The Added Cost of Being an International Buyer in the U.S. Market

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From the Experts at Moneycorp
The real estate market in the U.S. has made a strong recovery in recent months, leading international buyers to once again view the U.S. as a safe haven for investment. With well-defined, secure property rights, the U.S. treats sales of real estate to foreigners almost the same as sales to U.S. citizens. However, compared to domestic buyers, overseas investors often have additional financial considerations when purchasing real estate in the U.S. Such factors can significantly impact the cost of a property and influence how real estate professionals engage with them.

Taxes

One thing that is a certainty in any real estate transaction is taxes. Unfortunately, these can be more complicated in transactions involving foreign nationals, given that the tax laws of more than one country may apply. A foreign property owner’s tax liability in their home country will vary depending upon where the purchaser is from and whether that country has a tax treaty with the United States. As a real estate professional, you can provide overseas clients with guidance around the benefits of consulting a tax attorney familiar with their home country’s treaty with the U.S.

The United States government requires that foreign nationals pay income taxes on net income received from rental property. Therefore, you should also be familiar with the fundamentals of U.S. federal income taxation of foreign investors with U.S. rental income in order to advise your clients effectively.

Financing

With U.S. banks returning to foreign national mortgage lending, it is possible for qualified foreign investors to obtain financing. However, overseas buyers are more likely to pay higher interest rates and be required to make larger down payments (often 40 percent or more of the purchase price). This is due to the relative risk of a foreign buyer who may be impossible to serve with legal proceedings and whose assets may be untouchable; versus a domestic buyer who will be easier to track down and who is subject to the state and national laws, should a default occur.

Exchange Rates

Before purchasing real estate, your clients—whether domestic or international—will have a budget in mind. The difficulty for overseas investors buying here in U.S. dollars is the fact that negative fluctuations in the currency market can seriously impact their budget. This is particularly pertinent given the large sums of money being transacted, coupled with the current strength of the greenback.

By providing your clients with advice around the benefits of using a foreign exchange specialist, you can help them get more from their international money transfers. You can explain how they not only offer bank-beating exchange rates and low transfer fees, they also provide a range of specialist tools to help protect their customers from negative exchange rate movements. An exchange expert might suggest a “forward contract,” which allows buyers to lock into an exchange rate up to two years in advance—ensuring the cost of their purchase will not rise between the time an offer is made and the transaction is completed.

For more information, visit www.moneycorp.com/usa.

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