During our meetings with various potential real estate investors for our recent hotel syndication, a frequently asked question emerged: “As non-citizens, are we able to invest in U.S. real estate syndications?”
You can! But international real estate investors should understand the legal and tax implications and requirements before venturing into U.S. real estate syndications.
Keep these considerations in mind before investing and the steps for participating in US-based real estate syndications.
What Are Real Estate Syndications?
A real estate syndication is an investment strategy where multiple investors come together to buy and manage larger commercial properties.
A syndicator — or sponsor, operator, or general partner (GP) — leads the project and handles property acquisition, management, and disposition. Limited partners contribute capital and share profits proportionally. It’s a type of private equity real estate investment, not publicly traded on stock exchanges.
Investors like syndications for their high returns, typically 15-30%. That includes both passive income in the form of distributions and also capital gains when the property sells. Real estate syndications also come with full real estate tax benefits, from built-in investment property tax deductions to accelerated property depreciation.
On the downside, they require a medium- to long-term commitment of 2-7 years, and typically a high minimum investment of $50-100K. You can invest with less however by joining a real estate investment club: our Co-Investing Club invests in a new deal each month, with a minimum investment of $5K.
What Foreign U.S. Real Estate Investors Need to Know
Before investing money into U.S. syndications, make sure you understand the following implications and requirements.
Legal Tax Obligations
Investing in U.S.-based real estate syndications as a non-citizen comes with tax obligations and implications. Specifically, you need to pay taxes to the U.S. government and often to state and/or local governments on any income or sale profits you earn on properties.
To do that, you need a U.S. tax ID number, bank account, and usually a legal entity. More on these steps for U.S. real estate investing shortly.
Consult a qualified tax professional to understand the various factors.
Currency Risk
Currency risk can cause variations and affect your investment’s value. Stay updated and informed on currency exchange rates, how they work, and the potential impact on your investment.
Political & Regulatory Environment Changes
A change in the political and regulatory environment can drastically alter the landscape of any investment sector, including real estate syndication.
To safeguard your investments from potential risks associated with such changes, stay updated about the current political climate at home and in America.
Capital Restrictions Impact on Investments
Your home country may have capital restrictions limiting your real estate purchases and investment capacity. Make sure you understand these limitations and plan your investments accordingly.
Steps for Foreign Investors to Participate in US-Based Real Estate Syndications
The steps for foreign real estate investors to participate in U.S.-based real estate syndications include incorporating an LLC or corporation within America and obtaining an EIN (Employer Identification Number), executing operating agreements among partners, and opening local bank accounts.
Incorporate a U.S. Entity
The first step for you is to incorporate a U.S. entity — either an LLC or Corporation. While this entity is required, it also provides legal protection.
Most U.S. real estate investors prefer LLCs because they are tax-efficient and can help you avoid double taxation.
Apply For An Employer Identification Number (EIN)
Apply for an Employer Identification Number (EIN) from the IRS. It serves as a taxpayer ID for your business entity.
To apply for an Employer Identification Number (EIN), you can visit the official IRS website and complete the online application form called “Form SS-4.”
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Register for An Individual Taxpayer Identification Number (ITIN)
In addition to the EIN, you also need an Individual Taxpayer Identification Number (ITIN), which you can obtain by applying to the IRS. This number serves as your personal tax return identification number for filing purposes.Draft An Operating Agreement Among Partners
Draft an operating agreement among partners. This agreement outlines a business’s financial and functional decisions, including rules, regulations, and provisions for you and your partners. You don’t need to file this anywhere, but it puts down on paper the rules by which your business operates. Among other details, it includes the ownership percentage of all owners (called “members” in an LLC).Establish Local Bank Accounts
Once you have established your entity and the necessary identification numbers, the next step is opening local U.S. bank accounts for your LLC and for yourself personally. If you are a foreigner not currently residing in America, this article can guide you on how to open a U.S. bank account.File Required Tax Returns
The next step is fulfilling tax obligations. You must file federal, state, and city-level tax returns while keeping track of treaty benefits applicable depending upon your country of origin.Tax Treaty Benefits
Tax treaty benefits consist of arrangements between two countries designed to prevent double taxation and promote cross-border investment. As a foreign investor participating in U.S. syndications, these agreements enable you to utilize future gains and potentially reduce your tax obligations. Some tax treaty benefits related to real estate syndications include:-
- Passive income such as dividends, royalties, pensions, and interest may be subject to reduced tax withholding rates for foreign taxpayers under certain tax treaties.
- Some foreign taxpayers may qualify for lower or exempt capital gains taxes when selling properties in the US.
- Favorable depreciation rules may be available for foreign investors in US real estate under certain tax treaties.
- Certain tax treaties prevent double taxation on income earned by foreign taxpayers in both the US and their home country.
- Under certain conditions, foreign taxpayers can claim tax credits for foreign taxes paid on income earned in the US.
EB-5 Immigrant Investor Program (Not Applicable for All)
If your goal is to secure permanent residency in the U.S., the EB-5 Immigrant Investor Program could be an option, depending on the syndication project and your available funds.
This U.S. Government program incentivizes foreign investment into the American economy while creating job opportunities. As a reward, qualifying foreign investors and their immediate family members can receive permanent residency through Green Cards.
New development syndication projects may be eligible for EB-5 investors if they create at least ten full-time jobs. This program is frequently utilized in hotel syndications for new construction projects but applies to other commercial real estate investment projects, such as newly-built apartment complexes.
Why Do Non-Citizens Invest in U.S. Real Estate?
Non-U.S. citizens find much to like about owning properties in the States.
If “the land of opportunity” sounds quaint and hokey, consider the following reasons why many foreigners invest in American real estate.
Global Diversification Benefits
Foreign investors choose U.S. real estate syndications to diversify their investments globally. By spreading their real estate investments across different regions, they can avoid risks associated with economic downturns that may affect a particular country or region disproportionately. In essence, global diversification acts as a safety net against localized economic shocks.
High-Performance Asset Class
The high-performance nature of US-based real estate is attractive to non-citizen investors. Real estate has consistently outpaced other asset classes, offering long-term wealth-generation opportunities and cash flow.
Stability & Regulation Attractiveness
The U.S. economic system is recognized for its durability and stability, making it an attractive choice for real estate investment. And America’s (relatively) business-friendly regulations make investing here more appealing than in other countries where legal frameworks can be complex or unpredictable.
Size & Diversity Opportunities Offered by US Market
The diversity of opportunities available within the U.S. real estate sector offers many options — from commercial self-storage properties in bustling city centers to apartment complexes in suburban neighborhoods — all promising varying degrees of return on investment based on their unique attributes.
Final Thoughts
As a non-citizen or someone participating in foreign investment, you can indeed invest in U.S. real estate syndications. Benefits include portfolio diversification, capital appreciation, passive rental income, and tax advantages.
Still, as a foreign property investor, you may encounter challenges like taxation-related reporting and currency exchange risks, but partnering with qualified professionals can help you through this process.
By carefully assessing the opportunities and addressing potential challenges, non-citizens can successfully invest in U.S. real estate syndications, reaping the rewards of passive income and tax advantages linked to these investments.♦
What obstacles have prevented you from investing in U.S. real estate up until now? What questions do you still have about investing in U.S. real estate as a non-citizen?
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About the Author
Nichole Stohler co-founded Gateway Private Equity Group, specializing in hotel real estate investments. She is also the creator of NicsGuide.com, a blog dedicated to real estate investing.
I know several non-Americans who would love a syndication I’m investing in as an LP. Will pass this along to them.
Glad it was helpful Ivan!
Didn’t know this was possible! Checking out your real estate investing club now.
Glad to hear it Shara!
Given that we’d need to create a legal entity in the US, I’ve been holding off on this. But I think we’re getting close to an amount of capital that would make it worthwhile.
Sounds great Emmy!
Have you heard about an app that allows investing in US real estate through cryptocurrency? What’s your take?
The closest I know of is Lofty. They sell fractional shares in rental properties, so it’s a 100% real estate investment, not a cryptocurrency investment. But when you sell your shares, you get paid out in a cryptocurrency, which you then convert to cash.
Didn’t realize this was so easy. So I just need to create an LLC and get a resident agent? Can I use the same LLC to invest in many different syndications?
Yes you can Isaiah, on both counts.