Property Investment in the USA
A strategy that is currently gaining popularity is to use your SMSF to purchase property in the USA. The typical structure for USA property investment is set out below:
Note: The SMSF owns 100% of the LLC. The LLC has 100% ownership of the USA investment property and the USA bank account.
Why would you purchase property in the USA?
There are two main reasons: properties in the USA cost less than in Australia (typically between $40k and $150); and the rental yield is higher (between 7% and 22%).
First, you need to locate a suitable property in the USA. You can use a buyer’s advocate to do this. Next, you set up an LLC, open a US bank account, and transfer your funds from Australia.
Please note it is important that the US bank account is held with an Approved Deposit Taking Institution (ADI) in accordance with the Banking Act 1959. Otherwise, the SMSF may be in breach of the in house asset test. A list of ADIs is included here for your reference:
A property manager will receive the rental income for an arranged fee plus maintenance costs. The net rental will be deposited into your US bank account.
An LLC is a flow-through vehicle for tax purposes. In some US states, LLC Taxes are levied at state level. Any taxes levied in the USA can be claimed back as a credit in Australia thanks to the double tax agreement between the two countries.
A number of companies promote US property. Do a Google search to identify properties. Popular areas to purchase property include:
Dallas, Texas; Memphis, Tennessee; Miami, Florida, and Atlanta, Georgia
As per our understanding, if the LLC has the SMSF as its only Member, the Internal Revenue Service in the US will automatically treat it as an entity disregarded as separate from its owner (a disregarded entity) unless the LLC files Form 8832 and elects to be treated as a corporation.Form 8832
Steps involved in setting up an LLC in Florida, USA
First, you’ll need a registered agent in the USA. These guys provide their services for free:
Here is the website where you can file online for the Articles of Organization that you’ll need to start an LLC in the state of Florida:
To set up an EIN (free)
- Your LLC must be incorporated and you must have the Articles of Organization
- Complete an SS-4 Form
- Call the IRS on 0011-1-267-941-1099 (not toll free).
- Explain that you need an EIN for an LLC in Florida (for example) and tell them why.
- They’ll ask you to fax the completed SS-4 form to 0011-1-267-941-1345 (and they’ll stay on the line while you’re doing this).
- Fax the form and wait for them to issue the EIN over the phone.
- They’ll also send you a letter by regular mail to confirm the EIN. Be sure to make several copies of the letter; you’ll need them in the future.
USA Property Assistance
There are companies specialising in assisting SMSF’s in investing in the USA. One such company is International Property Services (IPS) (contact person is Benjamin Armstrong 0411315318). They have an office in Melbourne and focus on Phoenix, Arizona. The reason for this area is good historical and projected growth rates and rental yields. Combined with a low rate of natural disasters, this is seen as a good area to invest in.
Here are 3 examples of recently sold properties by the company above: