The American real estate market stands out globally thanks to its strong returns, sheer size, and influence on worldwide property trends.
So, naturally, many people living outside the US (whether American citizens living abroad or foreign nationals) want to invest in American real estate. But how do you invest in American real estate from abroad?
In this article, we’ll explain how you can get into the American property market, even if you don’t live here. We’ll also break down the pros and cons of investing in American real estate so you can decide if this is the right move for you!
5 Different Ways to Invest in American Real Estate from Abroad
There are several ways to invest in the US from abroad, depending on your availability, experience, budget, and investment goals.
Here are the five most popular options for investing from abroad.
1. Vacation Homes
With world-class vacation destinations like Hawaii, Southern California, Florida, and Las Vegas, the US offers many markets with high return potential. Purchasing a vacation home gives you access to the American real estate market and a place where you can regularly relax and unwind.
You can use your vacation home for part of the year and rent it out to short-term vacationers the rest of the year, creating passive rental income. Plus, with the history of property appreciation in the US, your vacation home is likely to grow in value while you own it, allowing you to earn a profit on the eventual sale.
You might even qualify for a loan to purchase the property, allowing you to use debt leverage to buy a more expensive property than you’re willing or able to pay cash for.
You should, however, be aware of certain potential pitfalls. Taxes, for example, can surprise foreign vacation home owners. You will pay property taxes on the ownership itself, plus income taxes on any rental income. However, the American tax system offers several tax benefits for property owners that can offset this expense. You will likely need to file an American income tax return every year if your property generates income, and you will likely need to report this income to your home country as well (although there may be tax treaties that prevent you from paying taxes on this income to both countries).
With this investment strategy, you may also want to invest in a property management company that specializes in vacation rentals. They can handle the bookings, check-ins, check-outs, cleanings, and maintenance for you.
2. Rental Properties
Like vacation homes, rental properties can provide passive income, long-term appreciation, and tax breaks. Unlike vacation homes, rental properties are typically not occupied by the owner during the year. Instead, you find long-term tenants to rent the property for several months at a time (often in 6-month or 12-month lease terms). This strategy requires less active management, so property managers typically charge lower fees than they do on vacation rentals.
You could purchase a single-family home or condo as a rental property, or you could buy multi-family buildings (with two or more units) to create multiple income streams from one property. You can even purchase neglected properties and renovate them to add value to your multi-family rental.
3. Fix and Flip
Unlike vacation homes and rental properties, which typically need to be held as long-term investments to pay off, fix-and-flips offer a short-term real estate investment opportunity. You purchase a property that needs repairs, fix it up, and sell it for a profit as soon as possible. In many cases, you can get in and out of a deal in just 6-10 months, freeing up your investment capital for your next project.
To successfully flip houses from abroad, you need to either visit the US for several months to oversee the renovation or have someone in the US you trust to manage the project on your behalf. Either way, flips require local market expertise and construction knowledge, so flippers generally need to have a network of experienced real estate agents and contractors to facilitate the deal.
Like stocks and bonds, these securities are traded on the American stock market, which can be accessed by those living abroad. Simply open an online brokerage account with a reputable global brokerage (such as Interactive Brokers, Saxo Bank, Charles Schwab International, or TD Ameritrade International), fill out IRS Form W-8BEN (to declare your foreign residency for tax purposes), and choose which company or fund you wish to buy shares in.
This strategy allows for easy diversification since your investment capital is automatically spread across multiple properties. It’s also more liquid than direct ownership, since selling your shares is comparatively quick and inexpensive.
5. Crowdfunding and Syndication
Crowdfunding and syndication are similar investment models in which multiple investors combine funds to finance a specific real estate project. The project could be nearly anything: a fix-and-flip, rental property, or even a new construction multi-family development. The project is professionally managed by a real estate sponsor who collects investment funds, handles the purchase, oversees the day-to-day operations of the project, and disburses the proceeds back to the investors.
Crowdfunding and syndication allow more control than securities investments without the expense and responsibility of direct property ownership. The professional management can also translate to higher return potential, as you can leverage the sponsor’s experience and industry connections for lower project costs and higher rental rates or sales prices.
It is worth noting that these opportunities are often reserved for accredited investors (investors who meet certain income or wealth criteria). If you don’t yet qualify as an accredited investor, you can start investing in American real estate through the other options listed until those create enough income or wealth for you to become accredited.
Pros and Cons of Investing in American Real Estate from Abroad
Depending on your chosen investment method, there are many advantages of investing in American real estate from abroad, as well as a few potential disadvantages to be aware of.
Benefits of Investing in American Real Estate from Abroad
Stable and transparent market. The US has a well-regulated real estate market with clear rights of ownership and comparatively stable growth.
Strong income potential. Cities like Los Angeles, New York, and Miami come with high rental demand, which drives rents up.
Appreciation over time. American real estate has historically appreciated over the long term, offering the potential for high profits when you sell.
Currency diversification. Investing in US dollars can hedge against currency risk in your home country.
Access to financing. Many US lenders offer loans to foreign buyers, using the property as collateral for the loan.
Tax benefits with the right structure. Depreciation, expense deductions, and tax treaties between the US and your home country can help reduce your taxable income.
No residency requirement. You don’t need to be a US citizen or resident to buy and own property. Foreign ownership is allowed in all 50 states.
Potential Downsides of Investing in American Real Estate from Abroad
Complex tax rules. You may need to file American income tax returns every year while you own property in the US. Plus, the Foreign Investment in Real Property Tax Act (FIRPTA) may withhold 15% of the sale price when you sell the property.
Estate tax risk. Your American real estate could be subject to US estate taxes if you pass away before selling your property.
Financing may be harder to get. Even if you’re an American citizen living abroad, it may be harder to prove your income and assets to qualify for a home loan. Foreign investors often face higher down payment requirements and may have higher interest rates.
Management challenges. Being in another country makes it harder to manage a property yourself, so you’ll likely need to hire a trustworthy local team.
Legal and regulatory hurdles. You may need to establish an international taxpayer identification number (ITIN) or create a US business entity to hold your assets. You may also need to be aware of local landlord-tenant laws, zoning, and permits (unless you’re investing in securities, crowdfunding, or syndication, in which case the sponsor will handle these for you).
Currency exchange risk. Exchange rate fluctuations can affect your returns when converting income or profits back to your local currency.
How Gatsby Makes It Easy to Invest in American Real Estate
Whether you’re an American citizen or a foreign citizen, living abroad or living locally, Gatsby Investment makes it easy for accredited investors to invest in pre-vetted American real estate deals.
Gatsby Investment is a real estate syndication company that specializes in Los Angeles-area real estate deals with high-return potential. We handle every part of the purchase, construction, operations, and sale for you! So you can take advantage of the American real estate market without the hassle or risk of traditional property investing. And, since we pool funds from multiple investors, we can keep investment minimums low. For example, you can buy into a high-value multi-family development for as little as $25,000.
If you’re an American citizen, you can invest with Gatsby from anywhere in the world as long as your accreditation can be confirmed.
If you’re a non-American citizen, you just need to work with a US-licensed attorney or CPA (certified public accountant) to:
Set up a US business entity in the form of a C corporation,
Get a taxpayer identification number (TIN), and
Open a US bank account for the business entity.
Many of our international clients have worked with Prime Corporate Services to create the entity and invest with Gatsby.
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