Due to SA laws making property investment difficult, many South African investors are taking their money abroad
, including to the UK and US.
If you’re a US citizen living abroad, your financing options will be different than if you’re a foreign national looking to buy US property. However, the process for buying property will be the same.
Here’s a list of the most important considerations to make prior to jumping in: 1. Know your rent market, not just home prices
Even if it takes you several years to see capital growth, investing in US property (in certain areas) can be more lucrative than other countries
- like Australia, for example.
Using Australia as an example, your returns have the potential to be greater when you buy in affordable US markets like Texas and Arizona.
You’ll pay more for a two-bedroom apartment in Australia than you will for a four-bedroom home in Texas, and the rents will be comparable.
It’s possible for both a $260,000 property in Australia and a $100,000 property in Texas to command the same monthly rent. If each market commands $1,000/month rent, the US house is going to be the better investment.
Don’t assume you can charge higher rent just because you paid more for a property. 2. Know when to buy and sell
In the US, spring is the best time to sell a house. Houston property management company Green Residential
discusses a recent study performed by Zillow that proves this. The study revealed homes sell three weeks faster
, and for more than the asking price. This means April to May might not be the best time to buy. You’ll be competing against multiple buyers, and you’ll end up paying more.
The same data showed November through January are the worst times to sell, likely due to cold weather and funds being allocated for the holidays. If you find your dream investment home during the winter, you’ll probably get a better deal since the market won’t be flooded with buyers. 3. Do you have a structured entity?
To purchase US property as a foreign national, you need a valid US entity like an LLC or corporation. This structure determines your tax obligations as it relates to your property. Doing this wrong can result in severe tax penalties. To understand this in depth, read this detailed explanation
of how foreign investors are affected by taxes when purchasing a US property. 4. Do you have a US bank account?
To own property in the US, you’ll also need to open an American bank account in person. There is no way to do this through email or by notarising documents and mailing them in. Your physical presence is required. 5. Do you have a good interest rate on your loan?
If you’re not a US citizen, you can’t take out a traditional mortgage
. Unless you’re paying in cash, you’ll need to obtain funding from private lenders.
Private financing requires a larger down payment (sometimes as high as 50%), and comes with higher interest rates. For instance, if the home you’re buying costs $100,000 you might need to pay between $30,000 to $50,000 in cash. A traditional mortgage might only require a down payment of $10,000 to $20,000.
Sometimes adjustable interest rates can start off great and become burdensome. As a non-US citizen, you’re already going to pay a higher interest rate, so you want to start with the lowest rate possible. If you can’t avoid an increasing interest rate, at least minimise the amount. 6. Do you have a property manager?
When you buy foreign property, you need someone to manage it for you. Real estate agents won’t do the best job, but a property management company will. They’ll handle everything from tenant screening to collecting rent and even managing maintenance needs.
If you’re not living close by, you need to have a local team working on your behalf. Hiring a professional property management company means you don’t have to hire multiple individuals, manage them, and hope they’ll do it right. 7. Do you have a tax professional?
Your taxes will get a bit more complex when you invest in foreign property, but it’s nothing a tax professional can’t handle. It just means you’ll need to pay for someone to do your taxes for you.
No matter where you buy property, you’ll be governed by tax rules and other regulations. Don’t rule out foreign investments just because it looks complicated. You’ll always have to play by the rules no matter where you buy property. Choose the investments that offer the largest returns, and don’t be afraid of learning as you go. The best investments require some aspect of risk, and the rewards are well worth it.