As a foreign investor, the things you need to know about purchasing a home in the US might be a bit different than in your home country. If you are ready to invest in the United States, here is a list of items you will need to take into consideration before you purchase a home.
•Know the rental market not just price of homes
It’s important to consider the price of the home compared to what the price of a rental in that home’s market goes for. A home that cost $150,000 but rents for $1,500/month is a more lucrative investment than a $300,00 home that rents for the same.
•Know when to buy and sell
There is a housing season in the United States. During the spring and summer homes sell 3 weeks quicker than during fall and winter, according to Zillow. This makes Spring and Summer perfect for selling a home, but you might want to wait until the cooler months to get a better deal on a home as a buyer.
•Own a U.S. bank account
To purchase property in the U.S., you might need to set up an American bank account in person. Which is also ideal to receive the rent payments. It is also very helpful to choose a bank that has branches in the area you want to buy.
•Be prepared for a tougher loan approval process, if you are buying using financing
As a foreign buyer, the income and credit verification process is more complicated because the US government doesn’t have the same tax or credit history as a domestic buyer. Instead of a credit report, lenders might ask for a few months’ worth of bank/credit card statements. This process might take longer than a domestic loan, so be prepared for it when you are ready to put an offer on a home.
•Down payments might be higher
The easiest way to buy a home in the United States as a foreign buyer would be to purchase the home in cash. However, not everyone has that type of money to put into home right away. However, many banks will require 25-40% down payment from international buyers unlike domestic buyers who can put 20% (or less) down.
• Property Management
If you don’t plan to live close by to your property, you will need to consider a property management team. They will help you handle tenant screenings, rent collections, and maintenance needs.
•Should you Incorporate
Homes can be purchased in the United States by an individual or a company. However, it is important to consider which option is best for you. If you plan on using the property as a vacation rental you will need an individual taxpayer identification number (ITIN) if you buy as an individual. However, if you are thinking about buying as an investment strategy and plan on buying more than one foreign home, setting up a business entity might be the better move. Work with you accountant to decide what strategy is best for your tax purposes.
•Understand the laws of the land
Real estate sales work a bit differently in the U.S. than in other countries. In the U.S., all home listings are available to view via the MLS (Multi Listings Search). Instead of contacting the listing agent directly, buyers can hire their own agent to help them through the process. These agents need to be licensed in the state they are working in and it is custom to pay a fee to this agent by the seller once the sale is final. Don’t miss the opportunity to have an agent on your side to represent you, as this is basically $0 cost for you.
•Hire a tax professional and understand you will have to pay annual taxes
Tax laws can vary greatly between countries, especially in regard to real estate. It’s important to hire a tax professional that can help you navigate the U.S. requirements of your vacation home or investment property. There are property taxes you have to pay on the home, and the amount varies based on not only the cost of the home, the location, but how you will be using the home. A knowledgeable tax professional can help you navigate the tax codes.
•Account for additional fees
Take into consideration that there might be additional fees (both annual and monthly) you might have to pay. Many luxury vacation homes have HOA (Homeowner’s Association) or resort fees that keep the common spaces of the community–such as pools, parks, and club houses–well maintained. You also need to consider the annual maintenance costs the home might endure
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