An Indianโs Guide to Investing in US Real Estate
Bolstered by a stagnating domestic market, The US real estate market is emerging as a long-term play for investors based in India. Indians emerged as the fifth largest investors in US real estate for the year ending March 2017. The U.S. is still considered the best international option for providing the most stable and secure real estate investments and it also represents the best opportunity for capital appreciation. Investors can make money from property in two ways: rental income generated from tenants, and capital gains generated from appreciation in the resale value of the unit over time.
Reasons to Invest in the US Real Estate Market
1. High Return on Investment:
As a result of the 2007 housing bubble, the prices of homes in the United States dropped significantly, with the market still on the way to recovery. This means that the value of real estate bought in the US today could potentially double in value in a period of 5-10 years. This is specifically the parents of children who are studying in the US. investing in a property that has the potential to generate significant returns is a smarter alternative than paying rent for nearly 48 months.
2. Low-Interest Rates:
Interest rates in the US are relatively low given the fact that the American real estate market has not fully recovered from 2007. The lower the interest rates, the lower the monthly payments. This supports the growing number of Indians deciding to invest their cash in American real estate.
3. Accessible Financing Options:
Qualified foreign buyers with a 30 % to 40 % down payment can obtain financing for their U.S. real estate purchases. The U.S. home loan market offers an array of safe and affordable mortgages.
4. State of The Indian Real Estate Market:
Delays in development, lack of exit options and high ticket sizes in the Indian real estate market are key reasons for outbound investments
Key Factors to consider when purchasing a property in the United States of America:
1. Eligibility
Potential buyers do not need a green card, a particular type of visa, or even US citizenship to be eligible to buy property in the US. A potential buyer would just need to secure an Individual Taxpayer Identification Number. This number is issued to foreigners who are not eligible to obtain a Social Security Number. They must apply to the Internal Revenue Service to obtain this number.
2. Financing
There are two routes for a potential buyer to buy property in the USA. In the first route, the buyer can take a mortgage to finance the purchase. This is very common when buying a property in the US and there are many affordable options available to prospective homeowners. To qualify for a mortgage, one will need to earn a good credit score first. A potential buyer must open a US bank and credit card account and make sure to report all of their income on tax returns. When ready to apply for a mortgage, it is important to select a financial institution that has some experience when it comes to dealing with foreign buyers. Another route to invest is through the Liberalised remittance scheme – Under the LRS, all resident individuals can freely remit $250,000 overseas every financial year. Remittances are permitted for overseas education, travel, medical treatment and purchase of shares and property. Individuals can also open, maintain and hold foreign currency accounts with overseas banks for carrying out transactions.
3. Taxation
Tax on returns from investment in US properties will vary depending on the means of purchase whether it was through a Liberalized remittance scheme or overseas direct investment (ODI). This will further be segmented into the tax on rent and tax on capital gains.
The conclusions reached in the above table are subject to change based on tax laws and regulations
4. Working with Experts
It is essential to work with a real estate expert along with a tax specialist or lawyer to advise potential buyers on the United States tax requirements. Foreign buyers, in particular, should take the time to partner with qualified and experienced professionals like Krypton Global Investments to walk them through the real estate purchasing process. The role of Krypton goes beyond explaining how buying a property in the USA works, facilitating the buying process, and taking care of key tasks when it comes to the paperwork, closing costs, and other crucial formalities. Every state in the United States has its own rules and regulations when it comes to the property purchase process so itโs best to consult an expert who understands these state-specific nuances and procedures.
Facts & Questions (FAQs)
Krypton answers some of the most commonly asked questions potential investors have on purchasing a home in the United States.
Will the fluctuating exchange rate impact property investments in the US?
No, the rise & fall of the Indian rupee vis a vis the US Dollar will not impact you negatively because you will likely pay 10% of the full amount at the start. Following this, you can use your rental yields to finance your mortgage. Typically, US properties see a capital appreciation of 9-10% at the end of 5 years.
Does one need to become a citizen to buy a home in the U.S.?
A buyer needs not to be a US citizen nor do they require a green card. Buyer will need an Individual Taxpayer Identification Number (ITIN) in order to purchase property in the US
Should a potential buyer hire a real estate lawyer?
It is advised to seek the services of an experienced real estate attorney to guide you through the purchase process and help with any legal issues that may arise.
Should a buyer purchase U.S. property in their own name?
Indian investors can either purchase property in their own names or through a business entity including a joint venture, real estate investment trust, or limited liability company. Are you looking to invest in the US real estate market? Krypton Global Investments specializes in investing in international properties. With over 20 years of experience in the field, we offer a 360-degree consultation on the entire process of overseas transactions. Krypton works alongside experienced legal and financial advisors to oversee due diligence and to ensure a smooth and hassle-free transaction.
Provide your details below and we will get back to you as soon as possible to discuss the best investment opportunity for you in the US or other foreign markets. You can also reach us at info@kgre.co Credit to Nanubhai Desai & Co for the content provided on taxation for property purchases in the USA
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