International Buyer’s Guide

THE OVERALL MARKET TRENDS: LOS ANGELES ECONOMY

A population of 18.7 million people live within the greater Los Angeles area. This is the second-largest urban area within the entire United States of America. There are five different counties located on this 33,954 square mile plot of land which includes Ventura, San Bernardino, Orange, Riverside, and Los Angeles County. When considering the entire land area of the United States, this is the largest metropolitan region. Many people choose to flock to the greater Los Angeles area because it has become a global center for all business conducted for international investments and trade over numerous industries. Some of these industries include real estate, sports, tourism, technology, and education. Being the second-largest metropolitan area in the world according to the nominal GDP has permitted the greater Los Angeles area to produce an economy that now exceeds $1 trillion in regular output that allows this number to stay consistent.

The Growing Los Angeles Economy

When people think of Los Angeles, they immediately associate it with the entertainment industry that has grounded heavy roots in this metropolitan area. This includes recorded music, film industries, and video games as well. What many foreigners don’t realize is that they can truly benefit from the other significant portions of the Los Angeles economy such as the shipping and international trade businesses that are located near both the Port of Los Angeles and the Port of Long Beach. The consistency of the transactions that occur here have made this the United States’ most busy seaport. Some of the industries where the most transactions occur include petroleum, technology, aerospace, apparel, fashion, and tourism as well. There are no limits to the financial opportunities in this area.

The U.S. economy continues to thrive in large part due to the enormous contributions being made by the real estate industry. Many people travel to the United States to buy numerous properties in Los Angeles due to the amazingly profitable investment potential that arises. Additionally, this great source of wealth and savings produces a large amount of percent interest that goes back into the hands of the wise investors. If you are someone who wants to try your hand at investing, Leona will find you the best properties on the market that fit your personal goals while also allowing you to make profitable real estate investments.

Follow the Market Trends

The premier real estate market found in Los Angeles has proven to be quite amazing for both investors and homeowners alike. It has also come to be known as a more luxurious housing market as well. Long-term investments made within the Los Angeles area never seem to disappoint. Leona will help you choose the right property that will allow you to make a profit off your investments. According to Zillow, there have been many price increases on the average home price in Los Angeles beginning in the year 2012. In 2012, the average price of a home in Los Angeles increased by upwards of 100% going from $399,000 to $809,750. This large surplus of money has allowed Los Angeles to competitively rank against other cities in the nation for overall real estate gains.

Moreover, the median sales price during the middle of the 2021 summer obtained an average value of $809,750 which went up 18.9% throughout the past year in Los Angeles. On average, any given home located in Los Angeles County will sell after spending about 50 days on the market in total. This is an extremely fast turnaround time in comparison to other cities across the nation. These metrics aren’t projected to decreased during the 2021-2022 season as shown by the current supply-demand dynamics.

The appreciation value for real estate investments is going to continually increase given there is a high level of demand with not a large enough inventory to quite satisfy the numbers. This is your time to jump in on these profits while they are on a steady incline. There are numerous different real estate experts that strongly believe these home values won’t stop increasing any time soon. The global pandemic wasn’t even enough to stop the Los Angeles housing market from constantly growing. The pricing and selling structure of all homes located in Southern California are surpassing the numbers produced last year given the historically low interest rates as well as the high level of demand. This amazing level of high housing price appreciation is very typical for Los Angeles County.

BUYER REPRESENTATION AGREEMENTS

A written representation agreement is created between the buyer and the agent when they officially decide to work together. This allows the buyer to utilize all the crucial benefits that come with having a real estate agent’s assistant during the home buying process. Many surveys have shown that a successful transaction between buyer’s and their agents are more likely to occur if there is an open line of communication.

The Written Agreement: California Buyer Agency Agreement

This binding document creates an official relationship between the agent/broker and the buyer. As the investor, you will always know exactly what responsibility each party has during the signing of this agreement. When you choose to work under this agreement, every step of the investment process will be extremely clear which allows you to fully understand the amazing benefits you’ll receive depending on the agreement you decide to choose. If you choose to work under a dual agency, this will allow Leona to work with both you and the seller to ensure both parties receive profitable benefits from transaction.

Choose Your Agreement: Which One is Better For YOU?

The California Association of Realtors regulates the numerous forms of agent/broker agency agreements. When a homebuying client chooses to work with an Agent/Broker, they also need to choose a type of relationship – Exclusive Buyer Representation Agreement or a Non-Exclusive Buyer Representation Agreement. 

Exclusive Buyer Representation Agreement (commission is paid by the buyer)

This contract describes in full detail the relationship that exists between the real estate agent/broker and the client who is looking to purchase or invest in real estate. As a prospective buyer, utilizing this type of agreement allows your chances of making a successful investment you’re confident in to drastically increase. Browse through the amazing benefits below to decide whether this type of agreement is the right choice for you.

• Experience an exclusive investment partnership as Leona is working fully for you to represent the exclusive interests you have for your property. Whether this just be a regular primary-resident purchase or a new investment venture, she will make sure everything you do is going to be for the financial benefit you wish to gain.
• Gain exclusive access to the entire real estate market including For Sale by Owner (FSBO) as well as Foreclosure/Auction. There will be no housing opportunities that you won’t have access to through Leona. You will have access to the entire property market, including the Multiple Listing Service (MLS), to find the perfect property for you.
• Understand that in some scenarios, real estate agents won’t show properties to the prospective buyers if the commission they will receive is small or nonexistent even though the investment potential for the buyer could be really high. A decent amount of real estate agents works as independent contractors who want to receive a commission given the time and work they put into finding the right property for their clients.
• Appreciate the responsibility Leona has to you as her exclusive client. She will complete thorough investigations on all the information that will help you as a buyer make the final decision to purchase any given property. Office Leona Estates is going to be completely devoted to making sure you receive the best investment by completing research on potential properties as well as helping you complete numerous due diligent and transactions that involve lawyers and tax attorneys. You will be able to pay Leona a commission for the amount of time, knowledge, and dedication she puts into finding you an incredible property you never would’ve been able to find on your own. Most buyers love the exclusivity of this agreement because they are able to work with Leona who is going to exclusively work for them and see to it that their profit goals are met through every investment.

The average commission for a real estate agent in the state of California is 6% of the actual sale price. This percentage can fluctuate for the property buyer if the seller chooses to pay full or partial amounts of the compensation from the overall sale proceeds. From these numbers, the liability of the buyer could be proportionally reduced. When you work with Leona as your extremely experienced real estate agent, you will understand that this is money well spent for the quality service and attention you receive. These quality investments will give you the opportunity to gain professionalism and knowledge while purchasing a successful investment that will provide you an income. This exclusive contract will allow Leona to do everything she can for prospective buyers who want to participate in a smart investment through the purchase of property in Los Angeles, California.

Non-Exclusive Buyer Representation Agreement (commission is not paid by the buyer)

This agreement circumvents the usual commission payment process completed by the buyer to their real estate agent/broker. This written agreement also informs both the buyer and the agent/broker about what tasks, duties, and responsibilities are expected from both parties throughout their professional relationship. If the buyer, seller, and real estate agent/broker all want to be part of a dual agency, that will officially be implemented in this written agreement. Given the non-exclusive nature of this agreement, the broker or the buyer can revoke their consent to continue in this professional relationship. Additionally, a prospective homebuyer will not have the opportunity to get a full range of access to all real estate properties available on the market.

Creating an exclusive agreement is an extremely important part of your investing process. If you want to have an investment opportunity with large potential for an extremely high income, then you should definitely choose the Exclusive Agreement. You will get access to every single amazing property on the market.

Leona offers all clients her full attention and dedication to their investment goals. Due to this truth, Leona does not take on a large number of clients all at one time. Some of her prospective clients go on the waiting list while she successfully completes the current transactions she has with her existing clientele. Additionally, most of the agency agreements she partakes in are Exclusive Buyer Representation agreements. Her full commitment to these transactions allows her to receive high-quality results for all her clients. Please contact Leona so she can further discuss and help you determine how her office can help you start.

THE IMPORTANCE OF PLANNING TAXES FOR FOREIGN INVESTMENTS

Many individuals purchase property in the United States as a means of making money from this new investment. Within the state of California and the entire country, numerous non-U.S. citizens own homes in these areas. This shows through either individual purchase made directly or domestic purchases made indirectly through foreign entities.The methodology followed by a non-U.S. citizen who owns U.S. real estate is extremely important. Non-U.S. citizens most likely don’t want to pay U.S. estate tax when they are proclaimed dead if it can be circumvented. This form of “death” tax that is associated with inheritance is not enforced in other countries. If an individual foreign citizen directly owns the property in question, they will have to pay this “death” tax once they are proclaimed to be dead.

As a foreign investor, you should always adequately plan for the potential consequences that could arise from the need to pay numerous taxes for your real estate investments made in the United States. In this country, foreign real estate investments always have a very complex legal framework. There are various important factors every foreign investor should thoroughly understand before selling, investing, or acquiring any real estate in the United States of America.

This being said, all foreign national investors must pay close attention to and prepare for the taxes they will have to abide by when purchasing United States property. The legal framework that is currently in place for foreign real estate investments is extremely complex so there are many factors to be considered before a final purchase is made. These are stated in the list below.

• Is there profitable income generation potential from this real estate investment?
• Are you looking for debt interest, equity interest, of both from your investment?
• Should you invest in this property through a corporation, trust, partnership, or alone?
• Should you use a foreign or domestic entity? Should you use a combination of both?
• Should you utilize a medium or long-term financing structure for tax benefits?
• Is your financing going to come from a U.S. or non-U.S. source?
• As a foreign corporation, should you be taxed like a domestic U.S. corporation?
• What information does the IRS need to know about you as a foreign investor and what tax return information needs to be promptly filed? Can this all be avoided?
• Are you hoping for some form of capital appreciation and increased annual income?
• Do you need “income tax losses” early on due to other U.S. incomes your receiving?
• How long do you think this real estate interest investment is going to last for you?

All these questions will receive sufficient answers once the foreign investor speaks directly with a professional tax lawyer to completely explain the personal and financial goals they wish to achieve from making this new prospective purchase. Leona has direct access to many reputable tax lawyers who have the professional expertise needed to make legal recommendations. This will help you understand that your profitable investments are being protected at all times. As you’re looking to make real estate investments in the United States, you must first completely understand tax information and what exact plan will bring you the most profit. 

Foreign Investment in Real Property Tax Act (FIRPTA)

This is a different tax method that was created specifically for non-U.S. residents to have the opportunity for gain taxation that occurs from the U.S. real estate they own. A mandatory withholding mechanism is imposed by FIRPTA where the escrow company has to withhold a portion of the tax immediately after the property is sold. This tax can also be withheld by a different withholding agent that is considered a third-party escrow. 

Taxes Imposed Under FRIPTA is 15%

Under FIRPTA regulations, a tax can’t be imposed unless a sale or disposition has occurred for U.S. Real Property Interest (USRPI). To understand this, you must first understand that a USRPI is considered any and all direct ownership interest that is placed on U.S. real property. This can include but is not limited to corporation, partnership, and estate ownership interests for real U.S. or U.S. Virgin Islands property. The IRS is the organization that defines what “real property” truly is rather than local California laws. This real property includes the following:

• Minerals and crops that are still intact within the ground without any severance
• Permanent buildings and other improvement structures considered to be permanent
• Real personal property (ex: timbering, mining, and construction equipment that is used to build real property establishments such as motels, hotels, apartments, or office spaces)

The USRPI “real property” definition is considered to somewhat flexible but a pure creditor’s interest is still not considered to be a USRPI. Mortgage is a pure debt interest for United States real estate but still does not create a USRPI. Unless a loan is created using a framework that considers it to be a portfolio interest, the foreign lender who ends up taking the mortgage against a U.S. real estate property has to pay the withholding tax on the interest associated with the income on the property in question. This means that debt investments could be a much better option for foreign investors to actually invest in United States real estate without paying FIRPTA taxes. Additionally, pure creditors don’t have a large amount of reporting obligations they must complete for the IRS. Other creditor/debtor relationships can be uniquely formed in order to further avoid FIRPTA taxes.

USRPI Tax Disposition Rate

This is the not the final tax, but simply the withholding tax used as a collection mechanism against the final income tax. The law states that resident alien individuals have to pay a holding amount consistent with a 15% tax rate on the property given there is a good chance the property was owned by a foreign resident as a capital asset. Both the IRS and California tax law require that 15% of the overall sales price is withheld when United States real property is sold by foreign nationals if the sales price exceeds $1,000,000. If the sales price is between $300,001 and $1,000,000, then either 10% or 15% is to be withheld. Finally, on sales prices of $300,000 or less, 15% to as little as 0% of the money is withheld.

In addition, the escrow agents in the state of California also have a legal duty to inform their buyers of the withholding tax obligations that exist. As previously stated, this is not the final income tax given a withholding tax is simply used as a collection mechanism against the final income tax.

This information should be taken into careful consideration by all foreign investor who would like to make investment purchases for United States real estate. The utilization of a professional real estate agent in combination with a great tax lawyer is going to be necessary to create a solid legal structure for your next purchase. Many tax lawyers always claim it’s much easier to make a strategy if you’re a non-U.S. investor.

If you would like to learn more information about the taxes associated with the overall homebuying process, please visit the Buyer’s Guide page. All the additional information you need to know about tax, insurance, escrow, and so much more is located here.

The Remote Homebuying Process

This process includes the following steps:

• The buyer and agent/broker will sign a mutual written agreement
• The agent/broker will utilize all means appropriate to help you find the perfect property for your next investment including personal research and the MLS
• The agent/broker will help their client put forth a reasonable offer to the seller
• A professional inspection, assessment, and appraisal will be performed on the property to determine any defects of the property or title
• After the title review is complete, the escrow process will begin. Towards the end of the escrow process, a final video tour of the property will be conducted for the client
• The client will pay for the property and complete any final closing payments so the clean title can be transferred to the new homeowner.

If any more questions arise after reading through this information, we would love to connect with you! Call us or send us an email so we can start your investment journey together. Leona would like to meet you in person at the Leona Estates corporate office located in Los Angeles, California.