Now is the Time to Release Equity for Cash: A Global Real Estate Perspective on the Strength of the U.S. Dollar

Now is the Time to Release Equity for Cash
Now is the Time to Release Equity for Cash: A Global Real Estate Perspective on the Strength of the U.S. Dollar

The U.S. dollar has been pushing down the rest of the world’s currencies over the past few months. The Yen is at a 24-year low compared to the dollar, and the Euro and Dollar have not been on par since ’02. Day after day, it proves that it is the world’s most dominant currency, with 88% of transactions having the dollar on one side. In times of confusion, like rising global inflation and precarious geopolitical relationships, investors love the stability and safety that it offers. With the federal reserve increasing rates, even safe investments, such as treasury bonds offer a good return on investment. This has led to investors pouring money into the United States, which has increased the strength of the world’s most dominant and secure currency. 

What is Cash-Out Refinancing?

Cash-out refinancing, if you do not already know, is a method of trading home equity for liquid cash. Here is a thought experiment that might help you understand a little better:

Let’s say you have $200,000 left on your mortgage, and your property is valued at $1,000,000; you would have 80% equity in that property, or $800,000. Lenders typically make you keep at least 20% in equity ($200,000), so you could borrow $600,000[1], usually at a lower rate and on different terms[2]. America Mortgages lets you cash out up to 70%. You would then pay it off like a regular mortgage with monthly instalments under a new agreement. This $600,000 is now a liquid asset that you can use at your discretion. With such a strong dollar, it means that there are lucrative investment opportunities at your fingertips with the extra cash. 

Pros and Cons

There are pros and cons to cash-out refinancing, especially with a strong dollar. 

Pros:

  • Access to a large amount of liquid cash.
  • This can be used for investments, refurbishing/remodelling, or for pleasure. Upgrades like refurbishing can boost your home value, and these investments mean you can make money in different sectors.
  • When living abroad and your living expenses are in currencies other than USD, this is a perfect time to take advantage of the strong U.S. dollar.
  • America Mortgages Loan Officers are with you from day one and beyond. We keep you updated with competitive rates because it is not just your journey; it is ours as well.
  • Even though rates have increased, historically, they are still low.
  • 30-year fixed rates and interest-only options are available regardless of age.  

Cons: 

  • You need to have equity to qualify.
  • You may owe more as you would be refinancing your existing mortgage. 
  • Your rate may be higher than what you currently have in place.

What does this mean for global real estate investors? 

Cash-out refinancing has never proved to be more useful to real estate investors until recently. With cash-out refinancing, you can trade home equity for cash and invest it into other ventures, experiences, local currency, or products, such as treasury bonds, taking your dream trip to Mykonos, or buying that designer bag from foreign fashion houses.

With the rest of the world being so affordable, it is a great time to hold onto U.S. Dollars. Let your money make you money with America Mortgages cash-out refinancing. Contact us today to speak to one of our loan officers: [email protected].

www.americamortgages.com

[1] There are final closing costs, so this number would be lower typically; for the sake of simplicity, they’re being ignored in this thought experiment. 

[2] Contingent on the lender and Cash-out refinance plan

Liquidity Issues? AM Bridge Loans to the Rescue!

Liquidity Issues

The housing market has seen intense competition, massive price surges, and dwindling inventory since 2020 – But if you’re a real estate investor, all of that may be about to change, and for the better. 

Mortgage rates are rising. In mid-June of 2022, the 30-year fixed-rate mortgage averaged 5.81%. That may seem high; however, rates now are where they were right after the financial crisis of 2008, when many people were actively trying to obtain a mortgage. 

What makes this type of market great for real estate investors? These higher rates make it more difficult for would-be home buyers to afford new homes. It’s not that people are trying to buy extravagant houses, but that a modest home with an increase of $50 a month in mortgage payments could be the difference between buying or renting. 

These higher costs are putting pressure on the housing market. It has already led to a decrease in mortgage applications to purchase and refinance for owner-occupied property, but an increase in investor mortgage applications getting in on high rental prices, demand, and lack of available rentals. What once was a seller’s market is shifting slightly, causing properties to stay on the market longer. For some, this has resulted in a liquidity issue for investors looking to sell their properties quickly to buy additional properties.

Luckily, there is a relatively simple and easy financing solution – AM bridge loans. 

What is a Bridge Loan?

Investors use real estate bridge loans as a short-term financing tool to bridge gaps in financing. For example, an investor might take out a bridge loan against a property they are selling in order to purchase or act on another investment property immediately. 

In this case, the homeowner may need the money before their property sells. They can now use an AM Bridge loan to extract equity today while waiting for the right price to sell.

Bridge loans can be secured quickly, often closing within a week to 10 days, and with little paperwork, because lenders are more interested in the collateral (i.e., a house) than a credit score or cash flow.

How to Use Bridge Loans to Free up Liquidity 

Bridge loans allow investors to quickly free up liquidity using their real estate assets as collateral. This is a quick asset-backed mortgage where your financials or credit are not the primary underwriting criteria; the asset is. In order to better understand how this works, let’s take a look at two examples;

1. Waiting for a property to sell at the right price:

You’re selling a property but waiting for the right price. Another investment property becomes available that is too good to pass up, but you won’t have the available funds until after you sell the existing property. No problem. Extract the equity from the property you’re selling. Take advantage of the new investment. Wait for your property to sell and pay off the bridge. It’s that easy and quick! 

2. Financial strain:

Often, unpredictable circumstances can impact our financial position. The equity in your property can be the perfect way to ride out the storm without worrying if you’ll qualify for a “conventional” mortgage loan. It is easy, quick, and straightforward to release up to 70% equity from your property based on the asset value alone. We can also structure these loans to where you do not have to make any monthly debt servicing for up to 12 months. This allows you to get the liquidity you need and then relax, reset and focus on your situation at hand. 

When do Bridge Loans Benefit Investors? 

As explained above, bridge loans are a great way to free up liquidity. A bridge loan may also be a good fit for you if you:

  • Need to free up liquidity in a fast-moving market
  • Can’t afford to take out a mortgage on a new property without selling your other property.
  • Need to secure funds to acquire or renovate real estate quickly.
  • Already purchased a property, but you can’t sell your current property quickly enough.
  • Financial strain where conventional financing won’t work or is difficult to obtain. 

The housing market is evolving rapidly. Investors would be wise to understand their options so that they are able to adapt, take advantage of opportunities, and free up liquidity when they need it. 

As a company, our only focus is providing U.S. market-rate mortgages for Foreign national and U.S. expat investors. Get in touch with us today to learn more about the structures and options of short-term bridge financing solutions [email protected].

www.americamortgages.com

Rising interest rates are a good thing for U.S. Real Estate Investors

Looking for passive income? Now is the time to strike!
Rising interest rates are a good thing for U.S. Real Estate Investors

Are you an overseas non-resident investor looking to purchase property in the U.S. but are thinking twice because of the increase in interest rates? Let’s break it down.

Let’s face it, interest rates are high, but if you are looking for passive income and long-term investment, we know now is the time to strike. 

When interest rates are high, it is actually more beneficial to residential rental property owners because the demand for rental homes and apartments increases as many people that once were looking will not be able to qualify for a mortgage. Individuals and families who have put off their house hunting will need a place to live. When this happens, the rental demand skyrockets, and – this is the sign you’ve been looking for –the opportunity for real estate investors looking to purchase rental property is here!

What makes American Mortgages loans unique is the rate can be fixed for 30 years regardless of the borrower’s age. Your rate today will be the same 30 years for now, but the rent you will receive will likely be significantly more! Want an even better yield? Try our 10 year fixed interest only loan program that converts to a 30 year fixed without a rate adjustment. Total tenure of 40 years!

As a foreign national or U.S. expat investor, there are a few things to consider when you want to purchase a property in the U.S. There is no denying that the interest rates have increased, but if you are looking at real estate investment, you have to consider its long-term benefits – mainly building equity and wealth, property cash flow, and rental yield.

Build Equity and Wealth

Did you know that real estate remains a wealth-building tool for the majority of moguls? An estimated 90% of millionaires were created through real estate investing. Most High-Net-Worth individuals in the U.S. or around the globe invest in real estate in some form or the other.

As you pay a property mortgage, you build equity—an asset that’s part of your net worth. As you build equity, you have the leverage to buy more properties which in turn will increase your cash flow and wealth even more. America Mortgages has no limitation on the number of mortgages one investor can have. Portfolio loans are also available.

Why Rental Yield is so Important

Rental prices are soaring in many parts of the U.S. According to Government consumer price data, the average rent that the typical Americans actually pay rose 4.8% over the past year – a higher than the average rate of increase. According to Redfin, the average monthly rent rose to $1,985 in November – an increase of 6.8% monthly and 20.5% annually. The median rent nationwide in May reached $2,000 monthly, according to Redfin.

If you are keen to invest in U.S. real estate but have not found a property yet, AM Concierge ‘Property finder’ services can help you secure your dream home. Once you have purchased the property and your tenants are in place, your rental should run on autopilot. Our America Mortgages loan officer are with you for the long run. In the event rates change, special rate promotions or new loan programs, you’ll know first.

Real Estate Cash flow

How do real estate investors get so much cash flow? You probably read a million times that “real estate is a classic wealth-building technique.” Most investments don’t provide cash flow. Take, for example, stocks -you invest and leave without accessing them until you sell them. However, when you put resources into buy and hold real estate, you bring in cash flow monthly when you have tenants paying rent. The difference between the rent collected and your expenses is your income. You can utilize it to cover your bills, save for the future, or even make a greater real estate portfolio. Passive income is the income you can survive with, regardless of whether your other investments work out or not.

Now is the time to strike while the iron is hot. If you are still on the fence about investing in U.S. real estate, speak to our mortgage specialist to discover your options. 100% of our clients are living abroad. This is all we do, and no one does it better. [email protected]

www.americamortgages.com

Introducing America Mortgages U.S. Property Finder Concierge Service

International Mortgage Loans

Many of you have asked for a “full-service” solution when investing in U.S. real estate. Getting a mortgage is only one step in the process. Often, finding the perfect property represented by a realtor with your interest in mind is the missing piece of the puzzle. You’ve asked… We’ve delivered! America Mortgages is excited to launch a full-service mortgage and real estate solution for you, AM Concierge!

Upon being pre-approved for your mortgage, if requested you will be teamed up with a Certified International Property Specialists to help you with a key step of the transaction – finding the perfect property! This is NOT a requirement. If you already have a realtor you are working with or prefer to find a realtor on your own; please continue to do so. This is only an “extra tool” to assist if required. 

At America Mortgages, we believe that as a foreign investor there is more to finding a perfect investment property than most people think:


1. A mortgage loan tailored to your needs through a firm that are experts in non-resident, foreign national, and U.S. expat mortgage lending.

2. A great realtor will not only send you pictures and details about the home but look for and spot issues on the property you may not know exist. Someone that also understands non-resident, foreign national, and U.S. expat intricacies, will represent YOU and negotiate in your best interests only! 

Keep in mind, in the U.S. the buyer does not pay for the realtor’s commission. This is paid by the seller. It costs you nothing to have someone represent you in the transaction. 

Similar to America Mortgages, these realtors specialise in non-resident clients. They not only represent you in the transaction but understand the nuances of international buyers and will help you to navigate and negotiate the contract for your property.  

The best part about our AM Concierge service is that there is NO cost to you!

Whether you’re looking for a luxury summer home in the Hamptons or a rental apartment in the middle of the university area in Austin, Texas, reach out to us at America Mortgages to discuss how to get pre-approved for a U.S. mortgage loan. America Mortgages offers pre-approved U.S. mortgage loans normally within 72 hours after application and document submission. Once you have your pre-approval, you are ready to begin the search for your dream international property. 

At AM Concierge Service, we have a vetted and approved network of realtors in all 50 states that can assist you when buying a home as a foreign national, non-resident, or a U.S. expat. Our agents are friendly, compassionate, and understand the process of international home buying. These agents will work in your time zone and in your language to find a property that fits your requirements. 

Your perfect investment property does not have to wait any longer – contact us today and ask us about our AM Concierge Service. 

[email protected]

How Equity Rich Homeowners are Cashing In

Equity Rich Homeowners
How Equity Rich Homeowners are Cashing In

U.S. homeowners have seen their equity increase by over 32.2% since the first quarter of 2021. That’s a year-over-year gain of over $3.8 trillion. This significant increase in home equity has provided many homeowners with the opportunities to cash in through home equity loans, cash-out refinancing, or home equity lines of credit (HELOC). 

What Does it Mean to be Equity Rich?

Equity is the market value of your home minus your mortgage balance. Homeowners are considered equity rich when they have a minimum of 50% equity in their homes. The number of equity-rich homeowners typically increases as property values soar because the market value of people’s homes is increasing while the amount they owe does not. 

Understanding the tremendous increase in property value across the United States over the past year, it’s only logical that there would be a steep increase in equity-rich homeowners. 

Why is Home Equity Important?

Home equity is an excellent long-term wealth-building strategy. To demonstrate just how true this is, let’s compare an auto loan to a mortgage. When you take out an auto loan, you are paying interest on an asset that depreciates in value as soon as you drive it off the lot. That means that when you’ve paid off the loan, the car will most likely be worth less than your purchase price and you will have paid interest. 

In contrast, mortgage payments reduce your debt while your home increases in value. Of course, property values could drop, but that is unlikely to happen over the long term. One very financially powerful aspect of this is that you don’t need to sell your home to profit from it. 

How to Access Home Equity

  1. Home Equity Loan — Think of this as taking out a second mortgage for a fixed rate that must be repaid within a set period. Home equity loans often have slightly higher interest rates than primary mortgages because if a home is foreclosed, the primary lender must be repaid first.
  2. HELOC — Like a home equity loan, a home equity line of credit (HELOC) acts like a second mortgage, but it provides more flexibility for the borrower. That’s because HELOCs have a revolving balance like a low-interest rate credit card—you can borrow what you need, repay it, and borrow again. There are usually no closing costs, and HELOCs typically have adjustable rates that vary with the prime rate.
  3. Cash-Out Refinance — This option leaves homeowners with less equityin their home because you are refinancing your home for a larger amount and taking the difference in cash. Banks typically see this as riskier, meaning that closing costs can be higher. 

The best for cashing in on your equity depends on your goals. For example, a home equity loan would be great for medical fees, educational expenses, and debt consolidation because you have immediate access to the money. 

In contrast, a homeowner who needs money periodically for home improvements or a business might opt for a HELOC, and a cash-out refinance is typically best for those who need cash immediately. 

Should Equity Rich Homeowners Buy or Sell?

Both buying, selling, and staying in a home with untapped equity could be beneficial. Homeowners who want to sell can purchase another property and use a HELOC to make renovations on their first home while they live in their second. They could also take an equity line of credit to make a downpayment on a new home. 

However, staying in an equity-rich home can also be a wise financial decision. You can still cash in on the equity and enjoy the increasing value of the home. Keep in mind that if you sell a home in an up market, you will have to buy a home in an up market. 

Interested in releasing equity? America Mortgages has a 97% approval rate for both U.S. Citizens & Foreign Nationals. As a company our only focus is providing market rate U.S. mortgage financing for foreign nationals and U.S. expats. No one does it better!

Schedule a call with us at [email protected] today! 

www.americamortgages.com

Postcard from Austin

Postcard from Austin

If you have been following the news, it’s no surprise Austin, Texas is by far the most popular destination for US property investors. This was echoed in our Deep Dive report, where we use empirical data to support this conclusion and the drivers behind its strong price appreciation and high (very) high rental yield. 

I would like to introduce you to our Summer Associate, Joaquin Penelas, who is attending Boston College and hails from Austin and has shared his views of the city; insights not available from any newspaper. 

Did you know that there are different parts of Austin that Californians prefer to own that is different from where New Yorkers prefer?  

Joaquin discusses in his report and explains why! 

“I like it here in Austin. Anybody got a room?” – Keith Richards, Rolling Stones

In the last 10 years, deep in the heart of the Lone Star State has emerged a booming, trendy, quirky, and self-proclaimed weird city called Austin, Texas. You may have heard of the housing market. You may have heard of the job opportunities. You may have heard of the food, parks, music, nightlife, shopping, and all-around astonishingly friendly people found one of the most popular and sought-after cities to live in the United States. So, what makes Austin so desirable? 

As a proud Austinite for over 15-years, there is so much to it that is living up to the buzz and hype you hear from your friends and families who have recently moved from California, New York, and Massachusetts, the states where the most people are coming from. 

There are a couple of aspects of Austin that make it so desirable for professionals. To begin, many global companies are relocating or setting up huge branches. Austin is home to the Oracle headquarters, the new Tesla Gigafactory, VRBO, Cirrus Logic, Dell Technologies, a brand new $1 Billion Apple campus, Meta/Facebook offices, and SpaceX facilities. Amazon is adding thousands of jobs, and it is a great spot for computer manufacturing, tech, finance, and a hot spot for startups as Austin takes first place in cities to start a company in the United States. 

With overwhelming support for small businesses, a very educated workforce due to the high-profile companies located here, the University of Texas at Austin pumping out red-hot talent from the business, computer science, and engineering schools, and a record-setting 387 Venture Capital deals valued at $4.9 Billion in 2021, entrepreneurs from all across the United States are coming to Austin to change the world. If you take a look at our Deep Dive: The Best Cities for International Real Estate Investors[1], Austin is ranked as the top city in the United States and one of the best in the world for job prospects due to the high amount of companies moving there and building their roots there. 

Furthermore, the housing market has been incredibly kind to homeowners, with a 36% increase in home value since 2020[2]. Properties in Austin stay on average 22 days in the market, and with an average of 184 people moving there per day in the last decade alone, home demand has skyrocketed, making it a worthwhile investment if you’re looking to rent out a property or are looking for a property with high appreciation. 61% of homes in Austin are occupied by renters, and with rents for 3-bedroom places increasing by 27% over the last three years, it is hard to ignore the lucrative opportunities at stake[3].

Austin, Texas skyline from Zilker Park
Austin, Texas skyline from Zilker Park. Photo by Joaquin Penelas.

Neighborhoods like Tarrytown offer quick commutes to downtown in under 5 minutes with great food, shopping, and lake access- which is huge in the summer. We have seen people from denser cities move closer to the city, so from what I have seen and heard from others, if you are from New York City or other cosmopolitan areas, Tarrytown, just west of the central financial district of Austin, is the place to be for professionals with families. Located right by Austin High School and O’Henry Middle School, which are a part of the Austin Independent School District. Austin ISD is also home to the Liberal Arts and Science Academy (LASA), which claims the title of second-best public school in Texas and number 10 among magnet schools across the United States. Tarrytown is one of the best places to raise a family in Austin due to its proximity.

South Congress has also proved to have a great city-neighborhood feel to it, being right by the hottest food and shopping parts of Austin- also a quick 5-minute drive from central Austin and super friendly for young millennials moving out of big cities without families yet with top nightlife districts right up the street.

The Independent & Seaholm neighbourhood in Central Austin
Left: The Independent; Right: Seaholm neighbourhood in Central Austin. Photos by Joaquin Penelas.

West Austin, penetrating the foothills of the hill country, offers amazing Beverly-hill style hills, views, and luxury homes, along with the best public school district in Texas- Eanes Independent School District, with Westlake High School being the 4th best high school in Texas. With incredible teachers, facilities, and sports programs like the football team dominating the state with three consecutive championship titles since 2019, it is another great part of town to raise a family. Californians are escaping the high taxes and costs of living to move to West Austin due to its similarity to the Californian hills and neighbourhoods. West Austin is also home to Lake Austin, which is exactly what you need for all of your water-sports needs from wake surfing, waterboarding, tubing, jet skiing, kayaking, and so many more year-round activities- even in winter. Lake homes in West Austin have skyrocketed, making it hard to find anything too affordable for the average homeowner but offering incredible property options for the new executives and high-ups for the companies making Austin their home and headquarters. And with star-studded neighbors like Joe Rogan, Matthew McConaughey, billionaire video-game designer Richard Garriott, and a rumored lake estate owned by Elon Musk, they prove that it is hard to go wrong in West Austin. 

If the neighborhoods with characteristics for people from any part of the United States did not convince you, if the lucrative job opportunities did not convince you, if the phenomenal property appreciation did not convince you, then maybe the fact that Austin is ranked 8th in the States for nightlife will change your mind.[4] Or that Austin is ranked 13th in the nation for the best food will change your mind.[5] Or the fact that it is the live music capital of the world and you can see live shows almost every night and drink a local beer will change your mind. Or that Austin is surrounded by parks, greenbelts, lakes, and nature areas, so you can get your outdoor fix with your dogs at Zilker Park, take a boat out with your friends, go hiking on one of the 130 trails, or bridge jump into the year-round 68°F crystal clear Barton Springs water will change your mind. The Formula 1 Circuit of the Americas track is a 20-minute drive from downtown if you enjoy tracking your cars or watching motorsports. The Hill Country is littered with vineyards if you prefer to indulge in wine-tasting tours. All in all, Austin is a great place for your career, your property value, raising kids, or even discovering what it is like being young, independent, and single on Rainy Street or 6th street is like. There is something for everyone under the violet skies and the big and bright stars deep in the heart of Texas. 

Key Statistics: 

  • New York City is 56.9% more expensive than Austin. Housing is 84.4% more expensive than in Austin.[6]
  • San Francisco is 125.7% more expensive than Austin. Housing is 273.6% more expensive than in Austin.[7]
  • Boston is 36.1% more expensive than Austin. Housing is 63.3% more expensive than in Austin.[8]
  • Median home prices in Austin are $639.9K. The median price per square foot is $356.[9]
  • The mean rent in Austin is $1,735, with the mean apartment size being 862 sq. ft.[10]
Global mortgage group

Tax Strategies for U.S. Real Estate Investors living Overseas

Tax Strategies for U.S. Real Estate
There are many income tax issues that must be considered when a foreign national invests in U.S. real estate.  

There are many income tax issues that must be considered when a foreign national invests in U.S. real estate.  

The analysis begins with the foreign national’s tax status in the U.S. tax system:

1) Are they U.S. citizens (dual citizens)? 

2) If not, do they hold a “Green Card” that allows permanent U.S. residency status?  

3) If not, do they meet the “substantial presence” test?

4) If they do not satisfy these tests, they are treated as a U.S. non-resident. 

The following comments summarize some of the most important items to consider before investing in U.S. real estate, including:

  • U.S. citizens and U.S. residents – global taxation
  • U.S. non-residents and foreign entities – U.S. source income taxation
  • Foreign nationals – U.S. residents vs. U.S. non-residents 
  • Foreign Investors Real Property Tax Act (FIRPTA)
  • Rental income from U.S. sources received by U.S. non-residents and foreign entities  
  • Rental activity U.S. trade or business election
  • Personal use real estate
  • Holding title to U.S. real estate
  • International Income Tax Treaties
  • State income taxes

U.S. Non-residents and Foreign Entities – U.S. Source Income Taxation

Foreign nationals who are not U.S. citizens or U.S. residents are treated as U.S. non-residents. U.S. non-residents and foreign entities are subject to U.S. income tax only on their U.S. source income.  

“Fixed or Determinable Annual or Periodic Income” (FDAP) is income that is not effectively connected with a U.S. trade or business. FDAP includes income such as interest, dividends, rents, royalties, etc. FDAP is subject to U.S. income tax withholding at a 30% rate. FDAP income is taxed on a gross basis and is not reduced by any related expenses.  

U.S. source capital gain income earned by U.S. non-residents generally is not subject to U.S. income tax, but FIRPTA has a critical difference, as discussed below. 

Income earned by U.S. non-residents that are effectively connected with a U.S. trade or business is subject to the same tax rates imposed on U.S. citizens and U.S. residents. Effectively connected income is taxed on a net basis (gross income less allowable expenses).  

Foreign Nationals – U.S. Residents vs. U.S. Non-residents 

Foreign nationals who are not U.S. citizens can be taxed as U.S. residents on their worldwide income under two different tests. 

A foreign national that has a “Green Card” that allows permanent U.S. residency status is taxed as a U.S. resident.  

A foreign national is also taxed as a U.S. resident if they meet the “substantial presence” test. The substantial presence test is based on the number of days that the foreign person is present in the U.S. The substantial presence test is a formula that includes the sum of: 

1) 100% of days present in the U.S. in the current tax year, 

2) One-third of days present in the U.S. in the prior tax year, and

3) One-sixth of days present in the U.S. in the second preceding tax year.

If the sum is at least 183 days, then the foreign national is treated as a U.S. resident taxable on their worldwide income. 

A foreign national that is not a U.S. citizen or a U.S. resident is treated as a U.S. non-resident. 

It is important for U.S. non-residents to keep track of the number of days that they spend in the U.S. so that they do not inadvertently become a U.S. resident. 

Foreign Investors Real Property Tax Act (FIRPTA)

FIRPTA imposes special income tax rules for foreign parties that invest in U.S. real estate, and it was enacted over 40 years ago. 

As discussed above, U.S. source capital gain income earned by U.S. non-residents generally is not subject to U.S. income tax. 

However, FIRPTA has a significantly different rule. 

FIRPTA treats gains derived from the disposition of real property located in the U.S. as effectively connected trade or business income. This means that U.S. non-residents who recognize a gain on the sale of U.S. real property are treated as taxable U.S. source income.

Rental Income from U.S. Sources Received by U.S. Non-residents and Foreign Entities  

There is some uncertainty about whether real property rentals qualify as a U.S. trade or business or as an investment activity. 

The tax consequences of a U.S. trade or business compared to an investment activity are dramatically different, as illustrated in the example below.

Real property rentals may qualify as a U.S. trade or business based on the facts and circumstances, but only if there are substantial operating and management activities. A real property rental business is taxed on a net basis. Net taxable income is gross income less allocable operating expenses, including mortgage interest, property taxes, insurance, repairs, maintenance, etc.  

Ownership of one rental property will almost always be treated as an investment activity. Investment activity character usually will apply unless several properties are owned and actively managed by the U.S. non-resident. The gross income from a real estate rental investment activity is subject to 30% income tax withholding.  

For example, assume that a U.S. non-resident owns a U.S. rental property that has a rental income of $50,000, rental expenses of $50,000, and net taxable income is zero. A rental business would pay no income tax because it has zero net taxable income. A real estate rental investment activity would pay $15,000 U.S. income tax withholding on its $50,000 gross income (30% times $50,000 gross income).

Rental Activity U.S. Trade or Business Election

The U.S. non-resident owner can make an election to treat an investment rental activity as a U.S. trade or business (“net election”). The net election would mean that the investment rental activity would be taxed on a net basis as a U.S. trade or business. The result in the above example would be that the real estate rental investment activity would have no gross income tax withholding and zero net income tax.

Most U.S. non-residents that do not own multiple rental properties that have substantial management and operating activities make the net election in the year that they purchase the rental property.

Personal Use Real Estate

Personal use real estate owned by U.S. non-residents that do not produce rental income will not be subject to U.S. income tax. Likewise, the carrying costs will be personal, non-deductible expenses. This includes mortgage interest expenses, real estate taxes, insurance, repairs, etc.   

Holding Title to U.S. Real Estate

A foreign national can hold the ownership title of U.S. real estate in their individual name. 

Many owners choose to hold title to U.S. real estate through a legal entity, including U.S. citizens, U.S. residents, and U.S. non-residents. There can be several reasons to do so, including legal liability insulation and confidentiality. The most common structure is to form a limited liability company (LLC) and use the LLC to take title upon purchase.    

An LLC that has only one owner is treated as a disregarded entity (DRE) for U.S. income tax purposes. A DRE’s activities are deemed to be conducted by the sole owner for U.S. income tax purposes, and the DRE is not required to file U.S. income tax returns.  

Some states, such as California, require DRE LLCs to file simple information returns and impose a minimum tax and/or a gross receipts tax.

The sole owner can contribute U.S. real estate held in their individual name to a single-member LLC as a non-taxable transaction for U.S. income tax purposes.

International Income Tax Treaties

The U.S. has almost 70 Income Tax Treaties with foreign countries. Income Tax Treaties supersede the income tax rules of both countries. Each Treaty is separate and distinct, and the provisions and details in each Treaty may differ. Treaties can provide better tax results than the consequences under the host country’s income tax rules, and they rarely provide detrimental results.

A foreign national must be a citizen or resident of the Treaty partner country to claim the benefits of that Income Tax Treaty.

The 30% U.S. withholding FDAP tax rate is usually reduced or eliminated under most Treaties.

Most Treaties provide a “tie-breaker” rule when a foreign national is treated as a resident under the laws of both countries. 

The tie-breaker will determine which country will treat the foreign national as a resident.  

State Income Taxes

Most states have an income tax, which is separate from and in addition to U.S. income tax. Many states follow federal income tax rules and have stated differences, but some have their own system. States are not part of the U.S. government, so they are not subject to and do not follow U.S. international Income Tax Treaties.    

Rental income usually is taxable in the states that have an income tax. Most states do not have an FDAP system. The specific rules in the state that you plan to invest in must be considered.

Most states also have various non-income tax fees and filing requirements.

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Tampa is Now the Hottest Housing Market in the U.S.

Housing Market in the U.S.
2022 has been a particularly hot year for the U.S. housing market overall, but in sunny Tampa, Florida, that market is scorching.

2022 has been a particularly hot year for the U.S. housing market overall, but in sunny Tampa, Florida, that market is scorching. The city was rated as the hottest market of 2022 by Zillow, outranking other hot markets like Austin, Texas, and Phoenix, Arizona.

Overseas buyers likely know Florida for its excellent weather and as a mecca for retirees, but this is not the primary impetus for its home value growth. Rather, the city is experiencing growth at the same time the average 30-year fixed U.S. mortgage rate has jumped above 5%. Furthermore, Fannie Mae has recently predicted that home prices will increase by 10.8% this year and another 3% in 2023.

In short, the city of the sun is experiencing a perfect storm for home prices to break even more records in 2022.

Price Growth

Throughout the fiscal year of 2021, home values experienced record-breaking growth across the United States. This was due, in part, to limited inventory. Additionally, many millennials began reaching prime home-buying age while boomers were downsizing for retirement. This demographic shuffle, exaggerated further by the pandemic, created the perfect environment for increased valuations.

This course is likely to continue into 2022 as the housing supply is still limited and prices are already high. Some markets are expected to slow as they reach a ceiling of valuation, however,

Tampa is a unique case, leaping from the fourth-fastest home value growth in 2021 to the fastest this year.

Supply and Demand

Anyone who has sat through an Econ 101 class could understand the variables fuelling the meteoric gains in value taking place in the Tampa housing market. They are:

● High demand

● Restricted supply

● Fewer willing sellers

● Fewer homes are being built.

The demand is not only due to people looking to buy a home right now, but because they have been looking for a new home since 2021. Many Americans found themselves touring home after home last year, only to find crowds of competitors putting in higher and higher offers to snatch up their dream home. This put the ball in the seller’s court, allowing them to set higher and higher prices.

In a state like Florida, where many boomers retire, and many millennials are moving for business opportunities, this phenomena has been even more pronounced.

Former Hot Spots Cooling Down

Formerly hot markets like New York, San Francisco, and Chicago are expected to be the coolest of 2022. These cities offer fewer jobs and unfavourable demographic trends compared to a market like Tampa.

Many individuals who lived in or would have moved to these megacities in the past have been untethered by remote work and want to take advantage of lower taxes, competitive business conditions, year-round sunshine, and miles of white-sand beaches.

Risks

No investment is without risk, and the Tampa housing market is no exception. Home loans will likely become more expensive as U.S. and Florida mortgage interest rates are expected to rise in 2022. The result would be restricted inventory access in expensive markets like Tampa and could increase competition for cheaper homes.

Sellers already invested in this market may benefit, but those looking to leap into this hot market would be wise to start looking sooner rather than later.

100% of our clients are living outside the U.S. Every loan program America Mortgages features are specific to these markets. We understand the landscape, the clients, and the process better than anyone else. 

Keen to know more? Arrange a no-obligation call with one of our loan specialists today. [email protected].

The Standard Home in Canada Now Costs Twice as Much as in the U.S.!

US Home Loan

Canada’s housing market is hot. Home prices have rocketed 30% since early 2020, and the Canadian Real Estate Association recently reported that the average price of a Canadian home was nine times the average household income. 

It wouldn’t be ridiculous to assume that things might be comparable just across the border to the south in the U.S. In fact, price increases in the U.S. have been only slightly lower, at 27%. Despite this, the standard home in Canada now costs twice as much in the U.S. There is clearly more to the story here.

Canadian Housing Market vs. The U.S. Housing Market

Just how much more expensive is the Canadian market compared to the U.S.? Here’s some perspective. Home prices in both countries have been rising since 2010; however, while disposable income in the U.S. has roughly matched its home prices, Canadian disposable income has become entirely uncoupled from them. 

Disposable income in the U.S. is only about 10% higher than its neighbour to the north, but Canadian home prices are about 75% higher than in the U.S. What this tells us is that despite a surge in the price of real estate in the U.S., it is likely not in a bubble. In contrast, Canadian prices are severed from fundamentals, which should unsettle any would-be investor. 

What if The U.S. Market Was as Hot as Canada’s?

To further put the dramatic difference in perspective, let’s imagine that the U.S. had a comparably hot market. The average median home price in the United States is roughly $375,000. If what’s happening in Canada happened in the U.S., the median home price would jump to around $656,000.

That’s just the median. Expensive coastal real estate markets likely wouldn’t see an increase of 75%, but it’s possible that they would jump by double-digit percentages. 

Most Affordable Countries in the World

The U.S. real estate isn’t just more affordable than Canada’s, it’s the second most affordable country in the world, according to data from Numbeo, Canada is the 17th. The report takes income, gross rental yield, price-to-rent, and international mortgage as a percentage of income into account when ranking each country. 

According to the data, the average Canadian spends a whopping 49.62% of their income on their mortgage. 

Investing in Real Estate in the U.S. 

Canadians are buying US real estate. In fact, Canadians bought more real estate in the United States from April 2020 to May 2021 than any other country in the world, spending about $4.2 billion dollars (foreign buyers from the U.K. only spent $2.3 billion).

Furthermore, in 2022, the Canadian government announced that it will ban overseas buyers from buying houses in Canada in hopes that it will help the housing market cool off. This will likely funnel more investment into U.S. real estate. 

Despite being a business-friendly economic powerhouse, with geographic diversity, excellent weather, and an abundance of land, real estate in the United States remains a bargain and one with great potential for returns. 

America Mortgages is the world’s leading U.S. mortgage specialist based overseas. We are expats ourselves so know exactly how to best serve you. Explore your possibilities when you speak to our U.S. mortgage specialists today!

Sounds enticing? Schedule a call with us to find out all about this and more! [email protected]

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