Australian expatriates in the US buying Australian IPs - mortgage funding and tax imp

[nao]

My wife and I are Australian citizens who have been living in the US for the last 5.5 years. We're both non-residents for Australian tax purposes and earn a total of ~US$250 p.a.

Has anyone in this forum had experience taking out a mortgage in the US (e.g. with CitiMortgage) in US$ and on US terms (e.g. 5 year ARMs or fixed rate loans) secured against an Australian investment property ? An initial conversation with CitiMortgage in the US yielded nada though I've yet to talk to my CitiGold rep.

The only thread I was able to find on this topic was "Overseas borrowing" .

Given our rental income and non-interest expenses would be in AU$, I presume I would just convert to US$ at time of occurrence for IRS purposes.

The alternative seems to be to apply for an IP mortgage as per normal in Australia citing our US incomes, presumably providing pay stubs. I imagine I then convert everything (including income and interest expenses) to US$ for tax purposes.

Naturally, I need to consult a tax accountant who is familiar with US tax laws for foreign properties about this for more definite answers. Is anyone familiar with any Brisbane-based accountants familiar with both Australian and US tax laws for such situations ? Any good sites or books on Australian expatriate investment would also be gratefully received.

Our overall plan is to buy a couple of AU$200k-$300k apartments in Brisbane (Toowong/Spring Hill/Indooropilly type areas; we have some local knowledge and have some faith in SE QLD growth) over the next few years for rental / cap. growth.

Thanks for any insights and apologies if these are old questions (though I didn't find much on the topic when searching).

 

[Mike]

Hi Nao,

I found the following threads by typing in lawsjs into Search By User Name and Jeremy into Search By Keyword. Can't blame you for not using those search terms as only Forum oldtimers like me would know that Jeremy has been involved in a few discussions on overseas investing. As a result, I think it's fair to say that Jeremy Laws is our resident expert on overseas investing.

Investing Overseas
http://www.somersoft.com/forums/showthread.php?s=&threadid=5544

Buying Property in the USA
http://www.somersoft.com/forums/showthread.php?s=&threadid=5181

Question for Jeremy
http://www.somersoft.com/forums/showthread.php?s=&threadid=3937

Jeremy's Law
http://www.somersoft.com/forums/showthread.php?s=&threadid=3889

US investing story
http://www.somersoft.com/forums/showthread.php?s=&threadid=3778

Finance from USA
http://www.somersoft.com/forums/showthread.php?s=&threadid=2140

Buying Overseas IPs
http://www.somersoft.com/forums/showthread.php?s=&threadid=2007

Buying in US
http://www.somersoft.com/forums/showthread.php?s=&threadid=1832

Overseas borrowing
http://www.somersoft.com/forums/showthread.php?s=&threadid=1760

international property
http://www.somersoft.com/forums/showthread.php?s=&threadid=1251

Regards, Mike

 

[nao]

Originally posted by Mike
If you had been on this forum as long as I then you would have known that more threads could be found using a certain forum member's name as the search term. I found the following threads by typing in lawsjs into Search By User Name and Jeremy into Search By Keyword

Thanks for the links.

It's odd I didn't come across some of these threads. One of my searches of the archive using Search By Keyword at the Search Page was with the keyword US but this yielded no results despite the thread http://www.somersoft.com/forums/showthread.php?s=&threadid=2140 definitely containing US (not just USA). A search for expatriate did yield results, including from WebBoard Property Investor Forum Archive, hence why I posted.

In any case, thanks again for the compiled set of threads and apologies for not finding all of this past discussion (as I had suspected must have existed).

 

[Rolf Latham]

Hi Nao

You would most likely have no problem obtaining local finance in OZ with a 20 % deposit.

Almost all Australian lenders have seen the value of Expats.

If you can get funds out of the US secured against Oz property then that would be ideal IF the rates are as low as I think they are.

There are some small currency fluctuation implications with that thing called the Oz $. There is so little of the $A in world ters it is easy for the $A to vary quite a lot over short time frames. Most lenders that do offshore forex lending have "margin call" call clauses in contracts to protect them.

Ta

Rolf

 

[Mike]

Hi Nao,

The reason that US didn't return any results as a keyword is because the search function is set to return results of keywords containing 4 letters or more. Words of 3 letters or less won't return any results. So USA won't return anything, either.

Why this is so has been discussed before in threads like:

Search function
http://www.somersoft.com/forums/showthread.php?s=&threadid=5124

FAQ: I can't search for short words ?
http://www.somersoft.com/forums/showthread.php?s=&threadid=218

Regards, Mike

 

[XBenX]

everyone is so short around here ....

good luck in your search nao - hopefully you'll find what you are after, let us all know how you go

i agree w/ rolf in that setting up your loan in the US w/ the AU property as security will probably be the better option

This is due to both the US lending markets i rate differential atm and they(you) tend to have lower rates available (is this just a myth?)

you will also be lucky in regard to currency risk (at least as long as you are earning $US - there is no currency risk)

 

[Mike]

everyone is so short around here ....

Sorry if what I said came across that way. It didn't come out the way I intended so I've re-edited that passage. I was having a dig at myself for being around so long, that's all, which explains the unusual albeit creative search terms.

Mike

 

[Waverlybay]

Nao - I am in Hong Kong earning effectively US dollars, am a non resident for tax purposes and purchase property in OZ.

With the large int rate differentials between US and OZ, I can understand your enthusiasm for US$ funding.

Apart from approaching the local US lenders, you may want to check out the OZ banks which have offices in the US. All the big 4 have offices in NY. Macquarie Bank also has an office in NY, although they tend to specialise in structured finance for corporates (eg :cross border leasing). The big 4 in Hong Kong offer US$ funding to oz expats for oz secured for property - so i would imagine the same to be true for the big 4 located in the US. My gut feeling is that the local US banks are not set up to offer US$ funding to oz expats secured against oz property. Lets face it - most americans, let alone senior US banking executives, dont even know where "astreylea" is ! ! They are more likely to refer you back to their OZ branches where OZ funding can be provided.

The US$ lending products offered by the big 4 in HK are generally offered on a 70% LVR. ie you need to come up with a 30% deposit. The 30% buffer is needed to cushion against equity erosion via exchange rate fluctuations (ie when the oz dollar F A L L S ). The products are pretty "bare bones" - there is no offset facility, no LOC facility, no internet banking. But... for the gambling types, they all offer currency switching facilities which allow the borrower to switch their loans in and out of a range of currencies.

I have personally gone for AUD funding from OZ banks - for a few reasons.

1) The bells and whistles on oz loan products will get you access to more leverage than a bare bones US$ lending product offered by the big 4 or other oz bank with overseas offices (athough your US lender might surprise you with some good lending products)

2) The exchange rate risk is an issue. By taking out a US$ loan to purchase an AUD asset ... you are effectively taking a long position on the OZ dollar (ie betting ..and hoping ..the AUD will rise). Welcome to the world of currency trading ! Make no mistake - it IS a currency trade ! You can hedge your exposures using currency futures or options - but such hedging products are not designed to hedge a 30 year loan exposure. The banks also allow the borrower to select the amount of the loan that is to be denominated in the foreign currency - so that is another way the currency exposure can be controlled. My personal view is that if i buy property, I wear the hat of a property investor... not a currency speculator.

3) Use your US$ earnings to get US$ UNSECURED funding. As i see it... its a nice way tap into the cheap US$ funding without oz CRAA issues etc.. In HK, unsecured rates are around 7-8% for amounts up to AUD$200k. I'd be interested to know what sort of US rates can you get for an unsecured line of credit or a personal loan?

4) If you are earning US$250k per annum - you might want to consider a "private weath" banker. That kind of income might get you only a peanut butter sandwich from a US bank, but in OZ...the private wealth banker will deliver a premium quality of service and access to rates and product variations not available to the general public.

My NAB contact in HK is happy to discuss with you a US$ loan for an oz property if this is what you want. Drop me an email on [email protected] and i'd be more than happy to refer her together with other contacts (eg accountant that deals with oz expat tax issues and property).

I hope the above helps

cheers


Waverly