Property in the USA

Sav,

If the property and rental income is located in the USA then you must lodge tax returns with the IRS. The owner will claim expenses against earning the rental income including building depreciation on your US tax return.

You will also complete the tax returns in Australia like normal (as an Aussie taxpayer you need to declare worldwide income) but any tax already paid in the USA is given as a credit so you don’t get hit twice.

Like any investment…..you need to check with a tax professional first

Sav,

Miami and Las Vegas have some of the highest vacancy rates in the USA, there are so many properties available in these area’s you could purchase a property and it will sit vacant for months. Do not purchase condo’s as the HOA (Home owners Assoc) could eat your monthly cash income, also a lot of the HOA are broke, stick to single family homes.

Do plenty of research don’t be seduced by palm trees and white sandy beaches…….you need to have very good property managers in place.

Jeff

We are in Southwest Florida and work the Ft. Myers and Tampa areas.  Unemployment is dropping, rental rates have stabilized and we have seen some improvement in rental rates for the first time in 5 years. 

I agree with Jeff's assessment of condos.  Newer buildings are struggling right now because of the HOA.  Investors saturated the condo market during the boom and most are walking away if not have already.  The current homeowners have to foot the bill for the expenses and it drains your ROI big time.

Our website http://www.MyRealtySource.com has some videos on the homepage that we put together for informative purposes.  Our videos are mostly on 2 family income properties but we are going to be uploading a video for single family homes by the end of the weekend.  Hope you enjoy them.  I'd be happy to share thoughts on the Florida market.  Nationally it is a buyers market as well as a huge "Buyer Beware" market, so be sure to get info from those on the ground in those specific markets.

Hi Speedy,

Thanks for sharing your clear thinking on your approach.

I gather from some of your other posts that you concluded that Texas works for you. I understand their local economy is (relatively) strong and unemployment is lower. But it also appears that Texas never had the property value plummet that Florida, Arizona etc had. So based on this, one must assume that their residential properties do not have a forecast of strong capital growth, as there is no low point to bounce back from….

So no disrespect intended, but I am just being the Devil’s Advocate here and testing you on this point :- Weighing up the vacancy and unemployment rates potentially affecting IP cash-flow for Florida but adding the likely prospect of strong long-term capital growth, surely that is a stronger case than Texas’s possibly more predictable cash-flow but lower ROI’s and very limited growth?

(apologies if I have been incorrect with assuming your Texas position. I have not been through ALL of your posts).

Cheers, TH

Very interesting topic indeed! I will bring some of my experience here as well.

2 years ago I was similarly interested in these boom markets, where the prices dropped 50% and I thought it's the best place to buy. I bought 2 condo's – one in Las Vegas, Nevada and one in Phoenix, Arizona.

The reality is that the vacancy rates are really high, and it took me 1-2 months to get a tenant. What more, the rents aren't actually that high, so I am glad that I am barely breaking even. The only hope (or strategy for someone) is the appreciation in these states. You can't be really doing it for the cashflow.

I have switched my strategy now, and did quite extensive research about various states in USA – to find the ones which can provide the highest rental yields – the ratio of the purchase price and rental income. Quite obviously these "high cash flow" states aren't Florida or Nevada, but instead little bit less interesting ones, like Kansas, North Dakota, etc.

I have actually written an article about the market/state decision here:
High Rental Yield Markets in the USA

I will be soon posting the full table of all the states and their Price to Rent ratios, including Texas.

The bottom line is probably what the investor choose as a strategy – either speculating on appreciation in the past-boom states or rather long term holding strategy for higher cashflow, in other areas.

Hi There,

I did notice a property advertising by them that appeared about $10-15K overpriced. I own property in MI, GA and FL. Different reasons for buying. Believe in the asset class, the timing but also in diversification within the asset class.

MI got very high rental return, gross 40%+, GA 20+ % and FL 18%.

Personally favour FL due to app 70-75% drop in prices and good rental returns. Fact is that more often than not Boom and Bust happens in the same areas every time.

People keep moving towards the sun. Same all over the World and US no different.

Some areas promoted here seem to have little capital upside as well as average rents.

Hi There

I am property investor in Australia.  Although I have bought properties in Australia without using any of the buyers agents, I don't know how to proceed if I want to a buy a property in USA.  Therefore, I am thinking of buying a property in US through http://www.myusaproperty.com.au .  The properties advertised on their website are all net cashflow positive and look very attractive.

Has anyone used them?  Any comments would be highly appreciated.

Perhaps more detail than people might want and I thought I had posted this chapter of my US investment guide before, but I cant seem to find it.
 
Prior to the passing of the Foreign Investment in Real Property Tax Act 1980
(FIRPTA) unless the holding of real estate constituted a US trade or business any gain
on its disposal was not subject to US taxation. FIRPTA changed that by imposing US
tax on income and gains from the operation and disposal of “US real property
interests” (USRPIs) by non resident aliens and foreign corporations. A USRPI is any
interest in US real property or “US real property holding companies” (USRPHCs)
which are basically any US corporation 50% or more of whose assets consist of
USRPIs. The FIRPTA provisions are now included in the revised Internal Revenue
Code of 1986.
 
Accordingly both non US resident individuals and companies are liable to US tax on
capital gains from the disposal of US real estate. Capital gains are calculated as the
difference between the sale price and the cost basis of the asset sold. The “cost basis”
is the purchase price adjusted to take account of brokerage, legal, sales and other fees
and expenses, sales, excise, real estate and other taxes paid on the acquisition or
disposal of the asset, the cost of improvements and depreciation.  For US tax purposes
capital gains are either “short-term” if the asset disposed has been held for a year or
less or “long-term” if held for more than a year. Short-term capital gains are taxed at
regular income tax rates which for individuals currently start at 10% rising to 35% on
income in excess of $373,650 and for corporations 15% to 35% on income above
$18,333,334. For non residents only US income is, of course, taken into account for
this purpose. Long-term capital gains are currently tax free for taxpayers in the 15%
bracket or below and taxed at a flat 15% for those in the higher brackets.
Unfortunately from 1 January 2011 the long-term capital gains of those in the lower
brackets will be taxed at 10% and for those in the higher brackets the rate will rise to
20%. The 15% bracket applies up to $34,000 for individuals and $50,000 for
corporations.
 
The FIRPTA provisions, however, require the purchaser or closing agent to withhold
and account to the Internal Revenue Service for 10% of the purchase price on sales of
real estate by non resident individuals or companies. This is credited against the
seller’s federal tax liabilities and any balance is refundable on filing of the appropriate
returns. It is possible to get a “withholding certificate” from the IRS in advance
dispensing with this requirement but there are obviously strict conditions and it takes
time to obtain. If however you have a US LLC owned by a foreign national this requirement isnt enforced.
 
For purchasers, whether individual or corporate, who do wish to retain their
lots after development for rental purposes the rent will constitute “fixed or
determinable, annual or periodical gains, profits and income and is primarily subject
to a 30% withholding tax on the gross amount. It is therefore usually advisable to
 
make an “effectively connected business” election in respect of real estate rental
income in which case it becomes “effectively connected business income” subject to
tax at regular federal rates on the net amount after all deductions and expenses
normally allowed to US residents. This means that all legitimate expenses related
thereto including local real estate taxes and homeowners association assessments will
be deductible. In this case an individual will need to file an annual tax return in Form
1040NR and a corporation in Form 1120F. A local US accountant should be engaged
for this purpose whose fees are also deductible.
 
In the case of purchases through a SIPP a return will only need to be filed by the SIPP
Trustee, which assuming it is a UK company will be in Form 1120F, when the lot is
actually sold.
 
In order to submit tax returns an individual needs to obtain an Individual Taxpayer
Identification Number (ITIN) by completing Form W-7 and submitting it together
with their passport or a notarized copy if sent by post to the US Embassy, 24
Grosvenor Square, London W1A 1AE. Form W-7 is available from the embassy or
can be downloaded from their website. A company needs to obtain an Employer
Identification Number (EIN) which can be done by downloading and completing
Form SS-4.