Author Topic: Foreigner (UK based) looking for a US mortgage  (Read 3338 times)

FiPiper

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Foreigner (UK based) looking for a US mortgage
« on: June 19, 2017, 08:18:50 AM »
Hi

Newbie here, please be gentle:)

Long time lurker first time poster.  I've done some research, both on the wider internet and on this fine forum, on the question of an overseas person (that would be me), getting an investment mortgage for a US-based investment property (for a multi family unit worth $60,000 - $120,000 somewhere in the US mid-west). 

I am UK based, and the approx 30% deposit wouldn't be an issue, nor would any of the affordability metrics for the mortgage.   I can see from research the answer on this forum isn't generally positive, but said I'd ask again in case there were any more recent successes of people on this forum getting a mortgage from a US-based lender. 

Eg I came across americanmortgages.co.uk / internationalmortgages.net but they no longer seem to answer the phone or I cant see any reviews of them anywhere.

Thanks

$200k

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Re: Foreigner (UK based) looking for a US mortgage
« Reply #1 on: June 19, 2017, 10:38:17 AM »
Not to side track your original question, but have you thought about US estate tax consequences?  You'd be subject to a 40% hit without doing some structuring, i.e., an LLC, etc.  The LLC would take out the loan.  But, on a $60-120K property, the set-up and carrying costs will eat at your cash flow.

I'm not trying to be a downer, just make sure you consider cross-border tax issues.   

FiPiper

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Re: Foreigner (UK based) looking for a US mortgage
« Reply #2 on: June 19, 2017, 11:28:27 AM »
Thanks 200k. 

Yep, am aware of some potential difficulties from the tax side of the house too - my partner is a tax professional so she is researching that at the moment.  However, without being able to get a reasonable mortgage rate, the investment may not make sense on those grounds either.

Kwill

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Re: Foreigner (UK based) looking for a US mortgage
« Reply #3 on: June 19, 2017, 12:00:40 PM »
I don't have an answer for you, but I'm curious to see what others will say. I'm also curious as to why you want to try something like this. Do you have a personal connection to this property somehow? Is there a reason you would prefer to own a building in the US as opposed to the UK or as opposed to investing in a real estate fund?

One problem you may face is that US credit histories don't carry over to the UK and vice versa. I'm an American living in the UK, and even though I'd been using credit cards responsibly for 20+ years in the States, I was advised to wait at least 6 months before applying for one here. Then I got a credit limit on the new card that is lower than I even realised was possible. I'd like to buy a house next year, but I wonder how the mortgage process will go.

When I was still in the States, I rented a large house together with several housemates. Our landlord lived in Greece and came back to visit once a year. He trusted a friend to look after the house, but maintenance tended to be done poorly or not at all. After about a decade of renting the place out to various people, it was a bit rundown. The roof was leaking in multiple places, tiles were coming up in the kitchen, an interior door had fallen off, some glass was cracked, and the garden was completely overrun with weeds. We reported some issues and got a few things fixed, but the maintenance person tended to just ignore us. After the landlord passed away, I heard his widow came back to visit and try to clean up the place to sell. She got some work done, but the house is still rented out. Anyway, the point is, if you're going to buy a place to rent out while you're in another country, you need a good plan and someone local you can really trust.
« Last Edit: June 19, 2017, 12:02:48 PM by Kwill »

tralfamadorian

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Re: Foreigner (UK based) looking for a US mortgage
« Reply #4 on: June 19, 2017, 02:06:33 PM »
I don't have an answer for you either but I wish you luck.  I would make sure to do some deep research in the location(s) you are considering purchasing in.  Confirm that the towns/cities are growing, the jobs are net positive with diversified employers, the neighborhoods are getting better...

Much of the midwest is popular for investors but there are a lot of declining areas.  Quite a few out of town investors have issues with their locations and/or their property managers especially with turnkey.  The numbers look good if you just consider rules of thumb but it can be easy to end up in the wrong zip code particularly at the lower end of your price range for multifamily. 

Personally, I would love to invest in the UK.  I've heard that the returns for Edinburgh are quite good...

daverobev

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Re: Foreigner (UK based) looking for a US mortgage
« Reply #5 on: June 19, 2017, 02:39:42 PM »
One option is HSBC Premier.

That's the only option I know. I did as much research as I could, and came up with nothing except HSBC and RBC, which is a Canadian bank that has US operations. Possibly TD as well.

AFAIK it would be possible to buy a *personal* residence (vacation home) as a Canadian resident. I got absolutely nowhere with rentals except RBC (which had awful ARM rates; no 30 year fix) and HSBC ('international credit check' will cost ~$2k or something).

Ended up buying a couple of little places mostly with cash, and then decided I didn't like doing multiple tax returns a year so I sold them.

The best option would be to take out a mortgage in the UK on a property you already own, if you can make that interest tax deductible (ie use the entire mortgage funds for buying the house in the US). You can certainly deduct that on the US side, not sure about the UK side.

FiPiper

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Re: Foreigner (UK based) looking for a US mortgage
« Reply #6 on: June 21, 2017, 02:45:12 AM »
As regards the questions on why the US and not the UK:
It seems that gross rental yields (what US folks call the Cap Rate) are far higher in the the US mid-west than in the UK.  In London where I live, property values are insane and rental yields are pittance. Eg, I rent a small, old, very average 2 bed apartment in a below-average neighbourhood.  The apartment is worth about 600k GBP (756k USD), and the gross rental yield is 3% (18k GBP per annum).  Edinburgh's rental yields are similar, albeit with not as high property prices in the first place.   London especially is currently in a multi year property bubble, with property currently at approx 14 times the average salary.

However in the US midwest, I've been looking at the examples from iamlindoro, both on his excellent thread, the sticky "Evaluating a rental property", his ebook "Out of state" and his blog frugalvagabond.  It seems that, with a lot hard work, patience and acumen, gross rental yields of 18%-22% are achievable, and he is able to achieve a positive cash flow ROI of about 12% on his upfront cash investment.  Its unlikely I would be this successful on my first few properties, but I may achieve this in later properties. This is a different league entirely from anything in the UK. 

As regards property management and maintenance - I would budget for and hire a local property manager to take care of maintenance and management. I am both an existing landlord and tenant, and I understand that this business needs to be handled professionally.

FiPiper

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Re: Foreigner (UK based) looking for a US mortgage
« Reply #7 on: June 21, 2017, 02:48:24 AM »
200k - I am curious about the LLC option.  A few questions on that if you have time please. 
1) Assuming I as an individual can get a mortgage, how difficult is it for that to be transferred to the LLC?
2) Any idea of the approximate extra costs for LLC management, LLC specific taxes etc?  (Delaware Incorporation seems to be the best option)
3) If its the LLC that needs to get the mortgage loan - do I as an individual become a guarantor on the loan application?

My ultimate goal here if my Due Diligence is successful would be to build up a portfolio of up to 10 properties over a few years to assist with FI goals - so LLC option may be worth it.
« Last Edit: June 21, 2017, 03:01:02 AM by FiPiper »

FiPiper

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Re: Foreigner (UK based) looking for a US mortgage
« Reply #8 on: June 21, 2017, 02:58:34 AM »
Kwill
Slightly off topic - but to improve your UK credit score - check out the excellent http://www.moneysavingexpert.com/creditclub

There are a bunch of tools and guides there to see what your credit score is like, improvement tips, soft applications with likelyhood of acceptance for certain loans etc.   An invaluable resource esp if you are new to the UK and looking to get a mortgage soon.  Like a lot of things in life, its just understanding the rules of the game and how it needs to be played.

tralfamadorian

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Re: Foreigner (UK based) looking for a US mortgage
« Reply #9 on: June 21, 2017, 06:42:38 AM »
1) Assuming I as an individual can get a mortgage, how difficult is it for that to be transferred to the LLC?
2) Any idea of the approximate extra costs for LLC management, LLC specific taxes etc?  (Delaware Incorporation seems to be the best option)
3) If its the LLC that needs to get the mortgage loan - do I as an individual become a guarantor on the loan application?

Answering from a purely US POV
1) US mortgages are not transferable. Some people will purchase and get a mortgage in their name then transfer the property into a LLC leaving the mortgage as is. But this may trigger a due on sale clause. This is done for liability protection and has no tax consequences for US owners.
2) The costs are highly state dependent. My state for example, Virginia, is one of the less expensive ones at $50/year. US LLCs are pass throughs so there are no tax consequences for US taxes. However, if you purchase a property in your name then later transfer it to a LLC, there may be a local transfer tax.
3) If you decide to have the LLC get a mortgage, then you would be looking at portfolio loans, which have a higher interest rate.  A US LLC has credit just like a person does. A common tactic would be to have the LLC exist as a business and/or own property to build its credit before trying to get a loan. You typically don't see non-recourse loans (i.e.: non personal guarantee) on real estate unless you are looking at larger multi-family properties.

$200k

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Re: Foreigner (UK based) looking for a US mortgage
« Reply #10 on: June 21, 2017, 10:47:57 AM »
200k - I am curious about the LLC option.  A few questions on that if you have time please. 
1) Assuming I as an individual can get a mortgage, how difficult is it for that to be transferred to the LLC?
2) Any idea of the approximate extra costs for LLC management, LLC specific taxes etc?  (Delaware Incorporation seems to be the best option)
3) If its the LLC that needs to get the mortgage loan - do I as an individual become a guarantor on the loan application?

My ultimate goal here if my Due Diligence is successful would be to build up a portfolio of up to 10 properties over a few years to assist with FI goals - so LLC option may be worth it.

Kelly had good responses above - sounds like she is in the lending industry so I'll defer to her.  I'll add some comments here:

1)  Tell your mortgage broker in advance about the LLC. I believe the easiest way for the mortgage to follow the LLC is to add an "LLC rider" to the loan documents.  Essentially, the rider recognizes that title will be held by the LLC, but the loan and credit is being extended to the individual.

2)  Annual DE LLC fees are something like $300.  If you want to pay for a registered agent, that's probably an additional fee of $150 per year.  You'll need to get your LLC organization documents drawn up too.  You'll want to consult an attorney about corporate formalities unless you have time/ability to research this on your own.

3)  Likely that you'll get asked to sign a guaranty.  Unless the state where your property is located has rules against this.  For instance, in CA, on residential property, the lender's sole remedy for a default is to foreclose on the lien and take back the property.  Except in limited circumstances, the lender cannot later sue the individual on a guaranty.  Other states are not as protective, Utah for example.

 

Kwill

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Re: Foreigner (UK based) looking for a US mortgage
« Reply #11 on: June 22, 2017, 01:51:44 AM »
Kwill
Slightly off topic - but to improve your UK credit score - check out the excellent http://www.moneysavingexpert.com/creditclub

There are a bunch of tools and guides there to see what your credit score is like, improvement tips, soft applications with likelyhood of acceptance for certain loans etc.   An invaluable resource esp if you are new to the UK and looking to get a mortgage soon.  Like a lot of things in life, its just understanding the rules of the game and how it needs to be played.

Thank you, FiPiper. I'll take a look at this. My employer has a programme to help new employees purchase homes, but my eligibility will expire once I've been here 3 full years. I'm at 1 year, 4 months now, so I need to get serious about this soon if I'm going to do it at all.

jinga nation

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Re: Foreigner (UK based) looking for a US mortgage
« Reply #12 on: June 23, 2017, 01:59:25 PM »
FiPiper,

Seems that you're comparing London (and greater London) residential property values to MF units in the Mid-West. That's apples and oranges, mate!

Either you compare to NYC, SFO, LAX, Miami, DC Metro or look into smaller UK cities and towns. How about the Naval coast areas of Southampton & Portsmouth where loads of MoD work is done? Or Leeds? Or overlooked towns with a sizeable industry?

My wife's cousins in the UK have been asking me similar questions for the last few years as the London property market is priced way too high to build physical capital. I've recommended they read monevator and invest in funds in the UK instead of buying into the housing market. From what I've learnt, the UK doesn't have low(ish) rate 30 year mortgages.

I've helped my UK in-laws buy property in Florida, but I did all the ground work and have power of attorney to manage. They bought it all cash. Cash is King when it comes to foreclosures and short sales.

FiPiper

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Re: Foreigner (UK based) looking for a US mortgage
« Reply #13 on: June 26, 2017, 03:20:51 AM »
Thanks for the helpful replies all, esp Kellyincville and $200k.

Jinga Nation - Mainly I'm interested in US Midwest for two reasons, the main reason being the high rental yields  (gross 18-22%) allowing for, what appears to be 12% positive cash flow after all expenses, including after mortgage capital repayments.  The second reason is the price which allows quicker save up of a deposit.  I'm curious, are some of the locations you have mentioned, eg Southhampton offering these kind of high higher yields?   I'm not trying to compare London to the US midwest, I'm merely explaining why I am not looking in my home market to build real estate capital.   I'm a fan of monevator, but am currently looking at US Real Estate to diversify into cash flow positive investments, away from index ETFs. 
« Last Edit: June 26, 2017, 03:24:52 AM by FiPiper »

FiPiper

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Re: Foreigner (UK based) looking for a US mortgage
« Reply #14 on: June 29, 2017, 03:47:27 PM »
I got to talk to someone from americanmortgages.co.uk.

It turns out that they actually can assist with UK based individuals getting US mortgages - they do this through portfolio lenders.  I have seen these referred to in iamlindoros book 'out of state' in passing.  From the conversation, two things were of interest. 

1. The interest rate seemed to be higher than I expected, rough figures of 5-6% were quoted.  This seems higher than the "normal" 4-4.5% that gets quoted for individuals with good credit rating.

2. The main affordability metric wasn't debt to income ratio or anything related to the individual, but more so the rent the property could generate, based on some kind of appraisal of the property by the lender.

Other less relavent factors seemed to be that 25-30 year fixed rates were not as available and a 4-5 year fixed term was more likely  - with a refinance or full loan amount coming due at that point.

So, while its interesting, the higher rates and lack of longer term fixed rate seems to be a concern. 

Anyone know where I can get a good primer on how portfolio lending works?

Kwill

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Re: Foreigner (UK based) looking for a US mortgage
« Reply #15 on: July 19, 2017, 04:14:25 PM »
Kwill
Slightly off topic - but to improve your UK credit score - check out the excellent http://www.moneysavingexpert.com/creditclub

There are a bunch of tools and guides there to see what your credit score is like, improvement tips, soft applications with likelyhood of acceptance for certain loans etc.   An invaluable resource esp if you are new to the UK and looking to get a mortgage soon.  Like a lot of things in life, its just understanding the rules of the game and how it needs to be played.

Thank you, FiPiper. I'll take a look at this. . . .

Also, thank you for posting the update on your quest. It sounds like it's possible but the answers were a little disappointing.

I talked to one of my coworkers yesterday about his experience talking to mortgage people here, and today I talked with someone from the local building society, got paperwork to look at, and made an appointment for Sunday afternoon. It sounds like it may not be as hard as I thought. Fingers crossed.