A few questions from a UK property investor - Posted by Fraser

Posted by michaela-CA on June 25, 2007 at 19:37:25:

Fraser,

I really can’t answer that, as it’s been several years that I’ve had rental property. Since things constanty change I don’t know what the rpesent rates are.

You may want to start another thread with that in the title as not everybody may read this thread.

Michaela

A few questions from a UK property investor - Posted by Fraser

Posted by Fraser on June 23, 2007 at 13:12:02:

Hi,

I am looking to invest in America (probably the Buffalo/Rochester areas) and would like to ask a few questions about the US market. I am an experienced UK property investor and know the answers to my questions below for the UK - but not the US. Any help would be much appreciated. My questions are:

  • What is allowable as a tax deduction? In the UK mortgage interest and other expenses like agency fees, repairs, insurance are all allowable against tax.

  • Does the US have special property investor finance companies? If so, who would you recommend?

  • Who pays the local taxes? I have read that it is the landlord, in the UK it is the tenant.

  • What are the landlords obligations towards the tenants? i.e. in the UK we must have gas safety certificates, electrical certificates and exercise a due diligence to the safety of the property - are there similar requirements in the US?

  • Is anyone investing in the Buffalo/Rochester areas? If so, any advice?

Thanks for your help in advance. If anyone has any questions regarding property investment in the UK I would be glad to answer your questions.

Regards, Fraser

Re: A few questions from a UK property investor - Posted by John Corey

Posted by John Corey on June 26, 2007 at 16:26:16:

Fraser,

To pick up on some of the unanswered questions…

Landlord/tenant laws are generally at the state level with a few cities
imposing their own regulations (mostly rent control). Each state will be
different.

Assume that in the US eviction happens earlier than in the UK. In some
states if a tenant misses the rent payment they will have notice served
in 3 or 5 days and can be evicted within 14 to 18 days. Other states are
longer/slower.

As a general rule the landlord is responsible for issues of habitability.
Running water, no exposure to the elements outside, heating in the
winter, safe means to enter and exit, no large holes in the floor, not
infestations of pests, etc.

Health codes and what would be a violation is at the state or city level.
There is no national standard. Building costs are generally at the state
level with possible city specific requirements.

If you are buying in upstate NY you can have requirements to make
sure the sideway (think path in the UK) is free of snow and ice in the
winter. It has to be passable. Rules vary. Maybe it is valid to make this
the tenant’s responsibility.

In community in NY somewhat near where you are thinking if the
tenant does not pay the utilities include the trash, water, sewer and
then skips the utility will place a lien on the property. The utility is
connected to the city.

Foreclosure is likely to be faster and cleaner than in the UK. I say likely
as this also varies by state. Slower or more English in the eastern states
and a trust deed process in many or most of the western states.

When you buy there is something called title insurance. It insures the
title against defects. In many states no lawyers are used to close a deal.
More so in the west. Even in the east where lawyers still perform
closings (think completion) there will be title insurance for the lender
and if you are smart you will buy a policy as a buyer.

There is no gazampting. It just can not legally happen. Cycle times are
faster from decision to buy to close of escrow. Instead of an offer
followed by exchange of contracts and then completion we have a
binding offer process with stipulations (contingencies that need to be
addressed) followed by a close of escrow. Expect 30 to 45 days in total.

MLS is your friend compared to the UK. You can get real data as to
what is on the market and what recently sold. No lags at the US
equivalent of the Land Registry. Note that each county in each state
handles the role of the Land Registry for a specific county. There is no
national registry.

The AST would be a lease in the US. Some communities tend towards 1
year leases. Others communities use mostly month to month
agreements. There are pluses to both as the landlord. I recommend
month to month.

Unlike the UK where BTL mortgages are interest only almost all the US
mortgages will be repayment (fully amortized) mortgages. Assume 30
years as being the norm. You can get long term fixed and that does
not mean a 5 year fixed period. It means the full 30 years. Over 40% of
all US mortgages are fixed for the life of the loan. No interest rate
concerns like in the UK. Even the ARMs then to be as long or longer
than what the UK called a long term fixed.

All agents must be licensed and the licensing is at the state level.
Agents automatically share commission so there will be multiple
agents who can view and otherwise represent buyers. No sense of one
agency has a listing so only that agency can arrange viewings. Sellers
do not show their own home. Buyers are almost always accompanied
by the agent and access is gained through a lock box system.

I could continue but this is long enough for now.

John Corey
London UK

Re: A few questions from a UK property investor - Posted by Ben Carmona

Posted by Ben Carmona on June 25, 2007 at 18:36:05:

Fraser,

You’ve been receiving great info in regards to taxation and investing in the US. Now let me assist you with explenations of lending options here.

I’m assuming that you’d be considered a true foreign national. That is an individualy with no visa or greencard, lives in another country, and has no US social security #. Not to worry, there are several lenders available that offer programs specifically for this scenario. Typicall loans will require that you put down 20%. You’ll have options which provide reduced documentation benefits to help minimize paperwork and verifications.

One thing that you may run into is the loan size. I have several Australian investors buying properties in Buffalo/Rochester area. Average loan amount is around $40,000. If you are buying properties in that price range then many lending institutions will probably turn you down.

I’ll send you more info by email as well.

Ben Carmona

Re: A few questions from a UK property investor - Posted by Rich-CA

Posted by Rich-CA on June 23, 2007 at 18:48:45:

We have exchanges e-mail before. As a buy and hold investor in a couple of very different areas, I can venture an answer.

There is no “US Market” in housing. Europe has a more unified housing market than we do. Each State and Territory (that’s 50 States, Puerto Rico, Marianas Islands, Guam and the District of Columbia) all have different laws governing everything from taxation to landlord/tenant relations.

There are a number of local taxes to pay. There is property tax (paid by the property owner of record), income tax (paid by the person or company receiving the income), sales tax (in some areas like Arizona, part is paid on rent collected), transfer tax (for buying property) and others. Some taxes are collected at the local level (city/town), an intermediate level (the County), the State level or the Federal level (income taxes).

Tax deductions are very complex and depend on how you organize your business. There are different rules on what is taxes, what exemptions exist, and what deductions you can take for each kind of tax at each level of government. Normally, all of your business expenses are deducted before calculating “taxable income”.

Paying taxes:

property tax = property owner
sales tax (Arizona, maybe others) = tenant, collected by landlord in addition to the rent
income tax = anyone receiving income
transfer tax = either buyer or seller by agreement

Landlord obligations are different in each state with additional variations in each city or town. Some states have a “Landlord-Tenant Act” that has a lot of the obligations, others have a bunch of individual laws. The method for carrying out the obligations also varies a lot. So your general conclusion is correct, but how this is done and additional requirements are done differently in different states/counties/cities/towns.

One note on the state laws, the older states tend to have more convoluted laws than newer ones. NY as one of the originals has a piecemeal approach to the rights of tenants and obligations of landlords.

You can try searching here for some of the information. The section on “Housing” has possibilities, but I have not had time to do more than scan it:

Re: A few questions from a UK property investor - Posted by michaela-CA

Posted by michaela-CA on June 23, 2007 at 14:40:59:

Fraser,

I’m not a buy-and-hold landlord type of investor, but here’s my take on your questions:

  • taxes may be best answered by someone more familiar with it. As a landloard you do have depreceiation, as well as your busines sexpenses

  • Are you looking for a company that takes your funds and does the investing? I think most of us on this bard don’t go that route, as that would make us lose controll. At least for myself, I wouldn’t be interested having someone else decide on what to invest my money.

  • taxes are typically paid by the owner of the property

  • obligations? The U.S> is not ONE Market. Every county has their own regulations and codes. And in addition you will encounter differences between something you renovate and something that’s grandfathered thorugh extended practise. So, you will have to look at the market you’re planning on investing in.

Michaela

Beter analogy - Posted by John Corey

Posted by John Corey on June 26, 2007 at 16:10:00:

Rich,

A better analogy would be to say that each country in Europe is like a
state in the US. Each one has its own laws for all sorts of things.
Europe is not very harmonized in terms of housing and laws for
housing. Each country is a lot more harmonized within internally as a
US state would be.

John Corey
London UK

Re: A few questions from a UK property investor - Posted by Fraser

Posted by Fraser on June 25, 2007 at 13:57:09:

Hi Rich,

Thanks for the information - I will read up on it.

Regards, Fraser

Re: A few questions from a UK property investor - Posted by Fraser

Posted by Fraser on June 25, 2007 at 13:54:18:

Hi Michaela,

Thanks for your answer and comments. I am beginning to realise the differences between states and how US Property Investors are thinking.

One really interesting point that you mentioned was depreciation. I know that you said that tax questions are best answered by an accountant but can you tell me what the broad principle is for investment property depreciation? I do understand writing down assets in a business sense but in the UK we do not have investment property depreciation. Any thoughts welcome.

Thanks for your help.

Regards, Fraser

US & UK property investor answering - Posted by John Corey

Posted by John Corey on June 26, 2007 at 16:06:12:

Fraser,

1., I am sitting in London as I write this. I invest in the UK and US
(started in the US in 1983; UK in 1994).

  1. I can translate most questions so feel free to email me. We can
    arrange a time for you to call me on my mobile if that helps.

  2. Depreciation is handled differently as you have noted. Take the
    property and remove the value of the land. Then depreciate the
    remainder over the effective life. 27 years for the structure. Specific
    items in the structure or attached can be depreciated faster.

No need to off the place as furnished accommodations for you to gain
the depreciation as an offset on your taxes.

Another angle that you might not even think about is taper relief vs.
capital gains. Capital gains is 15% presently and started after you hold
the investment for 1 year. No taper. You just drop to the lower rate.

Then there is the 1031 tax code section. Think of it as a way to roll
over your gains when you sell if you follow a specific procedure.
Nothing like it in the UK.

John Corey

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