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We’re going to talk about how foreign investors namely somebody who is abroad and doesn’t have US permanent residence or US citizenship can invest in direct commercial real estate. We will also discuss how foreign investors can hedge against the currency risk while generating large returns in the commercial real estate market.
Ronald Rohde Law is a commercial real estate law firm based in Dallas, Texas. We have Chinese and Spanish-speaking staff who are able to assist in all types of foreign investment into commercial real estate. We specialize in direct investment in Industrial, Multi-Family, Office, Hotels any other commercial real estate asset types from LLC formation, partnership agreements, loan financing, PSAs, title survey, and lease review. We’ve got you covered
What are the challenges they face, and how you can overcome them as a foreign national?
The United States is one of the best real estate markets in the world. With all of the volatility throughout the rest of the world, real estate prices and interest rates in the United States continue to climb, but this also means that with inflation, your rent rates are increasing. Rent rates are going up faster than your expenses on a building.
How can you access this market? The critical thing is to understand who are the key players that you need to engage on your team:
The United States offers one of the most stable reserve currencies. For many foreign investors, their home country’s currency may be less stable. If 100% of your net worth is tied to a foreign nation that tends to have volatile currency, your net worth risks unstable increases and decreases to its value. Therefore, putting a sizeable investment into the United States that is denominated in dollars, provides a stable anchor for the rest of your net worth. In addition, you have the opportunity to earn income that’s generated in U.S. dollars, so not only are you preserving your principal, you’re generating an additional return in dollars if you spend those dollars in the United States.
The main difficulties that arise for foreign investors have to do with the logistics and the physical distance between the property. There are a lot of local customs and procedures and expenses that are unfamiliar to a foreign investor who may not be familiar with the US legal system, the US title, and the rights and the role of government in relation to the management of their commercial building.
Therefore it’s critical to have somebody on your team who is a fiduciary, and in the US. What that means is your lawyer represents your interests as a client only and is not motivated by fees or is not on a contingent basis. Your commercial broker will only get paid if you buy the deal, thus they want you to close the deal in order for them to get their check. However, this tends to lead to bias in brokers for you to close, and they often gloss over smaller and more nuanced or detailed problems. In contrast, a lawyer in counter to that interest, and is not paid depending on whether a deal closes or not, therefore a lawyer is going to be able to point out all issues, including the small detailed ones, about a property that may make it untenable for you to purchase.
A lot of uncertainty also arises from limitations or restrictions on foreign ownership of US real estate in the United States. There are no such restrictions on foreign ownership: you are able to create local entities, and we can create these very quickly in just a matter of few weeks; you can purchase real estate with foreign owners, and as the beneficial owner there are no additional taxes; there are no additional requirements or fees related to foreign ownership; and no restriction on ownership percentage, so you can be a 100% owner of a commercial real estate property.
Another main consideration has to do with the pure logistics of executing documents. A lawyer can handle sometimes complicated logistics such as having a notary available to comply with US local laws for signature verification or transferring money from your home currency to US dollars. It’s important to work with a lawyer that understands the local embassy requirements and the local title companies (the intermediaries that help transfer physical title of the property). We are well experienced in obtaining foreign embassy or local apostille. Additionally, we are well-equipped to handle all sorts of different virtual notary systems that may also be acceptable.
Another problem that foreign investors face is managing the property and transferring money. We work with local foreign banks on providing letters of explanation and documentation stating the purpose of the money transfer whether it’s for real estate or legal lawyer hiring.
The language barrier is another big barrier for people wanting to invest in a 100% English-speaking market. If you do speak Spanish, you may have alternatives to invest in gateway cities such as Miami, Los Angeles, or New York. However, if you’re interested in other markets such as Texas, maybe the midwest, or Ohio, you need a law firm that has native Spanish speakers as well as native Chinese speakers on staff. Ronald Rohde Law can help you either connect with the right service providers or provide those language services here in-house.
Investing in the US can be daunting but not if you have the right team to guide you on every step of the way. If you have any questions about investing contact the law firm and we’d be happy to schedule a free consultation.
We are going to continue the series for foreign investors and talk about a really interesting topic: how does purchasing or planning to purchase commercial real estate allow you to obtain a US visa? There are several different categories, including non-immigrant visas and immigrant visas, We’re going to briefly cover both of those areas.
B1/B2 visas are suited for foreign investors with a non-immigrant intent, meaning that as a foreign national, if you’re going to come into the United States, you intend to leave, you don’t intend to stay here, you don’t intend to adjust your nationalization, or adjust your status into a green card holder. It is the most popular visa, and is available both for pleasure and for business purposes. For example, if you are looking at a specific property during the due diligence period, you may apply and obtain a B1/B2 visitor visa.
A B1/B2 visa will be one of your best tools if you’re planning a site visit. To support your application, you should reach out to specific property owners, brokers, and lenders for documentation, and have your lawyer write you a letter.
B1/B2 are valid for several years, allowing you to come into the U.S. for six months at a time, however, you will not know how long your visa will allow you to stay in the U.S. for until you are physically in the United States. Customs and border patrol will ask you some questions about your background and why you are here in the United States. Once they stamp your visa, you will be provided an exit date, and that is your valid duration.
In the future, you can come and visit any US state, regardless of where your properties are located. So even if your properties are in Texas, you can fly to New York, or visit California.
This is called the investor treaty visa, allowing immigrants from other countries that have treaties with the United States to obtain an E2 visa. The United Kingdom, other European countries, and some South American countries have E2 treaty agreements with the United States, notably, China does not have one so they don’t qualify under an E2. You can check out the complete list of E2 countries from the Department of State in the link below.
E2 is a great option because it’s much more flexible: longer duration, it can be renewed for long periods, it allows your family to stay in the U.S., and you can stay and work legally in the United States for your business. You will need to show sufficient capital that would show you can execute a full-time business plan. For example, if you’re only coming to the US with $800,000 dollars, you’re likely not going to be able to support a legitimate business plan to develop three office buildings throughout the year with a capital cost of 6K dollars. You’re going to need to show that either all or a substantial part of that equity has already been raised or committed, it’s in the United States, and you’re able to execute this business plan for real estate development.
You may have seen this employment-based visa in the news lately because the regional center program has just been reauthorized. Our firm has a strong background working with EB5 since 2008/2009 when China was getting very popular. Not only am I fluent in Mandarin, I have also worked at a real estate development company that utilized EB5 funds, thus I have had a lot of exposure to real estate investment in combination with immigration.
Under the new law, EB5 now requires increased investment amounts, tighter scrutinity on targeted employment areas. Overall, I would say that for a regional center it is much more difficult to make a project successful. It’s very hard to create 10 jobs, especially with the economic analysis, with the risk aspect, and if you’re a foreign investor who doesn’t want to come to the US. If getting US permanent residency is part of your real estate strategy and you are looking to diversify away from your home country, EB-5 would be worth looking at.
This visa is very popular, especially in China where the majority of these new visas are being issued. If you have an existing business and you’d like to open a US satellite office, you maybe obtain an L visa to come to the US. Perhaps, you’re in the real estate industry such as hotels, retail, or hospitality, and you have some pre-existing real estate business abroad that you want to open in the US, you may be a perfect candidate for an L visa.
You are able to manage employees in the US, but unlike EB5, it does not have to be 10 employees, however, you must really manage your business and you will have renewal periods. What’s nice about the L visa is that it’s a dual intent visa, meaning you can come in as a non-immigrant, but then it can also be later converted to an immigrant intent if you want to adjust and file for a green card. That’s a process for another video, but if you’re interested in getting a green card along with real estate investment feel free to reach out. In the meantime, get the B1/B2.
Thanks for watching the video and reading the article, I hope this was useful. If you’re a foreign investor these are some great tools. We have helped many of our clients obtain B1/B2s from sometimes difficult countries based on our letters and our research to help them prepare an application, so if you’re interested in applying using your real estate prospecting or research for your real estate investment contact the law firm and we would be happy to help you.
As a procedural matter in the United States, there are two levels of government, we have our federal government which is responsible for one level of income taxation, and then on the lower level, every state has an optional state income tax as well.
Some of your notable states that have very high taxes:
Some of the notable big states that don’t have an income tax:
People are used to seeing corporate entities just registered in a country and there’s only one central registry for all of the companies in a certain country, in the United States we have a federal level but there are no registrations, everything is done at the state level.
what we’re going to recommend is to know a couple of different states that make the most sense and have different options and flexibility for your needs as a foreign investor, as a primary issue we always recommend that you create a state-level entity that is located in the state that your own property.
Now above this is where it gets more complicated and we have a little bit more wiggle room (talk to your CPA, talk to your tax attorney). You can start creating different levels of entities to create different objectives, to meet different objectives.
They are probably the most popular and they are very standard, they have limited liability for their owners, they offer you the most flexibility in management and control, additional partners. They’re relatively cheap to form and maintain on an annual basis.
That may be more common in other jurisdictions and you may have a corporation, there are some pros and cons to a corporation. They tend to be more expensive, they cost more to maintain due to the nature of the paperwork that’s required, and that’s just a reflection of the formalities of a corporation, but you definitely get some benefits on the tax side.
If you have a domestic corporation you may not be subject to the foreign investment in real property tax act (FERPTA), and that is a duty on the buyer of your property when you eventually go to sell, if you’re a foreign entity then the buyer has to remit 20% or 30% of the proceeds directly to the IRS and you don’t receive it even if it exceeds your basis or your net gain on a property. They have to remit that to the IRS, you don’t get that money until you file a tax return with the IRS the next year and then you possibly will just get a refund of the money that you already were owed, but it’s the IRS’s way of ensuring that they get a tax return from this particular foreign investor. But domestic corporations may solve that and that’s a big plus if your concern is about FERPTA and that withholding, if cash flow and cash timing on an exit are important to you, may consider an entity structure like that.
They can also be a good vehicle, we know a lot of our foreign clients are comfortable with that structure, they understand the general partner, limited partner role and that’s certainly very common, and so we do a lot of limited partnerships to a lesser degree there’s limited liability, limited partnerships, there are different vehicles, different trust entities.
We recommend probably just an LLC in the state where you file and then after talking to your tax attorney we can put a holding company in a state that doesn’t have a state income tax, and we can pass through and make those multiple properties flow into your one level holding company.
That’s really what we found in our experience to be the best fit for foreign investors, that’s assuming that you’re able to withdraw cash, the FERPTA is not a concern because of the timing on the cash flow, but it really offers the most flexibility and the lowest operating costs, and it really makes a sense for a lot of our direct foreign investors that don’t have other equity partners and don’t need a complex structure.
Those types of decisions are actually just tax elections and you can have an LLC with an S-Corp election. We typically don’t recommend corporations to hold any real estate and the same for S-Corp or C-Corp, that shouldn’t be applied to a direct real estate holding company, it’s really better suited because of different tax benefits for operation companies if you have a management company, anything where you have a more consistent cash flow.
Talk to your tax professional on whether S-Corp or seat port election would be good for you but that is separate and distinct from the legal entity and how you legally hold title to your real estate.
If you’ve seen the news or if you’re from most countries, I would say a majority of countries have restrictions on foreign ownership of real estate. This is direct real estate where you have control of the asset and the reasons for this are varied, but at the end of the day, they’re trying to protect local investors and they want to ensure that foreign nationals don’t take over a key part of the nation’s economy.
In the press lately, we’ve seen Canada, for example, they have raised taxes on foreign ownership of local residential real estate because a lot of wealthy buyers from Asia, South America, the Philippines, and Singapore were buying residential condo units for astronomical prices and then letting those units sit vacant nor were they paying taxes by visiting the country. This is an interesting problem, as cities like Vancouver, and Ontario are imposing punitive taxes on foreign ownership that will only deter foreign investors from buying property in that country.
Let’s talk about the United States. In general, there are no restrictions on foreign ownership, there are no percentage ownerships except for maybe tax consequences when you sell, but that’s only a deferral of cash flow. FERPTA is probably the only restriction or inability for foreign investors to control and realize their money. FERPTA, in essence, withholds a duty by the buyer of commercial real estate to remit proceeds to the IRS. The seller will then be obligated to file a US tax return and then they’ll be entitled to a refund of those FERPTA proceeds. It’s a generally simple straightforward process.
However, depending on when you sell, you could wait 9, 10, or 6 months until you get that refund. If you closed at the end of the year in November or December you would then promptly file a tax return and you could get that money back much faster.
The answer is no. The United States is a unique country in that it’s already established itself as the world’s reserve currency, but they are still actively trying to encourage more foreign investment. There are no restrictions and in a court of law, there is no difference between a foreign party in a lawsuit versus a domestic party.
Another prohibition is the percentage of ownership. A lot of foreign countries will restrict ownership amounts so that, for example, you must have 10% of local domestic ownership as a partner in every real estate deal. That is not the case in the United States. Foreigners can own 100% of the entire property and control 100% of that property Foreign investors can decide who to rent to, who not to rent to, raise rents, keep the property vacant, demolish the property: all of that is within your rights as a property owner, regardless if you’re a foreign or domestic owner.
Lending can still be a difficulty for foreign investors because you are generally required to have an ITIN (international taxpayer identification number). Obtaining an ITIN is not as easy as it used to be, but contact the law firm and we can walk you through the process and help you get the ITIN to facilitate lending in the future.
The United States is a great place to invest as a foreigner since there are no restrictions, no additional taxes, and it’s generally a very welcoming environment from a legal standpoint on foreign ownership of commercial real estate
We are in 2022 there are a lot of doubts about recession. If anything, this represents a stronger case for investment in the United States.
If you’re from a foreign country it is likely you are either more closely connected to China or the EEU. Both those two major players are having significant direct turmoil as a result of either the Russian-Ukraine crisis, other issues with gas service, or other macroeconomic factors affecting the EEU.
If your country is more closely aligned to China, they’re facing a serious second wave of COVID. Additionally, this has given way to a ton of social backlash, slowing the productivity of the factories and exports and affecting the supply chain. If you’re an investor with funds in either of those areas of the world, the United States is relatively a more attractive place to deploy capital as the US dollar is going to remain more stable through this period of turmoil compared to foreign countries.
Which one of those asset types is the best for foreign investors? This is a question that I get asked constantly, but it really just depends on your goals. If you have a short-term time frame and if you have maximum returns, then you have a different need and a different set of goals for the best type of property to meet those goals. On the flip side if you have a longer-term investment, if you’re only interested in appreciation, and if you’re only looking for a 5, 7, or 10-year horizon, you have very different goals, and the best property to meet those goals is going to be different.
We are going to assume that if you’re a foreign investor your primary risk would be losing money. Your primary purpose of investing in the United States is to preserve capital, and with that being said, we can eliminate a lot of asset types and geographies that maybe are more speculative. Your more speculative asset types are going to be the things that have had COVID swings, have had some instability on occupancy, and those are going to be office or hospitality. Even though we’ve seen the hotel come roaring back, even though we’ve seen office figuring out the new structure. We would probably eliminate those property types for foreign investors just due to the amount of on-the-boots groundwork that it takes, and the amount of hand-holding that would be required if in a couple of years we see another COVID-type virus scenario and we see more turmoil in travel. That really leaves Multi-Family, industrial, maybe some special use or land, so let’s go through those asset types.
This can be a really good asset type because it’s very prevalent. Everybody needs a place to live, so even in a recession, and downturn-type scenario, people always pay rent first. Multi-family is very strong and you’re going to get a lot of wealth preservation. However, interest rate risks, rising costs, and inflation are all serious concerns that you have to mitigate. Multi-Family could be a good alternative, depending on the location.
There is also a prevalence of operators in the multi-family industry. This asset type is very common with many possibilities, thus there are tons of buyers for it so if you need liquidity in a pinch, it’s easy to find. There are also a lot of vendors servicing this area, tons of data, and a multitude of property managers who deal with Multi-Family.
Industrial is part of the one half of the dynamic duo. We have sheds and beds: those are the two hottest asset classes right now. Industrial is very low maintenance since a lot of these buildings may be single-tenant, and the absolute nature of tenant responsibility means they’re not calling you for little repairs. This is great if you’re in a foreign country or you’re traveling and you’re unavailable to make decisions. Industrial tenants, for the most part, are largely responsible for maintaining their own building. Industrial represents a good buy because it’s a very safe store of value, the tenants are very low maintenance, and it can really represent a property type that fits a lot of foreign investor goals.
Retail usually has very needy tenants. In terms of the retail market, lots of restaurants are dying, but lots of new ones are coming in. There is a lot of turnovers that require a lot of broker and property manager work, and ultimately it requires a lot of decision making from the owner. The owner either needs to have a very strong relationship with an existing team that can make decisions for them or you, the owner, need to be very involved and responsive in making those decisions about tenant improvement costs, rent charges, do we approve this tenant, do we like this use lots of questions on the retail center, thus retail is usually not the best property type for most foreign investors.
In commercial real estate it’s really anything that doesn’t fit the mold of those previous categories like the following:
While some of those properties do not cleanly fit into one category, they may still serve as interesting investments and may fit your goals as an investor. Land, especially if it’s a covered land play and there’s an agricultural property tax exemption, you can get a tiny amount of income for a positive cash flow. The goal is to hold it for 5, 7, 10, or 15 years, and then you can start selling it for its highest and best use once development has caught up in the area.
En este video y en articulo a continuación vamos a hablar de cómo los inversores extranjeros, es decir, alguien que está en el extranjero y no tiene la residencia permanente o la ciudadanía estadounidense, puede invertir en bienes inmuebles comerciales y protegerse contra el riesgo de divisas, así como generar rendimientos superiores en el mercado inmobiliario comercial.
Ronald Rohde Law es una firma de abogados de bienes raíces comerciales con sede en Dallas, Texas. Tenemos personal que habla chino y español que son capaces de ayudar en todo tipo de inversión extranjera en bienes raíces comerciales.
Nos especializamos en la inversión directa en industrial, multi-family, oficinas, hoteles, y cualquier otro tipo de activos de bienes raíces comerciales. También podemos ayudar en la formación de las entidades, los acuerdos de asociación, la financiación de préstamos, acuerdos de compra y venta, y la revisión de contratos de alquiler. Tenemos todos lo que necesita para su inversión
¿Cuáles son los retos a los que se enfrentan y cómo pueden superarlos como extranjeros?
Estados Unidos es uno de los mejores mercados inmobiliarios del mundo, con toda la volatilidad del resto del mundo los precios en Estados Unidos siguen subiendo, los tipos de interés suben pero eso también significa que suben los alquileres, y suben más rápido que los gastos de un edificio.
¿Cómo se puede acceder a este mercado? Bueno, en primer lugar creemos que lo fundamental es entender quiénes son los actores clave con los que debemos contar en nuestro equipo:
Los estados Unidos ofrecen una de las monedas más estables para muchos inversores. La moneda de su país de origen puede ser menos estable, tiene mucha volatilidad y si el 100% de su valor neto no está atado a esta moneda extranjera tiene mucha volatilidad para aumentar o disminuir. Por lo tanto, poner una inversión considerable en los Estados Unidos, denominada en dólares, proporciona un ancla estable para el resto de su patrimonio neto.
Por otro lado, usted tiene la oportunidad de obtener ingresos generados en dólares estadounidenses, por lo que no sólo está preservando su capital, sino que está generando un rendimiento adicional en dólares si tiene la necesidad de gastar esos dólares en los Estados Unidos.
Las principales dificultades que surgen para los inversores extranjeros tienen que ver con la logística y la distancia física entre la propiedad, hay muchas costumbres locales y procedimientos y gastos que no son familiares para un inversor extranjero que puede no estar familiarizado con el sistema legal de EE.UU., y los derechos y el papel del gobierno en relación con la gestión de su edificio comercial.
Por lo tanto, es fundamental contar con alguien en su equipo que sea fiduciario, y en los Estados Unidos eso significa que su abogado representa sus intereses como cliente únicamente y no está motivado por los honorarios. Por ejemplo, en comparación con su agente comercial que sólo cobran si usted compra la propiedad, por lo tanto, tienden a ser parciales en términos de pasar por alto los pequeños problemas y asegurarse de que usted cierre la operación para que ellos puedan cobrar. Mientras que su abogado está en contra de ese interés y quiere cobrar independientemente de si la operación se cierra o no, pero va a ser capaz de señalar los problemas de una propiedad que pueden hacer que sea insostenible para usted la compra.
Una gran cantidad de incertidumbre también se debe a las limitaciones o restricciones a la propiedad extranjera de bienes raíces, en los Estados Unidos no hay tales restricciones a la propiedad extranjera. Se pueden crear entidades locales, podemos crear estas muy rápidamente, en cuestión de pocas semanas, y se puede comprar bienes raíces con los propietarios extranjeros, como el beneficiario. No hay impuestos adicionales, no hay requisitos adicionales o tasas relacionadas con la propiedad extranjera, y ninguna restricción en el porcentaje de propiedad, por lo que puede ser un propietario del 100% de esta propiedad comercial de bienes raíces.
Otra dificultad tiene que ver con la pura logística de los documentos, tener un notario disponible para cumplir con las leyes locales de EE.UU. para la verificación de la firma. Así también, como la transferencia del dinero de su moneda nacional a dólares de EE.UU., todos estos problemas se pueden resolver con su abogado. Es importante trabajar con un abogado que entienda los requisitos de la embajada local, las “Title Companies” locales que son los intermediarios que ayudan a transferir el título físico de la propiedad. También estamos bien experimentados en la obtención de visas extranjeras.
La gestión de la propiedad y la transferencia de dinero, este es otro problema que muchos de nuestros inversores se enfrentan. Trabajamos con los bancos extranjeros locales en la prestación de cartas de explicación y la documentación que indica el propósito de la transferencia de dinero ya sea para la compra de bienes raíces o la contratación de un abogado, que puede ser una muy buena manera para que usted pueda obtener un pago inicial de su país extranjero.
La barrera del idioma es otra gran limitación para las personas que quieren invertir en un mercado 100% de habla inglesa, ahora si usted habla español puede tener todas las alternativas para invertir en ciudades de entrada como Miami, Los Ángeles o Nueva York. Sin embargo, si usted está interesado en otros mercados como Texas, tal vez el medio oeste, Ohio usted necesita una firma de abogados que tenga hablantes nativos de español, así como hablantes nativos de chino en el personal. Ronald Rohde Law puede ayudarle a ponerse en contacto con los proveedores de servicios adecuados y también proporcionar ese servicio de idiomas aquí en la empresa.
Invertir en los EE.UU. puede ser desalentador, pero no lo es si usted tiene el equipo adecuado para guiarle en cada paso del camino, si usted tiene alguna pregunta acerca de la inversión póngase en contacto con nosotros y estaremos encantados de programar una consulta gratuita.
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