Questions and answers about property in USA

Questions and answers about property in USA

24.04.2019 22:39

Question: Purpose: investing a maximum monthly guaranteed income. Property: real estate with lease payments. What would be better - residential property (apartment or house) or commercial property (office or shop)?

Perhaps I can recommend a specific type of investment after a one-on-one conversation [with a client]. Everything depends on the personal preferences of the investor. There are advantages and disadvantage in all types of real estate.

For example, it is easier to manage commercial real estate because, in most cases, the maintenance costs are assumed by the tenant. Lease terms are also usually longer, about 5 years plus possible options for renewal. However, at the same time we run a higher risk of property downtime in the event of non-renewal or termination of lease agreement - sometimes up to six months to one year. Also, with long lease periods, especially with options for renewal, it is possible to lag behind the market rental price for that particular type of property.

Also, the liquidity of any property is inversely proportional to its specialization. Typically, a residential property in an optimal location could be sold within a week to one month. The commercial property is much more difficult. Keep in mind that  liquidity is important, as well as lowering the risk of depreciation of a property.

Question: Location of real estate property (region/ district)?

I prefer places with high economic diversification and stable population growth. Mainly at the expense of professionals. This generates a steady demand for quality housing. For example, such a region includes Orange County, California.

Question: Approximate assessment of profitability for different types / types of real estate?

The profitability of a real estate property has two main components: the rent / cash flow (6-8%) and the increase in value / appreciation (5-7%). In addition, ownership of real estate includes a number of opportunities for profitability optimization.

Question: Is it possible to to register as a citizen of the Russian Federation (Belarus, Ukraine?)

Yes, it is possible, but I recommend to my investors alternative ways of registering property. Registration of real estate by an individual (regardless of nationality) increases the risk of the investment in various ways. These risks are unsubstantiated and can be easily eliminated. We can discuss possible scenarios if there is such an interest.

Question: Taxes on the ownership of real estate, taxes on donations or testaments, taxes on the sale of real estate?

All these taxes exist. Most of them (except for property tax) can be optimized based on the specific situation.

Question: Is it possible to register the ownership to young children?

It is a possibility, but it doesn’t make any sense. Ownership can (and should) be transferred through a beneficiary interest in a trust (Land Trust). Entry into ownership may be automatic, for example, upon reaching a certain age, in the event of the death of one of the parents, or any other condition. It can also be transferred at any time. In all cases, the tax consequences will be minimal.

Question: If registration is possible for young children, how and in that case who controls the real estate?

Land Trust is managed by the beneficiary (s). See above.

Question: Taxes on the ownership of real estate (in the cases of minors), taxes upon entry into the inheritance?

Property tax is set by the local administration at a county level and is independent on the owner. Inheritance tax can be easily (and legally) avoided by issuing ownership through a trust.

Question: Mandatory payments when owning real estate and their amount: water, heat, electricity, gas?

Typically, these costs are taken by the tenant (except for the downtime of the property). For the owner, they are insignificant.

Question: The order and cost of property maintenance (management company that supports the state)?

This is usually done by agents or, for very large properties, specialized companies. We can also provide this service to our customers. The cost depends on the specific property and averages 10% of the rent.

Question: Agency commission, for assistance in the delivery of real estate for rent (who will provide the amount, if from the owner?)

4-6% of the rent for the term of the lease specified in the contract (minus options).

Question: Are there any other options for ownership of real estate (registration through an intermediary or legal entity)?

There are many options. The choice of a specific option will depend on the goal.

Question: Features when owning a property through an intermediary (taxes .......)?

Land Trust offers anonymity of ownership, significant risk reduction, tax optimization in the transfer of ownership, including subsequent sale.

Question: What additional opportunities does real estate ownership (schooling, medicine) provide?

Since real estate in the United States can be owned by any foreigner, this does not provide any additional benefits other than the ability to invest in a stable and relatively predictable market

Question: What restrictions or "hidden moments" exist for the implementation of the plan?

Nothing that could not be optimized or avoided with careful planning.

Alexander Solonin

Astrum Realty, California, USA. Contact for expert advice on California and Virginia real estate

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