What Foreign Real Estate Buyers should know when buying in Texas?

Texas has made efforts to attract foreign capital in the past ten years and there is not much burden for foreigner wishing to buy in Texas. The clear goal of our legislature has been to beat California in the competition for foreign investments.  In this post, I aim at answering the most common questions I get from foreigners who do not have any visa or presence in the USA and wish to purchase real estate.

      1) How do I establish credit in the USA?

Obtain a tax identification number from the IRS:

https://www.irs.gov/individuals/international-taxpayers/taxpayer-identification-numbers-tin

Open a bank account with three trade lines if possible to build a credit. A good tip is to open a CD and borrow against it (essentially borrowing your own cash) as it is an installment loan which builds credit faster than simply getting a credit card which is a revolving credit.

     2)  Will lender lend against my real estate portfolio in the USA?

Yes.

Most traditional banks will not as new banking regulation makes it very hard for them to lend to foreigner and comply with the new rules. However, there are many investment funds/institutional lenders that lend to foreigners, they fall under different regulations and their process is much less cumbersome.

We maintain relationships with several of them and can provide a reference list.

     3) Do I need to set up an LLC?

There is no obligation to set up an LLC, you can buy on your own name. Texas is a common property state, hence if you are married, the property automatically belongs to both of you 50/50 even if only your name is on title. Whether you buy under an LLC or your personal name, it may be wise to create a will so the transfer of the property is a clearer process if you were to decease.

We have to disclaim that we are neither attorney nor CPA hence we cannot provide you with tax or legal advice. Please refer to an attorney and CPA when you create an LLC as there are tax implication that vary based on your personal situation. We maintain a list of such professionals that we can provide to you.

     4) US tax implications (FIRPTA)

When you sell a property, the IRS requires a portion of the sales price be retained until your tax verification has been made. This is not as cumbersome as it appears. A good title company can help you through this process and withhold the amount required by the IRS in an escrow account until the IRS clears your paperwork (less than 90 days normally).

If you have filled your taxes yearly to the IRS for your US investment properties, there should not be any issue with FIRPTA. Any CPA can help you preparing your US tax return. If your only income is real estate income, the forms are quite simple and some of our clients do it themselves.

Conclusion:

The USA and Texas in particularly (Because of its use of third party closing agents called ‘title companies’) make it relatively easy for foreigners to invest in real estate. We have a list of professionals that can help you along the way. Feel free to contact us for more details. The process is much less complicated than in most other developed countries.