U.S. real estate has always been a popular choice for domestic investors; however, common issues inevitably arise during the investment process. Worldway immigration experts have summarized questions regarding "taxes, risks, loans, and real estate agents/attorneys" related to U.S. real estate investment, hoping to help everyone complete their property investments more smoothly.
Regarding Taxes
1. What does it mean that "non-U.S. citizen spouses do not enjoy the right to unlimited automatic inheritance of property between spouses, which may result in the surviving spouse having to pay estate taxes first"?
U.S. policy stipulates that U.S. citizen spouses enjoy the right to unlimited automatic inheritance of property; if one spouse passes away, the other can automatically inherit the property without paying estate taxes. Non-U.S. citizen spouses do not enjoy this policy; therefore, the surviving spouse must pay estate taxes before they can inherit the property.
2. What is the difference between a personal exemption and a standard deduction?
(1) An exemption refers to the amount of the taxable object specified in tax law that is exempt from taxation. Regardless of the total amount of the taxable object, if it does not exceed the exemption threshold, no tax is levied; if it exceeds it, tax is levied on the excess portion.
(2) The standard deduction is similar to the progressive tax rate in China, where a starting threshold is set, and the rate increases as the tax base increases, with higher tax rates applied to higher brackets of the taxable object.
3. Why is it still necessary to file a tax return when real estate cannot be rented out successfully or is operating at a loss for other reasons, resulting in zero personal income tax?
Filing a return does not mean paying taxes. When income is negative and personal income tax is zero, you still need to file a return.
Regarding Risks
1. Real estate agent fees are paid by the seller. If both parties have agents, is there a possibility of collusion between the agents and the seller to inflate the price? How can the buyer's rights be protected in this case? Are there relevant legal provisions?
U.S. law stipulates that real estate agents or brokers involved in property transactions must hold a license. If an agent does not consider the interests of their own client, they risk having their license revoked.
2. What are the advantages and disadvantages of holding property through a company versus as an individual? Is there an inevitable connection between buying foreclosed properties with existing leases through a company and buying them as an individual?
Compared to individuals, companies offer the characteristics of perpetual existence and limited liability. If a company holds the property, it can achieve long-term stability and security. At the same time, holding property in a company's name facilitates gifting and inheritance among shareholders, avoiding tax issues such as gift and estate taxes that arise from non-U.S. status. Additionally, daily expenses and costs of the property can be deducted when the company files its taxes. The main disadvantage of using a company compared to individual ownership is the initial cost of setting up the company. There is no inevitable connection between the two; buying foreclosed properties in a company's name is more advantageous, providing many conveniences in future tax payments, transfers, and other transaction stages.
3. The original owner purchased a house with a $600,000 loan and later had to sell it due to a job transfer. At that time, the market price of the house had dropped to around $460,000, so they listed it for a loss with an agent. A buyer offered $500,000 but requested the seller to refund 3% to cover their loan costs. Why is this offer unfeasible?
This offer carries the risk of fraud. Based on the conditions, the buyer wants the seller to refund 3% of the price to cover their loan; in other words, the buyer is borrowing from the lender after the seller refunds the money and then paying for the house. If the buyer defaults or absconds with the money, the seller would suffer the loss.
4. Regarding the purchase of foreclosed properties, why might the original owner's unpaid taxes and construction debts be transferred to the new owner?
When a foreclosed property is auctioned, the original owner's unpaid taxes and construction debts may be attached to the property as additional conditions. If the new owner decides to win the bid for this foreclosed property, they must accept these additional conditions.
5. Detroit's housing prices are low, but investment carries high risks and there is basically no room for appreciation. Is there any value in developing the Detroit real estate market? Besides price factors, shouldn't Chinese buyers consider more factors? Why is there a phenomenon of thousands of people "bottom-fishing" in Detroit?
Although Detroit's housing prices are very low, high property taxes and the current poor public safety in the city make low-priced properties lack investment value. Investors should not only consider price factors; insufficient access to information is also a reason for investors' blind choices.
6. What is the source of REO (Real Estate Owned) properties? Why do banks sell the REO properties they hold?
When many mortgage borrowers fail to repay bank loans upon maturity, banks will apply to the court to auction the properties to realize their claims. However, when the housing market is sluggish and prices fall, the auction may not succeed, and the bank must take ownership of the property. When banks hold more and more such properties, it means the bank's non-performing assets are increasing. To reduce the financial pressure of non-performing assets and increase cash volume and flow, banks will sell these properties at low prices to minimize losses.
Regarding Loans
1. Regarding REO properties, one can apply for a loan one year after purchase. Does the loan here refer to the mortgage for the previously purchased REO property? Can I still get a loan after I have already purchased this property?
One year after purchasing the property, the ownership belongs to the individual rather than the bank, so you can then apply for a loan.
2. When Chinese people buy houses in the U.S., the conversion of RMB to USD is usually subject to amount limits, and most U.S. banks are unwilling to provide mortgages to Chinese buyers. Do you have any good suggestions for this problem?
The conversion of RMB to USD is limited to $50,000 per person per year for Chinese citizens; that is, one ID card has a foreign exchange remittance quota of $50,000 per year. It is best to handle foreign exchange remittances domestically at the Bank of China. In addition, China limits the number of incoming remittances from the same foreign sender to the same account to no more than three per month, totaling $150,000. If you need to remit a large amount, it is recommended to open two more accounts in the U.S. U.S. banks do not specifically refuse to provide mortgages to Chinese buyers; this depends on the lending situation in different regions of the U.S. The borrower's personal proof of funds and credit status are the keys.
3. What are first-lien and second-lien lenders? Why are second-lien lenders willing to take the risk of losing everything to provide loans?
A first-lien lender is the bank that provides the initial loan using the property as collateral. A second-lien lender is the bank that provides a loan using the property as collateral again. Second-lien lenders decide whether to provide a loan based on the residual value of the house, bearing significant risk. Second-lien lenders use multiple indicators to decide whether to lend, such as loan amount, personal earning power, loan purpose, and high interest rates.
4. What are "Points" when taking out a loan? What is the special use of "Points"?
What are "Points"? "Points" represent 1% of the loan amount. For example: If you are planning to borrow $250,000 from a bank, then one "Point" is 1% of the loan amount, which is $2,500. Two "Points" are 2% of the loan amount, which is $5,000. If you want "Points," you are essentially using money to buy a lower loan interest rate. It can be said that if you borrow $250,000 from a bank, one "Point" will reduce the interest rate by about 0.25%, and two "Points" will reduce it by about 0.50%. In other words, if the current loan interest rate without "Points" is 6%, one "Point" means you can use $2,500 to buy the interest rate down to 5.75%, and two "Points" means you can use $5,000 to buy it down to 5.50%. In fact, this clearly demonstrates the principle that "the wool comes from the sheep's back."
Regarding Real Estate Agents/Attorneys
1. For property transactions, should I hire a real estate agent or a real estate attorney?
In property transactions, whether you should hire a real estate agent, a real estate attorney, or both, mainly depends on local legal requirements. Some states stipulate that only real estate agents handle property transactions, some states stipulate that only real estate attorneys handle them, and some states require both to work together to complete the transaction.
2. Is the validity of a real estate agent's license limited to the state or is it valid throughout the federal level?
U.S. real estate law is state law, not federal law. Therefore, a real estate agent's license is only valid in the state where it was issued, not nationwide. So when you choose a real estate agent, you must confirm that your agent has a license in the state where you are buying the property.
3. The real estate agent model is commonly used in U.S. property transactions. What are the benefits of this model? Is it feasible for the parties involved to bypass the agent and conduct a private transaction?
In U.S. property transactions, the real estate agent model is very common. It is a legal form of buying and selling houses with specific legal provisions, and there are also clear regulations on the code of conduct and responsibilities of real estate agents. The benefit of using this model is that real estate agents can use their professional services to facilitate the transaction, save time for both buyers and sellers, and improve the efficiency of the real estate industry. Real estate agents are generally diligent in their work. They are basically very cautious about illegal activities such as fraud. Because in a country with a sound legal system like the United States, it is really not worth it to lose one's job and end up with a revoked license or criminal charges for the sake of immediate profit. Of course, buyers and sellers can also conduct private transactions without an agent, but the premise is that you have very professional real estate knowledge, or the other party is a trusted friend or acquaintance. Otherwise, you are very likely to increase the risks in the transaction, such as defects in property title, quality issues, seller fraud, etc.
