9 Mistakes Property Managers Make with Utility Management

Utilities are one of the biggest expenses for apartment communities. And with inflation pushing the price of utilities to record-highs, it’s even more important that you’re keeping these expenses to a minimum.

Luckily, the right utility management strategies will not only help you keep costs down, but present an opportunity to bring in added revenue. Before that can happen, you need to assess every aspect of your utility program. Because most companies usually have a few areas that need improvement. Here are the most common mistakes that result in apartment operators spending more than they should on utilities.

#1 Including utilities in the price of rent

The worst mistake you can make with utilities is including them in the price of rent. That’s because you aren’t recouping money to match your actual expenses. Plus, residents don’t receive any kind of utility bill, which does not give them any motivation to conserve.

Another problem with including utilities in the rent is that it’s difficult to raise rent and remain competitive with other apartment communities. With rents rising so steeply over the past year, apartment residents are more sensitive than ever to rent prices. A “utilities-included” model can scare away some prospective renters if other communities in the area charge for utilities and have lower rent.

#2 Charging a flat fee for utilities

Charging a flat fee is also a risky move since utility costs fluctuate. And lately, they only seem to be going up. Your fee has to be high enough that you aren’t losing money, but you also can’t overcharge either. In some states, overcharging for utilities is illegal.

#3 Neglecting inefficient features that waste energy and impact NOI

When your buildings are not energy efficient, it hurts your business in two ways. One is that you use more energy which ultimately means higher expenses (and lower NOI).

The other way is that it could detract renters. An ACEEE study found that not only were renters more likely to visit communities that advertised energy efficiency, they were also willing to spend a little more on rent. On average, renters would increase their budget by 1.8% for a one-unit increase in energy score (on a scale from 1 to 10). That generates $400 per unit in additional annual revenue for an average-priced rental unit.

#4 Overlooking important utility metrics

Monitoring data associated with utilities is one of the most effective ways to improve your overall utility program. But many multifamily companies don’t do this at all or to its fullest potential.

However, by not actively monitoring utility data, you are missing opportunities to reduce your expenses and improve revenue. Plus, many cities and states are enacting laws requiring multifamily buildings to annually assess and report their energy performance. Like it or not, reviewing utility data is more important than ever.

#5 Paying utility bills without auditing them

Many companies simply check the balance due amount before issuing a payment. That strategy can result in a mountain of unnecessary charges. According to studies done by Engie, one of the nation’s largest utility billing auditors, at least 17% of utility invoices contain an error. With all the invoices your firm receives, it’s likely many have errors that go unnoticed.

This is why utility billing audits are so important. With the help of utility expense management companies all of your utility bills are audited for errors and savings opportunities. When errors are spotted, the provider disputes the charges on your behalf until a resolution is achieved.

#6 Accumulating and paying late fees every month

Most utility invoices have a fairly short payment window. To further complicate things,  sometimes your utility invoices don’t arrive at all, forcing your associates to track down what’s missing.

Because of these two scenarios, it’s easy to get dinged with late fees. That’s unfortunate, because they can really add up. Many utility companies assess fees that are equal to a 12-, 18-, 24-, or 36-percent annual interest rate. In other words, utility late fees are steep. And they add up in a major way. It’s vital to your NOI that utility invoices are always paid on time.

#7 Paying for renters’ utilities after they move in

Utility theft can cost property management companies thousands of dollars per year. Most of the time, this happens simply because renters forget to transfer utilities into their name. Whatever the reason, this miss can lead your company to pay thousands of dollars per year in charges that aren’t yours.

#8 Failing to monitor utility regulations for your states

Each state and municipality has different rules around handling utilities. So if you operate in different regions, it’s necessary to see what rules apply to each and every community in your portfolio.

The consequences for violating utility regulations can be costly. Most states levy fines on a per instance basis. So let’s say you’ve made a minor error in billing your entire 300-unit community. That’s 300 fines imposed - not 1!

#9 Overlooking the utility payment experience

How residents receive and pay for their utility charges is often an overlooked component of a utility management strategy. But if you aren’t taking into consideration how the process goes from a resident’s perspective, you could be damaging your bottom line.

In the short term, a poor payment experience can lead to late payments and frustrated residents, particularly if they need more clarity about their charges.

In the long run, a poor utility payment process could impact resident retention. When the payment process is inconvenient, or when residents don’t feel well-informed about what they owe, it impacts satisfaction since the situation is repeated month after month.

How to overcome utility management mistakes

If your company is making any of these mistakes, don’t worry. There are several easy strategies to get you back on track. Your best bet is to consult with a utility management provider that specializes in the multifamily industry. They can advise you on the most effective ways to tighten your expenses.

 

Source: 9 Mistakes Property Managers Make with Utility Management

https://www.creconsult.net/market-trends/9-mistakes-property-managers-make-with-utility-management/

How Real Estate Can Beat Inflation

How Real Estate Can Beat Inflation

 

Former president Ronald Reagan once remarked, “Inflation is as violent as a mugger, as frightening as an armed robber and as deadly as a hit man.” While there’s a fair amount of hyperbole in that statement, the comparison of inflation to a robber is an apt one. As a market force, inflation can and will devalue your investments. Fortunately, investors have a powerful tool to restore some balance.

Understanding inflation

What exactly is inflation? The simple definition of inflation is “a general increase in prices and a fall in the purchasing power of money.” The rate of inflation is measured by the Consumer Price Index and reflects the average change over time in the prices paid by consumers for goods and services. There are three things that lead to inflation:

• A cost push, which is an overall rise in prices
• A demand pull, which is a surge in demand for something
• Printing money, which happens when a government is facing a shortfall

The housing market, like all other economic sectors, is impacted by inflation. If there’s a reduction in the available inventory or an increase in demand, prices will go up, as we’ve seen. The price of a house can rise because the actual structure itself may be worth more due to rising lumber costs, but also because people see value in it as an investment.

How to Outperform Inflation

If you were to take your money and leave it in a savings account, you wouldn’t even get a one percent return. Simultaneously, the rate of inflation between April 2021 and April 2022 was 8.3%. Your money would actually lose its purchasing power by sitting in a savings account.

An excellent way to combat inflation is through real estate investing, especially in the rental property market. Even with high inflation, real estate still appreciated well above the general rate of inflation in the past year. While that year-over-year increase in asking rents and home prices could be an anomaly, the demand for rental housing clearly is not. In a study earlier this year, mortgage-finance company Freddie Mac estimated that the national deficit of single-family homes stood at 3.8 million units at the end of 2020. While that shortfall could eventually be made up for, that’s not likely to happen soon. In the meantime, a lot of would-be homeowners will remain in the rental market.

Even if you were to finance your rental property, you’d still be better off financing a rental property than putting your money into a savings account. It sounds counterintuitive, but your debt would be fixed while the rent you could charge would increase with inflation. With tenants paying off your loan, you’d be able to capture the benefits of inflation, both in the rent you could charge, and when you eventually sell your property.

While we don’t know how long we’ll be facing high inflation, investment properties will hedge against inflation for as long as you own them.

 

Source: How Real Estate Can Beat Inflation

https://www.creconsult.net/market-trends/how-real-estate-can-beat-inflation/

Multifamily Revenue Management in the Dock

Multifamily Revenue Management in the Dock

A recent article published by ProPublica: "Rent Going Up? One Company's Algorithm Could Be Why," is the latest to inform us on how revenue management works.

Observers of the industry cannot miss this article, as it appears to have occasioned a high-profile class action lawsuit filed in a San Diego court. The lawsuit is not the subject of this blog. But as usual, when I read criticism of revenue management that stems from a misunderstanding of how it works, I feel duty-bound to respond. There are three important claims that the article gets wrong, each of which I will address below. 

Misunderstanding Cause and Effect

ProPublica strongly suggests that revenue management software is causal in driving up rents across the market. It uses two sources of information to substantiate this claim: Publicly available quotes from revenue management "experts" and context-free statistics relating to performance. 

For example, the statement that an operator "outperforms their market by 4.8%," when placed alongside an unrelated quote about how revenue management software drives large rent increases, might look like cause and effect to the untrained eye. But those who understand multifamily revenue management know that a 4.8% outperformance is not the same as a 4.8% inflation of prices, as the article suggests. 

Operators improve performance by making better, more analytically-informed decisions further in advance. Sophisticated algorithms predict future supply and demand and avoid problems that would otherwise result in underperformance. When operators make fewer bad decisions, revenue performance improves—none of this entails price-gouging.

Beware of Conspiracy Theories

Secondly, the article and lawsuit both make the bizarre allegation that RealPage is running "a new kind of cartel" on behalf of its clients. The logic goes that because many people in the same markets are pricing their units using the same algorithm, the company running that algorithm must be coordinating supply and demand and ultimately inflating the price of apartment units for an entire market. 

This is dangerous nonsense. Revenue management software cannot coordinate supply and demand between properties or across markets. And the pricing recommendations that the software issues are executed through pricing calls, where stakeholders in a property's performance meet to review price changes for an individual property. 

The stakeholders making the pricing decisions must meet or exceed performance expectations, which places a natural focus on the financial well-being of the individual property for which they are responsible. It leaves no room for the kind of mustache-twiddling manipulation of market forces that the article insinuates. 

How Multifamily Revenue Management Software Actually Works

The final point the article gets wrong is that the software's algorithm may be artificially inflating rents and stifling competition. I will assume positive intent on behalf of ProPublica's writers and say that they misunderstand the arguments they have constructed to substantiate this claim, but they are wrong. 

For example, the article says many things about data sharing and using the same algorithm across the market, suggesting that the algorithm controls supply and demand at a level above the individual property. Many competing multifamily firms are indeed using the same algorithm, but their pricing activities have nothing to do with one another. 

To use a common parallel: Saleforce.com (SFDC) runs most companies' CRMs (a far higher proportion of the addressable market than any revenue management software). Each client's CRM is filled with highly confidential information. Following ProPublica's logic, we would conclude that SFDC coordinates sales activities between the companies that use it. They clearly aren't, and revenue management software is no different. High market penetration is not evidence of collusion. 

In another related misunderstanding, the article quotes RealPage's description of "Disciplined analytics that balance supply and demand to maximize revenue growth." The writers explain that individual actors cannot balance supply and demand by themselves (suggesting that the statement by itself must be evidence of collusion). 

Once again, those familiar with revenue management get what "balancing supply and demand" means in this context. There is a certain amount of potential renters for my property (demand), and I have a certain number of units to sell (supply). And by using an algorithm to make predictions about supply and demand, we can make better pricing decisions to optimize our share of available demand. That is what "balancing supply and demand" means—it is about efficiency, not collusion. 

A Sadly Familiar Theme

What is different about this piece compared to previous critiques of revenue management is the way it co-opts a sadly familiar theme. The article suggests that we should be suspicious of property management companies and developers who seek to make their businesses more profitable. It's the same wrongheaded logic that leads local jurisdictions misguidedly toward rent control. 

We have a housing crisis in the United States, and there is only one way to solve it: to build much more housing. You cannot solve a supply and demand problem like housing affordability by trying to make providers less profitable.  

ProPublica was conceived as a not-for-profit investigative journalism outlet designed to serve the public interest. It appears to believe that by attacking landlords (and their suppliers) for attempting to improve their performance, they are contributing to making housing more affordable. This intuition is quite wrong: more success attracts the capital needed to create more homes. 

To put it another way, we cannot solve a housing crisis by making profitability and performance dirty words in our industry.

Revenue management is not about gouging customers—the people who think it is are missing the point. And as the former CMO of Rainmaker (where LRO was part of my remit), I cringed at the quotes in both the article and the legal complaint about rent increases from professionals who ought to know better. Spiking the ball on large rent increases shows a poor understanding of the economic impact of revenue management and is out of place in an industry for whom housing affordability is a top priority.

We will watch with interest how this conversation plays out. I expect there will be an extensive discussion of this topic at OPTECH this week in Las Vegas. Landlords have always been a natural target for negative press. But housing affordability is too important to fall prey to the kinds of conspiracy theories espoused in the ProPublica article and the lawsuit that followed it.

Source: Multifamily Revenue Management in the Dock

https://www.creconsult.net/market-trends/multifamily-revenue-management-in-the-dock/

The Dangers of Selling Commercial Property Too Late

The last downturn

cost those who chose to sell commercial property an average of

30.3% of their property value

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Reason #1

Why people sell commercial property too late:

Complacency

 

Complacency is the most dangerous state to ignore.

It’s the moment before the market corrects and values decline. When the market goes through this initial correction, our natural tendency is to be complacent because initial corrections actually look like a cool-off period.

Then we expect the market to pick up again and continue with its growth phase.

But, the market continues to deteriorate and worries creep in as we wonder what is going on. Next, it is normal to say to yourself that your investments are good ones that they’ll ultimately come back.

When the market continues to soften until it seems there is no hope in coming back, that’s the absolute bottom of the market and the worst time to sell.

 

This point of capitulation is one of surrender and of asking how the government could let something like this happen.

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Reason #2

Why people sell commercial property too late:

Ownership and Identity

 

In order to avoid loss, people will overvalue what they own.

That is what Richard Taylor, Daniel Kahneman, and Jack L. Knetsch identified with the Endowment Effect. In fact, Kahneman and Knetsch won the Nobel Peace Prize for their research in this area of behavioral economics.

---

It’s normal for people to overvalue what they own.

---

In a study with Cornell undergrads, broken into groups and given identical coffee cups, Kahneman and Knetsch told one group to value the cups they owned and the other group to value the cups they would purchase.

They found the undergrads with the coffee cups were unwilling to sell their coffee cups for less than $5.25 while their less fortunate peers were unwilling to pay more than $2.25 to $2.75.

But, it was Carey Morewedge’s research into the Endowment Effect that revealed that it’s not loss aversion that leads to overvaluation, it’s ownership and identity.

Morewedge found that it’s our sense of possession that creates the feeling of an object being mine, which then becomes a part of our identity.

 

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Reason #3

Why people sell commercial property too late:

Loss Aversion

 

Why is it so difficult to sell commercial property in a market decline?

According to Brafman and Brafman, authors of Sway: The Irresistible Pull of Irrational Behavior people will go to great lengths to avoid perceived losses.

What’s more, people also succumb to their will to recover what once was.  They will spend whatever it takes not to lose, be it time, money, or emotional resources.

Imagine watching someone playing craps in Las Vegas. When they are on a roll, taking in their winnings, they race through the growth phase, reaching the peak of the game.

They feel ecstatic.

But what happens when the tide turns and they start to lose?

They enter the complacency stage, call it a short turn of bad luck, and keep playing.  They believe they will return to the top. But their bad luck continues.

By waiting to avoid losses, people hold off and then sell at the wrong time — maximizing their losses.

 

They lose their winnings, keep playing and generate losses. They would rather hold onto the idea of getting back to where they were at almost any cost than realizing their loss and moving on to another opportunity.

---

Reason #4

Why people sell commercial property too late:

Self Reliance Time Traps

Time Trap #1: Self-Education

 

People will self educate online because it is free and immediately available. A review of the search term on Google for “commercial real estate trends” returned 152 million results. A search for “commercial real estate trends YouTube” turned up 310 million results!

No doubt, an abundance of free information in the form of market data, blogs, market reports, and online opinions on what’s happening in the market is available.

Time Trap #2: Friends, Family, and Non-Commercial Advisors

 

When we aren’t sure what to do, we often consult friends, family, and non-commercial real estate advisors for input. Unfortunately, these people will not want to be the ones to say sell because it is easier to say no and risk being wrong than to say yes and risk not being right.

Plus, most of these folks will not have the data that you have seen here. These people are more likely to share anecdote based advice like “My friend made a killing in real estate. You should hold on, it will come back.” Remember, people who made this mistake lost in 2008-2010.

Time Trap #3: Hire a Traditional Broker

 

It is easy to find a traditional broker, given that 1 in 164 people in the United States today have a real estate license. According to the National Association of Realtors, there are about 2 million active real estate licensees in the United States.

The problem is that most traditional brokers do not specialize in Commercial Real Estate, Investment Sales and further specialization by property type. 

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Have you thought of selling your property and would like to know what it's worth? Request a valuation for your property below:

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eXp Commercial Chicago Multifamily Brokerage focuses on listing and selling multifamily properties throughout the Chicago Area and Suburbs.

We don’t just market properties; we make a market for each property we represent. Each offering is thoroughly underwritten, aggressively priced, and accompanied by loan quotes to expedite the sales process. We leverage our broad national marketing platform syndicating to the top CRE Listing Sites for maximum exposure combined with an orchestrated competitive bidding process that yields higher sales prices for your property.

 

 

https://www.creconsult.net/market-trends/the-dangers-of-selling-commercial-property-too-late/

2023 eXp Commercial Commercial Real Estate Symposium

REGISTER TODAY

The Commercial Real Estate Symposium will provide junior and senior agents and brokers with valuable insights on topics, including: international opportunities, capital and funding for small businesses in today’s market, how to attract investors, and much more.

Dates: April 25-26, 2023
Start Time: 9 a.m. - 4 p.m. CST
Location: eXp Commercial Campus

We look forward to seeing you in the metaverse!

Important: Please download the virtual eXp Commercial Campus prior to the event, and follow the instructions to login and create your avatar. Feel free to explore the campus before the event begins.

 

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Further Info

https://www.creconsult.net/market-trends/2023-exp-commercial-commercial-real-estate-symposium/

Top 5 New Apartment Amenities to Budget For in 2023

Top 5 New Apartment Amenities

 

It’s budget season for most rental housing operators. Sing it with us: “It’s the most wonderful time of the year…!”  

OK, we concede that not everyone may agree budget season is the most wonderful time of the year. But hear us out.  

We’ve always loved budget season for the opportunity not only to forecast what the future may hold for a community, but also to dream about how we could kick things up a notch. Budget season provides a chance to contemplate what you could add to your apartment community, both in terms of asset and service upgrades, that would elevate your resident experience—and enable you to reduce costs or increase rental rates and resident retention. When you look at it that way, the budgeting process is like putting together your own community-focused wish list!  

While the possibilities to improve your community may be endless, we know that resources are not. With that in mind, we’ve considered the needs and preferences of today’s renters and focused on what upgrades could make the greatest impact.  

 

Here are the top five apartment amenities we think are worth considering for your 2023 community budget: 
 

1. Reconfigured Common Areas that Encourage Work-Life Connections 

The pandemic has undeniably changed how we live and work. More Americans are working from home at least some of the time, and this change is likely to be a permanent one. Says Haley Stofferahn of architectural firm RSP, “Unit layouts are becoming more flexible with details and fixtures that allow tenants to convert bonus rooms into an office, a den or a fitness area. We’re also seeing more built-in workstations within units. Outside individual apartments, what once would have been a disused business center is being replaced with comfortable, connected co-working space.”  

When planning your 2023 budget, consider the common areas in your leasing center, clubhouse, and buildings. Where can you make modifications to better accommodate your residents who are working from home? Are there spaces that are underutilized that could be reinvented as either shared or individual workstations? The National Apartment Association reports that throughout the industry, community developers and owners are adapting common areas for this purpose. “Instead of lounge spaces with soft seating, there are intentional co-working areas,” says Alison Mills, VP of Design and Development at CRG in Chicago. Reimagining underutilized or even obsolete spaces such as business centers to support how your residents live and work today will make your community more appealing to residents and prospective residents alike.
 

2. Unforgettable Resident Events  

According to a RealPage study, one of the NMHC Top 50 ownership groups found that a residents’ likelihood to renew improves by 8% if they made even one friendship or connection within their apartment community.  

If boosting renewals is your goal—and it should be—then strengthening the sense of community among your residents should be top of mind. Purposeful resident events are the ticket to fostering friendships among your community’s residents.  

Resident events have come a long way from the days of drive-through breakfasts. Today’s thoughtfully planned events are about bringing residents together to enjoy memorable, social share-worthy experiences. When planned and executed successfully, resident events can make a positive impact on resident retention and serve as a powerful marketing tool. Prospects frequently study a community’s social feeds when deciding where to live, and when your Instagram feed includes evidence of an active and fun resident community, you’ll drive leasing traffic and leases.  

Consider budgeting for professionals to help you pull of sensational resident events in 2023, such as:  

• Pet costume contest and portraits 
• Murder mystery dinner 
• Charcuterie board design 
• Dive-in disco 
• Comedy in the clubhouse 
• Flower arranging  

Enlisting the help of a professional event planner not only alleviates the logistical party-planning burden from your on-site team but ensures a top-notch event.
 

3. Fitness Center Experience Upgrades 

A new year and a new budget can be a perfect opportunity to upgrade the offerings in your fitness center. Renters’ fitness practices and preferences have changed, and yesterday’s equipment may not satisfy. Multifamily Executive reports that in place of treadmills and other more dated equipment, rental housing communities are adding yoga, barre, and cycling rooms, CrossFit training areas, and internet-connected equipment which allows users to stream classes, work with trainers, and interact with other users. Other high-tech equipment that is popular today includes Peloton bikes, Lululemon’s MIRROR, and rowing machines. And according to the National Apartment Association, “pickleball has become one new darling.” 

In addition to budgeting for new equipment and annual equipment maintenance for the New Year, consider that your fitness center also presents an outstanding opportunity for building community. Just like with your resident events, budgeting for a professional to come in and deliver high-quality, engaging fitness classes and events on-site can be a powerful resident retention and leasing tool.  You can even take the fitness out of the fitness center to an outdoor location such as a community green space, rooftop, or neighboring nature trail. Possibilities include:  

• Yoga classes 
• Fitness bootcamp 
• Zumba  
• Bend and brew (yoga and coffee) 
• Group run followed by a dialogue session with a nutritionist 

To ensure success with your upgrades and events, gather input from your residents before investing in new initiatives. It’s important to match your services to your residents’ desires in order to make a positive impact.
 

4. Upgraded Air Purification Systems 

The rental housing industry is seeing an increased emphasis on air quality both in common areas and in residents’ individual homes. As the Milwaukee Business Journal reported, “the Covid-19 pandemic has forced people to think about the world in new ways, analyzing whether that door handle is contaminated, handshakes are harmless or the air they breathe can be trusted.” In the National Multifamily Housing Council’s 2022 Renter Preferences Survey Report, 71% of respondents report interest in enhanced indoor air quality. An investment in upgraded air purification systems can drive both resident satisfaction and prospective resident demand.  

Systems to consider for your 2023 budget include bipolar ionization systems which purify building common areas such as lobbies, clubhouses, fitness centers, and other amenity spaces. According to Business Insider, this equipment can be integrated into existing HVAC systems to surround and deactivate harmful substances in the air such as airborne mold, bacteria, allergens, and viruses. Communities may also consider upgrading residents’ in-unit air conditioning filters from the standard style to a high efficiency particulate air (HEPA) filter which can, according to the US Environmental Protection Agency, theoretically remove at least 99.97% of dust, pollen, bacteria, and airborne particles.
 

5. New Convenience Services for Residents 

Finally, consider adding services that help to make living at your community both easy and convenient. What could be more appealing to your customers than a lifestyle with fewer everyday hassles?  

For example, have you noticed that residents receive a lot of packages these days? Online ordering and deliveries of perishables such as groceries and meals to apartment community residents have skyrocketed since 2020. That trend shows no sign of slowing down—especially as Amazon recently announced the addition of another Prime Day to the annual calendar, called Prime Early Access Sale (brace yourself!).  

Door-to-door package delivery services can be a huge time- and sanity-saver for both residents and community staff. Consider budgeting for this service in the New Year and removing your team from the chaos that is accepting, storing, notifying, and delivering packages to your residents—so you can focus on the activities that make a bigger impact on your community.  

A resident experience app is another enhancement that benefits both the resident and community team and makes life easier for all. Here are just some of the tasks that can be accomplished from a few of the existing resident apps in the multifamily space: 

• Communicating with residents 
• Scheduling move-ins 
• Managing, scheduling, and tracking maintenance service 
• Managing event RSVPs  
• Tracking rental payments  
• Keyless access control to apartment homes, amenities, and common areas
   

Budgeting for the addition of a resident experience app in 2023 means you can bring a whole host of convenient new services to your residents, while streamlining tasks for your team.   

Preparing your community budget for the New Year can be stressful, we know. Narrowing down the seemingly endless list of initiatives, technologies, and enhancements available to your team can be a daunting task. We hope this list of the top five amenities we think are worth budgeting for serves as a good starting point for you as you consider your many options for making a positive impact on your community.  

Best of luck to you this budgeting season, or as we consider it, the most wonderful time of the year!  

 

Source: Top 5 New Apartment Amenities to Budget For in 2023

https://www.creconsult.net/market-trends/top-5-new-apartment-amenities-to-budget-for-in-2023/

Foreign Investors: What Do They Need to Know Before Investing in the US

Foreign Investors: What Do They Need to Know Before Investing in the US

There are no citizenship requirements for buying real estate in the US. Foreigners who are non-citizens can even apply for a mortgage in the US. However, foreign property owners may face complex tax laws compared to US citizens.There are no citizenship requirements for buying real estate in the US. Foreigners who are non-citizens can even apply for a mortgage in the US. However, foreign property owners may face complex tax laws compared to US citizens. There are also certain factors to consider before buying real estate, such as a visa and other requirements. Here’s what foreign investors need to know before investing in property in the US:

Basic Requirements for Buying Property in the US

The following are basic requirements you’ll need to buy property in the US.

* Valid foreign passport

* US visa

* Social Security number or ITIN

* Bank statements

* Financial documents from your foreign bank

* Evidence of reserves

* Tax return

If you’re only visiting the US to buy property but have no intention of staying long-term, you must hold a B-1 or B-2 visa. The B-1 is for business visits, while a B-2 is for tourism. As a B visa holder, you can stay in the US for up to 6 months at a time, which is generally enough time for you to make any major real estate decisions. However, to secure this visa, you must be able to prove that you have reserves or sufficient funds to support yourself during your stay.

Mortgages for Non-Resident Foreign Buyers In 2021, 61% of foreign buyers made all-cash purchases for property. As a foreign national buyer, you certainly have the option to pay all cash. However, you can also obtain a US mortgage without a US credit history. There are US mortgage lenders that specialize in foreign national mortgage loans. To obtain pre-approval, you’ll need to provide additional requirements that demonstrate your ability to make payments on the property, including evidence of assets or savings that can help you make a down payment.

Because you don’t have a US credit history, the US lender will also likely use an International Credit Report. The credit report will provide data that mortgage lenders would typically need to assess creditworthiness. It will reveal your credit history in your home country, property ownership, and property tax. The lender will also investigate public records to identify if there are any liens, judgments, or foreclosures in your name for property inside and outside the US.

Taxes for Foreign Property Owners

The Foreign Investment in Real Property Tax Act of 1980 (FIRPTA) may apply to your property purchase. The tax law will impose a US income tax on you should you eventually decide to sell the property or receive income from it. In general, income from US property owned by a foreign national is taxed at a 30% rate. However, there are tax treaties that exist with several foreign countries. And if the treaty applies to you, you might enjoy a reduced tax rate. Additionally, some states may require an additional holdback from a foreign investor when they do sell a property in the United States.

Because of the complexities of investing in real estate in the US as a foreigner, it’s best to work with a reputable real estate company.

 

Source: Foreign Investors: What Do They Need to Know Before Investing in the US

https://www.creconsult.net/market-trends/foreign-investors-what-do-they-need-to-know-before-investing-in-the-us/