For decades, commercial real estate in the United States has been an extremely appealing asset class for investors across the globe. With its ability to deliver high yields, stable cash flows year after year, and impressive long-term appreciation, US commercial real estate provides foreign investors with an unparalleled opportunity to diversify their portfolios and achieve strong risk-adjusted returns over time. However, the prospect of investing in property located thousands of miles away across borders can seem daunting for many foreign investors. Navigating the complex regulatory requirements, tax implications, and legal structures involved with cross-border real estate investing may appear rife with hurdles. But with the proper roadmap and guidance from experienced professionals, these perceived obstacles can be overcome smoothly.
In this article, we will clearly outline the step-by-step process that foreign investors can follow to access the lucrative world of US commercial real estate investing. We will explain key strategies like forming US-based entities, obtaining necessary taxpayer IDs, opening US bank accounts, handling tax filings, and vetting syndicated investment deals. Our goal is to provide foreign investors with the knowledge and confidence they need to expand their portfolios into the stable, high-performing commercial real estate market of the United States. Though the path may seem difficult, it is highly navigable with the right professionals and a game plan. Equipped with the information in this guide, foreign investors can unlock the full benefits of diversification, income stability, and wealth appreciation that US commercial real estate has long offered to savvy global investors.
"With signs pointing to an easing of aggressive Fed rate hikes in 2024, the commercial real estate industry has a reason for optimism," says Anthony Theriault, Managing Partner with Vassar & Company Properties. "Moderating interest rates could reinvigorate demand across sectors, spurring increased construction and development, transaction activity, and property appreciation. I believe foreign investors who are positioning themselves prudently in 2023 stand ready to capitalize on brighter prospects in 2024 as the US macroeconomic climate improves and real estate fundamentals strengthen for new acquisitions."
Getting Started - Forming a US Entity
The first step for foreign investors is to establish a US-based holding entity, typically a limited liability company (LLC). An LLC provides liability protection and allows the investor to open US bank accounts and file US tax returns under the entity's name. While a single-member LLC is possible, it's best for foreign investors to partner with a spouse or other investor. That way, the LLC is taxed as a partnership, providing more flexibility and tax efficiency.
Once the LLC is formed, the next step is obtaining an Employer Identification Number (EIN) from the IRS. The EIN functions as the entity's tax ID number for all reporting and filings. The partners should also execute an Operating Agreement outlining ownership percentages and structure.
Obtaining Individual Taxpayer ID Numbers
Each partner will need to acquire either a Social Security Number or an Individual Taxpayer Identification Number (ITIN) from the IRS. ITINs allow foreign investors without Social Security Numbers to be identified for tax purposes. The application typically takes 4-6 weeks to process.
Opening US Bank Accounts
With the EIN and ITINs in hand, the LLC can then open US bank accounts to receive investment funds and manage finances. Our firm can recommend global banks that provide excellent service for foreign investors.
Navigating Taxes
The US LLC will be required to file annual federal, state, and local tax returns. Partners must also submit personal US tax returns. While this may seem complex, our CPA can handle filings and navigate any treaty benefits available between the US and your home country. With proper planning, taxes can be managed smoothly.
Accessing Quality Investments
Once the entity is established, our real estate investment firm can provide access to rigorously vetted syndicated investment opportunities across the major US property sectors. Our relationships and expertise allow foreign investors to capitalize on the best institutional-grade real estate assets that the US has to offer.
We Hope to Partner With You
In summary, with the right professional support, foreign investment in US commercial real estate is highly accessible. Our firm welcomes international investors. We hope you'll consider partnering with us as part of your investment portfolio. Please contact us to learn more!
Disclaimer: The information contained herein is for informational and educational purposes only. It should not be construed as professional legal, tax, or financial advice to any specific individual or entity. Foreign investment in U.S. real estate has risks and tax implications that must be considered with the guidance of your own tax and legal advisors. The author and publisher do not guarantee the accuracy or completeness of the information provided and are not responsible for any errors, omissions, or claims for damages. Foreign investors should conduct thorough due diligence and analysis with qualified professionals prior to making any real estate investment.
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