Frequent questions
Do I buy in my own name or in the name of a company?
Over the past decade limited liability companies (LLC) have become the preferred form of company for acquiring Real Estate in the United States. Despite the benefits that an LLC offers, it is not necessarily the best way to acquire real estate for everyone. For many investors, the cost of forming and maintaining a company in the uncertain possibility of a lawsuit is not worth it.
Benefits of buying through an LLC:
• Protects the owner from potential property-related lawsuits. That is, in case of lawsuit, they can only go against that property and not against your other property or personal assets.
• It allows deducting the expenses generated by the property.
• Allows owners to avoid double taxation on both rental income and property appreciation. Therefore, the profits generated will be “paid” only by the LLC and not in the distribution of those profits to the owners.
• Avoid or reduce inheritance taxes, therefore, when the owner of the company dies, the legal entity never dies, thus reducing the amount of inheritance tax.
• If the LLC is made up of a single member (single-member LLC), you could deduct the interest on the mortgage loan.
• LLCs tend to pay a lower registration and maintenance fee than other types of corporations.
• Unlike other types of corporations, being a non-resident alien you can form an LLC.
• Great flexibility in the distribution of profits.
Do i need insurance?
There are different policies, however, the most important coverages are to protect:
• The internal and / or external structure of the property
• Personal items inside the property
• Damage to third parties (accidents within the property)
• Damage to other properties (in the case of condominiums)
What is the Foreign Real Estate Investment Tax (FIRPTA)?
FIRPTA affects any nonresident foreign individual and foreign companies not considered domestic corporations. From a tax point of view (tax return) when a person does not reside or a foreign corporation or partnership sells a property within the United States, it will be subject to the provisions of FIRPTA.
How does FIRPTA affect?
At the time of the protocolization (transaction closing) the seller will be made a withholding of 15% on the sale price. For example, a “foreign investor” sells property for US $ 350,000, the closing agent (company or lawyer that processes the title) will retain US $ 52,500 in a special account called an “escrow account”, until the “Foreign investor” file your income tax return in January of the calendar year following the closing of the sale.
How much is commission paid?
In residential purchase / sale transactions, the standard is 6% of the property's sale value, which is divided into 3% for each of the agents involved in the transaction (the buyer's representative and the seller's).
In residential rental transactions the standard is 10% of the annual contract value or one month's rent. This commission is divided equally for each of the agents participating in the transaction.
How to estimate closing costs when selling a property?
For practical purposes, the closing costs for the seller can be estimated as follows:
• 1.5% of the sale price,
• Property taxes accrued to date,
• Mortgages and / or lines of credit that exist on the property,
• Commissions (generally 6% of the sale price)
Does the buyer pay commission?
The home buyer in the vast majority of cases does not pay any commission to the real estate agent.
AS A SELLER, CAN I SAVE MY COMMISSION?
89% of all sellers use the advice and support of a real estate agent. Only 8% of all sellers try to sell the property on their own (known as For Sale By Owner) with the sole purpose of saving six percent (6%) of the commission.
What is the 1031 exchange?
Investment property taxation: If the seller sells an investment property that appreciates, then the seller would have to pay capital gains tax; unless, with a little planning, the seller's investment property qualifies for preferential tax treatment under Section 1031 of the Internal Revenue Code as a similar exchange.
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LEGAL NOTE: These provisions are complicated and require the experience of a public accountant and / or real estate attorney to assess the potential legal and tax implications. At no time should this information be taken as advice.