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Foreigners can buy real estate in the U.S.

Foreigners can buy real estate in the U.S.
July 29, 2008

Many of us are familiar with a saying that "one's misfortune is another's opportunity". And it is hard to cite a better example than the current situation of the real estate market in the U.S.

We often hear from real estate agents that the three most important factors that determine a property value are "location, location, and location". Another word, all real estate is about locality, except for one thing - this time around not all real estate buyers are local. Nowadays international buyers have become a significant part in U.S. the real estate equation.

Both home sales volumes and prices have sunk deeply, and lots of foreigners now have opportunities to invest in U.S. properties. Southern California, one of the favorite locations for international buyers, home prices have dropped nearly 30% between June 2007 and June 2008. California, Florida, and Texas are among preferred locations for international buyers and accounted for about half of foreign investments in real properties.

Let's take a look at contributing factors that entice foreign buyers. 2008 U.S. median home prices have downed significantly as compared with that of 2005. The median home sales price in California was $355,000 in June 8008, down 29.3% from that of 2007. And home prices are now about what they were 4 years ago. According to DataQuick Information Systems, in the second quarter of 2008 (April-June), default notices have been sent out to 118,020 homes, an increase of 125% as compared to the same period of last year, and is the highest number since 1992. In the same period, the percentage of foreclosed sales with respect to total sales volume of existing homes in California varies from county to county, with San Francisco County is lowest at 3%, and Merced County highest at 75%. And the overall figure for California is about 40%, an increase of 5.4% from a year ago.

Some key data of international buyer activities in the past 2 years:

International customers by region and leading countries
Sorting by region, that more than 30% of foreign buyers was from Europe while 25% from Asia and about 15% from Latin America. By country, Mexico accounted for (13%), the United Kingdom (12%) and Canada (11%).

Type of properties
International buyers preferred single-family homes or townhomes. Nearly half of foreign buyers are interested in buying property as a vacation home, and about 30% purchase as both vacation and investment or for business purpose.

Price range of investments
According to the NAR (National Association of Realtors), most international buyers purchased single-family homes or townhomes. In 2006, the median sales price of homes purchased by international buyers was $299,500, which is higher than the U.S. median of $221,900 during the same period.

Type of financial arrangements
About 30% of buyers was paying cash and 70% using mortgage financing. For mortgage financing, depending on where the international buyers live, the required down payment percentage could vary. For European nations that have a U.S. equivalent credit report system, the down payment may be less than that of other regions without similar credit system. In general, however, foreign customers usually need to prepare for a larger down payment percentage than that of U.S. residents.

Foreign owners do not automatically become U.S. residents
Foreign owners can come to visit or stay temporarily at their property in the U.S. You can go to the U.S. as a tourist or on a business visa. Note that buying a property in the U.S. by no way link to U.S. residency. The investment in real estate does not automatically qualify you to become a U.S. resident. Establishing permanent resident is a different and separate immigration issue and you should consul an attorney or a subject matter expert.

Do foreigners have to pay property tax, rental income, and capital gain when selling?
Yes. The county where the property is located usually collects property tax. For more details about rental income and capital gain, go to federal taxes.

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