The U.S. real estate market is experiencing a surge in both resident and nonresident foreign investors. International buyers from China, Canada, India, and more are scooping up residential, commercial, and industrial properties. This is good for business for real estate agents across the nation.
While there is a tremendous upside, catering to this market often presents unique and sometimes challenging issues.
Want to know what you should keep in mind when you’re working with foreign real estate investors? Here are some key details.
Be mindful of cultural and language differences with foreign investors
According to the report 2016 Profile of International Activity in U.S. Residential Real Estate by the National Association of Real Estate, the biggest foreign residential buyers in 2015 were from China, Canada, India, Mexico, and the United Kingdom, but foreign investors come from all cultural backgrounds.
Seemingly trivial customs such as handshakes, who speaks first, and how much personal space you give another person can be perceived differently in another culture. How you communicate, interact with—and sell to—people from those different cultures can be the difference between landing a client or not.
Whenever you work with a foreign buyer, take the time to brush up on the norms and etiquette of that culture to ensure that you make a good impression, and more important, that you don’t disrespect anyone.
How do you know what elements of your business approach to modify for each culture? The intensity of these traits is what you’ll most likely find varies from country to country:
- Personal disclosure
It’s not just the customs of another country that may be different, but each investor will have varying degrees of fluency in English. You may want to consider working with a translator in some situations. If you simply need help with a few words here and there, you might try using Google Translate. Need to translate documents in a foreign language? Use SpeakText!
Prime locations for foreign investors
Foreign investors have interest in cities of all sizes. But according to the latest statistics from the National Association of Realtors, Florida, Texas, California, New Jersey, and Arizona are the top states where foreigners tend to purchase property.
Within these cities, foreign investors are chiefly investing in residential properties and apartment complexes. The latest statistics indicate that foreign investors have spent $150.3 billion U.S. on residential real estate from April 2016 through March 2017.
Warehouse and distribution centers, office properties and retail properties, and hotels are also attractive investments.
Undoubtedly, real estate phases, supply and demand, types of markets, and interest rates strongly influence the decision to purchase and what to purchase. The more you know in those areas, the better equipped you will be to take advantage of spikes in investment buying.
Individual taxpayer identification numbers (ITIN) are essential
Foreign buyers must obtain an ITIN from the IRS themselves or hire an IRS-approved certified personal accountant to get one for them. The process can take three or more months, so before you invest a lot of time with a client, make sure that they have at least started the process.
Taxes and financing can be complicated for foreign investors
An American bank will typically loan an investor money for real estate purposes, but there are some stipulations. Often the bank will require that the investor holds a balance (of potentially $100,000) at that institution before they’ll lend large sums of money. Banks also typically don’t lend more than $2 million to foreign real estate investors. On average a foreign residential real estate investment comes it at slightly more than $300,000.
Financing can also be hard to obtain if the investor has no credit score in the States. Recommend that your clients begin building their credit in the States as soon as possible, even if they have great credit at home.
Your foreign investor clients also have to abide by a slew of tax laws and regulations established by the Foreign Investment in Real Estate Property Tax Act (FIRPTA) that can make the process of investing in real estate arduous. Because this process can be quite technical, you should always refer your clients to a tax attorney or a tax accountant who can work with them.
Beyond that, your foreign buyers should consult a tax specialist in their home country. Their tax liability could vary depending on that country’s tax treaty with the United States.
How foreign investors plan to use the property matters
What investors intend to do with the property has significant tax implications, so you need to have this discussion with your clients from the outset. Investors planning to use the home as a primary residence or vacation property, for instance, will be taxed differently and will have different protocols than an investor who is buying properties to flip, resale, or rent out to others.
Again, it’s important that your clients understand the tax implications associated with the property they choose.
Foreign buyers don’t need to close in the United States
In fact, the buyer can appoint a representative and grant him or her “power of attorney,” giving that person the right to close the deal on behalf of the investor. It’s a convenience that many foreign investors use, so you could end up working with someone other than the actual buyer throughout the process—and even at closing.
The above tips are a great place to start if you’re just beginning to work with foreign investors. It’s not always easy to facilitate a sale to a foreign investor, but it can be rewarding. Studies show that the most common reason foreign investors fail to purchase is financial: cost, taxes, and insurance. Not finding the right property comes in a close second. Financing and immigration issues follow that.
Luckily, as an agent, you can mostly control the first two problems by finding investors a variety of properties that tick off all the boxes.
Gain more in-depth insight about how to work with foreign investors by taking the Foreign Investment in U.S. Real Estate course.