September 8, 2010 - Phil Hodgen

Milestones for the nonresident investor in U.S. real estate

If you are a nonresident of the United States and are considering real estate investments in the U.S., the first thought is “Where do I start?” It is a big job to buy real estate in your home country. Investing in a faraway land adds to the complexity.

Here is a quick set of milestones to help you think through the process. This comes from an email I just sent to someone who is thinking about starting the investment process, and I edited it a bit for clarity. I hope it helps.

Your project, I think, has the following milestones:

  1. Investment objectives. Tentative decision on type/location/size of investments. (You’ve done this already).
  2. Management requirements. Determination of amount of management required. (Can you outsource 100% or will there be a lot of work from you or from people you trust?) Example: a major retail shopping center has scads of maintenance people, janitors, leasing agents, etc. and it is an all-the-time job to keep the place rented and maintained. Yes, you can job out the janitorial work etc. to outside firms, but you need to monitor the jobbed-out work to make sure it’s done right, so that means you have a manager or two on staff on your own payroll.)
  3. Analysis and selection on holding structure. Given the type of property you want to buy, and the practical needs for hands-on management, choose how to own and operate the real estate investments. Factors involved:
    • Type/location/size of investments (from above). This helps you make the cost/benefit analysis necessary for the holding structure. Bigger investments mean more complexity expense will pay off with tax savings. Smaller investments mean “keep it simple.”
    • Management structure you need to carry (from above). (Translation: do you need a dedicated property management company or not?)
    • U.S. and [home country] income tax considerations on rental income
    • U.S. and [home country] tax consequences on sale of the property
    • U.S. and [home country] tax considerations for tax if you have the bad judgment to die 🙂
    • Business considerations, such as lenders — will your structure be something that a bank will lend to?

  4. Create holding structure taking into consideration the factors above and a rigorous eye on cost/benefit considerations
  5. Buy property. This is the fun part, right?
  6. People and operations. Find key people to help you with owning/operating the real estate and holding structure — property management, bookkeeping, legal, tax returns, etc.
US Real Estate Investments