Investing in the US as a foreign investor

[Juan Pardo]

Hello all, how are you?

This is my first post at BiggerPockets. I have been browsing the forum for a few days, after reading a book on BRRRR. For me the concept of positive cash-flowing real estate (after servicing debt and any other costs) was a bit alien, as it is hard to apply in my country. I am from Spain and here it is not easy at all to find a property that meets the criteria to cash-flow positively after paying debt.

Basically properties are so overpriced in Spain that in order to obtain a positive yield using debt (leverage) one has to buy the property at:

1 - A court auction (this is painfully slow - and I mean years waiting - and on top of that the property has to be paid in full cash - no financing available by banks).

2 - Marginal neighbourhoods and run down areas where most people dont want to live.

3 - Luxury properties that only can cash flow when the real estate market is booming, and sometimes for a limited period of the year like summer season, or main holidays. This can be rented by weeks or through Airbnb, although the criteria to be able to rent through Airbnb are getting tougher, and now there is no tourism at all due to COVID-19. 

The banks in Spain are so ridiculous that their prices for REO properties are usually higher than buying a property from any real estate agent. The market for distressed properties is from very limited to non-existent for individual investors. The market for distressed properties is dominated by a bunch of US real estate funds like Lone Star, BlackRock etc and they get their properties from banks in packs of like 5.000 million euros worth of mixed real estate. The possibility of buying mortgage notes is also very limited for individuals, although one could give a mortgage at a high rate as a private lender.

So I thought, why not investing abroad in a market that is more investor-friendly? Let's check the US! I was having a look at Zillow.com and realtor.com and homepath.com, and it looks pretty good. I mean, where in Spain would you find a property on sale for 150k (plus rehab) in a neighbourhood where properties sell for an average of 400k? This product does not exist in my country.

I was wondering if there are investors from outside the US in the forum, and how they arrange their long-distance investments in the US. It would be great to get some guidance on this, and learn from the experience of others. I guess a foreign buyer is taxed partly in the US (property tax, and taxes related to the property) but it is NOT taxed in the US for capital gains, but in his or her country of tax residency. Is this correct?

I am also wondering if it is more tax efficient to invest in the US as a foreign individual or through an LLC incorporated in the US.. looking first at tax is probably the starting point.

Forgot to say, at this moment I dont need financing to invest.. it should be easier with cash I guess..

Well, looking forward to your replies!

Juan

[Daniel Alvarez]

Hola Juan,

Welcome! I'm not a foreign investor but I was in your boat a few years back. Cash purchasing can be easy enough in the US (cash is king, queen and jack!), however getting a loan is where it gets tricky. Lenders need to assess risk and without access to your history they may not lend at all. Hence cheap government-backed loans may not work without a US social security number, however many private lenders might be ok -at higher rates. Once you purchase you will have to file your US tax returns annually (state and federal) and if eventually you sell, the IRS will want to hear back as well. See link below.
https://www.irs.gov/individuals/international-taxpayers/firpta-withholding

I now work in the US but I'm facing the same problem in the reserve direction. I looked at buying an apartment for my mom in Spain. It didn't go very far!

What US regions / cities were you contemplating?

Dani.-