What is escrow?
Escrow is the USA property term for contract. If a US property is in escrow it is the Australian equivalent of being under contract.
What is vendor finance?
Vendor finance is when you purchase a property by taking over an existing mortgage with the current mortgagee directly. Often these deals incur a slightly higher rate than the current bank variable. The deal is between the buyer and vendor, and there are contracts that are able to deal with this arrangement. It is a great way for people who are not able to get bank finance despite being able to service the loan (such as foreign investors in the US real estate market). Although this kind of deal is hard to find in Australia, it is much more common in the US as it acts as a win-win situation for a mortgagee in distress, of which there are many at this time.
What is Section 8 (also called Housing Choice)?
Section 8 is a housing assistance program for low income people; the equivalent of the Dept of Housing program in Australia. Applicants must meet income limits, which vary from area to area, before applications are processed. Tenants of Section 8 housing pay a portion of the rent dependent upon their income and the government pays the balance. Section 8 can be deemed an attractive proposition to some investors as it can be seen as a form of guaranteed rent with the government as a tenant! And just as in Australia, not all Housing Commission properties are in outer, difficult to access, or rough areas. Any landlord or property owner can agree to accept a Section 8 voucher. However, if you see a property listed as Section 8 it does require extra due diligence to ensure you are not going to purchase an undesirable property in an undesirable location.
What is HOA?
When investigating US real estate, you will often come across HOA costs. This stands for Home Owners Association. The closest equivalent in Australia would be strata costs when buying an apartment. The difference is that in the US HOA fees can apply to any kind of dwelling, not just apartments. For example, many gated community properties, which are stand alone dwellings must pay HOA fees, which are normally calculated per month. These fees can be quite hefty so make sure, as part of your due diligence you enquire what the HOA fees are, whether they are in arrears, are they due to increase, and anything else that may cut into your costs. Often a property may appear to be cheap for its location, but the HOA fees are relatively high based on an array of factors.
HOA fees, like strata fees in Australia, should be used for overall management of the building or development.
HOA fees, as with strata fees in Australia, are tax deductible for investment properties.
Do we charge any fees for buying USA property?
Here at US Real Estate, we don’t charge you, the investor any fees for buying USA property. We have formed relationships with experienced agents who earn the usual fees upon the sale of properties. We are a fee-based membership site which covers access to US real estate professionals and current listings and the associated agents to take some of the many, many hours out of traipsing the internet, and provide a more targeted approach for your research. If you are looking for a more hands off service, knowing that there are experienced service providers out there finding property that meet your criteria, we also offer access to our affiliates, as part of the membership, who take the stress out of investing in US property.
At US Real Estate, we are interested in people taking part in the huge opportunities that exist in USA properties right now and providing access to as much credible US real estate investment information, listings and services to enable you to expand your US property portfolio and catch the US real estate upswing.
What is property tax?
This tax varies from state to state in the US. For example, in California it is approximately 8% based on the land value only, whereas in New Jersey property taxes are around 15%. There are no state taxes in Nevada so you do not pay property taxes in this state.
When investing in USA property, be sure to investigate the property tax for the area you are investing in. This tax must be incorporated into your costs; these taxes are tax deductible for investment properties.
Is there capital gains tax in the US?
The short answer is yes capital gains tax does exist in the US. However there is an exemption for US real estate investors; if you sell your investment property and re-invest in US property of higher value, you defer the recognition of capital gains tax under Internal Revenue Code (IRS) Section 1031. To qualify for Section 1031 of the IRS code, the properties exchanged must be held for productive use in a trade, business or for investment.
This is one area that differs to Australia and is an attractive aspect of investing in US real estate.