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Buying Property in the USA or UK?!

Buying Property in the USA or UK?!

Old Oct 10th 2017, 4:35 pm
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Default Buying Property in the USA or UK?!

Hi, I'm not sure if this is where I'm supposed to post this question. Apologies if not.

Would be great to get some advice on the below:

I moved over to the US (Los Angeles) at the end of 2016. Me and my wife have a 01 Visa. We sold our house in London just after we moved. We currently have about £130k in our UK bank account.

I'd rather invest it than have it sit there. I have zero knowledge on stocks and shares, so would prefer to invest in property to rent out.

The question I'm struggling with is whether we invest in a property in the UK or US? There's obviously lots of tax implications and other stuff to take into account.

Some of the pros and cons I've thought about for both.

MARKET
I know the market in London / where to buy / how much we should expect it to go up by - I don't really know the market in LA

LOGISITCS
Buying in London and being in LA could end up being a bit of a nightmare. We sold our place in London to avoid joint US/UK Taxes/Capital Gains and because we had lots of issues with the building. Sorting plumbers/builders out from abroad is not fun!

SELLING & FEES
We only paid our Estate Agent 0.65% when we sold our property in the UK. I hear that it's 6% here. However, it took months to go through. The system seems to be a lot quicker and less stressful here...maybe

DEPOSIT
We might potentially be able to buy 2 places in the UK if we put down 10% deposit each - hopefully making more money. Here, I believe we would have to put down 20%. Also, I don't know how hard it will be to get a loan here as we've been here less than a year.

EXCHANGE RATE
Is it worth transferring a lot of money from pounds to dollars. The exchange rate is pretty bad. Might be worth leaving it in our UK account.

TAX
This is one thing I don't know the details on. Buying to Rent from abroad / how much capital gains / tax we'll have to pay in the UK and also in the US if we sell. Also how it works Buying to Rent as a first time buyer in the US (if you can even do that!)

If we own in the US and sell, do we still have to pay tax in the UK?

So, basically lots of questions I don't know the answer to. I've also found it hard to find detailed information on this too. Not sure who I need to speak with about it? A specialized international broker?

Be great to get any advice the good people here have to offer.

Thanks!
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Old Oct 10th 2017, 5:15 pm
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Default Re: Buying Property in the USA or UK?!

I’m sure you will get some expert advise, but I’m not sure anyone will lend on a buy to let basis with less than a 30% deposit in the UK, but could be wrong. Maybe be even tougher as you are not living in the UK
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Old Oct 10th 2017, 5:20 pm
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Default Re: Buying Property in the USA or UK?!

Getting a mortgage in the UK is very tough for non-residents. Rental properties in the US generally require 25% down for residential and 30% for commercial. Renting is not just about buying a house and finding tenants, there is a lot of legislation to make yourself aware of. Failure to learn the rules could potentially cost you hundreds of dollars. Saying that, many people do become landlords.

Rental in the UK will require you doing both UK and US tax returns, rental in the US , just US tax returns if you live in the US. The tax treaty specifically excludes real estate rentals.

The exchange rate is low, but how much are you getting by leaving it that. Property where I live has increased 10-12% per year for past 3 or 4 years and also brings in an income. That may offset some of the currency losses.
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Old Oct 10th 2017, 8:34 pm
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Default Re: Buying Property in the USA or UK?!

Since you sold at the end of 2016, if you were a US resident when you sold you could have a large US tax bill to pay on the foreign currency gain for 2016. Hopefully you both filed as non-resident aliens for 2016?
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Old Oct 10th 2017, 8:59 pm
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Default Re: Buying Property in the USA or UK?!

Hi, yea, we filed as non-residents for 2016.

Sounds like buying in the US might be the best bet as don't want to pay UK & US Tax. Our Visa is for 3 years. We hope to renew after that period. I don't know if that will affect us buying here or getting a mortgage? We are also sponsored by a creative company, so we don't work 9-5, more like freelance. Income isn't the same every month.
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Old Oct 10th 2017, 9:43 pm
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Default Re: Buying Property in the USA or UK?!

Best thing to do, is find a realtor you like working with and ask for a recommendation for a mortgage broker. They tend to be a bit less formal and give you an honest opinion on the options available.
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Old Oct 10th 2017, 11:56 pm
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Default Re: Buying Property in the USA or UK?!

Originally Posted by daveyboy1984 View Post
Hi, yea, we filed as non-residents for 2016.

Sounds like buying in the US might be the best bet as don't want to pay UK & US Tax. Our Visa is for 3 years. We hope to renew after that period. I don't know if that will affect us buying here or getting a mortgage? We are also sponsored by a creative company, so we don't work 9-5, more like freelance. Income isn't the same every month.
UK income from rental can be taken sans tax in the UK (some forms for that which I just completed myself) and the tax is then payed in the US return. You'll declare it in both countries but pay it once, that's my understanding anyway...

Will find out soon.

If an 01 is a green card then buying makes sense. Some people here have advised don't by in the US until you have a GC. Although I'm not sure if I'd stick to that, kind of depends on situation I guess...

My friend just got declined a mortgage at a preferential rate because of his visa (L) a mortgage company said sure but you need to put up $1m as untouchable collateral on hold... so the rates you can get might be not ideal as it depends who will lend.
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Old Oct 11th 2017, 12:11 am
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Default Re: Buying Property in the USA or UK?!

UK taxes are deductible against Federal at the moment. Those days may soon be over with the current administration.
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Old Oct 11th 2017, 12:20 am
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Default Re: Buying Property in the USA or UK?!

It seems to me that there are three questions that are key to your decision.

Where do you live?

Where do you expect to live long term?

Are you comfortable delegating all management and oversight to a hired hand?

Personally I wouldn't want to own a rental home that I couldn't drive to and visit within an hour or two. And I definitely wouldn't want to own a rental home in another country, a several hours or more flight away, unless there was a compelling reason to do so - for example if I thought there was a high likelihood of moving much closer within a (very) few years.

Also, to get the most out of an investment in rental property you should consider it a relatively long term investment. If you sell a home in the US within five years you may end up giving most or all of the investment returns to your realtor and lawyer to sell it.

Bear in mind that markets are more volatile than in the UK in other words, prices go down as well as up, and if you are in a forced sale situation you could end up taking a loss. That said, prices in the UK are looking a bit toppy and Brexit may see the market slide, or worse. There are now too many people in the UK who don't remember what happened to houses in the UK between 1990 and 1995. It could happen again!

Across much of the US there is relatively little likelihood of much capital appreciation, but there is a pretty good likelihood that you can invest and get a decent revenue stream, unlike in London where rent may be insufficient to cover the mortgage/make a reasonable return on capital invested and "investors" are actually gambling on making a capital gain.

Are you planning to buy one house or several? Are you comfortable having all your investment in one property? What if you have a bad tenant?, the tenant destroys the inside? the house burns down and you lose your income stream? I know many people who decided to dabble in rental property but got disillusioned after just one bad experience. It might be a bit different if your investment was diversified into 5-10 properties.

Houses in the US need a lot more repairs and maintenance than houses in the UK. A roof often only lasts 20 years, and as little as 10 if you have damaging weather, such as wind or hail. A heating and AC system rarely seems to last beyond 15 years, and again failure at 10 years is far from uncommon. Both of these things can cost $10,000 - 15,000 to replace.

As a home owner in the US for over 14 years I find the endless list of minor, and not so minor repair and maintenance tasks to be a bit depressing. I like doing DIY tasks around my home and garden, and I used to joke that my home wasn't just a home, it was a hobby too. But the joke has worn a bit thin, and the list of tasks hasn't got any shorter, nor does it appear likely to do so any time soon. ..... I am currently replacing the garage door opener, and upgrading the garage lights to LED. Parts of the exterior need painting/painting again, and part of the porch facia is rotted to the point where replacement is the only option. ...... So if you invest in rental property in the US, think very carefully about whether you are buying a money pit!

Last edited by Pulaski; Oct 11th 2017 at 12:31 am.
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Old Oct 11th 2017, 12:34 am
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Default Re: Buying Property in the USA or UK?!

Originally Posted by Pulaski View Post

Bear in mind that markets are more volatile than in the UK in other words, prices go down as well as up, and if you are in a forced sale situation you could end up taking a loss. That said, prices in the UK are looking a bit toppy and Brexit may see the market slide, or worse. There are now too many people in the UK who don't remember what happened to houses in the UK between 1990 and 1995. It could happen again!

Across much of the US there is relatively little likelihood of much capital appreciation, but there is a pretty good likelihood that you can invest and get a decent revenue stream, unlike in London where rent may be insufficient to cover the mortgage/make a reasonable return on capital invested and "investors" are actually gambling on making a capital gain.

Are you planning to buy one house or several? Are you comfortable having all your investment in one property? What if you have a bad tenant?, the tenant destroys the inside? the house burns down and you lose your income stream? I know many people who decided to dabble in rental property but got disillusioned after just one bad experience. It might be a bit different if your investment was diversified into 5-10 properties.

Houses in the US need a lot more repairs and maintenance than houses in the UK. A roof often only lasts 20 years, and as little as 10 if you have damaging weather, such as wind or hail. A heating and AC system rarely seems to last beyond 15 years, and again failure at 10 years is far from uncommon. Both of these things can cost $10,000 - 15,000 to replace.

As a home owner in the US for over 14 years I find the endless list of minor, and not so minor repair and maintenance tasks to be a bit depressing. I like doing DIY tasks around my home and garden, and I used to joke that my home wasn't just a home, it was a hobby too. But the joke has worn a bit thin, and the list of tasks hasn't got any shorter, nor does it appear likely to do so any time soon. ..... I am currently replacing the garage door opener, and upgrading the garage lights to LED. Parts of the exterior need painting/painting again, and part of the porch facia is rotted to the point where replacement is the only option. ...... So if you invest in rental property in the US, think very carefully about whether you are buying a money pit!
Capital appreciation is more prevalent in parts of the West Coast. I have seen over 100% return in 6 years and rent has increase by almost the same in the same time period. However now, you would be lucky to get your mortgage paid by the rent, let alone make a profit.

Volatility across the US varies tremendously, just like in the UK.

Costco are doing replacement LED fluorescent tube replacements at the moment. Not sure how well they work.
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Old Oct 11th 2017, 1:10 am
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Default Re: Buying Property in the USA or UK?!

Originally Posted by mrken30 View Post
...

Rental in the UK will require you doing both UK and US tax returns, rental in the US , just US tax returns if you live in the US. The tax treaty specifically excludes real estate rentals .....
What does it mean that the treaty specifically excludes real estate rentals? I thought I understood that the rental income (from a UK property) had to be declared in both countries, but if one paid tax in the UK on that income it could be deducted in the US as a foreign tax credit. Does excluded from the treaty mean that is not the case?
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Old Oct 11th 2017, 1:57 am
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Default Re: Buying Property in the USA or UK?!

Originally Posted by Mercury39 View Post
What does it mean that the treaty specifically excludes real estate rentals? I thought I understood that the rental income (from a UK property) had to be declared in both countries, but if one paid tax in the UK on that income it could be deducted in the US as a foreign tax credit. Does excluded from the treaty mean that is not the case?
You are correct. I think the UK has first bite of the cherry if on UK rental income. At the moment those taxes are deductible against Federal income tax. However the wonderful Trump wants to do away with being able to deduct other income taxes from Federal income taxes. I am not sure if that will pass.
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Old Oct 11th 2017, 2:35 am
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Default Re: Buying Property in the USA or UK?!

Originally Posted by mrken30 View Post
You are correct. I think the UK has first bite of the cherry if on UK rental income. At the moment those taxes are deductible against Federal income tax. However the wonderful Trump wants to do away with being able to deduct other income taxes from Federal income taxes. .....
All the chatter is about personal taxes and deductions - rental income is a business transaction with a different set of rules. There are already many things that you can deduct from rental income that you can't deduct from your personal income subject to tax, such as repairs, insurance, and depreciation. I have seen nothing to suggest that even the most far reaching tax reforms would impinge on the tax deductions for a residential rental.
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Old Oct 11th 2017, 5:12 am
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Default Re: Buying Property in the USA or UK?!

Originally Posted by Pulaski View Post
All the chatter is about personal taxes and deductions - rental income is a business transaction with a different set of rules. There are already many things that you can deduct from rental income that you can't deduct from your personal income subject to tax, such as repairs, insurance, and depreciation. I have seen nothing to suggest that even the most far reaching tax reforms would impinge on the tax deductions for a residential rental.
Depending on the tax changes I may have to move my rentals into an s-corp or llc. Let's hope not, but these are interesting times.
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Old Oct 11th 2017, 12:20 pm
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Default Re: Buying Property in the USA or UK?!

Originally Posted by mrken30 View Post
Depending on the tax changes I may have to move my rentals into an s-corp or llc. Let's hope not, but these are interesting times.
But taxation is based on the business activty, not or whether or not the business is incorporated.
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