Real Estate Matters: Non-resident looks to purchase home in US for her daughters
Q: I am not a U.S. citizen, but my daughter is married to a U.S. citizen and will have her green card shortly. Another one of my daughters is not a U.S. citizen and is a student studying in the U.S. I am planning to buy a house for them. I’d like to have both of my daughters own the home equally. Can I buy a house for them or can I give them a loan to buy a house?
A: Non-citizens buy real estate in the United States all the time. Some of these buyers are institutional investors or foreign corporations, but most of them have some sort of presence in the U.S. and pay taxes here. As you’d imagine, these foreign entities often buy large apartment complexes, shopping centers, office buildings and the like, but foreign investors can also buy single family homes, high-end condos and other forms of residential real estate.
Sam has represented a number of sellers that have sold condominiums in the Chicago area to non-resident buyers. And, he has represented a couple of non-resident owners selling their condominiums as well.
On the buying front, it’s difficult for a foreigner to buy a home in the U.S. with a mortgage, as most buyers would. Lenders generally will require their borrowers to be citizens, residents or non-residents with visas that allow them to reside in the U.S. We’re sure there are some exceptions to this, and some banks may finance borrowers under certain circumstances. But in general, if you’re traveling to the U.S. on a tourist visa and buy a home, you’re not going to get one of the big banks to give you money for a loan, unless you’re an excellent customer of the bank and it offers an option to put up one of your accounts as collateral and make a margin-type loan.
Now, if you are paying cash for the home, the only hurdle you may have is making sure that your funds are cleared for the purchase of the home. Recently, there have been stories in the news about how people are trying to use real estate in the U.S. to park funds or are suspected of using illicit money to buy real estate. We’re going to assume you are buying the home for your daughters with legitimate funds, and the purchase is aboveboard.
So, if your daughters find a home, they can proceed to purchase the home as any other cash buyer would; and you would be providing them the money to buy the home. When it comes time to close on the purchase, your daughters would have to make sure the cash for the purchase gets to the settlement or closing agent on time.
Ownership is another issue you should think about. Your daughters can choose to own the home as tenants in common or as joint tenants with rights of survivorship.
Tenants in common would allow them to be equal owners of the home (or you may divide ownership differently), but your daughters would need wills (or perhaps other legal documents, like a trust) so if one of them were to die, the share of property owned by the deceased would move to the heir instead of being determined by state law.
With joint tenants with rights of survivorship, ownership would be similar but in case one of them were to die, the other joint owner would automatically become the owner of the entire home.
If you want to give them the money to buy the property in the form of a loan, you can probably do that as well, but that may cause logistical problems for them and for you.
Here’s why: Let’s say you live outside the U.S. and you don’t file a federal income tax return here. The money your daughters pay you in interest payments on the loan are income to you and may be subject to tax in this country and in the state in which the property is located. We suggest you talk to a tax or estate attorney where you plan to buy the home to help determine whether it would be worthwhile going down that route.
Finally, you need to know that when your daughters sell the property, you may be subject to federal income tax withholding. This means that the buyer of your property will likely have to withhold 15% of the sales price pending a determination from the Internal Revenue Service of the amount you owe in taxes to the U.S. government. Now, if by the time you sell the home, both of your daughters are U.S. citizens or permanent residents, they can sell the home as any other seller would. But when one of the owners is a non-resident that does not have a Social Security number, that resident is likely subject to withholding at the closing.
Talk to a U.S-based attorney (and an accountant, if the attorney can’t fully answer all of your tax questions) well in advance of your purchase to go over your options. Thanks for your question.
(Ilyce Glink is the author of “100 Questions Every First-Time Home Buyer Should Ask” (4th Edition). She is also the CEO of Best Money Moves, an app that employers provide to employees to measure and dial down financial stress. Samuel J. Tamkin is a Chicago-based real estate attorney. Contact Ilyce and Sam through her website, ThinkGlink.com.)© 2020 ILYCE R. GLINK AND SAMUEL J. TAMKIN. DISTRIBUTED BY TRIBUNECONTENT AGENCY, LLC.