The U.S. real estate market offers some of the most lucrative returns for people who invest in it. However, when you are based outside of the U.S., you may wonder how you can stake a claim in this market and reap the biggest rewards from it.
As an out-of-country investor, you actually have several legal structures available to you. At Upside Investments, we can help you choose the best option for your investment goals today.
Limited Liability Company
As an out-of-country investor, you may utilize a limited liability company, or LLC, as a legal structure for investing in real estate in the U.S. An LLC can actually consist of one or more owners, who are called members, in this type of structure. Members can include:
- Sole proprietors
- Non-corporate legal entities
- Corporations
- Other LLCs
An LLC is designed to protect the personal and business assets in it from liabilities, such as becoming the target of a lawsuit. Further, income generated from assets in the LLC are not taxed at an entity level but instead on members’ income tax returns. This structure protects your income from the LLC from double taxation.
To set up an LLC, you must first file articles of organization with the state where the property you want to invest in is located. You must include the name of the LLC, as well as the purpose of the LLC and the names of all of its members.
Once the state approves your LLC, you and its members must then draft an operating agreement. This agreement should indicate how you will manage and operate the LLC.
Likewise, if you choose this legal structure for investing in the U.S. real estate market, you should be aware that you must pay upfront fees to start an LLC. You likewise must pay annual fees for it for as long as it remains in operation.
Limited Partnership
At Upsell Investments, we can also help you explore whether or not a limited partnership is the right legal structure for you as an out-of-country real estate investor. A limited partnership is set up to include you and then one or more limited liability partners. It can be ideal for real estate syndications and larger investment projects.
A limited partnership also allows for more flexible management and taxation of your real estate investment. As with an LLC, income from your investment is reported on your individual tax return rather than being taxed at an entity level. It can result in you paying lower overall taxes as an investor.
Further, when you opt for a limited partnership, you can benefit from each partner’s unique set of investment or finance skills and resources. Your partners can help you grow and build your real estate investment significantly.
Depending on how you structure your limited partnership, you can also ensure your partners share varying levels of benefits and obligations, such as debts like property taxes, as you for the property in which you invest. One caution involving a limited partnership can center around differences between or among partners that can jeopardize this type of legal structure.
Grantor Trust
As an out-of-country investor, you can also explore the possibility of utilizing a grantor trust for investing in the U.S. real estate market. A grantor trust is a legal structure that consists of a grantor, or investor, who retains certain rights over the real estate that is held within the trust.
This control can grant the investor the ability to make investment decisions or access to income that the assets generate. The grantor is also typically the person who is responsible for paying taxes on the trust’s assets.
A grantor trust can be ideal if your investments include rental properties in the U.S. Rental income from a U.S.-based property that is owned by the trust would then be reported on the grantor’s personal income tax returns.
To set up a trust, you must first transfer ownership of your property to the trust. As the grantor, you can then appoint a trustee to manage your property or properties on your behalf. The trustee would be responsible for tasks like collecting rents, as well as upgrading or repairing your properties held in the trust.
You can set up either a revocable or irrevocable trust as an out-of-country investor. A revocable trust lets you change or revoke the terms of the trust at any time. An irrevocable trust cannot be changed once the grantor creates it.
A grantor trust offers numerous benefits to you as an out-of-country investor. Primarily, it allows you to pass on assets in the trust to your heirs. Further, it protects the assets in your trust from liabilities like lawsuit judgments. You will need to pay upfront costs to set up a trust, as well as ongoing fees to manage and retain it.
C-corporation
Finally, you may consider using a C-corporation for investing in U.S. real estate as an out-of-country investor. This type of legal structure is not utilized as frequently as others, primarily because investors are required to be gainfully employed and have W-2 incomes for the last two years. Still, it can be a viable option if you do, in fact, work in the U.S. and have a U.S.-based income yet still live or initiate your investments from outside of the United States.
A C-corporation offers a high level of protection from liabilities for the assets in which you have invested. It is subject to double taxation, however, as it will be taxed as both personal and corporate income. Even so, a C-corporation allows for more complex ownership structures, which may appeal to you as a real estate investor.
These legal structures are some that are available to you as an out-of-country investor. At Upside Investments, we can help you decide which one will ultimately serve you the best and maximize your investment potential in the U.S. real estate market. Contact us at Upside Investments today to learn more.
