Real Estate Investment

Understanding the Tax Ramifications of Real Estate Investment

The first foreigner to have ever bought a real estate property in the United States was Peter Minuit. This opened the doors to foreign real estate investors. After a couple of centuries later, foreign real estate investment has grown into huge proportions, accounting for billion-of-dollar worth of industry.

The low risk attached to US real estate market, the availability of countless properties, and the steady market liquidity attract foreign investors in droves. The initial snag, however, is the process of understanding the legal ramifications of foreign real estate investment.

What you have to understand is that foreign investment in the United States can take a lot of forms. A foreigner has various options. He can acquire direct interest. He can acquire an interest in the real estate through a partnership, a corporation, or a limited liability company. The latter is the typical structure used by foreign investors.

Limited partnership or Limited Liability Company offers financial protection or indirect asset protection, especially in cases of bankruptcy, law suits and taxes. Foreign investors are generally taxed on the property as if they hold the property in direct interest.

Ideally, you should secure the services of a real estate accountant to help you out with the tax ramifications, but it would help if you, at least, know the basics before you actually talk to an accountant.

There are tax consequences that you have to deal with when you buy a real estate in the United States. You would need an Individual Taxpayer Identification Number which you will use with all your tax transactions. Your investment in real estates can be treated as a portfolio investment and will be accounted for as an investment income which can either be fixed or a periodic income. This is typically taxed at 30% on gross revenues. This tax though does not apply though to all foreign investors. Tax rates would vary depending on the tax personality the foreign investor opted for. For instance, a corporation would be taxed differently.

Other things that you should take note of are availability and requirements of tax refunds and state tax laws on real estate properties as they may differ from federal laws, among other things.

By knowing all these things, you may save yourself from a lot of hassles when you finally approach a real estate accountant. You'd be in same wavelength when you finally get down to talking business. It is, however, very important that you secure the services of an accountant. You'd have an easier time dealing with the taxes ramifications. You'd also have assistance ensuring that you comply with all the accounting aspect of your investment. This is especially true if you are purchasing a real property for investment purposes.

Why Should You Invest in the U.S. Real Estate Market?

You've probably heard of the increasing number of foreign real estate investments in the United States. This is not surprising. With the troubles that the real estate investment market is facing in the United States, greater opportunities in real estate investment were opened to foreign investors.

With the dollar's value in its all time low, foreign investors are finding real estate bargains all over the United States. There are no shortages of deals in this market. More and more distressed properties are being sold everywhere and foreigners are pouring in millions buying these foreclosed or distressed properties. The United States real estate has become a fairly attractive long-term investment for foreign investors.

In November of 2006, the National Association of Realtors released a report entitled "Foreign Investments in U.S Real Estate: Current Trends and Historical Perspective". The report showed that there has been a steady increase in foreign real estate investment in the United States.

 This is especially after the euro and the loonie became stronger in the face of the continuous devaluation of the US dollar. Prime bargains were opened to foreigners. Many foreigners have now looked into the possibility of retiring or settling in the United States.

If you're a foreigner, you would find a lot of reasons why you should invest in the United States real estate market. Aside from the fact that the floating exchange rate has given you a lot of leverage over the bargaining table, the financial market is a pretty good reason why you should invest in the US real estate.

The financial market in the United States in relation to the real estate market is quite liberal and the restrictions against foreign investors are pretty reasonable. This is ideal for foreign companies that are seeking to invest in the real estate market in the United States in order to avoid tariff restrictions and are considering setting up an office or a company in the United States.

Furthermore, despite the devaluation of the US dollar and the wide foreclosures of a lot of property, the real estate market remains to be stable, though slightly shaky, due to foreign investors' capital appreciation. Domestic real estate buyers may not necessarily share the same opinion, but the market has remained to be strong for foreign real estate buyers. This may be largely credited to the fact that there is minimal risk for them.

10 Common Mistakes Made in Purchase of Real Estate

Some of the common mistakes people make when purchasing real estate are mentioned below.
Mistake 1: Not Taking Help from an Estate Agent
Many people avoid taking help from estate agents to save on commission. What they do not realize is that these people are professionals and know a lot more about the property in the area or region than common people. Thus, they can help buyers in finding the most suitable property. Moreover, they can negotiate better and get the best deal for buyers.
Mistake 2: Taking Help from a Wrong Agent
Choosing an inexperienced or incompetent agent can lead to great losses for the buyer. Thus, its best to research on various agents and reading the comments of their previous client's before hiring them. Another great way to find a good agent is by asking friends or family members for referrals.
Mistake 3: Choosing the Wrong Location or Neighborhood
Many people do not consider location or neighborhood when buying a property. They therefore, end up choosing locations or neighborhoods that are not suitable for them. Thus, making a list of priorities and needs with regards to location before starting the search for a suitable property is highly recommended.
Mistake 4: Paying Too Much
Many people pay too much for a property as they are not aware of the prices in the local real estate market. This happens especially when the buyers are from another area or region. Therefore, it is good practice to compare property prices in the region before choosing one. An agent can be quite helpful in this matter.
Mistake 5: Buying the Property without Proper Inspection
Many people feel that they can detect problems with a property on their own. However, professional inspection is a must when buying property. This can help the buyer in avoiding huge costs later on.
Mistake 6: Borrowing Too Much for the Purchase
Many people borrow too much for property purchase and then have difficulty in paying the loan installments and interest. Thus, working out a budget before taking a loan is advisable.
Mistake 7: Not Getting Pre-Approval before Starting the Hunt
Pre-Approval helps people determine their financial standing. They can thus, choose the houses that are affordable for them and avoid looking at those that are out of their reach.
Mistake 8: Being Hasty and Letting Emotions Rule the Decision
Many people get emotional and close the deal in haste. However, they should understand that property purchase is a big decision and should not be taken in haste. It should be taken rationally instead of emotionally.
Mistake 9: Not Reading the Contract Properly
It is common to get confused by the complex contract document. Moreover, in their haste to get everything done, people sign the contract without going through it properly. However, it is essential to read the contract carefully to know everything involved. If something is not clear, the seller, agent or an attorney should be asked.
Mistake 10: Buying a Property without Title Insurance
Title insurance gives protection to homeowners from any loss occurring due to property purchase. It can protect buyers against things like title frauds and unknown title defects.