Getting started in the US

Discussion in 'The Buying & Selling Process' started by Jordan Sinclair, 22nd Oct, 2019.

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  1. Jordan Sinclair

    Jordan Sinclair Well-Known Member

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    People have asked me how to get started so I thought I'd share a brief guide based on my experience/research so far. I don't claim to be an expert so I encourage anyone considering investing in the US to have a read and then do their research.

    TL;DR

    In my case, I set up the LLC online, then applied for the EIN online, opened a bank account in person, then applied for the ITIN online (see tax section below).

    Choosing your market

    Deciding what market to focus on will depend on your strategy. Some say markets like California are similar to Australian property in that they generally have a high entry point, lower cash flow but increased capital appreciation. Not always will a market offer both cash flow and capital appreciation. Many investors connect with people on the ground who offer buyers agent and property management services and build a team from there. Some states are pro-landlord while others tend to be more pro-tenant so it's best to research local eviction laws. Expect to get started with at least $50,000.

    US Structure

    There is a lot of information out there that all investors should only ever use a LLC (Limited Liability Company). Everyone's situation is different so depending on the type of deal being done, this may or may not warrant a LLC. If an investor opts for a LLC to be the property owner, they must decide who will own the LLC. Whether it's an individual(s) or a Pty Ltd or trust. I personally had a US attorney establish my LLC and the operating agreement. This was all done online, took less than 1 week and cost around $850. Other variables include where the LLC is located. Laws differ between states but some investors simply opt for the LLC to be established where the property is located.

    The IRS has recently made foreign owned LLC's complete form 5472 to report financial transactions. Some CPA's are charging $300-$400 to complete this.


    The buying process

    In the US, a Title Company does what a Conveyancer would do in Australia. Overall, the process is similar but settlement (known as 'closing' in the US) is usually much quicker and can happen in around 1 week. A FX company such as OFX or TransferWise can assist with the funds transfer to the Title Company and then it's just a matter of getting the property documents signed and notarized. Some US states allow online notarization.

    Banking and finance

    Setting up banking in the US is much like in Australia in my opinion. You just need to visit the bank branch in person and show 2 forms of ID and the account is open.

    Finance for US non-residents is difficult to obtain especially as a new investor. If approved, it usually comes with higher fees/interest. Most investors tend to be 'cash buyers' which can be actual cash, using finance from other sources such as family/friends or utilising equity in Aussie property.

    US Tax

    If you are not eligible for a Social Security number, then you will eventually need to get an ITIN (Individual Taxpayer Identification Number) for you as an individual and an EIN (Employer Identification Number) for the LLC. There are paid services for this but you can do it yourself for free. In my case, I submitted the forms (W-7 for ITIN & SS-4 for EIN) to the IRS and mailed in a certified passport copy (must be certified by the passport office) for the ITIN which was eventually mailed back to me. Expect the process to take at least 2 months for each but YMMV.

    The US tax year is based on the calendar year and to submit your first return as a non-resident, you do not need an ITIN or EIN as they are generally applied for at the time of submitting the return (1040NR). As a non-resident, it's possible to file an extension till October instead of the usual April deadline. Any US tax paid is generally considered by the ATO to minimize double taxation due to the tax treaty.


    Disclaimer: I am not an advisor/planner/CPA/lawyer/expert. I am simply writing about my experiences and/or research and encourage you to do your own independent research when making any financial decision. All amounts are in US dollars.
     
    Last edited: 22nd Oct, 2019
    TTT888, SOULFLY3, gman65 and 4 others like this.
  2. ellejay

    ellejay Well-Known Member

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    Yay, well done and thanks for starting the thread for others to chip in! . I"m a 'buy high cash flow in areas due for ripple effect increases type investor'. Can I trade mark that? I did very well copying others that also did extremely well by buying cashflow ips in 100k plus Pop cities. So I'm trying the same in the US. It worked in Atlanta, now fingers crossed for Detroit! Strategy remains the same, if growth doesn't happen I wasn't banking on it because the cashflow is there.

     
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  3. MTR

    MTR Well-Known Member

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    Thanks for this

    I changed my tax/financial dates to align with oz financial year 1 july

    My owner/member is my Australian Trust so i can reduce tax in Oz
     
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  4. gman65

    gman65 Well-Known Member

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    "In person" do you mean physically in the USA, or a local Australian branch of a US bank?

    By "2 forms of ID" do you mean can you do this with AUS id? or 2 forms of US identification?
     
  5. MTR

    MTR Well-Known Member

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    I would be interested in Estate Planning, your views, seems to be a grey area. My concern is getting hit with death taxes.

    I am hoping owner/member being Australian Trust mitigates this risk. Something I need to investigate further.
     
    Last edited: 8th Nov, 2019
  6. G..

    G.. Well-Known Member

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    How does this work with an LLC?

    Does the tax paid by the LLC count as if you had paid it personally?
    Or does the LLC pay you dividends and count the tax as an imputation credit?
    Or is it structured so that the LLC pays all profit as dividends so that it pays no tax?

    Also, with the AU ban on deductions for travel costs, is there any way around that by using an LLC for overseas properties? Eg, having the LLC pay your airfare and accommodation, or would the ATO put a stop to that?
     
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  7. Jordan Sinclair

    Jordan Sinclair Well-Known Member

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    In person in the US with 2 forms of ID such as a credit card and passport. I have used only Australian ID and both Australian and US forms of ID on multiple occasions.

    That said, it may be possible to visit an Australian branch but I haven't tried that. There's also borderless accounts like Transferwise that are similar to a fully functional US account.
     
  8. Jordan Sinclair

    Jordan Sinclair Well-Known Member

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    This is on my to do list.
    My understanding is foreigners are only exempt from estate taxes up to $60k vs $2mill for Americans. I saw a video by Charles Charillo with a guest CPA who touched on options to avoid estate tax liability. Basically it seems a trust structure of sorts may assist. Others have suggested a US life insurance policy.
     
  9. Jordan Sinclair

    Jordan Sinclair Well-Known Member

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    My understanding and experience is that a LLC is not a tax minimization structure per se. However, as an example a person could have a trust own the LLC or multiple people as owner/members in order to distribute net income. E.g., $2000 net income could be distributed amongst multiple people or a trust.

    In the case of a single member LLC, a person will only file an individual US return so US tax paid is generally acknowledged in AU. E.g., $1000 net income is $1000 net for the individual to report.
    I have just started to pay personal tax and so I can report back in the near future as to how well the tax treaty works in this scenario.

    I have spoken with multiple CPA's and they say to 'net out' income from the US and report it in AU as foreign income (not dividends in my personal structure). Dividends may be an option in certain structures but I am not aware if it relates to a LLC as I've only seen a LLC members income reported as net foreign income.

    My understanding with travel expenses has been that the IRS will allow them if it relates to a specific property already owned. Not for prospective acquisitions etc. So the LLC pays for the travel then I report the net income in Australia. I'm not aware how much scrunity is placed on this by the ATO while the IRS travel expenses policy is good, it used to be even better years back.
     
  10. RajP

    RajP Member

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    Could you please provide details of your accountant for your US returns & how much they charge usually?
     
  11. MTR

    MTR Well-Known Member

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    my accountant is not taking on any new clients
     
  12. RajP

    RajP Member

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    Thanks MTR. Would you know of any others that you can recommend?
     
  13. MTR

    MTR Well-Known Member

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    Go to biggerpockets forum you should be able to get help here
     
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  14. Mick Butterfield

    Mick Butterfield Well-Known Member

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    Hi I will PM you my accountants details. I have been using him for nearly 10 years now. Unsure their status on new clients but very happy with their service.
     
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  15. rebel

    rebel Member

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    Upwork is a good source for CPAs and Attorneys in the US. I found my CPA for US activities there. But I'm sure there are other platforms as well. I tried approaching accounting firms directly and actually found a few but they turned up to be more expensive when you "enter front door".