Real Estate Investor Magazine South Africa February/ March 2020 | Page 54
UNITED STATES
Real estate investment
the US
10 things I learned as a foreigner
LADISLAS MAURICE
N
on-Americans are almost all familiar with scenes
of people striking it rich in real estate in the United
States. People speculate, flip, use credit, become rich
and then sometimes lose it all. It’s a vast and attractive mar-
ket, not just for the potential returns, but also because of the
perceived safety of having a house or a condo in the United
States. That being said, there are a few surprises awaiting
the non-resident foreigner wanting to make a real estate
investment in the United States.
Many have made money, especially if they bought at the
right time. However, the market in America is unique in many
regards. It is important to understand the nuances of investing
in the United States, as the market is in many ways very
different from your home market. And if you get these points
below wrong, it can dramatically impact your returns.
1
The way you set up your purchase
is crucial, and requires preparatory
work
Many foreigners make the mistake of going to the United
States and simply purchasing a property in their own name
as it’s logical, easy and quick. However, if you qualify as a non-
resident alien according to the IRS, then you are liable to pay a
30% withholding tax on your gross rental income, without any
deductions allowed. Needless to say, you end up with a terrible
yield.
The way to avoid this is to create a local LLC, and purchase
the property through that entity.
My main point is that it is not straightforward, as there are
many ways to structure your purchase. You must carefully
analyse which structure is best for your particular situation
before going to the United States.
2
Americans are less emotional about
housing
In Europe, selling your house is a pretty emotional
decision. People typically keep them for many years, and
often across generations. In the United States, people will
sell their house in a heartbeat because they found a new job
somewhere else. It also means that a house which might look
fine for a European, might just be “old” for an American, and will
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FEBRUARY/MARCH 2020 SA Real Estate Investor Magazine
thus see its value depreciate quicker than you would expect.
Same thing with condos; many Europeans make the mistake of
going to Miami and buying a condo in some building from the
70s. For the European it looks fine but for an American it’s just
an old condo that he might live in because he must, but not
because he wants to.
Similarly, beware of buying a “McMansion”, these massive
houses in the suburbs that the boomer generation was so
keen on. Millennials are not interested in, and don’t have the
money for, massive houses with 6 ensuite-bedrooms. Boomers
are dying & downgrading, and nobody is buying.
As a non-American, it’s important to understand these
cultural dynamics for your investment.
In a nutshell, housing depreciates faster in America than in
Europe.
3
Beware, you could very well get sued
over something trivial
Americans love to sue. They’ll sue you for anything.
An oft repeated statistic is that about a third of businesses get
sued in any given year. Your tenant might slip in the staircase,
and somehow feel it’s your fault and sue you. For non-
Americans this type of attitude and behaviour is completely
incomprehensible, but it’s the reality. Americans are a generally
reasonable people, but NOT when it comes to the law.
So, what must you do? Get liability insurance, and preferably
buy through a company to protect your other assets.
4
Choose your investment destination
very carefully; politics matter
At any given time, you’ll have local property markets
that are booming, whilst others are crumbling. There is always
a place to make money if you look hard enough and follow
trends carefully.
That said, you should take into account the local
regulations and taxes. California and New York will tax
you very heavily, and have complicated regulations,
whilst other states such as Texas won’t even have a state
income tax and will make kicking out delinquent tenants