Foreign Investment in Commercial RE

Foreign Investment in U.S. Commercial Real Estate See this link:  http://www.marcusmillichap.com/about-us/news-events/videos/2016/12/22/cnbc

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	2017 outlook on investment in U.S. commercial real estate

International Real Estate Investing

The Best Places to Look

 

So how does one go about identifying places to build your “dirt bank”? I’ve done some research on various countries based on the variables I identified, and compiled it in the table below. I selected the countries based on their overall fit with my variables, as well as the existence of robust and open property markets that are known to appeal to foreigners.

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Except for Malta, they’re all in the Western Hemisphere. The reason for that is largely by default: Europe is too tax-heavy, Asia is generally unfriendly to foreign property ownership, and Africa, with some possible exceptions such as South Africa and Kenya, isn’t stable enough.

The tables don’t include an estimate of each country’s property value appreciation prospects, since these vary widely by region and type of property, and are unpredictable for many countries. Nevertheless, you’ll notice one thing most of these countries have in common: They’re small — several are islands — so land is in relatively short supply. That generally means values will go up.

Loophole the IRS Wants to Keep Secret

What if you don’t want to hold foreign real estate in your name? What if you prefer the privacy, security and protection of a corporation?

Under some circumstances, even if you purchase foreign real estate via a corporation, trust or other structure, you might not need to report your interest in it on IRS Form 8938. That’s because Form 8938 applies to those with “significant” assets outside of the United States. You don’t need to file Form 8938 if:

• You are resident in the United States, are a married couple filing a joint tax return, and your reportable foreign financial assets on the last day of the year do not exceed $100,000, and are not more $150,000 on any day of the year; or if you are single or married filing separate, and your reportable foreign financial assets on the last day of the year do not exceed $50,000, and are less than or equal to $75,000 on any day of the year.

• You are resident abroad, are a married couple filing a joint tax return, and your reportable foreign financial assets on the last day of the year are not more than $400,000, and do not exceed $600,000 on any day of the year; or if you are single or married filing separate, and your reportable foreign financial assets on the last day of the year do not exceed $200,000, and are not more than $300,000 on any day of the year.

Being “resident” abroad is based on a combination of factors, but essentially it means that your home, business and income are all in non-U.S. locations, so if you maintain a home or business in the U.S., but live largely abroad, you’ll need to act as if you were a U.S. resident, because legally that's what you are.

The upshot is that you might be able to hold non-reportable foreign property worth up to $100,000 in a single corporation trust, or other vehicle if you are a U.S. resident, and up to $400,000 if you’re resident abroad. That means you could possibly even participate in a property syndicate, as I explained when discussing Uruguay.

But beware that Form 8938 kicks in based on the value of all your foreign financial interest taken together — so if you have other offshore financial interests, the threshold for the value of your interest in a property-holding vehicle will be correspondingly lower.

As I’ve stressed, building a “dirt bank” isn’t the same thing as buying property to live in overseas. Nor is it the same as investing for profit. The goal is to protect a portion of your wealth by converting it into a form that you’re not obliged to tell the government about.

As the risks of government wealth confiscation grow, hedging investments like this are becoming more and more important. Don’t just say to yourself, “That would be a nice thing to do. Maybe someday…”

Consider doing it now before it’s too late.

Happy Investing!

Today's blog courtesy of  Ted Bauman
Editor, The Bauman Letter and Plan B Club

Investing in Foreign Property

In order to buy real estate in another country, it may be necessary to open a foreign bank account. It is possible that the attorney handling the transaction could use their own escrow account for the purchase. Once you are a property owner in another country, most banks will open an account for you, as you have a clear presence in and relationship with the country.

Many foreign real estate purchases have to be paid in cash, as most foreign countries do not have U.S.-style mortgages. In the best case, you can get a 70% 10-year mortgage, but long-term or higher LTV ratios are generally unheard of.  The good news is that property prices in such countries are typically much more reasonable than in the U.S., precisely because mortgage finance isn't so easy to get.

The South American nation of Uruguay is an increasingly popular destination for foreign property investment and one that has been recommended by the editors of The Sovereign Nation.

Uruguay has some of the best farmland in the world. It has a mild climate and ample annual rainfall, and the seaports along the mouth of the River Plate make it easy to ship grain, beef, pulpwood and soybeans all over the world.

International interest in Uruguayan agricultural land has driven its price up an average of 20% a year since 2002, when you could buy excellent land for $3,700 per acre. Now land costs $17,000 to $32,000 per acre for prime crop land (soya, corn, wheat), and $7,000 to $15,000 per acre for good cattle pasture. Operational returns for farming in Uruguay are typically in the 3% to 5% range.

Uruguay’s average farm is only 1,000 acres, which reflects the high productivity of its land, so you can expect to pay from $7,000,000 to as much as $32,000,000 for an average farm. But better deals on smaller farms are available — you could find worthwhile opportunities for as little as $600,000 if you know where to look. But that’s the minimum. To invest less than that in farmland means buying into a syndicate. But if you do that, you’ll have to report on your interest in that syndicate to the IRS, since it’s a “specified foreign financial asset.”

As an alternative, excellent residential property in Montevideo could be had for as little as $100,000, where rental yields are from 6% to 8%. If your “dirt bank” needs to be in smaller chunks, residential property would be your best option. It would offer not only a place to store a portion of your wealth outside the notice of the IRS, but rental property could also yield a nice, steady income as well.

The purchase process is simple in Uruguay. You appoint an “escribano,” or conveyancing attorney. They draft a boleta de reserva (intent to purchase agreement), inspect and verify the title, draft the purchase agreement, set up the escrow account, and record the purchase at the national Registro de la Propiedad, or Property Registry.

All of this would cost you about 8% of the purchase price, or $8,000 per $100,000 in property purchased. You’ll also pay property tax of 0.25% per annum. If and when you sell the property, capital gains tax will be 12% (under current law).

So, sticking with a hypothetical $100,000 residential investment, here’s how your “dirt bank” hedging strategy would work out, assuming a 15-year ownership with 5% per annum increase in property values, which is actually quite conservative given Uruguay’s recent market performance:

If you rent out the property, you’d need to open a Uruguayan bank account, which isn’t difficult (but keep in mind you must keep its balance below $10,000 at all times). You’ll pay tax of about 12% on that income, but it can be offset against your U.S. tax without revealing the source of that income — i.e., the existence of your “dirt bank.”

Happy Investing!


Today's blog courtesy of

Ted Bauman
Editor, The Bauman Letter and Plan B Club

Foreign Real Estate

Summertime, and savvy investors' thoughts turn to properties in some exotic locations...and there may be good reason to consider this fantasy for real...Here are some reasons why...

Open some financial accounts overseas and have more than $10,000 in them at any time during the year, and you’ve got to report it to the IRS and U.S. Treasury Department on your annual income tax return. Don’t forget to include the same information in detail on a little horror show called a Form 8938. Same goes for your interest in any foreign investment fund, corporation, LLC, trust or other entity.

Armed with this information, the government money-grabbers will know how much you’ve got and where to go when the time comes to rob you, no matter where your money is around the globe. It won’t matter if it’s in an offshore bank. They’ll probably just say, “You’ve got X in foreign accounts and we can’t touch it directly, so we’ll take more out of your U.S. accounts to compensate.”

But under current rules, personally-owned foreign real estate can be held with no reporting requirement, so the Feds won’t know about it at all.

That’s because foreign real estate isn’t a “specified foreign financial asset” under U.S. tax law. Like gold or gems in a vault in Montreal, artworks in a Swiss duty-free warehouse or stamps in a safe deposit box in Guernsey, foreign land could be your own little — perfectly legal — secret.

Owning foreign real estate, also known as a “dirt bank,” is a way to park your wealth in a place and form that can’t be touched by the government under current U.S. law. And since you don’t have to report it, the taxman can’t use it to calculate your net worth for the purposes of potential wealth confiscation.

Although appreciation in the value of your land holdings is desirable, it’s not the prime consideration. You don’t want to see values fall, of course, but the main goal is to stabilize and protect your wealth in a form that isn’t vulnerable to easy confiscation. As long as the overall value of your investment remains stable, that’s success.

That means you must be prepared to trade some asset value appreciation for greater security. In fact, that’s what many foreign investors are doing — such as Chinese millionaires who buy property in the West as a hedge against the unpredictable policies of their nominally Communist government or Russian oligarchs who buy in London.

How to Dig Up the Best Dirt Bank

These considerations — risk-hedging versus asset protection and wealth generation — help identify the key variables you’ll want to use when searching for investment property abroad. Here’s my list of the main issues any investor looking for asset value stability in land should consider.

• Restrictions on Foreign Ownership: Unrestricted foreign ownership rights means you’re operating in a global market, not just a national one. You can sell to other foreigners as well as locals.

• Market Stability and Liquidity: Obviously, you want to invest in places that will maintain the conditions that prompted you to buy there in the first place. It’s impossible to predict the future, but there are many countries that can boast decades of stability on the issues that matter — property rights, taxation, openness to foreigners and so on. That’s where you want to invest in property. But you also want to be sure that you can liquidate your property holdings when the time comes, so choosing a country with an active property market is important too. The good news is that the two factors — stability and liquidity — tend to go hand-in-hand.

• Property Values: Owning property is analogous to owning a business. You can invest in a big business that makes a good profit or many smaller businesses that collectively earn the same. But the hassle of owning many small businesses may make it a more difficult route to wealth. The same goes for property. Whether to invest a big sum in a single piece of agricultural land or the same in 10 different residential parcels — even in different countries — depends on your desire to be involved in managing your foreign property assets. And some countries’ land values are such that any investment at all would constitute too big a chunk of your portfolio.

• Title Security: Some countries with great upfront property deals also have weak titling and deeds registry systems. This can come back to haunt you if someone comes along with a stack of old paperwork and claims that your land was actually stolen from his grandfather. Even if it isn’t true, it can tie your property up for years.

• Buying Costs: Every country levies some form of tax or duty at the time of a real estate transaction, which are usually shared by buyer and seller. Some can be in the double digits, so it’s important to anticipate this cost so you can balance it against expected land value appreciation and other cost factors.

• Property Tax: Some countries don’t levy any property tax. But most do, and like transaction taxes, these need to be taken into account when working out how much of your wealth you’re going to be preserving, and how much you’re going to be giving to the foreign taxman for the privilege.

• Capital Gains Tax: Capital gains taxes on property sales vary widely, and some countries don’t levy any at all, or tax it as ordinary income. But some — including some of the most popular expat destinations — have capital gains rates in the double digits. You want to know upfront if you’re going to be trading low transaction and property taxes now for a big capital gains hit when you sell, and vice versa. But bear in mind that the IRS is going to tax you on any gains from foreign property sales, so the most important thing is to ensure that the foreign rate is below or equal to U.S. rates, which are 15% to 20% for most households. That way you can deduct the foreign capital gains tax from your U.S. tax obligations and come out even. If you invest in a country with a capital gains rate above the U.S., you will pay more in taxes.

Happy Investing!

Today's blog courtesy of

Ted Bauman
Editor, The Bauman Letter and Plan B Club

Chinese Investment in Seattle

What do London, Paris, and Dubai have in common? Aside from being the most popular cities in the world to visit, none of them are the new hotspot for Chinese real estate investors. In fact, through an impromptu IP search, Amy Bohutinsky, chief marketing officer at Zillow found that the second most popular United States search destination for users in China was Bellevue, and the fifth was Seattle.

Wondering how the greater Seattle area became so popular? It provides “luxuries” that China is lacking- clean air, space to move around, and the opportunity to own land. “In China, you purchase a land lease and after a certain amount of time, usually 75 years, the land goes back to the government,” explained Director of New Markets Development for Berkshire Hathaway HomeServices Northwest, Joseph Ho. Beyond their attraction to Seattle’s culture and environment, Chinese investors are seeking offshore financial stability. This stability is of growing concern, following China’s recent stock market dive. In January, “the Shanghai Composite Index dropped 3.6 percent, putting it more than 20 percent below its December high and entering bear-market territory for the second time in seven months,” according to Bloomberg News.

Although China’s currency has devalued in response to their roller coaster stock market, further investments are not projected to slow. In fact, Chinese investments may actually accelerate, as investors are noticing returns of five to eight percent within the past year; compared to the alternative of leaving their money in China.

To prevent capital flight, the Chinese government has an annual foreign conversion limit of $50,000. How are they purchasing real estate in Seattle? “People with money find ways around that limit,” Kristi Heim, president of the Washington State China Relations Council explained. In fact, there are incentives if they do. Through the EB-5 visa program, foreigners are provided with a way to obtain their green card and immigrate to the United States in return for a capital investment of $500,000-$1,000,000 in an American development that will create ten permanent jobs.

According to the National Association of Realtors, for the first time, Canada has been knocked down to the second largest group of foreign real estate buyers in the United States. Who surpassed them? You guessed it, China.

Not only are Chinese investors purchasing an abundant amount of real estate in the United States, but between March 2014 and March 2015 buyers from China spent $28.6 billion; eight percent of which was used to acquire homes in Washington State, which was only surpassed by 35 percent in California. As a distant comparison, buyers from Canada spent $11.2 billion, though only falling behind China by two percent in terms of buyers.

For decades, buyers from China set their sights on Vancouver, British Columbia, pushing the average single-family home price to over $1 million despite the city’s median income of $71,000. Another result of this craze is an increasing amount of neighborhoods filled with vacant houses due to investors who are solely interested in diversifying their portfolios.

How does this impact your own real estate journey? Chinese investors are willing to excessively overpay for these properties with cash, making it nearly impossible for locals to acquire homes. Since this influx of investors is not projected to slow anytime soon, you will need to be well-armed if you are looking to purchase a home. 

Happy Investing!

Today's blog courtesy of Will Heaton, Heaton and Dainard, Intrust Investing

Seattle Business Investment

Inc. magazine reports that Seattle is in the top ten cities (#7) where small businesses with fewer than 99 employees thrive. Austin, TX is number one on their list.

Matt Ryan, Global Chief Strategy Officer for Starbucks Coffee Company reported at the recent Annual Rainier Chamber luncheon that, "The companies that invest in doing the right thing will benefit in the future." As an example, Starbucks has invested heavily in fair trade coffee, provides health care and free college education for employees.

The Puget Sound Business Journal reports that Chinese investment in the Puget Sound region is about to go beyond real estate. A Chinese venture capital group based in Shenzhen wants to open an office in the Seattle area so it can invest in the region's tech and biotech industries. "They're very serious about making their first mark here in the Seattle area and we're definitely working closely with them," said Office of Economic Development director Brian Surratt, who also noted that the city's talks with this venture firm are all part of a deliberate push by Mayor Ed Murray's administration to try to draw more foreign direct investment to Seattle.

Happy Investing!

Photo courtesy of Lesley Blyth