There are no restrictions on foreigners (including Canadians) buying real estate in the United States. However, that does not mean it will be easy for foreigners to invest in property in the U.S. I have had many inquiries on my blog from foreigners wondering how they can invest in the U.S. housing market, because their market is so hard to invest in.
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There are many things a foreigner needs to consider, like financing, taxes in the U.S., taxes in their home country and the cost to buy a home in the United States. Just because it is possible for foreigners to buy a home in the United States, does not mean it will be worthwhile unless they really do their homework. I love investing in the United States, because I live here and the U.S. has one of the best markets to invest in. I talk about my investments and investment strategies in my complete guide to investing in long-term rental properties.
Why is the United States one of the best places in the world to invest in real estate?
I have talked to many foreign investors either through coaching, comments on the blog or on my podcast show. The United States has a very unique system for buying real estate. In most areas of the world you cannot get a 30 year mortgage. A 25 year mortgage is about the maximum term you can get, but that is not available everywhere either. The United States also has great rent to value ratios in many parts of the country. Getting $1,000 in rent a month on a house that is worth $100,000 is not uncommon. Some markets are different from others, but when you look at other parts of the world like England, Australia, Canada and many more, those numbers are almost impossible to find. With the United States real estate system, it is also safe and easy to buy a home. Many countries have much different systems to buy houses that are not as clear cut as the U.S. Because the United States has such an incredible housing market with incredible lending options, many investors look here to buy.
How can a foreigner get financing on investment property in the United States?
There is no law that foreigners cannot buy houses in the United States or get a loan. That does not mean it is easy to get a loan or find a lender that will lend to a foreigner. Most of the information I have found on this subject is in regards to Canadian policies, since Canadian citizens are the most common foreigners trying to buy real estate in the U.S. Most U.S. banks do not want to loan money to a foreigner who has never paid taxes in the U.S., has no permanent address in the U.S. and no ties to the country. There is obviously going to be a lot more risk to lenders when they loan to a foreigner who lives outside the country and does not have any ties to the U.S. It is also difficult for a Canadian or any other foreigner to get a loan in their home country on a property in another country. Most lenders do not want to lend outside their home country or may not even be able to depending on the laws and regulations of that country.
The good news is it is possible for a Canadian or other foreigner to get a loan on a property in the U.S. There are banks that will lend to Canadians who can prove income and work history much like an U.S. citizen would have to do. The problem may be finding a bank that will do it, much like I had to find a portfolio lender who would finance more than four rental properties. I did find a bank that specializes in helping Canadians get loans for United States real estate. RBC bank claims they are the best at hooking up Canadians with US.. lenders to facilitate financing. I personally have no experience with them and have no connection to them. Many local lenders will also lend to foreigners.
What does a loan cost in the U.S. for Canadian citizens
From what I have read the loan process in Canada is much different from it is in the US. I have never bought a house in Canada so I don’t know exactly how it works. I know in the U.S., the cost to get a loan will include an origination fee, appraisal fee, flood certifications, recording fees, closing fees, prepaid interest and insurance. These items can easily reach 2 to 3 percent of the mortgage amount for a US citizen, but the costs may be higher for a Canadian citizen due to the increased work and risk the bank is taking on. The interest rates will most likely be higher as well as the closing costs.
How much are taxes in the United States for a foreigner buying US real estate
Rental properties have great tax advantages for U.S. citizens, but taxes are the tricky part for any Canadian or foreigner buying property in the United States. The U.S. will require the foreigner to pay taxes in the U.S. on real estate gains. The foreigner may also be required to pay taxes in their home country as well. The United States and Canada have an agreement that meets some of these concerns regarding income taxes for Canadian citizens. I would talk to tax professionals in both countries before buying any property as I am not an accountant or offering legal advice. Here is an article on suggestions for Canadians to protect themselves better when buying U.S. property.
Don’t forget about travel costs for foreigners buying U.S. real estate
You have to consider the cost of travel into any investment you make, unless you never plan to see the property. One thing Canadians need to consider is their health insurance may not cover them when they travel abroad to the U.S. Canadian citizens may have to buy temporary health insurance coverage while they are in the U.S. You also must factor in airfare, hotel costs and other travel costs when looking at property in the U.S.
Can you get a great deal on U.S. houses from Canada?
I think the biggest issue for any foreign investor is being able to act quickly to get a great deal. I get great deals on my rentals because I can act very quickly on deals that come up in my area. I know the area extremely well and know home values very well. For a foreigner to get a great deal, there may not be time to see the home personally unless you are already in the country. If you are in the country, a great deal may not pop up while you are visiting. It can take me months to see a great deal that I want to invest in. The best option may be to find a real estate agent you can trust to find a great deal for you. You may also need to find a great property manager to manage the home for you.
Because of the United States unique housing market, it may be worth it for many foreign investors to buy houses in the U.S. It will not be easy to do and it is hard for me to say whether it is worth all the trouble for foreigners to invest in the United States or not. However, I see foreigners buying up a lot of real estate in the U.S., so it is probably a good deal for some. One thing I have learned is that it will take some work, research and trust to become an investor who successfully invests outside their own country.