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Frequently Asked Questions By International Investors in US Properties

publication date: Feb 6, 2014
author/source: SmartInfoBuzz

Frequently Asked Questions By International Investors in US Properties

International investors continue to show very strong interests in the US properties. Apart from the traditional source of foreign investors, which are Canadians, British and German investors, we are seeing fast growth from other international investors including Australia, Chinese, Russian and Brazilian investors. Mexican investors are also becoming very active in many states as well.

For the first time investor, it can be a daunting task for them to evaluate the opportunity and make an informed investment decision, here is a collection of the frequently asked questions posted by international investors.

Question: State Tax

The property tax system in the United States is very different from the rest of the world. When we made our first investment, we were so shocked to see a property tax for a $100,000 property will be $2,000, which is the amount of property tax you would pay for a much higher value property in Australia or Canada. Later on, we found that is because of the different taxation and funding system, and the figure makes sense.

Question: Stamp Duty or Transfer Fee

Many investors refer this as stamp duty, which is essentially the transfer fee incurred when you make a purchase. This is a strong point to make as the transfer fee in the United States is considered as very low in international standard, stamp duty is a big initial hidden cost, so it is best to inform investors about upfront.

Question: Insurance Cost

Investors are worried about the maintenance; other risks also include tenants risk, title risk; and the usual property risk. Natural disasters are common in the United States; many investors are asking if they should take extra coverage for flooding, snowstorm, hurricane or earthquake. For many investors, these insurance are new concepts for them, and they need to be aware of these potential costs.

Question: Taxation

Foreign investors are treated differently and they need qualified accountants to file in tax returns for them. United States also has different tax treaties in place. If you can find assistance for international investors, it can save them a lot of time.

Question: Analysis of local area

Thanks to Internet, investors can assess location and properties on Internet. However, it is still quite difficult for investors to evaluate on investment opportunities. One interesting note is that, in the United States, good and bad neighborhoods could be very close to each other; this is a rather confusing for many investors, and they may end up buying in a bad area simply believe they have found a bargain.

Inform your potential investors about the difference, as schools are also rated considerably different between the areas.

Question: Give them more reports & research

American investors are very lucky as they can access to numerous reports, most of them are free reports; some just need some small fees. Such service is generally unavailable in international markets; so present and impress your potential investors with different reports and choices; that will really help them a lot.

I remember when we first started looking into US real estate, we contacted several agents in locations interested, many of them came back with a list of properties available in the market. Some even go into extent in analyzing the areas (which are all available from Internet anyway), many also include school ratings.

This was quite an experience for us, and we were overwhelmed by the experience and the service. For many international markets, agents are only able to promote their "own properties", which are the ones they are listing, so they can't have access to other properties, this limits the choice.

Property agents in markets outside North America also don't provide as much service as in North America. It is rare for agents to come and pick you up to check out properties, it is also rare for agents to sell properties outside their territories.

So use what you think as "common practices" in North America to impress international investors, add in some extra reports and research, and you will see good rewards in return.

Question: Finding a loan for foreign investors

This is typically not an issue for international investors as most of them will pay by cash. However, we are seeing more and more international investors forming syndicates or buy a large parcel for development purposes.

While it is hard to find local banks providing financing for international investors, some institutions may provide such solutions. You can also make enquiry with international banks in your area, and at least have some local contacts available if required.

For example, Canadian banks are willing to provide funding for Canadian investors based on their credit rating in Canada; this is one of the factors why Canadians are the most active real estate investors in the United States.

Similar programs maybe possible for Asian and European banks which many of them have branches and offices across the United States.


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