INTERNATIONAL BUYERS

Many foreign investors find it difficult to navigate the home buying process here in the United States, while living abroad; and they find it especially daunting if they need to secure a mortgage to finance a home or other property.

Without a doubt it can be a confusing process for any foreigner, if they attempt to wade through this process alone but, with the help of knowledge professionals in the States it is not difficult at all.

Let's take a look at some of the major issues and see if we can't shed some light on them.

FINDING THE RIGHT PEOPLE IS KEY

Begin by finding a real estate professional who has experience in the particular market you are interested in and who coms highly recommended. There is not substitute for experience, and when transactions can amount to millions of dollars it just makes good sense to put yourself in the hands of a pro.

How do you find such a professional? The best way is through referrals, so if you know someone who has purchased in a market then ask them suggestions. If not, then check with the National Association of Realtors, or go to the governing realtor board in the city you are interested in.

A qualified real estate broker/agent will know the market, as well as, the attorneys, loan officers and even accountants who can help with all aspects of the real estate purchase.

It might also be worth finding a good, local attorney who has dealt with foreign real estate purchases in the past. Again, dealing with someone who is familiar with that particular branch of law might cost a bit in the beginning but it will most likely save much more in the end.

FINANCING FOR INTERNATIONAL BUYERS

The good news is YES, there is financing available for foreign buyers. The bad news is that it is not as easy to obtain as it is for the residents of the United States; which makes sense if you think about it.

Bakns and other lending institutions want a long-term relationship with their customers, so many banks now require a deposit with their bank if you are to apply for a loan.

HSBC's Foreign Buyer Program lists these requirements for a foreign national to obtain financing for a home:

• $10,000 on deposit with the bank, and if you withdraw the money after closing the interest rate will rise
• 30% down payment (it can be as high as 40% in some states)
• $1,500,000 loan limit; which means a property value of $2.142 million

An additional 12 month's reserves are required, which would cover mortgage payments, maintenance and taxes

Most banks and lending institutions offer both a 30-year and 15-year fixed rate mortgage to foreign buyers. It is also possible to obtain an adjustable-rate mortgage and that may be advisable depending on the length of the holding period.

Again, working with a seasoned professional will help you in finding the best mortgage deal. Often times using a smaller, local bank can be more profitable, and only a local professional would be able to find such a beneficial deal.

DO INTERNATIONAL BUYERS HAVE TO BE IN THE U.S. TO CLOSE A REAL ESTATE DEAL?

Absolutely not! In today's world of fax machines and emails, all paperwork can be handled electronically. If a representative of the buyer is needed at the time of the signing, he/she can simply provide a representative with a "Limited Power of Attorney" and have the representative handle the closing.

WHAT ARE THE TAX CONSIDERATIONS FOR INTERNATIONAL BUYERS?

As you might guess, there is no easy answer to this question. The tax liabilities for foreign buyers depend upon the tax treaty between the United States and the country of origin of the buyer. Finding a reliable and trustworthy local tax consultant who can give quality counsel is always the best bet regarding tax liability.

Regarding the deferment of capital gains, the U.S. Government does allow foreign sellers to defer capital gains taxes as mentioned in Section 1031 of the IRS Code. This is a bit tricky to navigate, so again, fins a local tax consultant for the best advice.

If a foreign national makes money on real estate in the States in the form of rental income, they are required to pay U.S. Income Tax on the rental income. It is important to remember that even if the foreign investor shows a net loss from real estate transaction in the United States, income tac returns must be filed in a timely manner.

TAX BENEFITS FOR INTERNATIONAL INVESTORS IN REAL ESTATE

When a foreign buyer finances a real estate purchase in the States, he/she will see some very good tax benefits for the next ten to fifteen years. The U.S. Government offers some great tac deductions for rental income including deductions for mortgage interest, property taxes, depreciation over 27.5 years, insurance, amortization of closing costs.... all will lead to a negative taxable income over quite a period of time, and even when the property begins to generate income it will be offset by the prior year's negative taxable income.

BE AWARE OF THE FOREIGN INVESTMENT IN REAL ESTATE PROPERTY TAX ACT

Otherwise known as FIRPTA, this act guarantees that the Internal Revenue Service will be paid capital gains taxes after the sale of a U.S. property by a foreign resident. Upon the sale of the property the IRS will withhold 10% of the gross purchase price of the property. After the tax return is submitted reporting capital gains tax, there will be a refund given if one is due.

TAX BENEFITS FOR INTERNATIONAL INVESTORS IN REAL ESTATE

When a foreign buyer finances a real estate purchase in the States, he/she will see some very good tax benefits for the next ten to fifteen years. The U.S. Government offers some great tac deductions for rental income including deductions for mortgage interest, property taxes, depreciation over 27.5 years, insurance, amortization of closing costs.... all will lead to a negative taxable income over quite a period of time, and even when the property begins to generate income it will be offset by the prior year's negative taxable income.

BE AWARE OF THE FOREIGN INVESTMENT IN REAL ESTATE PROPERTY TAX ACT

Otherwise known as FIRPTA, this act guarantees that the Internal Revenue Service will be paid capital gains taxes after the sale of a U.S. property by a foreign resident. Upon the sale of the property the IRS will withhold 10% of the gross purchase price of the property. After the tax return is submitted reporting capital gains tax, there will be a refund given if one is due.

PAYING ATTENTION TO UNITED STATES ESTATE TAX

Foreign investors must be aware of the Estate Tax. If a foreign buyer dies, his or her estate will be taxed by the United States at approximately a 46% tax rate.

To avoid this from happening, simply set up a Limited Liability Corporation, or LLC, and a Foreign Corporation. The property would be owned by the LLC and the LLC would be owned by the Foreign Corporation, and the buyer would hold shares in the Foreign Corporation. With this structure in place, the death of the buyer prevents the U.S. Government from taxing the estate since the buyer does not legally own the property.

This is a very easy financial structure to establish and it can mean savings in the millions upon the death oft he foreign buyer.

One other way to cover tax liability in the event of a death is to carry a life insurance policy in the amount of the equity of the property. That way, in case of death, the estate tax would be covered by the insurance policy.

ARE CONDOS A GOOD INVESTMENT?

One of the hottest items in the real estate market in the United States is the condominium, and for several good reasons. With condos, the buyer owns the condo and shares common areas with other residents. There are usually minimum restrictions to be concerned with, and subletting an/or part-time residents are allowed.

It is advisable for foreign buyers to consider condominiums rather than co-ops since it is much more difficult for foreign buyers to be approved by a co-op Board of Directors, and the living regulations are generally much more restricting.

MISCELLANEOUS FEES TO CONSIDER

• Be aware of these fees when considering the purchase of U.S. property:
• Mortgage loan Origination Fees, which usually range between .3%-.5% of the mortgage value
• Application Fees, which are charged by many condos
• Managing Agent Fees
• Attorney Fees, which will depend on the difficulty of the transaction
• Mortgage Tax, which will either be 1.8% for mortgages under $500,000 and 1.9% for mortgages over $500,000
• Lieu Search Fees
• Mortgage Title Insurance, based on the  property value
• Credit Reports
• Appraisals
• Loan Application Fes
• Bank Attorney Fees
• Escrow Fees
• Home Insurance Fees

WHERE ARE THE HOT MARKETS IN THE UNITED STATES RIGHT NOW?

Once can rarely go wrong in the major population centers of the United States. Even though the market has been slow to recover from the recession, certain areas were practically recession-proof because of their industries and reputation for quality living. States like Florida, California, Nevada and New York still offer some wonderful real estate opportunities in luxury real estate, and a discerning buyer would do well to check out those areas first if considering a future purchase.

FIRST THINGS FIRST

Foreign buyers should always have their own representation in any real estate transaction. Simply scouring the real estate listings and contacting the seller' agent or broker is not enough. It is always advised to have you own real estate broker who will "broker" the best deal for you and have your interests covered.

As we stated at the beginning of the page, having a team of professional ins your corner is of primary importance when purchasing real estate in the United States. At first glance, it can be a confusing time for a foreign buyer but, with the right professionals working for you, the process if truly not that difficult.