The United States has one of the best markets for investing in real estate in the world. Prices are relatively cheap, financing is usually simple, and the laws are clear on who owns the land. Many foreigners want to invest in US real estate but do not know where to start. There are no restrictions on foreigners buying real estate in the United States. However, that does not mean it will be easy. There are things to consider such as taxes, financing, management, and more.
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. The USA also has a very stable economy and government compared to many parts of the world. There is a growing population, and the government encourages homeownership.
Is it legal for foreigners to buy real estate in the US?
There is no law that foreigners cannot buy real estate 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 regard to Canadian policies since Canadian citizens are the most common foreigners trying to buy real estate in the U.S.
How hard is it to get a loan?
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 has 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 lend depending on the laws and regulations of that country.
While it may not be easy, it is possible for a Canadian or another 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 a 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 foreigners?
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 foreigner 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. If you are trying to invest in the US from another country do not expect to get the same terms and rates a US citizen will get.
How do real estate taxes work for foreigners
Rental properties have great tax advantages for U.S. citizens, but taxes are the tricky part for any foreigner buying a 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. 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 nor am I offering legal advice.
You have to consider the cost of travel into any investment you make unless you never plan to see the property. One thing foreigners need to consider is their health insurance may not cover them when they travel abroad to the U.S. If you live in a country with free health care, that could only apply when you are in your country. You 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?
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 find the right deal. 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.
How do you choose the right market in the US?
One of the trickiest parts about investing in a different country is deciding where to invest in that country. Not everywhere in the US is the same. You could pay $2,000,000 for a house in San Francisco or $20,000 for a house in Detroit. The economies are different, the laws are different, and the taxes are different in each state.
I would suggest trying to invest somewhere you have a connection if possible. Do you know someone living in the US? Could they help you learn neighborhoods and at least give you some information on the area. If you have a connection, I would not invest in that area right away. I would research it to find out if it is a decent market.
If you do not have any connections or any connections in decent markets, you may have to look on your own. It can take some time and work deciding where you want to invest. I have a massive YouTube video I put together on long-distance investing you can check out below:
Is there an easier way?
You may not have the time or the desire to look for a good market and good rentals. There are easier ways, but they will not have the same returns as doing it yourself. Turnkey rentals can be one way to invest in a new market without doing as much work. Turnkey rentals are usually rehabbed, rented, and professionally managed. The properties usually have cash flow, but it is tough to get a great deal on them.
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.