Bobby Casey, Managing Director of Business Anywhere, and Robert Chadwick explored the strategic benefits of LLC formation for U.S. real estate investments. This webinar highlighted the importance of registering an LLC for property purchases, discussed Business Anywhere’s simplified setup process, and provided effective strategies for mitigating litigation risks. For those who couldn’t attend, the recording is now accessible here.
Bobby Casey (BC) and Robert Chadwick (RC) addressed a range of inquiries, providing insightful responses tailored to assist investors in making informed decisions, with remarks edited for clarity and brevity.
1. Can you help with opening a bank account for the LLC?
- BC: Yes, we can assist with opening a bank account for an LLC through our online banking partner, which accepts foreign nationals and doesn’t require an in-person visit.
2. Can the LLC be owned by an offshore SPV like BVI or UKCO to purchase property?
- BC: Legally, yes, a U.S. LLC can be owned by an offshore SPV such as a BVI or UK company. However, for mortgage purposes, the members of the LLC must be the same as the borrowers. (If an offshore entity owns an LLC it is not suitable for mortgage financing)
3. Which state is the best for forming an LLC for real estate investment?
- BC: Wyoming is recommended for forming an LLC for real estate investment due to its favorable laws, low costs, and privacy benefits.
4. Do I need to form an LLC in the same state where the property is located?
- BC: No, you can form an LLC in a different state, such as Wyoming, and still own property in another state. However, you may need to register the LLC as a foreign entity in the state where the property is located.
5. In my recent experience, lenders don’t provide HELOCs on LLC-owned properties. How can I secure a HELOC?
- BC: HELOCs on LLC-owned properties are rare. You may need to transfer the property to your personal name to secure a HELOC. Some lenders might offer HELOCs on LLC-owned properties under commercial loan terms.
6. Can a non-U.S. resident register an LLC in the U.S. without visiting?
- BC: Yes, non-U.S. residents can register an LLC in the U.S. without visiting. Everything can be done online.
7. Can I own multiple properties under one LLC?
- BC: Yes, you can own multiple properties under one LLC, but it is not recommended due to risk aggregation. It’s better to use separate LLCs for each property to limit liability.
8. Any complications in transferring individual ownership to an LLC, especially with an existing mortgage?
- BC: Transferring individual ownership of a property to an LLC, even with an existing mortgage, is legally straightforward. You can use a quitclaim deed to transfer the property. However, check your mortgage agreement for any “due on sale clauses.” These clauses could allow your lender to demand immediate repayment of the mortgage if ownership is transferred. While many lenders don’t enforce these clauses if mortgage payments are current, it’s essential to verify your specific lender’s policies before proceeding.
9. Do I need to buy property in the same state where my LLC is registered?
- BC: No, you can buy property in a different state from where your LLC is registered. However, you may need to register the LLC as a foreign entity in the state where the property is located.
10. Should I create separate LLCs for each unit in a building with 4 units?
- BC: If the units are deeded separately, it’s better to use separate LLCs. If it’s a single deeded property, one LLC can be used.
11. If I’ve already created an LLC in a different state, can I switch it to Wyoming?
- BC: Yes, you can domesticate your LLC to Wyoming, but it involves some costs and a process to obtain certified documents from the original state.
12. What’s the difference between a Wyoming and Delaware LLC for owning real estate?
- BC: Wyoming is preferred due to lower costs, faster processing, and better privacy compared to Delaware. Delaware is more suitable for raising large funding due to its Chancery court system.
13. I’m from the U.K. and have a California LLC holding one property. Should I set up a new LLC per property?
- BC: If you have a California LLC holding one property and you’re considering acquiring another property, setting up a new LLC per property is generally recommended. This approach can provide better liability protection and simplify management. However, consider the state-specific tax and compliance requirements, especially in California. If privacy is a concern, you might explore forming LLCs in states like Wyoming, which offers more privacy options while managing the properties in California.
14. Can you recommend a tax advisor for advice on foreign tax reporting with a U.S. LLC?
- BC: If you’re looking for a tax advisor who can advise on how owning a U.S. LLC impacts foreign tax reporting, America Mortgages has a tax partner who specializes in this area. They can provide tailored guidance on tax implications and help you navigate any complexities related to foreign tax reporting with your U.S. LLC.
15. Do I need to file taxes in both the state where my LLC is registered and where the property is located?
- BC: You only need to file taxes in the state where the property is located. The LLC’s state of registration does not impose additional tax obligations.
16. Does LLC make the assets fall outside of the very low inheritance threshold for heirs?
- BC: No, owning an asset through an LLC does not change its value for estate planning purposes. For example, if you own a million-dollar property in an LLC, your estate’s value remains based on the property’s worth. However, the structure of the LLC and the estate plan of its members can affect inheritance tax implications, especially if a member passes away. It’s crucial to have a well-defined operating agreement and a clear estate plan to handle such scenarios smoothly and avoid family disputes.
17. Are there special mortgage products for non-U.S. citizens who are self-employed?
- RC: Yes, there are ways to secure mortgages for non-U.S. citizens who are self-employed. The qualification process typically focuses on rental income from the property being purchased, which can be used without needing to provide personal income documentation. Alternatively, if personal income verification is required, applicants can provide income letters verified by their accountant. The distinction between being employed or self-employed does not affect mortgage eligibility under these programs.
18. Is now the right time to invest in U.S. real estate? What factors should I consider?
- RC: Yes, now is considered a favorable time to invest in U.S. real estate. Interest rates, although higher compared to COVID-era lows, are still historically reasonable. Many property owners are holding onto properties with low-interest mortgages, causing a shortage of available inventory. This lack of supply reduces competition among buyers, especially for real estate investors, who are finding fewer bidding wars and less price inflation. As a result, seasoned investors are currently active in the market, seeing it as a prime opportunity to purchase properties without the pressures of excessive demand.
19. Can America Mortgages assist with currency exchange risks?
- RC: Yes, America Mortgages collaborates with a vetted partner to assist with currency exchange risks. This partner not only facilitates transferring funds at favorable FX rates but also offers options to lock in exchange rates for extended periods, ensuring consistency in mortgage payments despite currency fluctuations. This service is beneficial for international clients seeking stability in their financial commitments related to U.S. real estate investments.
20. How can non-U.S. citizens improve creditworthiness for better mortgage terms?
- RC: At America Mortgages, we focus on lending to foreign nationals and expats. We do not require foreign borrowers to have a U.S. credit score. Instead, we evaluate your creditworthiness based on other factors, ensuring that you can still qualify for competitive mortgage terms comparable to those available to U.S. citizens.
21. What tax advantages exist for foreign investors in U.S. real estate?
- RC & BC: Foreign investors in U.S. real estate can benefit from significant tax advantages, especially when utilizing an LLC structure. Similar to U.S. citizens, foreign investors can enjoy tax benefits and deductions, which are rare in other countries. For instance, the absence of buyer stamp duties in most U.S. states is a notable advantage. Additionally, U.S. tax laws incentivize real estate investments through features like accelerated depreciation. This allows investors to depreciate internal items of properties faster, reducing taxable income in the short term. Moreover, strategies such as 1031 exchanges enable investors to defer capital gains taxes by reinvesting profits into new properties indefinitely. These tax advantages make investing in U.S. real estate particularly attractive for foreign nationals looking to optimize their investment returns.
22. Can I complete the entire mortgage process while abroad, or must I visit the U.S.?
- RC: You do not need to travel to the U.S. The entire mortgage process, from the initial application to closing and signing documents, can be completed from your home country.
23. Does the income letter need to show gross income or net income?
- RC: The income letter should show gross income. Whatever the taxes are in your home country, all we care about is how much you’ve made gross for those two-year periods in your current year to date.
24. Does local debt matter, or only gross U.S. mortgage payments within 43% of income?
- RC: The qualification for mortgage payments is based on gross income, not considering local debts. Regarding additional contributions like the Australian superannuation fund, it depends on how your accountant structures the letter. Typically, we consider gross income for the two-year period and current year to date in determining eligibility.
25. What is the maximum Loan-to-Value (LTV) ratio for foreign nationals?
- RC: The maximum loan-to-value ratios are 75% for purchases and 70% for cash-out refinancing. Rates are influenced by factors such as credit history, loan amount, and lender terms.
26. What are typical mortgage interest rates for foreign nationals?
- RC: Mortgage rates for foreign nationals are approximately 1% higher than the rates for U.S. citizens.
27. Will holding a J1 visa in the U.S. classify me as a U.S. expat for mortgage purposes?
- RC: If you are living and working in the U.S. on a proper visa and have U.S. credit, you can qualify similarly to a U.S. citizen. Generally, foreign national rates are about 1% higher than U.S. citizen rates.
28. What is the optimal entity structure for Canadians to own U.S. real estate without double taxation?
- BC: Canadians should consider owning U.S. property through a Wyoming LLC and establishing a Wyoming C Corporation as the holding company. This structure aims to mitigate potential double taxation issues by allowing profits to be retained within the U.S., thus managing tax liabilities efficiently in both the U.S. and Canada.
29. Is there a recording available after this session?
- RC: Yes, a recording of the session will be available. It will be shared on various channels, including YouTube and the company’s website, after editing.
30. For mortgages based on rental income qualification, can nested entities besides individuals be LLC partners?
- RC: For mortgages that qualify based on rental income, we generally prefer a straightforward LLC structure for property ownership. This approach offers more options for obtaining a mortgage compared to individual ownership.
31. Does the location of a virtual mailbox matter?
- BC: No, it doesn’t significantly matter where you have a virtual mailbox for general business purposes. However, your choice could be relevant based on personal circumstances, such as tax implications if you’re moving from a high-tax state like California to a state with lower or no income tax, like South Dakota or Florida. This change in address can help establish residency status for tax purposes.
32. Can an LLC engage in various businesses like property investment, financial trading, or consulting?
- BC: While it is possible, it is not advisable to mix different business types within one LLC due to liability and accounting complexities. It’s better to separate assets and business activities into different LLCs.
33. Are Wyoming LLCs as advantageous if I reside in the USA?
- BC: Yes, Wyoming LLCs are still advantageous for their strong privacy laws and lack of state income tax, even if you reside in the USA.
34. As a non-U.S. resident, can I transfer monthly rental income from an LLC account to my personal bank for personal use/investment?
- BC: Yes, as a non-U.S. resident, you can transfer monthly rental income from your LLC bank account to your personal bank account for personal use or investments. This is considered profit distribution or a salary from the LLC, and it is permissible for business owners to access their earnings in this manner.
35. Does America Mortgages place a lien on the property to secure their mortgage?
- RC: Yes, America Mortgages does place a lien on the property to secure the mortgage. Typically, any mortgage obtained in the U.S. will involve placing a lien, usually in first position, on the property to secure the loan.
