We often get questions from our over-seas clients about the process and financing options available to them when purchasing real estate in the United States. So instead of writing each client individually we thought we’d take a few minutes to let everyone know what that process is.
Step 1: Time Zone Conflicts
Time zone differences will affect communication, wire transfers and all other transaction made during business hours. Be prepared, international purchases of U.S. property will take more time, especially in the beginning, as clients adjust to these time differences.
Step 2: Form an LLC
We HIGHLY RECOMMEND that Real estate investors, regardless of nationality, form a limited liability company (“LLC”) to purchase and hold U.S. real estate. The main reasons for the formation of a LLC: lawsuit protection, tax savings and asset protection. In short, a LLC creates a separate legal entity to provide personal protection. This is especially important since a person who holds any U.S. real estate in their personal name is liable for everything pertaining to the property.
Step 3: Get EIN Number
A federal tax identification number is a number assigned solely to your business by the IRS and used by several federal agencies to identify your business. All forms of real estate are taxable by the U.S. Government and in order to receive any tax advantages you will be required to have either a Social Security number or a tax ID number.
Step 4: Open a Business Bank Account
Once your LLC is established, open a bank account in that LLC’s name, again this keeps all business transactions separate from personal transactions. Find a bank that is familiar with opening accounts for international clients. Such a bank will help guide you quickly through the process with little inconvenience. These institutions are very familiar with their international policies and will quickly gather any information needed to process paperwork. Some banks will even assist you remotely, making the whole process convenient and timely.
Step 5: Acquiring Funds: Public Banks vs. Private Lenders
While there are a few banks who offer loans to Foreign Buyers, their list of requirements is quite lengthy and include:
– A long-term relationship with the customer beyond just the mortgage
– The buyer must hold $100,000 deposit with the bank
– 40% of the down payment
Although the above issues may seem daunting, the closing process of cash transactions for international clients is much the same as it is for local clients. It just takes longer, since funds must be wired from one country to another.
picture: Yahoo Finance Jan 2013