USA Property Investment

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 $150k); and the rental yield is higher (between 7% and 22%).

Steps involved

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.

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

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:
www.freeregisteredagent.com

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:
https://efile.sunbiz.org/llc_file.html

To set up an EIN (free)

  1. Your LLC must be incorporated and you must have the Articles of Organization
  2. Complete an SS-4 Form
  3. Call the IRS on 0011-1-267-941-1099 (not toll free).
  4. Explain that you need an EIN for an LLC in Florida (for example) and tell them why.
  5. 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).
  6. Fax the form and wait for them to issue the EIN over the phone.
  7. 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:

Another option is to use an agent to purchase property in the USA. You can contact Shane McGibbon at Real Estate Buying Services. They have a website with more information or you can download their brochure with more details on USA property investments.

Lastly, remember the Investment Strategy of the SMSF must allow for overseas property investments. When setting up a new SMSF, we issue an Investment Strategy allowing for overseas property investments. You can download an Investment Strategy template here.

 

 

  • Jay Bhattacharjee

    In regards to investing in US, I have following questions:

    1. Do you have any clients investing in US properties?
    2. Do I need corporate or individual trustee setup or can I change this at any time?

    3. I understand LLC owner
    should be SMSF . Who will sign the LLC application document ? or can we
    set up LLC in individual names who are member of smsf fund?
    4. Will you also create the Australian bank account when you set up the fund?

    5.Who should be the owner of US bank account ? LLC or SMSF??

    6. At the end of the year, do you only need the following docs

    – US bank account statenment
    -Aus bank account statement
    – Anything else??

    7. Can I be able to sale the property and keep the money in US bank account for few months to purchase a new property.

    8.
    Last but not least my rent will be deposited into US bank account. Do I
    need to transfer the cash flow amount back to AUS account or can I keep
    it in US to invest in future props

  • Rattano3

    The above setup is in breach of the smsf in-house assets rule!
    Seek legal advice before falling into the trap.

    • superannuationwarehouse

      There are different views on the required structure for overseas property investment.
      We have obtained specific advice on a Fund before, with the ATO indicating the structure noted above is acceptable. To make sure a structure is acceptable taking into account the specifics for a Fund, it is advisable to obtain a private ruling from the ATO. There’s no fee involved for obtaining ATO specific advice, so it might be a sensible step.

  • Didier Guo

    how could we investing overseas (non-us) property?

    • Hein Preller

      Didier,

      On the basis the Trust Deed and Investment Strategy of the Fund allows for this type of investment, the Fund purchase the asset from the SMSF bank account with the SMSF as the legal owner of the asset.

      Its a similar process to purchasing a local asset. We have a web page in overseas property – see here:
      http://www.smsfwarehouse.com.au/smsf-investments/property/overseas-property/

      Thanks

  • kempvet

    Just wondering whether you can use the LLC as the holder of a US managed fund instead of property and have the SMSF own the LLC (US managed fund and US bank account).

    • Hein Preller

      The objective is for the SMSF to have legal title to the asset.

      The structure as noted would serve the purpose.

  • Sgbizguru@gmail.com

    Hi, us the set up of LLC the same if you are buying property in Detroit, Atlanta or Houston?

    Can you help with the set up and what are your fees to do this

    Are you sure that we get all the tax back due to DTA?

    Thank you

    • superannuationwarehouse

      You need to set up the LLC in the state where the property is located. So you cannot use the same LLC for properties located in different states.
      If you have access to a fax and credit card, you can set it up from Australia. You phone them, they send you a fax and you send it back with payment.
      Alternatively, you can contact an USA accountant. I give the contact details of an USA CPA, Bobby, on the page above. Please feel free to contact him directly if you want him to set up the LLC.
      Lastly, to get tax back via the DTA, you have to oblige to tax and regulatory law in both countries to get it back.
      Thanks

      • Sgbizguru@gmail.com

        Thanks.

        How would any capital gains be treated once properties are sold. The laws can change with time but what is the current status
        *what federal rates do you pay there, if any
        *what states have favour able tax environment overall for properties

    • superannuationwarehouse

      As we are an Australian based accountant, we do not set up the LLC’s. There’s generally 3 ways to set it up which are:
      1. Ask the real estate agent to do this when you purchase the property, make sure the LLC is registered in the same state as the property;
      2. Register yourself if you have a fax machine and credit card, see steps on the page above; or
      3. Us an accountant in the USA, we give contact details for an accountant on the page above you can contact directly.
      Trust this helps.

  • Chantelle Brown

    Hi, I’m a client of yours and just wondering if you could buy a property anywhere in the world, not just the US? We are looking at New Zealand.

    • superannuationwarehouse

      Chantelle, as long as the Fund’s Investment Strategy and Deed allows for overseas investment (yours does) you can invest in overseas property.
      Just make sure the SMSF has legal title over the asset. A bare trust might be required and we explain the steps on this page:
      http://www.smsfwarehouse.com.au/smsf-investments/property/overseas-property/
      Thanks

  • http://www.incomepropertyshowcase.com Income Property Showcase

    This is the best info about the buy investment Property in USA with full guidelines.

  • kevin kruger

    we also seek to offer financial

    assistance to companies and firms with serious business plans and well worked out structures

    we also seek to assist entrepreneurs and personal loan seekers ,

    contact us if interested so we work on the documentations and necessary directories

    Regards

    Kevin Kruger

    info@krugerfncs.com

    kiv.kruger@outlook.com

    BBM: 5BFCDA18

    (216) 200 5044

  • https://www.amp.com.au/personal/super-and-retirement/products/superannuation Matt

    Some great information in here, was just doing a search of Google to find more information about came across https://www.amp.com.au/personal/news-education/education/your-questions-answered/can-i-buy-an-overseas-property-through-my-smsf

  • Raj Saba

    We have a SMSF and have borrowed money to invest in a property in Sydney, We also have some shares. We would like to purchase a property in USA and would like your help in Trust deed, overseas bank etc.
    When we bought the property in Sydney, we set up a company, so not sure whether we can use the same company to buy the US property

  • Raj Saba

    We have a SMSF and have borrowed money to invest in a property in Sydney, We also have some shares. We would like to purchase a property in USA and would like your help in Trust deed, overseas bank etc.
    When we bought the property in Sydney, we set up a company, so not sure whether we can use the same company to buy the US property

    • Hein Preller

      Raj,
      An SMSF will usually own the interest in an LLC which in turn owns the property 100%. Best is if the SMSF owns this interest in the LLC directly.
      If the shares in the LLC is held by you, then we can set up a Declaration of Custody Trust noting you hold the shares for the benefit of the SMSF.
      There is no need for a company to be the Trustee of this Declaration of Custody Trust, but if you prefer to use an existing company you have in the SMSF already, we can use the same Custodian Trustee company as the Trustee of a Bare Trust holding the benefit in the LLC.
      This is a mouthful of info – but I trust it makes sense.

  • Shetu Corporation

    Dear SMSF warehouse,

    I read your online article regarding overseas property
    investment through SMSF.

    I need your advice. If you could give me advice for the
    following that will be greatly appreciated.

    I am going to buy an overseas apartment outright with my
    self managed super fund without any loan.

    1. Can I use my 100% of the SMSF balance?
    2. The purchase contract will be under my superfund name. I have set up a
    special purpose Example PTY.LTD as trustee for Example
    Superfund.

    First two questions are, in the purchase contract do the
    purchaser field need to be “Example PTY LTD (ACN *********) as trustee
    for Example Superfund”? Or “Example Superfund”?

    3. I am setting up an account in the same country with the account name “Example PTY LTD (ACN *********) as trustee for ExampleSuperfund”

    To get the apartment rental money deposit and maintenance
    expenditure record and all dealings for the investment. I will get the Bank
    statement from the account whenever required.

    If I transfer the money once or twice every year to my SMSF
    account before Audit time will that be sufficient? as transferring money every
    month to SMSF will be costly with the international money transfer fee and
    currency conversion.

    4. I am temporarily going overseas for 20 months but it might need to be extended.

    Example PTY.LTD is currently owned 100% to me. Can
    I give 50% to my brother who will live in Australia? I want to do that so that my
    superfund comply the ATO rules.

    Will that be enough? My brother can own 60% of the company
    share is required.

    Thanks in advance.

    • Hein Preller

      Shetu,

      This is a handful of questions, and I will try my best to address all your points:

      1. You can use 100% of your Super balance to invest in a single asset. It may be more prudent to spread your risk, but the choice is yours. Make sure the Investment Strategy of the Fund allows for the type of investment you want to make:

      https://www.smsfwarehouse.com.au/smsf-investments/strategy/

      2. Regarding the 2 names mentioned, you can use either name, both are correct.

      3. An SMSF can have a bank account overseas. Make sure the SMSF has legal ownership over this bank account. Its then up to the Trustee how much funds are kept in each bank account.

      4.When going overseas, make sure your absence from Australia is on a temporary basis only. This is to ensure the central management and control of the Fund remains in Australia. If your stay overseas is considered permanent, you can consider appointing your brother as a POA. We explain how to do this here:

      https://www.smsfwarehouse.com.au/smsf-setup/residency-rules/

      Trust this gives you the guidance needed.

  • Claud Lin

    Please advise if the following two options of US property investment will both comply with the ATO rules of SMSF:

    Option 1. Following your instructions in this article to setup an LLC with corporation structure (Instructed in your article: https://www.smsfwarehouse.com.au/us-property-investment-llc/) when applying for the EIN (being owned 100% by a foreigh trust which is SMSF). Purchase US properties with LLC. Then instead of using a US bank account under the name of the LLC, just put all the net rentals into the Australian US currency account owned by the trustee ATF SMSF.

    Option 2. Setup an LLC with default disregarded entity in structure (treated by an individual real person). In my case the LLC will be owned by myself, who is also a director of my SMSF’s corporate trustee (pty ltd company). Then make a legal declaration such as a declaration of trust or a statutory declaration to declare the real owner of the LLC and the asset (property) under the name of the LLC is my SMSF. Purchase US properties with LLC and put all the net rentals into USD account owned by the trustee ATF SMSF.

    The issue in the Option 1 is the LLC will be treated as a corporation in the US tax system which could be double taxed (corporate level and individual level). I am not sure if all the tax paid in the US can be claimed back in Australia in that case.

    The Option 2 looks better on paper but I have a concern about the compliance with ATO ruling if not doing it properly. Who can advice this being legit?

    Thanks in advance.

    • Hein Preller

      Claud,

      I can tell you what our view and understanding of the rules are. Remember its my take on the rules only and if you want a definite answer, best is to get ATO Specific Advice. We have requested several of these advice pieces from the ATO before regarding the treatment of USA properties, and my answer is based on this.

      The ATO view an LLC under the S13.22c rules. If its set up with a Corporate Structure as in your example 1, it should be complying. Your option 2 is not complying and the asset will become an in-house asset. We explain the S13.22c requirements here:

      https://www.smsfwarehouse.com.au/smsf-investments/property/unit-trusts/

      The process to obtain ATO specific advice is described here:

      https://www.smsfwarehouse.com.au/running-smsf/ato-specific-advice/

      Remember that even if you go for option 1, the SMSF can claim taxes it paid overseas as there is a double tax agreement with us and the USA.

      • Claud Lin

        Hi Hein, thank you very much for your reply with very detailed information.

        In your early reply in the discussion, you mentioned “Best is if the SMSF owns this interest in the LLC directly. If the shares in the LLC is held by you, then we can set up a Declaration of Custody Trust noting you hold the shares for the benefit of the SMSF.”

        I wonder if you were talking the same structure as my example 2? In that case the solution to set up a Declaration of Custody Trust noting I hold the shares for the benefit of the SMSF will still not comply and the asset will become an in-house asset according to the above reply?

        Thanks in advance.

        • Hein Preller

          Claud,

          We have done several ATO specific advice pieces asking specific questions on funds to the ATO. We have a much better understanding now of what the ATO requires.

          The ATO regard an LLC structure as similar in nature to a S13.22c trust. They want it as a Corporate entity, not a look-through vehicle. Also, they want to see the SMSF name on the Member register.

          Best is to try and adhere to this to ensure compliance.

          • Claud Lin

            Thanks for your explanation, Hein. Very professional IMO.

  • Naomi

    Hi,

    I have a question relating to an SMSF invested in US property.
    Could I run this situation past you?

    SITUATION
    1. The SMSF invested in a US property several years ago, as sole shareholder of a US company set up to purchase the property.
    2. The US company (unfortunately) took out a loan with a US financial institution to finance acquisition of the property. The property was used to secure the loan.
    3. The trustees arranged for the full repayment of this loan in PY. The US company how holds the property free of encumbrance –
    4. However I am concerned that the US company is now disqualified as a R 13.22C structure and the property may be considered an in house asset.

    My questions re this:

    1. What are the fund’s options in the above situation? Does the fact that the loan has been paid out help at this point? I cannot think of an easy solution.

    2. Is there any way an SMSF can purchase a US property, using an LRBA to finance this?
    (We would seek specific advice from the ATO before any undertaking – but it would be great to know your thoughts?)

    3. It is possible for a US company to act as trustee of an SMSF?
    In the past I have heard of SMSFs investing in US property (NO borrowing involved) using a US company which acts as the fund’s trustee. Central management and control do remain in Australia, as this is where the members / directors reside.
    Can you see any issues with this approach?

    Many thanks.

    • Hein Preller

      Naomi,

      I take it there is an LLC in the structure noted above. An LLC is regarded as a S13.22C Trust by the ATO. If there’s loans, the auditor should have qualified the audit report in previous years as loans are prohibited in this structure.

      On your questions, I can answer as follows:
      1. It depends on previous year’s audit qualifications, but the fact the loan is paid of, does make the situation more palatable.

      2. Best is to steer clear from loans in the USA with an SMSF. We have done several ATO specific advice pieces with USA property, and the ATO takes a very conservative approach on these. Remember this is similar to a S13.22C Trust that you refer to already.

      3. There does not seem to be a legal prohibition on an LLC acting as a Corporate Trustee. However, I have never seen this or heard of a situation where this was done. When registering an SMSF, the name and company details of a Pty Ltd has to be entered into the ATO system. There is no option for an LLC, so not sure how this will work. Also, this might raise residency concerns, so rather set it up with a local entity.

      Trust this gives you the guidance needed.

      • Naomi

        Thanks Hein, that does help.

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