To trust or not to trust

Foreigners Buying in the USA
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To trust or not to trust

Ronald Cvetkovic
Homeowner · Zagreb, Croatia · Member since 2014 · 43 posts · 9 votes

Recently I started topic regarding foreign investing in USA. Posting questions about tax, forming LLC etc...

I am learning every day as much as I can, and have a big question (for me it is big).

Do you have any advice on how can I be sure that someone will do the right thing with my money if I invest in RE business?

For example if me and someone else from USA invest 15-20K each in buying and maybe flipping house, is there some tool or some legal assurance where I can be sure that my 15k is safe invested?

Or other example... investing in buy & hold property, where I am paying for property and must have someone to buy it, manage it etc.

As one of my friend said: "These days you can pretty much wipe your a** with a contract as they mean nothing."

I am asking because for me it will be almost impossible to get financing in USA, so if I buy, it will almost certain be cash buy.

Hope you understand that I am little scared to give someone money "just like that" to invest in real estate.

So real question is... are there any real "tools" that can assure money protection or is it all based on trust?

Hopefully there are readers that once had same issues and solve it somehow.

Thanks for reading/replying.

Have a nice day.

-Roni

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Brant Richardson
Investor · Santa Barbara, CA · Member since 2013 · 658 posts · 315 votes
12y

Not to trust. There's no way I would invest in Croatia unless I had somebody there that I absolutely trusted. Contracts mean a lot but there are so many ways to rip a person off that a contract couldn't cover. It scares me to invest just a few states away much less another country. I have people I trust now but getting started was scary, I felt very vulnerable.

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  • Dusty Ackerman
    Specialist · MN · Member since 2014 · 42 posts · 13 votes
    12y

    Hey Ronnie,

    I just stumbled across your post and investing so much money into something like RE can be a scary thing. I just completed a degree in international business here in the states. Investing in a country that you are not in or very familiar with can be extremely complicated and even dangerous. If you can find the right person you can make some good money in RE here in the states but trusting that particular person takes guts. Unfortunately NOTHING is guarantee when it comes to business and investing. I hope someone can reply to you with a more in dept explanation on the things that you can do to protect yourself legally. Interesting read, I hope you find what you are looking for!

    0Reply
  • Account Closed
    Real Estate Investor · Myrtle Beach, SC · Member since 2012 · 299 posts · 104 votes
    12y

    Ronald,
    Good question, It really comes down to you finding the right three people to assist you in your USA investing. One a creditable consultant, a Real estate Lawyer, and a great management company.
    There are others but those are the most important ones and out of those it would be your consultant. This person would be the one or should be the one to handle all of the other team members you need and most likely they will be ones he or she has all ready worked with.

    Your friend is really not correct, a well written contract is a good thing and will work for you every time. It may take some time and extra money to go after what is right but in the end it should be in your favor, if done right from the binging.

    1Reply
  • Ned CareyPro Member
    Moderator
    Investor · Baltimore, MD · Member since 2008 · 17k+ posts · 13k+ votes
    12y

    A big question is; how important is that $15K to you. Is it your only liquid cash? Do you have other assets and investments? Do you have personal reserves beyond that $15K?

    If you don't have other reserves and investments then you are taking a big risk. You are not in a position to lose $15K.

    When I am in a position where losing the money won't kill me, I tend to be trusting and figure if I get screwed I just won't do business with that person again.

    I strongly disagree that contracts are worthless. I have done killer deals where I had to enforce my contract.

    One way to protect yourself is to have the other partner pledge some collateral to protect your investment. Also you can use a confessed judgement. A confessed judgment basically says if you default my attorney can go to the court and get a default judgement that you don't get to defend against.

    I you situation you should really find a good attorney to help you.

    0Reply
  • Ronald Cvetkovic
    OP
    Homeowner · Zagreb, Croatia · Member since 2014 · 43 posts · 9 votes
    12y

    First of all thank you all for answer.

    @Ned Carey $15K was just an example. It can be 15K or it can be 100K.

    My investment will probably be something that I can invest, but after that don't have much reserve left. It also depends on financing.

    But if I will have reserve left, I still don't want to pay the school of loosing money for several investment deals just to find good partner.

    Yes a good attorney is must have.

    0Reply
  • Joel OwensBusiness Member
    Moderator
    Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes
    12y

    I work with foreign investors but on commercial real estate. Most banks here are tightly regulated giving out loans. So giving a loan to a foreign person without a local partner is most times a "no go" with them.

    You get up into the larger loans 2 to 4 million and up you get insurance companies and private lenders not regulated by auditors and have more leeway lending money out to foreigners.

    What I typically find is you can either pool money with other investors to take down a much larger property or find an owner finance type deal putting cash down. The seller will generally want to see that you have some liquidity. For example say you bought a 1 million mobile home park putting 15% down or 150,000. The seller would want to see other liquid reserves to maintain the property. If you are a foreign investor that is one strike because of distance to the asset. If you have cash down but not much other liquidity to draw from that is another strike against you. If you have not owned that type of asset before that is yet another strike. You also need to define what annual returns you are looking for on your money. A buy and hold is very different from a flip.

    The timeline your money churns is critical that you want. So for instance a rehabber like J Scott on here rehabbing smaller houses the loan time for lending money out might be shorter than say Will Bernard doing high end expensive homes that take longer to turn around and sell.

    Hope it helps.

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  • Ronald Cvetkovic
    OP
    Homeowner · Zagreb, Croatia · Member since 2014 · 43 posts · 9 votes
    12y

    @Joel Owens of course it helps, helps a lot, thank you very much.

    1Reply
  • Brant Richardson
    Investor · Santa Barbara, CA · Member since 2013 · 658 posts · 315 votes
    12y

    Not to trust. There's no way I would invest in Croatia unless I had somebody there that I absolutely trusted. Contracts mean a lot but there are so many ways to rip a person off that a contract couldn't cover. It scares me to invest just a few states away much less another country. I have people I trust now but getting started was scary, I felt very vulnerable.

    2Reply
  • Ronald Cvetkovic
    OP
    Homeowner · Zagreb, Croatia · Member since 2014 · 43 posts · 9 votes
    12y

    @Brant Richardson Words of encouragement :) But I really appreciate your honesty!

    Because of what you wrote I opened this topic since I have exactly the same fears.

    0Reply
  • Dean Letfus
    Specialist · Memphis, TN · Member since 2012 · 1k+ posts · 1k+ votes
    12y

    Actually getting finance is easy so don't worry too much about that. JV's are always problematic, avoid them is my advice.

    As to who to trust forums like this and word of mouth from your attorneys and other professionals will go a long way to keeping you safe. Providing you have a good closing attorney the land ownership system in the USA is very robust and straight forward so providing you get insurable title and title transfers you can't be scammed out of a property easily

    1Reply
  • Account Closed
    Investor · Singapore · Member since 2013 · 1k+ posts · 3k+ votes
    12y

    How often are you willing to come to the US? I own out of state and go there at least once per year to see the market, check my properties, meet my PM etc. I know a UK investor with investments in Atlanta that also comes once or twice per year. It's possible to make money but really investing across national borders is not for small individual investors. You are more likely to get burned than not especially in a cash flow markets. On the other hand you could buy a million dollar condo in SF, rent it and collect the money. It would only give you 3% on cash but if it appreciates you can make profit. That's more suitable for foreign investors and many are doing it.

    0Reply
  • Tom Yung
    Investor · Winnipeg, Manitoba · Member since 2013 · 303 posts · 321 votes
    12y

    @Ronald Cvetkovic

    I am with @ Brant Richardson on this issue. NO.

    Unless you really know what you are investing in.There are a lot of ways that your hard earned cash can be wiped out in no time. DO NOT hand your money just to anybody.

    Usually by the time you find the problem, everything is too late already. By the time you hired forensic accountant to go through the books & the lawyer to file suite. There will be more money flying out of the window; unless you have deep pockets.

    If you really want to invest in US.

    1)Go visit first & check out the location, know both the macro & micro market.

    2) set up business entity, You need EIN or ITIN; whichever gives you the best tax benefit between your country & US & avoid double taxation.

    3) set up US banking.

    4) make connection with locals( lawyers, CPA, contractors property manager, Realtors... etc. & understand local market. license requirement. some states require you to carry a license to collect rent.

    5) Some local banks are lending to foreigners, you have to establish relationship with the banker, usually will lend with 50% equity. I have seen that in FL & AZ. Sometimes they want to see you have at least 2 years experience.

    6) With commercial, actually is easier to borrow than residential. The lender is more willing to lend based on the property type. To borrow one million is easier than 10K. @Joel Owens have gave you good example above.

    I have seem quite a few people being taking advantage from others. do your own due diligence & reduce the risk to minimum.

    0Reply
  • Ronald Cvetkovic
    OP
    Homeowner · Zagreb, Croatia · Member since 2014 · 43 posts · 9 votes
    12y

    Very interesting writing about commercial real estate (@Tom Yung @Joel Owens ) . Until now I thought that buying commercial real estate is far more difficult then for example single family house.

    I will try to investigate how can I get financing to such RE.

    0Reply
  • Mohamed Tarawally
    Atlanta, GA · Member since 2014 · 39 posts · 3 votes
    12y

    @Ronald Cvetkovic ,

    A work with a few international investors and the biggest thing I hear from them is being able to trust their boots on the ground. Last thing you want to deal with is the worries that what you've agreed upon isn't happening. Good luck with the hunt.

    0Reply
  • Engelo RumoraBusiness Member
    Investor · Toledo, OH · Member since 2013 · 4k+ posts · 2k+ votes
    12y
    Originally posted by @Brant Richardson:
    Not to trust. There's no way I would invest in Croatia unless I had somebody there that I absolutely trusted. Contracts mean a lot but there are so many ways to rip a person off that a contract couldn't cover. It scares me to invest just a few states away much less another country. I have people I trust now but getting started was scary, I felt very vulnerable.

    I wish I could triple like this post lol

    Very very true

    Just to add that TRUST is built over time and not just one phone call or meeting.

    Thanks and have a great day

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  • Jynell BerkshirePro Member
    Real Estate Attorney, Broker, Investor · Indianapolis, IN · Member since 2013 · 207 posts · 58 votes
    12y

    Ronald,

    Welcome to the BP community. If you are interested in the State of Indiana.Indianapolis market, I would be happy to discuss legal issues as a foreign investor.

    Happy Investing with your real estate portfolio!

    0Reply
  • Ronald Cvetkovic
    OP
    Homeowner · Zagreb, Croatia · Member since 2014 · 43 posts · 9 votes
    12y

    So answer to topic question is to trust but only to very trusted people :)

    So I am a little closer to goal :)

    0Reply
  • Ronald Cvetkovic
    OP
    Homeowner · Zagreb, Croatia · Member since 2014 · 43 posts · 9 votes
    12y

    What about situation to join venture with flipping house?

    Example... property cost 20,000 $, rehab cost another 20,000 $.

    40,000 $ is total cost for buy and rehab. I JV with someone with 50% of total cost. After that we sell house and split all costs of holding, selling etc. and of course we split profit. (if other party is doing more work we agree on other %)

    What do you think about that kind of deal for foreign person? Would it be easier maybe?

    0Reply
  • Ronald Cvetkovic
    OP
    Homeowner · Zagreb, Croatia · Member since 2014 · 43 posts · 9 votes
    12y

    @Jynell Berkshire Thx for reply. I am interested in any state. From your point of viewas attorney, how much can I be legaly protected as foreigner?

    0Reply
  • Engelo RumoraBusiness Member
    Investor · Toledo, OH · Member since 2013 · 4k+ posts · 2k+ votes
    12y
    Originally posted by @Ronald Cvetkovic:
    So answer to topic question is to trust but only to very trusted people :)

    So I am a little closer to goal :)

    haha

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  • Engelo RumoraBusiness Member
    Investor · Toledo, OH · Member since 2013 · 4k+ posts · 2k+ votes
    12y
    Originally posted by @Ronald Cvetkovic:
    What about situation to join venture with flipping house?

    Example... property cost 20,000 $, rehab cost another 20,000 $.

    40,000 $ is total cost for buy and rehab. I JV with someone with 50% of total cost. After that we sell house and split all costs of holding, selling etc. and of course we split profit. (if other party is doing more work we agree on other %)

    What do you think about that kind of deal for foreign person? Would it be easier maybe?

    You would need to invest the entire amount if the other person will be doing all of the legwork.

    For example. Find, negotiate, manage rehab and sell.

    The other partner would just be a passive investor.

    Just my opinion.

    Thanks

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