In light of the current enthusiasm of Chinese investors for investing in U.S. real estate and the tragic failure of many Chinese investors, attorney Lei Jiang believes that Chinese investors need to understand the basic routines so as not to be deceived by intermediaries or U.S. developers. Lei Jiang is a lawyer licensed in New York, Ohio, Michigan, and Illinois, and handle a large number of real estate legal affairs and related litigation. Named Super Lawyer in 2015, 2015, and 2017, and Best Lawyer in America, she is the main partner of Lei Jiang Law Firm. Attorney Jiang has handled many major and important cases in the US federal courts.
The US real estate law is well established, and its process is relatively fixed. It generally involves the following parties and steps:
- Agent. The buyer selects a real estate agent to find the ideal property. Agents are free to the buyer. In fact, the wool comes from the sheep. In the end the buyer will implicitly bear it.
- Price. After locking a desirable property, the agent helps to negotiate the price. A good real estate agent usually knows the real value of the house. If the price is lower than the market price, you should grab it as soon as possible. Many Chinese buyers like to bargain blindly, and in many cases, it backfires as many good properties were quickly bought by others.
- Sales contract. If the bid is accepted by the seller, the two parties sign the purchase agreement. The buyer pays the deposit, and then applies for a loan, inspects the house, and negotiates with the seller on any newly discovered problems after the house inspection.
- Loan. Many Chinese investors only use cash to buy U.S. real estate. But home loans should be considered. It is a good way to invest in real estate. At present, overseas buyers can buy houses in the United States with loans. But not every bank lends to overseas buyers.
There is a difference between a loan to foreigners and a loan to Americans. The loan conditions for Americans are credit, income, whether the job is stable, etc. The loan conditions for foreigners require a large down payment, usually around 40%-50%. Bank deposits are also a consideration. Generally, a loan can be obtained for 50-60% of the purchase price. Due to the different loan interest rates of each bank, the requirements for applicants are also different. It is best for Chinese buyers to ask multiple banks and lending institutions to compare and choose the most suitable bank.
- Escrow agent (escrow). American housing sales are generally through an escrow agent or a lawyer. Their job is to prepare all the transfer documents, make sure that the property rights of the transferred house are clear (no debt), both parties agree on the house inspection results, the payment is accurate, etc. Closing fee is negotiable. The buyer can pay, the seller can pay, or both parties can pay half.
- Freehold. Many new Chinese buyers assume that a house bought in the United States can be owned for a lifetime and can be passed on to future generations. In fact, this is not in line with the actual situation in the United States. The government has monetary and other demands on American houses. First, homeowners must pay property taxes on a regular basis. Otherwise, the house will be confiscated by the government. In addition, the house must comply with the housing laws of the local government. If there is any damage, it must be repaired in time, otherwise it will be sued in court and fined. In serious cases, the house may be demolished by the government. Therefore, if it is an investment, effective management is required.
- Property for rent. It is generally not difficult to rent out American houses. If the owner is not in the United States, an effective local manager is needed. Contracts with managers and management companies need to be carefully reviewed. In the United States, everything is based on the contract. If the management contract cannot effectively protect the interests of the landlord, the management company will manage as it sees fit, and the landlord will not be able to sue it.
- Rental yield. Taking a one-sided look at rental returns is also risky. There are two aspects to consider when investing in real estate. One is the rental rate of return; the other is the potential for appreciation. The latter may be more important than rental yield.
Generally, the more expensive the housing, the lower the rental yield. For example, New York, San Francisco, and Los Angeles on both sides of the coast are areas with relatively high housing prices. Since housing prices in these areas often rise, the corresponding rent increases cannot keep up with the increase in housing prices, so their rental returns are relatively low. Relatively speaking, places with cheap houses may have higher rental returns. However, be very careful with low-priced high-return homes. These houses are generally located in very poor areas. When the rent cannot be collected, the real estate is worthless, and the investment is worthless.
If you have questions about US real estate investment and transactions, please contact Lei Jiang Law Firm.
Phone: (440) 835-2271
Fax: (440) 835-2817