Buying Foreign Property Investment – Overseas Properties As An Investment
More and more Singaporeans are looking to buy a foreign property investment in the United States.
More and more Singapore-based investors have sufficient exposure to the local real estate market and seek higher returns and diversification opportunities in other countries.
Just like you would buy a property in Singapore or anywhere in Asia, you will need to decide on your big “Why” for investing in real estate.
Are you looking overseas for vacation homes, rental income properties, or a home to settle in?
Will the property act as your vacation home, or as a standby home should your children study in the American universities–or a place they can live in when they work?
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Are you looking at it as an investment or as your retirement home?
For seasoned investors in the local property scene, you might consider investing in properties outside Singapore.
When you buy a Foreign Property Investment, your local property-seeking experience in Singapore and the real estate in the U.S. may differ.
In Singapore, you protect your search precisely what you are looking for
- a property near MRT stations
- amenities like schools
- childcare centers
- good-value condo with a sea view
Since 2015, Singapore-based investors have put at least $3.8 billion into overseas real estate.
According to DTZ (SEA) Research report, Singaporeans have invested more than $1.2 billion in the United States.
Most of these investors are already sufficiently exposed to the local property market.
These savvy investors are looking for higher returns and diversifying in other countries.
Flipping houses for a quick profit is also one method where investors aim for short-term goals.
Essentially, “house flipping” or “flipping houses” is a term that means you are buying an under-valued property.
The property is rehab” or undergoes some renovation works to turn it around so the investors can sell it for a good profit.
The world is your oyster, so they say.
And yes, it is right in the property’s case industry.
Singapore Investors Enter U.S. Property Market
Since 2017, Singaporean investors have put in more than US$9 billion into the U.S. property markets.
Another survey by the National Association of Realtors in the U.S., back in 2014, states that Singaporeans ranked 11th in internet searches than other locations.
In a global sense, Singapore ranks third in U.S. property after Canada and France.
Investing In The United States Market
Investing in U.S. real estate differs from in Asia.
In the United States, the fifty states are separate sovereigns, state constitutions, state governments, and state courts.
Before you rush out to invest – it is important to note that the different states in the United States, amongst other things, have their
- own set of rules
- types of contract used
- methods of how the transaction is done
When you want to do business in the U.S., you need to team up with a property investment company based in Singapore with local knowledge of United States real estate.
It would be best to speak to our consultants who are well qualified to plan with you the best options forward.
The most important is setting up a business entity and knowing the international United States tax for non-Americans.
For Asians, we may assume some tax obligations in the United States when investing in real estate.
You will benefit from Noble Sky International’s experience of international aspects of tax compliance and the United States tax.
Corporate Tax Filing (for Business Entities)
Corporate tax is imposed in the United States at the federal, most state, and local levels on the income of entities treated for tax purposes as corporations.
Since January 1, 2018, the nominal federal corporate tax rate in the United States of America is flat at 21% due to the passage of the Tax Cuts and Jobs Act of 2017.
State and local taxes and rules vary by jurisdiction, though many are based on federal concepts and definitions.
Taxable income may differ from the timing of income, tax deductions, and what is taxable.
Like individuals, corporations must file tax returns every year.
Non-taxable corporate transactions include the formations of some types of mergers, acquisitions, and liquidations.
Shareholders of a corporation are taxed on dividends distributed by the corporation.
Corporations may be subject to foreign income taxes and may be granted a foreign tax credit for such taxes.
Shareholders of most corporations are not taxed directly on corporate income but must pay tax on dividends paid by the corporation.
Most local governments and many special-purpose authorities are imposed property taxes based on the property’s fair market value.
Property tax is imposed only on real estate, though property tax rules and rates vary widely and range from 0.2% to 1.9% of a property’s value, depending on the state.
Investing in the U.S. Tax-Friendly States
Tax policy varies dramatically from state to state.
Besides federal taxes, every state in the U.S. has different tax policies.
When you invest in the U.S., you might want to consider choosing the tax-friendly because of overall low taxes.
These taxes could include paying for:
- income tax
- property tax
- sales tax
However, as you are setting up your business entity, an LLC will tax you based on corporate tax and not as a U.S. resident.
Florida is one of the few states that does not charge a personal income tax and has rightly earned its place on the top 10 list.
Coupled with the state’s pleasant weather (just like Malaysia and Singapore) — Florida is a haven for retirees and residents fleeing higher-tax states such as New York.
The property tax rate of 99% competes with the national average, although it is above some tax-friendly states on this list.
Foreign Property Investment – Tax Matters
It can be quite complicated where tax is concerned as more than one country can apply tax laws in this situation.
In some cases, the laws may require some tax payment in the United States and a separate tax in Singapore, and the rate of taxation rate is also different by country.
If you have placed 40% as a down payment for your property overseas, you would usually be able to avoid paying income tax on rental income for the first decade or so in the States.
The United States government allows taxpayers to deduct mortgage interest, standard charges, property tax, and depreciation from their income.
This will mean that no taxes need to be paid.
However, the longer you own the property, the deductions mentioned above will run out, and you will have to pay taxes on the property eventually.
When you file your taxes promptly, you can avoid incurring taxes of up to 30% of the gross rental income from your property.
File your income tax returns on time to avoid being penalized whether you incur losses in the initial years of your investment or not.
There are a few ways for you to earn an income from your foreign property investment.
You can look at fixing and flipping a house (Buy, Rehab, and Flip)
Or you can buy an investment property to rent out to generate income.
- Traditional Rental Income
- Airbnb Income
Buying A Foreign Property Investment For Rental Income
When you buy your first investment property in the U.S., you will want an unconventional leverage method.
For U.S. citizens, getting a mortgage is a straightforward process.
A foreigner’s biggest obstacle is the documentation hurdles proving to the lender that you fit its risk profile.
An assessment of your risk profile includes scrutiny of
- employment history
- credit history
- proof of income
The Conventional fixed-rate mortgages of a 30-year term and the current mortgage interest rate of 2.990% don’t apply to a Foreigner.
Once you decided that an investment property is the best way to invest in real estate, you need to make some decisions on
- What and where do you want to buy?
- Secure your capital for the property.
- Learn how to calculate Cash Flow
- Decide on a property to buy.
- Decide if you want to hire a property manager.
Investing in rental properties is a great way to get a passive monthly income and long-term capital appreciation.
Further considerations before you buy a rental property.
Owning investment properties can be a time-consuming way to invest in real estate.
If you decide to do everything yourself, you will need to consider working U.S. hours to deal with the renter’s issues.
Hiring a property manager is a way to circumvent this problem.
Investment properties are not liquid investments.
You may not be able to sell your rental properties at fair market value.
Sometimes a property can take months to sell due to the buyer’s inability to get a loan.
You will need a significant amount of cash to buy an investment property.
While Rental properties can provide you with a passive income, you need to be aware that
- Properties become vacant from time to time.
- Breakage must be replaced.
If you need liquidity or steady income, investment properties might not be the vehicle for you to grow your wealth.
But if you are okay with time commitment constraints, liquidity, unpredictability, and periods of vacancy, investment properties can be a smart choice for you.
You can start by investing in a single-family home by yourself.
Single-family homes have more equity appreciation potential, especially in hot real estate markets.
However, if you have capital constraints, and prefer a passive role, a co-joint or a crowdfunded real estate investment could be considered.
How to start your U.S. Real Estate Journey?
As a beginner real estate investor, one way to learn is to read and research the property market.
You can also network and surround yourself with a top-notch group of professionals in Asia and have a physical office in the United States.
Noble Sky International has extensive experience onboarding investors and guides their investment journey.
Buying a rental property differs from purchasing your primary home.
To earn an income from your investments, you will need a team of experts to run your business;
- Insurance agent
- Home inspector
One reason we stress is to make money on the buy, not when you sell.
When searching for a rental property, choosing the right location to focus on your investment property search is essential.
However, you will want to be flexible rather than focusing on a specific neighborhood.
Keep in mind that trendier neighborhoods may have more expensive homes.
You can find the best value in auction properties that need repairs or buying from a distressed seller.
Decide early on the amount of effort you’re willing to invest in procuring the rental property.
There are no correct decisions when it comes to deciding on a property to buy.
You will have already made your profit upfront when you can calculate the purchase cost at a substantial discount to the fair market value.
Investing In The United States Property Market
But before you get too excited and fork out your hard-earned cash, there are some points to take note of.
It is important to note that different states in the United States have their own set of rules, types of contracts used, methods of how the transaction is done, etc.
It is also vital to ensure that the real estate advisor you engaged in is well qualified and adequately licensed.
You will need to team up with someone qualified in United States real estate and trained in international United States tax for non-Americans.
As foreigners in the United States, you may assume some tax obligations when investing in real estate.
This is why you would be safe with the United States qualified professional with the proper international aspects of tax compliance experience.
By you being on the United States tax, if you are not aware or careful, your rental income can be considered as Fixed, Determinable, Annual, Periodic income (FDAP) or Foreign Account Tax Compliance Act (FATCA), which means that 30% of your rental income is automatically withheld as tax.
Engaging someone who knows the local tax system will work with you to ensure that you can get the most reasonable tax rates.
It is important to note that the returns on your sale of the U.S. property may be subjected to tax at the same rate as a local U.S. citizen.
A non-US seller may also be subjected to Foreign Investment in Real Property Tax Act of 1980 or FIRPTA.
Under FIRPTA, you may be required to withhold up to 10% of the purchase price and submit this to the United States Inland Revenue Service, which can lead to overtaxing.
You should also be aware of other forms of taxes, such as estate and gift taxes.
In case of your demise, your U.S. property might be subjected to a 40% estate tax if your property is worth more than US$60,000.
Your property advisor should advise you on this implication before you decide to invest.
You might have heard of zero-down payment schemes, and sure there is one in the property market too.
However, be wary as the target for this is usually a wrong property in a bad neighborhood.
What this means is basically, you will be borrowing 100% of the property price, including the down payment to buy the property, which is especially bad for a foreign investor in the U.S. market.
Before applying for a United States mortgage, you need to earn a good credit score, which in turn will make it easier for your loan to be approved.
You can commence building your credit score by opening accounts in a United States bank or applying for credit cards.
The foreign banks will use this information and track record to determine how much they want or can provide.
The types of property, and how much would it cost?
Generally, there are two primary areas:
Residential Investment Properties
In U.S. terms, we refer to these as single-family homes/duplex/triplex or 4-plexes.
We can compare these to our local landed properties.
However, there is a difference.
The major difference is they base the property valuation on the building structure itself and not on the land.
Good quality single-family homes in an excellent middle-class market range between USD 80,000 to USD 180,000.
And for condominiums, they are between USD 60,000 to USD 100,000 for a two or three-bedroom unit.
The single-family home cluster is more popular and in demand for their liquidity between these two types of properties.
Their liquidity again very much depends on the property and the location of the property.
Commercial Investment Properties
This is where it gets interesting.
Depending on market location, the price can be as low as USD 500,000 to USD 2 million.
And this is not a single unit that we are talking about here.
This is you, owning 100 units or more of an apartment.
This translates to you owning the entire building, which you can rent out the apartments to those looking for short-term or long-term residence.
A large commercial building with either one or multiple business tenants with a price range from USD 1 million onwards.
Location, location, location.
No matter the demographics, location plays a vital part in determining the price of a property.
Let’s take a look at the top five essential criteria of an excellent overseas property.
Since it is a big city, the economy is diversified, and this ensures investment stability.
Large cities with multi-employment sources help to ensure profits when you rent out your property.
Good Rental Market
A suitable property will yield a reasonable cash flow.
It usually is a 1% rental income per month against single-family homes’ purchase price as a rule of thumb.
For example, if you purchase the property for USD 100,000, the rental income for this property is USD 1,000 per month.
Not Booming Market
You would want to steer away from a booming market for overseas property.
Why is this so?
You purchase property in a market where the property prices are steadily growing rather than when the prices escalate rapidly.
Low Median Price
Look for acceptable cities to invest in.
Seasoned investors will not look at San Francisco, Los Angeles, New York for residential properties as the rental prices are low compared to the high monthly mortgage payments.
Sun Belt States
With its warm weather, growing employment rate, and lower housing costs, the sunbelt region is the fastest-growing region.
By purchasing a property here, it ensures your investment will continue to grow in the long term.
So, which cities are in the Sun Belt, you might ask?
Some of the cities in this region are
- Phoenix, Arizona
- Orlando, Florida
- Tampa, Florida
- San Antonio, Texas
When you invest in foreign markets, go with partners who understand the field well and not merely invest overseas because you think that the grass is greener on the other side.
Where is the Money in Foreign Property Investment?
Where do you turn to when it comes to the mortgage?
Is there financing for international buyers, you might ask?
Well, there is.
A mortgage loan is available and can be either from a U.S. or non-U.S bank.
With the 2009 credit crisis, banks have tightened their credit criteria and require a more down payment, at times as high as 40% from a foreign buyer.
There are a couple of ways to arrange for financing;
Financing from a U.S. lender – This is relatively easy to arrange through a U.S. bank in the United States.
Usually, the bank requires a 40% down payment, and you will need to show liquid assets that are generally based on multiple monthly payments.
As financing is done in the United States, you would also have to pay a mortgage tax of 2%.
Financing from Singapore – This is getting an international mortgage from local banks, and the United States sees this as a cash transaction.
The only difference is you are saving on the mortgage tax and other bank fees, though there may be additional fees or taxes associated with the bank.
It is suitable for you to consider and have both options at hand, so you could make a comparison and make an informed decision by performing a cost-benefit analysis on the type of loan you will be going for.
Now that you have cleared the major hurdles in the property hunt and the paper works for the financing.
Another area of concern that you would need to look into would be the closing of the transaction.
It can be quite costly and draining for you to travel back and forth from Singapore to the United States to oversee and be involved in the entire step of the property purchase.
The good news is, you can provide “Power of Attorney” to an agent in the United States who will make all the proper arrangements and also sign on the documents.
There is much to consider and research before you be an investor in foreign property.
But it is possible and relatively easy to purchase property in the United States of America.
With good research, calculations, and a good property advisor, you might be well on your way to owning properties outside of Singapore.
You might also eventually decide to retire in one of your overseas-owned properties.
Remember your initial plan when you set out to invest in the overseas market.
Do your research well.
Do up an extensive cost-benefit analysis, SWOT analysis (if you have to) to determine that the property is the one that you want to have.
Partner up with a good property advisor both locally and overseas so that they could provide you with sound advice.
Plan your finances and check up on different bank loans.
Read up on the property’s demographics.
Talk to residents in the neighborhood.
Talk with your family members to ensure that everyone is comfortable that this is the way to move forward before you sign on that dotted line, as there is no turning back after that.
Learn how to calculate Cash Flow the right way
The best way to learn about Cash Flow is by playing the board game developed by Robert Kiyosaki.
Kiyosaki, the author of Rich Dad Poor Dad, advocates the importance of financial literacy.
Cash Flow is one of the most critical concepts for beginner real estate investors to comprehend.
While you can get a great deal on investment property, but if your rent is lower than the cost of property ownership, your bank account goes in the red.
In a nutshell, you need to determine whether a potential property will realistically generate positive Cash Flow from day one.
It is not as simple as subtracting your monthly mortgage payment from the rental income to get a positive number. When things are going well, this is a perfect scenario.
In reality, you may face bad tenants who break the Lease Agreement on any or more issues.
- Defaulter on Rentals
- Break things
- Acts of Domestic Violence
Your property will be vacant from time to time in the actual world, and there will be maintenance items you must pay for.
Keep all this in mind when estimating Cash Flow.
Now, there’s no fail-safe way to determine unexpected expenses; I recommend setting aside 15% of the rental income to cover vacancy and maintenance.
A reasonable Cash Flow calculation might look like this:
Decide on a Foreign Property Investment to buy
Once you’ve decided what on your capital investment, we provide you with a curated list for the cash-flowing rental properties type you can buy with your budget.
Noble Sky International has a team in place in Singapore and on the ground in the United States to research wholesalers and distressed owners; we help you look for great deals.
As a business owner and investor, you need to pass the typical rookie mistake of viewing potential rental properties through a homeowner’s eyes.
While the property might not meet your tastes or looks “ugly” to you, remember you are not buying a home to live in.
You mustn’t miss the essentials and start comparing the property to what you like back home.
Important to tenants are things like
• number of bedrooms
• school districts
• access to interstate highways
• crime rating
Once you’ve identified a rental property that’s a good price fit, it is time to make an offer and negotiate a purchase price.
Your wholesaler or real estate agent can help navigate the process of having an accepted contract and closing on the property.
Before you become your first investment property owner, you need to make an important decision – do you want to be an active Landlord?
Unless you can handle every little Tenant’s issue, hire a property manager to take care of your business in the U.S.
The only downside to hiring a property manager is the management fee they charge.
Typically, it is between 8% and 10% of the collected rent.
I strongly suggest you consider getting your first rental property managed professionally.
I wouldn’t recommend that you try to save money by self-managing unless you live in the United States and can do the day-to-day operations of your rental properties.
You will want to grow your rental business by using that time to build more properties rather than micromanage everything yourself.
A professional property manager is easily worth 10% of the rent.
With Noble Sky, we charge a straightforward 5%, which you paid with your capital to cut into your profit margin at the start.
When you collect rent, you get the gross amount for the first six months.
The experience, effort, and time your property manager takes to pricing your property appropriately, collecting rent, communicating with clients alone can justify the cost spent.
Some of the things that your property manager takes charge of include
- Marketing your property to prospective tenants.
- Conducting background checks
- Conduct credit checks on prospective tenants.
- Collect rent on your behalf.
- Deal with maintenance issues.
- Resolve tenant complaints.
- Pay Landlord utility bills on your behalf.
- Pay property tax and insurances.
- Takes care of minor repairs and refreshing the paint before a new tenant moves in.
- Records the condition of property and appliances.
While educating yourself in real estate investment will put you in the best position to succeed, but there’s no substitute for hands-on experience.
By now, you probably know that real estate is the best-performing investment with a set of unfair advantages unheard of with other assets.
To get started on building REAL wealth through real estate at a fraction of current property market value, beginners can book a consult available for FREE today.
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Investing in U.S. real estate as an individual and a foreign person is welcomed in the United States.
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