main thing you need to know about how to buy real estate in USA is exactly what your tax implications will be, good or bad. This will help you make a well informed bid, and keep your purchase in line with your budget.

2. Look at the local economy: When it comes to investing in US real estate, the local situation is more important than the overall one. Currently, pretty much every city in the USA has been affected by the recession, so your goal is to find one that is bucking the trend.

That means a decent economy, low crime and good schools. What’s even more important than the actual figures, is whether there’s been an increase or decrease in positive economic news compared to prior years. Basically, when looking at how to buy real estate in USA, look for a town that is poised for recovery, not sinking further into depression.

A good indicator of this is whether there is a healthy migration of new citizens moving into the city. According to the National Association of Realtors, some of the hottest US markets for foreign investors are in Florida, Texas, Arizona and California.

If you keep these 2 things in mind when looking at how to buy real estate In USA, you’ll be able to avoid costly mistakes and make a well informed, and profitable long term investment.

Buying Real Estate In Nicaragua

The first step to shopping for real estate in Nicaragua is to forget everything you know about the process back home… no matter where home may be.

Let me make one thing clear from the start. There are incredible bargains to be had buying property in Nicaragua. In fact, there is no other market in the Americas where insisting upon a 40% return on investment or better is reasonable. However, there are few similarities between the rules and regulations governing the real estate industries in North America or Europe, and Nicaragua. It’s because of this lack of similarities that foreign investors often get into trouble. There is a preconceived notion on the part of foreigners that the Nicaragua real estate industry is as carefully regulated as it is elsewhere, and it is this incorrect assumption that sets foreign investors up to be cheated. The only universal real estate investing rule that applies as equally in Nicaragua as it does anyway else is Caveat emptor, buyer beware.

Real Estate Brokers

Basically there’s no such thing in Nicaragua as a real estate brokerage that a Canadian, American or European would assume the term represents. There are real estate brokerage offices. Some even have familiar franchise names, but that’s where the similarity ends.

There is no mandated, formal training of real estate sales people, nor are there specific licensing requirements. Anyone can become a “realtor” by paying for a merchant license or incorporating a Nicaraguan company. I’m not suggesting this means “all” real estate sales people are incompetent or untrained… many are. In fact, there are a number of retired realtors who relocated to Nicaragua and maintain successful, upstanding businesses. However, there are many more who are not at all competent, and operate on the razor edge between honest business and outright fraud. Caveat emptor again!

There are no district or federal regulatory boards governing the real estate industry in place. Real estate sales are no more regulated than a vehicle sale transacted by a street vendor. Outright criminality is not ignored by authorities, but having the perpetrator jailed is unlikely to result in recovery of any money lost. The revenge should make a fleeced buyer feel better though. Nicaraguan jails exist to punish criminals, not rehabilitate, and they are Hell on Earth. Unfortunately though, most issues that can arise in a real estate transaction are considered civil matters by law enforcement and have to be treated as such. In short, whatever money you think you were cheated out of… consider it lost. Even with a judgement in the plaintiff’s favor, collecting money owed in a judgement rarely happens. So again, caveat emptor.

A serious shortcoming in the Nicaragua real estate market is that there is nothing similar to a Multi Listing Service (MLS). The lack of any form of MLS means there is no central registry of properties for sale, nor any information as to what a property sold for. The result is that it’s very difficult to decide what a house or commercial building in a particular neighbourhood is worth since there are no comparable property transactions to use as a guide. Appraisers base their appraisals on replacement cost mostly, and whatever else they provide is pure guess work. Ironically, banks require appraisals created by licensed Nicaraguan appraisers if mortgage funding is being requested.

There’s no such thing in Nicaragua as a listing similar to what most foreigners would understand the term to mean. Real estate shoppers will hear a realtor say that he or she has a listing, but it’s common to see two or more real estate signs on a single property. Likewise, the same property may appear on multiple real estate company websites and be advertised online by numerous different people. More confusing, the prices advertised may vary for the same house, sometimes by tens of thousands of dollars. Nicaraguans selling their homes rarely lock themselves into an agreement with one party wanting to sell their land, house or commercial building. If you want to sell something, the assumption is the more people trying to sell it the better. And by more people that can be realtors, the owner themselves, their family and friends, a neighbor, or a horse drawn carriage driver. This seems chaotic to a foreigner shopping for a retirement or vacation home, but it makes perfect sense to Nicaraguans. Without an MLS service that allows numerous realtors to show prospective buyers a listed property, letting everyone try to sell a property seems to be the best way to get exposure.

Another misconception foreign purchasers have when buying real estate in Nicaragua is that the seller is paying the real estate agent. This is sometimes the case, but even when it is the buyer may be asked to pay the commission. Yes, this is legal in Nicaragua. In fact, not only could there be a commission paid by the seller and buyer, but the real estate agent may have added an amount to what the seller actually wants in his or her hand. This too is legal. The worst case scenario is that the seller wants US$50,000 for his or her home. The sellers offers anyone selling the home US$1000 or a percentage. The real estate selling agent advertises the home for US$59,900, allowing for negotiating room. A buyer settles on US$55,000 but is told that in Nicaraguan the buyer pays the commission. Not actually the truth, but common enough that people think it’s a rule. The requested commission can be anything up to as much as 10%, or it can be a flat fee. Once all is said and done and the buyer agrees to purchase the property for US$55,000. In a case such as this, the ‘agent’ will insist on a nonrefundable US$5000 down payment. At closing the seller receives the US$50,000 that he or she wanted and the selling agent pockets the rest.

I know of a purchasers who handed a ‘realtor’ US$65.000 to purchase a 3 acre farm with a small house on the property. The ‘realtor’ then went to the owner of the property and paid him US$20,000 to buy the land. It gets worse… the ‘realtor’ never bothered to make the title transfer until the buyer discovered he was not the owner when he tried to pay long overdue taxes. In the end the property was purchased by a developer for little more than the original US$65,000, but 8 years of appreciation later. In another case Europeans purchase a home and overpaid US$85,000. Of course basing their offer on the European real estate values they knew, it was assumed they were getting a bargain. The ‘realtor’ pocketed the US$85,000 and a commission he charged the buy as well. Again, perfectly legal in Nicaragua… so caveat emptor.

The way to navigate through what foreigners view as market chaos is to use a knowledgeable real estate consultant to find a property you want, negotiate the price, terms and conditions, conduct the necessary due diligence, validate the title and survey, and so on. This is a fee based service but far less expensive than a percentage sales commission, and far, far less than a costly mistake would be. One such service is Nica Investments, a real estate consultancy that assists foreign investors purchasing real estate or businesses in Nicaragua.