Partnering with a US resident to invest overseas

What kind of structure have you used? How have you managed financing? Are you able to obtain financing at resident rates?

HI Bec,

<moderator: delete advertising>

 You didn’t say if you’re brother was a US citizen so I’ll assume he isn’t but what I have to say applies regardless of his status: Citizen or Greencard holder (permanent residency) or some other type of visa.

Partnering with a US citizen would, on the surface appear to be a way to get around issues faced by non-US citizens however, anytime you bring in a partner, you have to be prepared for the issues that go with it.  Especially if you deal doesn’t work out the way you planned.   Thorough documentation between the partners is critical, especially when it comes to: Financial responsibility, legal responsibility, insurance beneficiaries, additional costs, taxes, profits, time frames, selling and most critically an exit clause if one partner wants out.  There is another layer that kicks in if things go really, really wrong; what court system will have jurisdiction?  Are you willing to fight a battle in a US court and perhaps even go there, if your deal goes horribly wrong?

The situation becomes even more tenuous if the US citizen is the person applying for a mortgage/loan.  The US lender is unlikely to allow a non-US citizen to be a “co-borrower” for the reason that they have no way to legally enforce their rights on someone in another country.  That said, the US citizen will bear the sole liability for the loan.  

Now the good part….  As an Aussie, you’re right to be looking at US opportunities.  The current economic situation is, in my opinion, a once in a lifetime opportunity.  Exchange rates, US property prices, US interest rates and many other factors have combined to form a sort of “Perfect Storm” for Aussies, Canadians, Kiwi’s and many others.  Location of purchase within the USA is also critical as many areas are in long term economic/demographic decline.

So here (very briefly) is what I recommend.    Set up a US Limited Liability Company or “LLC”.  I recommend Nevada for convenience and some other reasons.   You don’t have to be a US citizen but you will need a US mailing address and local representative (registered agent).  Your brother or Sister in law could do this on your behalf.    Set up your partnership agreement as part of your company bylaws and be just as clear as I mentioned above.   Capitalize the LLC with required funds per the terms of your partnership agreement.   Next, find your property but make the offer from the LLC.  If you’re going to try for a US bank loan, you can expect the lender to ask for a very big deposit (30-50%) and possibly for the US citizen to sign personally unless the deposit is big enough.   There is an alternative called “private money or hard money lender” that may get you around the bank hurdles but they usually charge more for interest.   Once you get your offer accepted, the LLC then owns the property and you and your partner own the LLC. 

For tax purposes, do all of your income and expenses through the LLC and file a US “1065 partnership tax return” for the LLC each year.  The LLC is a “pass through” entity for tax purposes so you’ll have to file an individual US tax return each calendar year after you get your ‘K-1 form’ from the LLC as part of filing a 1065.   To file an individual tax return, you’ll need a US International Taxpayer Identification Number or ITIN.   These can be tricky to get (the form is terrible and often gets filled out incorrectly) but you’ll have a good reason if you are a member of an LLC.

So, the benefits of using an LLC are:

    * Limit your legal liability

    * Keep your US an Australian tax issues separate

    * You can sell all or part of your LLC ownership if one of you wants out of the deal (exit strategy)

    * When you eventually want to sell your investment, you can sell the company (which will still own the house) but avoid having to go through closing (settlement) again and paying all the related costs.

    * The LLC can get a US bank account, credit card (great for paying contractors or repairs) and so on.

I know this is a longish answer to your question and I really didn’t go into specifics.  You should seek your own professional legal and financial advice before taking any action but please do take action.  You’ll kick yourself 10 years from now if you don’t!   After all, when you could buy 2,3, 5 houses in the US for the price of one in Australia, why wouldn’t you? Cheers!