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All Forum Posts by: Sebastien Hitier

Sebastien Hitier has started 13 posts and replied 178 times.

Post: Hello iam from israel help me to start in USA real estate

Sebastien HitierPosted
  • Rental Property Investor
  • Hong Kong, Hong Kong Island
  • Posts 188
  • Votes 114

@Charles Carillo, I am invested in Mesa AZ, Atlanta GA, Dallas Fort Worth TX, Fort Lauderdale/West Palm Beach FL, Charlotte NC, Kansas City  MO. 

Post: Hello iam from israel help me to start in USA real estate

Sebastien HitierPosted
  • Rental Property Investor
  • Hong Kong, Hong Kong Island
  • Posts 188
  • Votes 114

@Account Closed you do raise very goods points.

The points about foreign taxation and estate are advanced tax planning depend a lot on your tax treaty.

Post: Investing in the US as non resident and living abroad

Sebastien HitierPosted
  • Rental Property Investor
  • Hong Kong, Hong Kong Island
  • Posts 188
  • Votes 114

@Kyle Mccaw , @Joseph Cacciapaglia , @Raphaël C. , indeed, comparing different markets is difficult because it requires to compare similar areas (I chose zip codes with a trader joe or WFM), and the tax situation is very different. 

Please upvote my post for the algorithm :-)

You can PM me if you have questions about the methodology (it should be updated as 2019 census data is in).

Post: Foreign investing in USA

Sebastien HitierPosted
  • Rental Property Investor
  • Hong Kong, Hong Kong Island
  • Posts 188
  • Votes 114

@Stefan Folkert, I am also a foreign investor. I bought in Fort Lauderdale back in 2015 when it was cheap (120k houses for 1400 rent at the time). Cape Coral area is a fast-growing region, but Florida has high insurance and high property tax levels. So that's more of an appreciation than an income plan. What house price and what rent do you think makes sense for an rental investor? Would you go conventional or Airbnb? It seems to me that Airbnb might have higher potential, though you'd need a good service company onsite.

Post: Dave Ramsey recommends buying everything with cash!

Sebastien HitierPosted
  • Rental Property Investor
  • Hong Kong, Hong Kong Island
  • Posts 188
  • Votes 114

@Kai Sato-Franks, Dave Ramsey explains that when he was young and reckless, he took much more debt than he could repay and ended up bankrupt and in a traumatic situation. 

Given current US real estate rental profitability and interest rate, it makes sense to take as much debt as possible while keeping a margin of safety. An old common sense rule for large investors who have no other income that their investment is to keep their debt/equity below 3. A conservative rule for investors who have other income is to keep their debt and housing payments within 1/3 of their stable income. 

These are old rules and the numbers should actually depend on interest rate levels and be much higher when rates are low, much lower when rates are high. Dave Ramsey all-cash rule seems to be an over-adaptation to the time mortgage rates were 12%. 

Those 10 conforming 30Y fixed-rates mortgages are a gift of the federal government to every American. I would take debt provided that there is no balloon, no rate reset and repayment is within 30% of my income. 

If you are talking about flips, then you need to make allowance for unfavorable changes in market direction and buyer's appetite.

Post: Investing in the US as non resident and living abroad

Sebastien HitierPosted
  • Rental Property Investor
  • Hong Kong, Hong Kong Island
  • Posts 188
  • Votes 114

Hi @Raphaël C. I started to look at investment in the US in 2014, I invested in AZ, GA, FL, MO, NC, TX, but the market moved since then. Concerning where to invest, I learned a lot on the way, here is some research that I did in 2018:

Posh Grocery Store Affordability Index first posted: 2018-05-19 07:53:43.214870

As an out of state investor, the issue of comparing rental property nationwide is key.

A naive approach comparison of median rental yield leads means that deeply blighted cities get compared with dynamic and affluent ones.

Such an approach makes blighted cities more attractive. Another common ranking method is to factor appreciation over 1 year (which is a ridiculously short period). Even looking for consistent year over year appreciation can lead to unaffordable housing. The point is that distressed areas have such prices because it is difficult to invest there, and areas that appreciated the most rapidly may well have peaked to unaffordable levels.

I saw a podcast recently where it was claimed that high-end grocery stores like Whole Foods Market and Trader Joe's are a good indicator of a high-end neighborhood. The presence of such retailers ensures we compare affluent neighborhood nationwide.

We can use census data to determine the areas that are growing the fastest over the period 2000-2015 and then see for each MSA in which postcode those retailers are located.

Using Zillow home value data by postcode, it is then possible to retrieve the median price and rent per sqft and figure out the gross rental yield in those most attractive areas. Amongst the MSA with over 40% cumulative demographics growth over 2000-2015, these 2 retailers are present. It is then possible to compare across state boundaries.

Here are the affluent zip code gross yield, for the nation's most demographically dynamic MSA:

  • Indianapolis IN pop cum growth 30% , gross rental yield 10.6%
  • Houston TX pop cum growth 41% , gross rental yield 8.6%
  • Dallas Fort Worth pop cum growth 38%, gross rental yield 8.4%
  • Atlanta GA pop cum growth 34% , gross rental yield 7.8%
  • Orlando FL pop cum growth 45% , gross rental yield 7.7%
  • Des Moines IA pop cum growth 29% , gross rental yield 7.6%
  • Charlotte NC pop cum growth 40% , gross rental yield 7.4%
  • Jacksonville FL pop cum growth 29%, gross rental yield 7.4%
  • Phoenix AZ pop cum growth 41% , gross rental yield 7.0%
  • Raleigh Cary NC pop cum growth 60%, gross rental yield 6.7%
  • San Antonio TX pop cum growth 39%, gross rental yield
  • Nashville TN 40% 6.7%
  • Colorado Springs CO 30% 6.5%
  • Denver CO 29% 6.4%
  • Charleston SC 36%, 6.4%
  • Greenville SC 56% 6.4%
  • Provo Orem UT 55% 6.2%
  • Austin TX, 60% 5.6%

You should note that local tax and insurance is much higher in Florida than other states so that 3% to 5% more needs to be deducted from gross yield to compare to other states such as Georgia or North Carolina.

California's growing population MSA are San Bernardino, Stockton, and Bakersfield. Those grow as a result of overflow and sprawl and none of these have a Whole Foods Market, so those are not included. Mc Allen TX on the Mexican border also does not have a WFM so it was not included.

Post: Investing in the US as non resident and living abroad

Sebastien HitierPosted
  • Rental Property Investor
  • Hong Kong, Hong Kong Island
  • Posts 188
  • Votes 114

Hi @Raphaël C.

as a foreign investor, I have been there myself, and while not an international tax professional, you should aim to know enough to be able to check that your CPA is competent on international matters.

In a nutshell: the US tax treatment of non-resident aliens is favorable.

The financing is so expensive in general that leverage may increase risk more than it enhances the ROI.

You can PM me for me info.

Here is some info researched (again, I am not a tax professional). 

Information Specific to Foreign Investors

A Non Resident Alien (NRA) owning property in the US pays local tax but still does not have to file an income tax return with the IRS. The default regime is 30% withholding of all gross payments. However, the taxpayer can elect for the same treatment as US taxpayers in which case tax are due on net income instead of gross income. This is called the election for Effectively Connected Income (ECI) treatment.

US Classification of income into FDAP and ECI for Non Resident Alien

The IRS classifies income into two general categories:

  • The Fixed,-Determinable,-Annual,-Periodical-(FDAP)-Income. This class of income is subject to a high flat tax rate. It does not allow for any netting of related expense, FDAP applies on stock dividends, bond coupons and US savings account interest.
  • The Effectively-Connected-Income-(ECI)), meaning connected to some business or activity in the US. ECI is subject to gradual income tax on the basis of US based net income. The important difference it makes for investor is only taxed on Net Income.

The ECI treatment allows for deduction of all expenses related to the investment, including mortgage interests, local taxes, insurance, repairs, property management, etc. NRA who own real estate directly and supports these costs can and should elect for ECI treatment. Not doing so would result in the property expenses not being offset against income, and the gross income being taxed at a high flat rates of 30%. A consequence of opting for ECI treatment which is the same advantageous treatment that US investors get, is that the NRA must file US income taxes with the IRS every year.

The election of ECI treatment is done by submitting an election with the tax return (US tax code 871(d)). To avoid withholding of 30%, the alien needs to submit a W8ECI form to his a property manager. He will require this before he distributes any of the rents to the owner, as he is registered as a withholding agent with the IRS. The NRA will need to fill a W8ECI form and send it to his property manager, whereas a US resident is required to file a W9 form.

Once the election is done, NRA should go through the initial setup and registration with IRS.

Initial Setup and Registration with the US Tax Authorities

While all US residents are identified by their social security number (SSN), NRA need to obtain an Individual Tax Identification Number (ITIN) from the Inland Revenue Service (IRS). Obtaining an ITIN will allow to avoid susbtantial withholding tax on rental income and withholding on sales proceeds.

The ITIN can be obtained using a W7 form, which is filled using these instructions.

The IRS charges nothing to give an ITIN to a NRA. Some people will ask $75$ to $100 to fill it, You can print the form yourself, fill it with your personal details and send it so you know what you sent and when it was posted, and you'll receive the IRS answer.

  • if you are in a country with tax treaty, you can file the W7 with case a
  • if there is no tax treaty, you can file the W7 case b with when filing for tax the year after you bought the house. This means you can not get a mortgage..
  • to be able to get a mortgage in US, instead of waiting for one year, you can file the W7 case h: mortgage for property investment, attach a enclose a letter from a mortgage provider that says you need an ITIN to get a mortgage.

The elephant in the room: how your domestic jurisdiction treats US income

Some tax jurisdiction (Hong Kong for example) apply territorial taxation, which means that only domestically sourced income is considered for tax. Some others (France for example) apply taxation on global income, with tax treaty only insuring there is no double taxation (you still pay the highest possible tax).

In the case of France, owning houses directly or through a fiscally transparent LLC results in your having to maintain a set of accounts for the IRS, and then another set of account for the french tax authority, following french rental income rules.

This means that it makes sense to own directly a house from Hong Kong, whereas owning a property for a french beneficiary is best done through an opaque entity (i.e., an entity that has its own accounts and files for tax separately).

Post: Resident -> Non Resident Tax implication for investment propertie

Sebastien HitierPosted
  • Rental Property Investor
  • Hong Kong, Hong Kong Island
  • Posts 188
  • Votes 114

@Steve R. I am not a tax professional, but my understanding of 871(d) election https://www.law.cornell.edu/uscode/text/26/871 is that there is no need for a LLC, you just add a sheet of paper to your tax return where you say

§ 871(d) Election to treat real property income as effectively connected with U.S. business

(a) property(b) interest(c) location(d) improvements(e) election year

After listing the 5 columns above for each property, you say it is your election for fiscal year xxx, you put your SSN or ITIN and sign.

Post: KC Tenant Bill of Tenants Rights and Committee Hearing 11/26/19

Sebastien HitierPosted
  • Rental Property Investor
  • Hong Kong, Hong Kong Island
  • Posts 188
  • Votes 114

The hearing is on Nov 26th, so I had a short time to react. What's your opinion on this, am I overreacting? What do you think will happen?

## Mayor Quinton Lucas and the KC Tenants Activists

Kansas City new mayor wants to improve the situation for the low income tenants in the inner city.

KC Tenants, a tenant activist group is proposing a Bill of Tenant Rights, some of which will hinder new tenant screening by landlords. A Landlord group has put forward [these proposals on affordable housing]. Some see the mayor as biased towards the KC Tenants Bills of Tenants Rights.

You can see here the Mayor's interview with the tenant group. Affordable rental housing is very important to him and he had experience with eviction in his family and community.

I seems to me that KC Tenant, because of their overarching concern for the tenant are eager to attack landlords to reap short term benefit.

For instance, a KC Tenant advocate said that they support rent control and would petition for it as soon as the legislature changes to make it possible. But rent control is know to have dire long term effects on housing availability and quality, see [rent control worse than bombing].

While rent control is a well known example, restricting landlord's capacity to do checks relevant to the ability to pay rent for the tenant is likely to result in more evictions. The official eviction number currently stands at a high 9,000 per year for a population of 1 million. Let's hope that this does not grow further.

Seeing that the Housing Committee meets Wednesday Nov 6th 2019, I wrote the letter below. We will see in what direction the mayor deliberates this week.

## Letter to Quinton Lucas, Mayor and Chair of the Housing Committee

Dear Mayor,

KC Tenants is presenting a Tenant Bill of Rights package on November 6th.

It appears to me that it is misrepresenting tenant-landlord relations as an antagonist zero-sum game, which it is not, and that the result of the bill will to harm low-income tenants and make landlords pivot towards the provision of higher-cost housing

What the bill terms as the “new” tenant rights start with an enumeration of anti-discrimination laws enshrined in the Civil Rights Act of 1866 to then “progresses” to protect the prospect’s source of income and eviction record. The bill mixes federally protected civil rights with new "rights" that turn tenant screening into a liar's poker game. It will result in poor screening and more evictions.

People respond to incentives:

- On the tenant side, the lower penalty of eviction will cause tenants to deprioritize their rent payment and the city will see more evictions.

- On the landlord side, they will pivot towards housing above $1,100 monthly rent, and housing below $900 monthly availability and quality will decline severely.

Note that there should not be a tenant side and a landlord side. Policy should align the incentives for the tenant and for the landlord towards the cohesion of the neighborhoods rather than getting the lawyers out. I think we need boots on the ground to help tenants and social services to help the special cases.

I currently operate 4 houses in KC MO. I invested a lot of my retirement savings in Kansas City: I spend from $10,000 to $30,000 of repairs per house prior to putting a tenant. Some upgrades, such as replacing windows with double-glazed windows are essential to lower their heating bills and ensuring that tenants have enough to live on and pay the rent. My strategy as a KC landlord is to provide value with low rent and good insulation to keep low-income tenants able to pay.

I could tell you more about my experience with tenants over the last 4 years if you want to hear how one deals with a social emergency, but at this stage, I would rather hear your thoughts. I saw your mayoral campaign debates, and you strike me as someone fair who wants real long term improvement for Kansas Citian rather than measures that are justified by emotions and window dressing that creates the wrong incentives.

Yours faithfully.

-- Sebastien

PS:

I also have some ideas on how to improve the community situation which I put below, I don't pretend to have all solutions, let me know if you think some ideas below are worthy of consideration.

The city should offer help and advice and counseling to all new mothers (family planning) and people in real difficulty, eviction or homelessness is a very real difficulty, so is domestic violence. The KC social service website currently says it has a legal service, that service only represents the state and intervenes in cases of child abuse and benefit fraud. The social services should receive sufficient funding to advertise and reach out to those who need it most: a mobile app with links to the relevant city services. The reach-out and actual help provided needs to be measured and [made public](https://www.kshb.com/news/local-news/kc-healthy-homes-program-celebrates-one-year-with-92-compliance).

Another worthy initiative is to patrol KC in winter with a thermal camera and let the owners of the worst insulated houses that their occupier’s energy bill can be cut. This has a positive impact and can help stabilize a neighborhood.

Post: KCMO class C/D tenant: evict or cash for keys?

Sebastien HitierPosted
  • Rental Property Investor
  • Hong Kong, Hong Kong Island
  • Posts 188
  • Votes 114

As a follow up, I find that the process took very long in KC MO: eviction court date was set for 13th June. Court ordered eviction that day. Despite $2400 being due by tenant, court was lenient and let the tenant appeal if he posts $1200 within 10 days. Jackson MO county sheriff only arranged for eviction day on Jul 2nd.

I got lucky, the tenant left the house in good condition and clean despite his no longer talking to PM.