Jetlagguy

Hi folks, I'm a UK citizen with an American wife and we're looking at buying a place in LA. I've been there 20 or so times and for all its quirks we both like it there a lot, plus I'm self employed and can work pretty much anywhere, and already work a lot in America on an O1 visa. She's also fed up with our weather, understandably!

I hope no one is offended by the inclusion of numbers, but I want to get to the point to see if things are viable as some of you on here will have surely been through the same stuff and may know what is possible?

I currently own a place in London, and am well above water with the mortgage on it. Plan would be to get a few flat mates to rent the other bedrooms and keep a room in it for when I need to be in London. I don't really want to sell it, but ultimately I could do if I had to and then downsize to a rented studio flat for when I need to be over here.

I did some initial research and discovered from one lender I could borrow a maximum of $650k under a foreign national program. We can currently get a deposit of $250k to $300k and are trying to build this up over time. The sort of houses we like are around $900k+. Around $1million even better. My income is around $275k (£180k) before tax a year, and in the UK obviously I could secure a bigger mortgage than I can in the US. It feels like the really good property is just out of our reach right now.

One broker I spoke to said to get the US resident deals you need 2 years of tax returns in the USA. I wondered if anyone knows of another way to get a bigger loan on a US property? We saw a few places a couple of weeks ago when we were over, and I feel like the LA market has been picking up and want to get in sometime this year. Also the pound seems to be weakening at the moment so am keen to transfer some money across just in case.

Has anyone managed to leverage their UK property against a US purchase?

I would probably want to let the property for a year (hopefully the rent would cover most of the loan but not essential to cover all) or so and then move in in the future, so it would likely initially be an investment until I've tied up some projects I'm working on in the UK til the end of the year. I'm sure this factor also limits the type of loans I would have access to.

I understand property tax in LA is 1% of the house value which is quite steep, but that you don't pay stamp duty? What would lawyer/fees be on buying a house around the $900k mark?

The other option is to scrap the idea and just rent somewhere over there of course, but that feels like throwing money away and I'd like to get on the ladder in the US really as my thirties are ticking away!

Hopefully that made sense. Any thoughts or advice from people who've "done it" are appreciated! Thanks in advance.

Jerseygirl

Welcome to BE.

1% property tax is not high...ours is 2%.

Jetlagguy

Thanks Jerseygirl. Great find this forum, I have to say!

2% wow! And us Brits tend to think the US is cheaper! By the time you add up the healthcare, valet parking, tipping and property taxes.... I always feel I'm "feeding the meter" in the US so to speak, with all the tipping etc!

Jerseygirl

It probably is if you live in the boonies...or one of the southern states. We certainly don't find it cheaper.

Jetlagguy

Yeah, my wife is from Texas, and life is definitely cheap there (but not for me, as much as I'm happy to visit once in a while!).

Sally Redux

Property tax is around 1% (I think ours is 1.1) and the value of your property is assessed as increasing by 2% per annum.

Bob

Plenty of threads on this.

Got to build up credit history for a couple of years to get a best rates on the mortgage.

Larger deposit helps.

Still, unless you've lived in the area, it's a poor idea buying for the first year, mostly because you'll need to live in the place 5-8 years generally to make it worth while, considering the 6% cost for flog the place if it doesn't work out for you.

Thing to look into, if you're renting your current gaff but with thoughts of selling it is timelines. Capital gains and when it kicks in etc. There was a really good thread that went over all this for someone else a couple of weeks ago, when they were asking about US taxes on selling their house that they had rented out for a few years.

Pulaski

I'm not going to be able to answer all your questions, but the fees on conveyance of homes in the US are largely borne by the seller as they are carved out of the purchase price in coming to the net funds payable to the seller. I'm not sure how the buyer's fees on a $1million house in CA might work out, but I usually seem to end up with fees, as a buyer of around 2%; of the purchase price for lawyers, loan origination, appraisal, etc., but that's on $150-$200k houses in NC.

Be careful about buying in the upper middle segment of the market and expecting to be able to find a tenant. There lots of people wanting to rent, but most are "financially challenged" and not in the market to rent a $1million home. It can be done, but be aware of the risk of having a house vacant.

Sally Redux

Budgeting 2% for closing and appraisals etc. should be all right even at that price point.

Personally I wouldn't want to have so many 'balls in the air' as he is contemplating. However, there are signs of the LA housing market recovering so it's true it could rise.

GeoffM

Wells Fargo told me just that yesterday - though pointed out it doesn't take two years to get two tax returns. They also said they make exceptions but didn't go into specifics - I was there for other purposes. But that was to qualify for a loan in the first place, not to get a cheap loan that US residents get, in your words. For that you need history as well as score.

Jetlagguy

Some good advice here - thanks everyone.

Seems like it might be best for me to invest the money for now to try and combat inflation, and rent in the US when I want to go there.

Psychologically harder to swallow as I don't like the idea of "throwing money away" but actually the foreign national mortgages give worse rates, so renting may not be quite as bad a deal when you look deeper at the numbers.... Plus as I understand it if you are a US tax payer you can write off the first 2 years of mortgage interest against tax or something? I'd be missing out on that as a foreign buyer.

Bob - really good point about capital gains. I'd forgotten about that, but someone had told me that a few years ago. Presumably this would also apply to other assets which would attract CGT (stocks etc?). Sounds like a decision needs to be made whether you pay tax in the USA or UK really.

It's never simple!

Jerseygirl

Any profit over $250K ($500K for a couple) is taxable in the US...although that could change...probably for the worse. You also pay 6% to the selling agent. That's a huge chunk of change out of your equity.

Sally Redux

You can offset mortgage interest on your tax return every year.

I'm not sure that renting is 'throwing money away'. Buying a house is no guarantee of making money, and the costs involved seem higher here to me.

GeoffM

Well, if you have a very short history then your interest rate might be 4% for the sake of example, but waiting a year to get history could drop it to 3.5%. That 0.5% adds up over a 15/30 year mortgage. Look at the long term figures!

Paying twice monthly instead of monthly also makes a big difference to the overall amount paid.

MMcD

It's just as well you've decided not to try to purchase a house in LA, after all. Stunning as it may seem - if you were looking to find something on the Westside - a million dollars would hardly be sufficient
As far as lawyer fees are concerned - Unlike the UK - in the States it's not customary to involve a lawyer in the negotiations (so there's a saving )