Is Direct Investment in US Real Estate an Effective Planning Strategy?

By Peter J. Loughlin, JD, LLM and Thomas W. Goldman, JD, LLM

Published in Offshore Investment Magazine

Why would anyone want to invest in US real estate today - particularly a foreign investor? Seasoned foreign and domestic investors have long been aware of the benefits of direct investment in US real estate. Despite what have sometimes been described as draconian real estate investment laws that impose unfair tax consequences on foreign investors, their effects are actually quite negligible when one considers how tax treaties and good tax planning strategies provide substantial advantages to the astute investor.

While the typical advantages available to the domestic US real estate investor are readily evident, there is a common thread among all investment approaches, both domestic and foreign, that is, leveraging. One additional factor favouring the foreign investor was not, however, present at the beginning of the millennium. The precipitous decline of the dollar vis-à-vis the Euro and other currencies, has presented an extraordinary opportunity for the foreign investor. We like to think of it as a kind of super leveraging opportunity.

Super leveraging is an opportunity made possible by purchasing a leveraged investment in an economy supported by a weaker currency. For example, if an American investor purchases real property in the United States for USD100,000 with 30% down payment and sells for USD115,000 he earns a 50% return on investment. If that same investor was, let’s say, an EU based investor, he may effectively compound that already handsome return on investment owing to the favorable currency differential. That’s super leveraging. As of this writing the Euro is 1.3489 to the US Dollar. Read More...