Overseas investment within the U.S. property sector is experiencing a resurgence. For those looking to invest, several key considerations should be remembered. Firstly, the prices of homes and properties in America have significantly increased. Consequently, a number of international investors are opting for financing their property acquisitions using loans rather than cash payments. Foreign buyers lack access to several loan alternatives that U.S. buyers enjoy; however, numerous financial institutions are amenable to collaborating with foreign nationals. To assist you in beginning, outlined below are the latest trends in real estate and financing opportunities, featuring strategies for investing without an initial down payment.

Current Real Estate Investment Trends

Prior to 2020, overseas investors showed a keen interest in office real estate. Especially, properties located in central business districts attracted significant attention. However, according to Deloitte, this trend has shifted lately.

Currently, global investors are progressively turning their attention towards industrial and multifamily real estate sectors. Although prestigious urban office spaces in major cities such as New York previously held the spotlight, logistics hubs in locations such as Phoenix are now gaining appeal.

Unsurprisingly, the allure of retail properties has diminished. The rise of online shopping, fluctuating consumer expenditures, and enduring remote work policies have all contributed to the decline in investment in retail real estate spaces.

Moving Away from Major Metro Areas

In a similar manner, while global investors have shifted their purchasing preferences, they have also altered their geographical focus. For example, according to Deloitte, prior to 2020, about 40 to 50 percent of international investments were concentrated in major cities such as Boston, Chicago, Los Angeles, New York, San Francisco, and Washington, D.C. Since that time, however, these cities now account for just 27 percent of the total foreign investments.

Instead, fresh markets now constitute a bigger segment of investment activities. Specifically, sunbelt cities such as Austin and Charlotte are attracting increased attention.

No Fannie Mae or Freddie Mac

If your goal is to invest in property within the United States, it's crucial to arrange your financing first. Foreign buyers do not qualify for mortgages from Fannie Mae and Freddie Mac, unlike their American counterparts. Consequently, many overseas investors typically purchase properties using cash.

Investopedia notes that numerous prominent banks and lenders provide loans to international purchasers. Instead of traditional mortgages, these financial institutions generally extend non-conforming loans, which come with elevated interest rates.

It is important to note that non-U.S. citizens typically cannot access mortgages from Fannie Mae or Freddie Mac. Nevertheless, an exemption exists for individuals legally employed in the United States. Eligibility for loans from both Fannie Mae and Freddie Mac is possible whether you possess a green card or are on a temporary work visa.

What to Know About Loans and Lenders

If you obtain financing to buy real estate, then there are several factors to consider.

Firstly, elevated interest rates are not the sole challenge that global investors face when securing financing. According to Investopedia, creditors frequently require larger down payments from international purchasers.

Furthermore, the authorization procedure may become more intricate and extended for non-U.S. citizens. Generally, an American purchaser submits their tax return and credit report as income proof. For those applying from abroad, financial institutions might request tax records from your native country, statements from your bank, and possibly credit card records too.

Ways to Invest with No Money Down

If the initial investment proves to be an obstacle, consider alternative strategies to bypass it. For example, you might think about adding partners. LegalZoom advises limiting the number to no more than two as it may become intricate. Agree to handle the transaction and supervise the property as a trade-off for their financial contribution.

If that approach is unfeasible, you might consider securing a loan to manage the down payment. Alternatively, the seller might be amenable to agreeing on a raised purchase price instead of a down payment, you could try bargaining over the price, or propose a payment plan in several installments.

Creative alternatives might be effective as well. Consider, for instance, proposing that the seller take valuable personal assets in exchange. Ideas for substituting a down payment could encompass vehicles and real estate you possess.

Keep Taxes in Mind

International buyers, as opposed to local purchasers, must take into account the tax regulations of more than one nation. Given that different nations have diverse tax agreements with the United States, conducting thorough research is advisable. Indeed, consulting a tax consultant for advice may be beneficial.

Nomad Capitalist advises securing a tax preparer familiar with handling the financial affairs of global investors. Given the seriousness of taxation, it's crucial to confirm taxes are accurately filed. Avoiding penalties should be a priority.

Upon the eventual sale of the property, you will be liable for capital gains taxes in the U.S. According to Investopedia, "the Internal Revenue Service (IRS) of the U.S. will initially deduct a portion of the total sale amount and subsequently make adjustments when you submit your U.S. tax return."

Protect Your Investment

It's important to take measures to safeguard your investment against the threats of legal actions. The level of litigation concern can vary based on your residential area. However, as highlighted by Nomad Capitalist, “in the United States, people love to sue each other.” Depending on your location, the threat of lawsuits might be less pronounced at home.

Consequently, think about engaging a lawyer to ensure everything is arranged correctly and to help you determine the necessary insurance. Establishing a limited liability company (LLC) is a frequently used strategy for asset protection. An LLC can safeguard your additional assets.

Numerous individuals opt for an LLC as a vehicle to own their property due to its potential tax benefits, which vary based on your residence location. It is possible to consolidate ownership of several properties under a single LLC, though investing across different states might necessitate the creation of more LLCs.

Who’s Investing in U.S. Real Estate?

Deloitte reports that historically, Canadians have consistently been the predominant group of international real estate investors in the United States, which is not surprising considering the geographical closeness. Although there was a time when Chinese investors heavily purchased U.S. property, recent restrictive deleveraging policies implemented by the Chinese government have decelerated these investments.

CNBC has reported that international purchasers have been returning to the U.S. following the removal of travel bans. By November 2021, real estate agents in urban areas such as Miami and Los Angeles saw a surge of overseas buyers, particularly from Europe, Brazil, and India, who were keen on scheduling property viewings. They showed significant interest in investing in American properties.

However, these are not the sole locations exhibiting increased enthusiasm for U.S. properties. Arabian Business reports that in 2019, investments from the Middle East in the U.S. real estate sector surged, more than doubling. Consequently, Arab investors are also increasingly diversifying their portfolios by adding U.S. real estate.

How to Get Ready to Purchase

If you are a novice in the U.S. property investment sector, finding your way around can appear daunting. This is why engaging a real estate agent who is adept at managing transactions for overseas purchasers can be exceedingly beneficial. They are able to offer guidance and facilitate a seamless transaction.

Ensure that all documents are properly completed and comprehend the tax impacts. Consequently, think about engaging a tax consultant and a real estate lawyer who have expertise in dealing with overseas clients.

To buy property in the U.S., you must first obtain an Individual Taxpayer Identification Number (ITIN). This number, issued by the Internal Revenue Service, is available to individuals who do not qualify for Social Security numbers. Should you choose to secure your property acquisition through financing, your lender will likely require your ITIN.

The Bottom Line

Investing in U.S. real estate offers a solid option to diversify your investment portfolio, although escalating property costs might hinder direct cash buys. Should an outright purchase be currently impractical, consider securing financing through a lender. While your choices may not match the breadth available to U.S. purchasers, acquiring a mortgage is still achievable.

Whether you are looking to acquire a multi-family dwelling, commercial estate, corporate offices, retail areas, or a holiday residence, maneuvering through the U.S. property market and arranging for financing can initially appear daunting. Nevertheless, investing some time to explore your possibilities and bringing together a seasoned group of real estate and tax experts can be beneficial.