Help for Foreign Investors Who Want to Buy Florida Real Estate
I’m Eric Laningan with Lanigan and Lanigan of Winter Park, Florida. I want to talk for a few minutes about foreign investors in U.S. real estate.
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This is something that we’ve seen come and go in waves especially here in Florida. And I would say we’re now reaching another point where foreign interest in Florida property is very high. So it’s again a subject that has come to the forefront. In my 36 plus years of practice I’ve probably seen four or five of these waves over the years. And they come and they go, but no matter when it is there are always certain basic issues on top of the regular real estate purchase issues about disclosures and title search and all of those kinds of things.
Structure of a Foreign Investor
When you have a foreign investor in U.S. real estate there are other things that you need to consider that are critical. One is the structure of the buyer. Is it a foreign individual just buying property in their own name which is almost never the right thing to do. Because you can immediately subject that foreign individual to U.S. tax laws and tax liabilities. Does the individual already have a foreign entity, a foreign corporation or a foreign trust and there are lots of entities overseas that we don’t have here in the United States. Do they want that entity to buy the property. Again, that’s usually never going to be the case.
The most common is probably that that foreign entity create a United States or a Florida limited liability company so it is a Florida domestic limited liability company. The owners of which are a foreign entity and then the foreign entity is owned by the individual foreign investors.
Building a Relationship with a Bank
Another critical issue is banking relationships. People who live here in the United States that are buying property 99% of the time they already have pre-existing banking relationships. When it’s a foreign investor coming into the United States 99% of the time they don’t have any U.S. banking relationships. In fact we find that about 80% of real estate purchases are paying all cash when they’re foreign purchasers.
If there is going to be financing setting up a banking relationship is a critical first step. It’s a little late after you’ve already signed the contract for the property and now you’re scrambling around with maybe 30 or 45 days before closing trying to find financing. So that banking relationship needs to be setup prior to the actual going out and contracting the party.
And in our post-911 world it’s a lot different than it used to be. You can’t just walk into the bank, shake hands, let’s open a bank account, there’s all types of background information, background checks under the Patriot Act that have to be done.
So it’s a very good scenario if someone is a foreign investor that they work with a U.S. attorney who can typically take them into a bank, introduce them. The lawyer already has a pre-existing relationship with the bank, knows the bankers and they can trust the lawyer in terms of who the lawyer is bringing to them as a potential customer.
Visas Important for Foreign Buyers
There’s also the issue of visas. You know many people come, we’ve had many many people come in, they’re on a tourist visa, they want to snatch up some foreclosure properties in Florida because it looks like good deals in terms of exchange rates and the relative value of the properties and they want to snatch them up. And you’ve got to have a lot of conversations about look you’re here on a tourist visa.
First of all even with that type of visa, if you spend too much time in the United States you can start subjecting yourself to U.S. taxes. And is your use of the property consistent with the type of visa that you have. If you are going to buy the property and get on a plane, fly home and just use a property manager to operate it, well, maybe getting in and out on a tourist visa will be alright. But if it’s going to be a property where there’s going to be hands on management activity you’ve got to make sure you’ve got the right type of visa before you go out and commit yourself into property purchases.
Foreign Investors Need a U.S. Attorney
These are critical steps that all must be taken by foreign investors. We’re talking about corporate law, real estate law, tax law, immigration law, all of these areas. Now it’s obvious that no one person can handle all of these things but what a foreign investor needs when they come into a community is that they need to develop a relationship with somebody.
And I’m obviously, as an attorney, it’s my opinion that that somebody should be an attorney. An attorney who has connections in the banking industry, the real estate industry, has a good relationship with an immigration lawyer so that they can take that foreign investor and basically act as the group leader to insure that all of these areas are covered and that all of them are covered correctly so that lawyer may not be an expert in immigration law but he knows enough about it that when he talks to the immigration lawyer and the lawyer says we need to do this or we need to have this type of visa the lawyer knows whether or not that makes sense and that it’s consistent with what his client is trying to do.
Banking Relationships And the same with a banking relationship, the same with a real estate relationship. You can’t come into the United States on an airplane, pick up the real estate magazine in the motel or get online and Google Orlando realtors and going to find yourself with a realtor who has some background and expertise in the type of property you want in the area where you want to be and dealing with foreign investors. You’re not going to get that on Google and you’re not going to get it in the real estate magazine that’s in the hotel lobby. You’re going to need someone who as a group leader who can bring all of these professionals together so that you know that all of the professionals you’re working with have been properly vetted and separated out from the pack.
One piece of advice I would give to any foreign investor coming to invest in Florida. In fact I would say any non-local investor coming to invest in this area. Never rely on the seller of the property to be your guide. Never rely on the seller’s realtor to be your guide. Remember their job, their goal, is to sell the property. It is not to look out for you. You need to make sure that the person that you retain has one goal and that’s to look out for you.
Again, I’m Eric Lanigan with Lanigan and Lanigan, Winter Park, Florida.