SMSF strategy for US properties

Hi all -

This is my first post, but probably my 31st visit here, and I'd like to say how much I have enjoyed reading and learning from this forum.

I'm a US citizen, but have been living in Oz for about 15 years now, and am employed by an Australian company.

There are a lot of cashflow positive properties available in the US, and I'm interested in taking advantage of the strong Aus$, as well as the bargain basement prices there at the moment. By the way, I'm 45, and am happy holding an IP for as long as it's CF+.

I have about $100K cash (Line of Credit equity available), but trying to find financing is proving to be quite challenging. I can acquire one house or two units for $100K cash (see zillow.com in Phoenix or Las Vegas), but would prefer to leverage if I could. Any ideas on overseas financing? Maybe I should post that question on another forum.

Anyway, in order to get as many of those properties as possible, I'm also considering converting my current super (a bit over$200K) into an SMSF, and purchasing one or two other IPs with the cash in them.

I believe I may have to pay the IRS something every year that any investment is CF+, despite the fact that I've used my SMSF to purchase them. If anyone can confirm that for me, I'd appreciate it.

I also have read snippets here and there that give me the indication that if I sell them (even after I retire), I am potentially liable for Capital Gains Tax (CGT) in the US. Does anyone have any experience with this, or know of a good accountant - preferably in Perth - who would be able to help me?

The one legal CGT loophole that the IRS does allow US citizens is that CGT disappears if you occupy the property for two years before you sell it. My wife and I would be prepared to do this for a couple of properties, but not 10 or 12.

Quite frankly, I'm just interested in maximising my retirement nest egg, so if anyone has any better ideas, I'm all ears.

Any replies would be most appreciated!

Thanks,

HH
 
First if your SMSF buys property forget about living in it while the SMSF owns it.

Second you not only need someone who can work out the interaction of the double tax treaty between Australia and the US you need that person to be able to add the complexity of an Australian SMSF which is an entirely different creature to the US retirement funds.

Third you need to appreciate the legislative risk, particularly in Australia, with superannuation.
 
I agree that you'd need a very sophisticated (expensive ;)) accountant to deal with the complexities of investing in foreign property with an Australian SMSF.

Leverage is lower for those not "active" in the US (eg you don't have a current FICO, I assume, so that makes it harder), but you should still be able to get some form of finance. I know several Aussies who've been able to get 50-70% LTV for single family residences.

You can get higher leverage for multi-family, and my research indicates that property management is much easier for multi-family properties.

If I were in your situation, if all the issues surrounding investing in US properties with Aussie SMSF can be gotten around, I'd look at using the $300K ($200K super plus $100K LOC) as a deposit on a $1M property with 40+ units and on-site management. You should be able to get 70% non-recourse finance for a commercial property such as this. Vendor finance is also a possibility. I've found several properties in the $1M range that are returning $100K NOI (obviously that's after the expense of paying full-time on-site management), so after debt service would be around $60K cashflow positive in Year 1, and obviously that figure improves each year. :cool:
 
Add exchange rate risk as well
Not really significant... you put in your deposit right now at a known (relatively favourable!) exchange rate, then your income, expenses, and debt are all in US$. So whilst the exchange rate could lead to the absolute $A profits going up and down, there's no risk that exchange rate can make a profit turn into a loss. (Whereas there would be if the debt was in $A, or if your income and expenses were in different currencies.)
 
Not really significant... you put in your deposit right now at a known (relatively favourable!) exchange rate, then your income, expenses, and debt are all in US$. So whilst the exchange rate could lead to the absolute $A profits going up and down, there's no risk that exchange rate can make a profit turn into a loss. (Whereas there would be if the debt was in $A, or if your income and expenses were in different currencies.)

I'd want my debt in A$ if I could - long term I can't see the A$ keeping to this level, which is after all 50% higher than the traditional level.
 
I'd want my debt in A$ if I could - long term I can't see the A$ keeping to this level, which is after all 50% higher than the traditional level.
If you can borrow in A$ and are happy with the risk of the Aussie going even higher, then sure, it could be a fantastic strategy.

I don't have that option, so it's not a choice I have to make. :)
 
Hi HH,
I am in the process of purchasing an investment property in the USA using House Buyers USA. I will be funding the purchase from my SMSF. I have a brilliant accountant in Perth that I can recommend to everyone - Justin Felter at The Intelligence Group. We are only at the early stages so we are learning as we go.
Cheers,
Lou.
 
If you can borrow in A$ and are happy with the risk of the Aussie going even higher, then sure, it could be a fantastic strategy.

I don't have that option, so it's not a choice I have to make. :)

Most are thinking the $A will be heading up before it goes down.
 
Hi all.

Just a quick update.

I tried to track Justin down the other day and heard that he has started up his own firm in Perth - "just tax and structrues".

He has helped me setup and run my SMSF and we are now debating whether to go US property or stay local and ride the mining boom...
 
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