The questions and answers below are designed to help you become familiar with terms and processes unique to the US Property Market. You can also find many useful definitions in the Glossary.
Q. Can a foreigner own property in the USA?
A. Yes, there are currently no restrictions on foreign ownership in the USA.
Q. Do you own property in your own name?
A. You can own property in your own name, a company or a trust. The more homes you own, the more important it is to have ownership in a company/trust structure.
Q. How do I set up a company/trust in the USA?
A. Contact us.
Q. Can a foreigner borrow money in the states?
A. Yes, via what’s called a Foreign National Loan product. All loan rules vary from state to state a year to year. As the GFC and the property market crash worsened lenders increased their required deposits for FNL from 20%, to 30%, to 40%, to 50% and then cancelled the product altogether. As the situation improves these loans will become available again.
Q. What does a Foreign National Loan cost?
A. FNL costs are typically similar to other US loans with a rate and free premium.
Q. Can a foreigner refinance a US property they already own?
Q. Could a Cash-Out Refinance be a good future strategy?
Q. The US is a long way away. How can I care for or check on my property?
A. A good property manager is worth their weight in gold. One of my key functions is to source and monitor property managers for my investors, to ensure they are performing well. The investor can then leave day to day management to a professional who will email when necessary and deposit your rent to your bank account automatically. They have all the tradesmen to handle any repairs, renovations or emergencies. They are also expert in proactively following up any outstanding rents. When you want to check on your investment take a tax deductible holiday to Las Vegas! Come and see a Cirque du Soleil show while you’re in town.
Q. Are repairs or renovations expensive in the US?
A. No. A ready supply of quality tradesmen, a low cost wages system particularly in the south of the USA and inexpensive materials allows typical renovations to be completed quickly at just a fraction of the price typical in other countries. However, different cities have difference price points. You would expect contractor to have and change more in LA than Vegas because of the different cost of living.
Q. Do you have examples of any renovations you have done and what they cost?
A. Yes, we have completed many renovations in the US. Have a look at the example bathroom, kitchen and pool renovation pictures with their costs added on various pages of the site.
Q. Who has to file a US tax return?
A. All persons or entity’s who earn income in the US must file a US tax return.
Q. What is tax like in the US?
A. Taxes are much lower in the USA than in many other countries. There are also many additional deductions allowable not allowed in Australia but the concept of tax treatment is very similar.
Q. Do I have to pay extra taxes in the US or in my home country?
A. Most foreigners can ‘quarantine’ their USA profits possibly by creating US companies which will only pay tax in the USA and only at USA rates. Always seek the advice of a specialist accountant who has experience preparing taxes in both countries.
You could keep your property in your own name and claim a loss in your home nation if allowable by that country. This has been the case since 2008 in Australia. Conversely, if you make a profit you would pay top up tax if applicable in your home nation. This is why most investors hold their investment portfolio's in a Nevada CCC or C-Corp when they have large profits.
Q. Is a company return different to an individual return?
A. Yes. A company is a separate entity with different tax treatments and rates, often much less.
Q. When is a tax return due?
A. Individual returns are due April 15th. Extensions may be filed and some company types can opt for different return dates.
Q. When does the US financial year start and end?
A. The US fiscal year is the same as the calendar year, beginning Jan 1st and ending Dec 31st. Everyone seems to prefer doing their accounting when it’s winter!
Q. Should I apply for a US bank account now?
A. If you are serious about purchasing a US property you should prepare yourself in advance as much as possible. That includes opening a US bank Account and an ITIN number.
Q. How do I open a US bank account?
A. See Opening a US Bank Account
Q. What is an ITIN?
A. An ITIN number is an Individual Taxpayer Identification Number and works as an equivalent social security number for a foreigner. It allows a foreigner with US income to file a US tax return and open a US bank account.http://www.irs.gov/individuals/article/0,,id=222209,00.html
Q. When should I apply for an ITIN number?
A. You should apply as soon as you consider purchasing a US property. Your ITIN may take several months to receive and you cannot complete a tax return without making application.
How do I apply for an ITIN?
A. Go to the IRS home page and read the information provided.http://www.irs.gov/individuals/article/0,,id=222209,00.html
Complete the form:
Application for IRS Individual Taxpayer Identification Number on the same page.
Post this completed form along with a US notarised colour copy of your passport and exception request to:
Internal Revenue Service
Austin Service Center
P.O. Box 149342
Austin, TX 78714-9342
OR make application as above once you have purchased your property and are lodging your first US tax return. Be sure to send a colour copy of your passport page that has been notarised by a US notary.
OR use a US tax professional to assist you in this area.
Q. Do I need to create a company/trust structure before I buy a US property?
A. Yes. If you are serious, I suggest growing your company then bank account first, while you are still researching your property purchase. You can have everything set up within 2 weeks normally. If unsure, for just $15 total, a property purchased in an individual name can be purchased into a company structure after purchase. While it is always good to be as prepared as possible, these structures cost money to create and administer annually. Because the equivalent of stamp duty / transfer duty is virtually zero, I usually suggest people wait till they have purchased a property to create a structure ‘fortress’.
-No capitals gains tax
-No transfer tax
No stamp duty
Q. Is there stamp duty in the US like in other countries?
A. No. There are only low county filing costs to transfer ownership of a property from an individual to a qualifying party. It costs a few hundred dollars!
Q. Does Land Tax exist in the US?
A. Every property owner does pay a council land tax. There is no US state tax equivalent to what an Aussie would call land tax.
Q. What is PITI?
A. This stands for Principal, Interest, Taxes & Insurance. Most mortgages in the US are quoted as a monthly payment and paid in this manner. You make one single monthly payment to the mortgage for the month’s Principal & Interest plus they collect 1/12th of the annual land taxes and hazard insurance policy and pay this on your behalf when it’s due. This collection is placed in a different account called an Escrow account.
Q. What is an escrow Account and do I have to have one?
A. See PITI. No, you do not have to have an escrow account but you can normally establish one at any point if you desire.
Q. Do I need a US mailing address?
A. Unfortunately yes. Most payments can be automated or made on the web. But the US is still based on a system that uses cheques and physical mailing addresses.
Q. How can I get a US mailing address?
A. Your property manager or accountant will usually provide this service. They receive all your mail, open everything, scan and email this to you and keep the financial records for tax preparation. So wherever you are in the world, you can log onto the computer and receive your mail.
Q. When should I transfer money from overseas to the US?
A. You can get an MoneyCorpLink account and transfer your foreign money to US dollars on a day with favourable exchange rates and keep it in your home country till you are ready.
Q. What is a Realtor?
A. Similar to an Australian Real Estate Agent, Realtors are sworn to upon a code of ethics.
Q. If I buy a property, do you represent the seller or myself in the transaction?
A. I represent ONLY YOU THE BUYER, not the seller. This is a major difference from the Australian ‘buyer beware’ system.
Q. How is a Real Estate agent in the US paid?
A. Most sellers using a Realtor to sell their home agree in advance to pay two commissions; one commission to the listing agent who represents the seller and another commission to the Realtor who represents the buyer.
Q. How much is a Realtor’s commission?
A. There are no set commissions in Nevada and each Broker and client has the right to individually negotiate an amount of compensation. ADD TWO AGENT SYSTEM. This is dictated on the Listing Agreement signed between sellers.
Q. Can a client be asked to pay any additional compensation above that stated in the MLS and paid by the seller?
A. Yes. There may be a set minimum amount a Realtor asks as compensation for their services but this should be disclosed upfront. This has become more common as purchase prices drop. This is dictated on the Buyer Broker Agreement signed between buyer and realtor.
Q. What is an Exclusive Right to Represent Buyer and Agency Agreement?
A. An Exclusive Right to Represent Buyer and Agency Agreement stipulates that a Realtor is representing a prospective buyer for a certain period of time. It ensures that a Realtor is paid if a buyer purchases a property during that time and stipulates what that amount of compensation shall be.
Q. Does a buyer have to sign an Exclusive Right to Represent Buyer and Agency Agreement?
A. No. A buyer absolutely does not have to sign an Exclusive Right to Represent Buyer and Agency Agreement. Equally though, a Realtor has the right to choose not to represent a client. It is used typically for a short period of time to show trust.
Q. How does a realtor find a property?
A. A US Realtor has access to thousands of listings available on the Multiple Listing Service (MLS) but only in the states they are licensed in.
Q. Can you represent me in states outside of Nevada?
A. No. I am only licensed to represent a client in Nevada. I have a trusted associate to whom I refer clients in San Antonio and I have property managers and tradespeople I use for my investor group. We are only licensed in Nevada, but we have an extensive refferal network.
Q. What is a Short Sale?
A. A short sale is a property sale in which the sale proceeds do not pay off the underlying loan(s). A short sale is NOT automatic and a seller must seek ‘Short Sale Approval’ from their lender(s). Read more about Short Sales ...
Q. What is a Repo?
A. A repo is the slang term for REO or Real Estate Owned by a bank. This is a property a lender has foreclosed upon to satisfy a delinquent mortgage. Read more about Foreclosures ...
Q. What is Short Sale Approval?
A. Short Sale Approval is a banks written authority to complete a short sale transaction. It is not automatic and a seller must supply their lender(s) with a Hardship Letter and financial statements that demonstrate their particular hardship. Read more about Short Sales ...
Q. What is a Hardship Letter?
A. A seller seeking to complete a short sale must write a Hardship Letter explaining their personal circumstances and their specific HARDSHIP. Typical hardships include family illness or injury, job loss or significant loss of income, divorce or split of domestic partners, death of spouse, adjustment of mortgage payment or unforseen increase in living expenses such as by the birth of a child. Read more about Short Sales ...
Q. What is a Residential Purchase Agreement?
A. The Residential Purchase agreement is the contract between the buyer and seller for the property transaction. It provides both parties with legal protections and outlines the terms of the sale.
Q. What is COE?
A. COE stands for Close of Escrow and is the completion date of a sale/purchase transaction.
Q. What is EMD?
A. EMD stands for Earnest Money Deposit. This is the money you place into escrow at the start of a transaction to show good faith of your intention to proceed with a purchase.
Q. Can I lose my EMD?
A. Yes, but a good Realtor has a number of items they write into a contract to protect their client and their money. There are very strict laws about this so consult your agent for details.
Q. What is Escrow?
A. Escrow is an independent company or solicitor who ensures the instructions of the contract or RPA are followed. They hold funds on behalf of both parties, check title and distribute funds at closing.
Q. What is a Short Sale Addendum?
A. This form states that a property is subject to the terms of a short sale and is subject to a bank accepting both the seller’s short sale request and the buyer’s offered price. There is a number of days stipulated after which a buyer can walk away from the transaction if they have not received an approval from the bank.
Q. What is a CD?
A. A CD stands for Closing Disclosure and all lenders are legally obliged to provide a borrower with one. It details the costs of borrowing, the type of loan applied for and monthly payment information. A borrower must have this for 3 days before they are legally allowed to close escrow.
Q. What is a HUD-1?
A. A HUD-1 is the closing document that shows all financial disbursements of a property transaction. It is important to keep this document for your US tax return.
Q. What is the SRPD form?
A. The SRPD is the Seller’s Real Property Disclosure form. It requires the seller of real property to disclose to the buyer any material defects they know about the property. It is extremely important and a seller may be sued for lying or omitting information on the form years into the future.