Real Estate Investor Magazine South Africa February/ March 2020 | Page 55

very easy. Some states have estate (death) taxes and
others don’t.
Think of America as different countries with their own tax
laws and regulations. Just as you don’t invest in “Europe”, you
don’t just invest in “America” but in a chosen state.
5
Beware of property taxes and
Homeowners Association dues when
calculating your yield
You might come from a country where property taxes are an
afterthought, or at most the equivalent of a month of rental
income. In the United States it’s not uncommon to be paying
the equivalent of 3-4 months of rental income in property
taxes. Particularly in states with no state income tax, property
taxes are the preferred way to raise money for school districts
and the like. Homeowners associations dues can also add up
and vary massively from one area to the next. If your house is
in a beautiful community with white picket fences, perfectly
manicured gardens, overly-friendly retired boomers with great
teeth, and an eager private security officer, then beware of
yield depressing HOA dues.
Choose your school district carefully
6
America is not Finland where probably 95% of schools
are great. If your house is in what is reputed to be a
bad school district, then your capital appreciation will
have a leash pulling it back and finding good tenants
will be harder. Again, do your research beforehand
to understand the school districts in the area where you want
to invest, or else you might end up being flogged a property
which will then surprise you in a bad way later.
7
Housing in the United States is very
data driven
The United States has the Multiple Listing Service, the
MLS. On any given house for sale you’ll have all the
information you need such as size, past transaction prices and
owners, school district, HOA, property taxes, etc. For example,
in Raleigh, North Carolina, now 7% of property transactions
are done by “ibuyers”. Yes, it means algorithms are buying and
selling individual houses, which is completely unheard of in
most of the rest of the world.
8
Contact the title company
beforehand. Sometimes making a real
estate investment in the United States
as a non-resident foreigner is not
straightforward
Some transfer agents will not accept a normal wire from
abroad and require the funds to transit through an American
account first. Don’t get me started on why; it’s just a fact. Make
sure to contact them beforehand to be prepared.
9
Be ready for the IRS to keep a lot of
your money when you sell
The “Foreign Investment in Real Property Tax Act
of 1980” (FIRPTA) rarely gets discussed online.
“Many American banks are
not used to non-resident
aliens, and even though
opening the account might be
easy if you have the proper
paperwork, maintaining
it functionally is another
matter.”
The main stipulation is that if you sell a property in the United
States as a non-resident alien, the IRS will keep 15% (!) of the sales
price until you fill out your income tax declaration and pay your
capital gains taxes. This process can take months, even years, as
the IRS is incredibly inefficient. It’s impossible to give a proper
timeline, so make sure you don’t depend on that 15%. There are
some exemptions, such as when the property you sell is for less
than $300,000 and the buyers will use it as their residence, not as
an investment property. You’ll need a good CPA that understands
the taxation of non-resident aliens to properly fill out the yearly
income tax declaration which you will have to do to. Don’t even
think of doing it on your own; taxes in America are complicated.
10
Choose your bank wisely
Many American banks are not used to non-
resident aliens, and even though opening
the account might be easy if you have the
proper paperwork, maintaining it functionally is another
matter. Some banks will insist on a US sim card. Others will
not want to send your debit card to an overseas address upon
renewal, and yet others will not accept online international
transfers, thus requiring you to go to the branch in person.
My best advice is to go to a mid-sized regional bank as
they are often more flexible than the major banks. Set up
an appointment at their headquarters branch, meet the
branch manager, explain your situation & needs, and ask to
see compliance as well to ensure everyone is aligned. In line
with this approach, make sure you have a dedicated account
manager, rather than having to go through an anonymous call
centre in case of issues.
Should you make a real estate investment in the United
States as a non-resident foreigner? Overall, investing in real
estate in the United States as a non-resident foreigner can
be very attractive if you choose your investment carefully.
Just bear in mind that the market is very different from your
home market in many respects and invest accordingly. In my
experience, the most pleasant part of investing in America is
the quality of the support you can find. In many countries it’s
almost impossible to find a good, reliable property manager.
However, in the US, you find people who are competent,
helpful, kind, and without any of the nonsense and lies that are
common in many parts of the world. Get in touch with me if
you want the contact information of a great buyer’s agent, a
great property manager, and great CPA for the Austin area.
SOURCE thewanderinginvestor.com
SA Real Estate Investor Magazine FEBRUARY/MARCH 2020
53