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Thanks, particularly to jayhinrichs for your thoughts. They were timely and much appreciated.
Hi,
I am hoping someone here can answere a problem that just raised its head.
After having researched various areas to invest in the US (using our Australian SMSF with a corporate trustee) I travelled last month to Dallas to establish a relationship with a broker/accountant manager who is based in Frisco. When I factored in everything from rental prices per sq foot through likely capital gain (allied with employment growth etc) to availability and reliability of tennants, North Dallas seemed to meet our needs. We are not looking to be greedy. Our thinking was to find a cash investment that would maintain its capital value against inflastion and return a REAL net (after US tax, managemnt, vacancy, sinking fund etc etc) or 6-7%. The sweet spot seemed to be in McKinney in Nth Dallas with 4 bed properties selling for about 150K-175K.
We are on the verge of signing a contract on the first of 3 properties with the money already sitting in a US bank account in US$s.
However the issue of depreciation recovery just reared its head and is tearing apart our strategy.
My US accountant told me that in the US, on top of money you actually spend on a property, you are allowed to depreciate 85% of it's value over about 27.5 years. So far so good. Using this depreciation we were achieving our target ROI of 6-7%.
Today though I discoverred a fly in the ointment. Aparently when we eventually sell the property the US government will want to recover the tax we saved by lowering taxable income by depreciating the property. This in effect seems to gradually but significantly reduce the captial value of your property as you depreciate it so that it becomes very hard to find any capital gain at all even in a rising market of say 3% pa. When you take this into account it seriously reduces the allure of US property making a 3% net return in Australia the equivolent of a 6% return in the US. this is very disappointing to me. I thought I had researched all of this properly and now, on the verge of buying (having already incurred significant research and forex costs), I feel our strategy is fatally flawed.
Has anyone else encounterred this problem? If so have you found a solution or a way of looking at this that makes sense? Is the problem that I am buying these properties with cash instead of gearing them? I am no financial wiz but would love some guidance here.
A quick response would be very appreciated as we were expecting to make our final decision on our first property by close of play tomorrow. If this is impossible I still would value a response as we may pull out tomorrow and there is such asignificant amount of money in the states that is earning nothing until I figure out what to do with it.
Thanks for considering this post.
If I have posted this in the wrong place I would appreciate being directed to the right forum.
Hi,
I just got back from the USA where, on advice I set up a C corp and bank account in the name of our Pty Ltd company trustee of our SMSF. Money to purchase property is already in the US bank account. I just found out about double taxation of a C corp. My research never showed this up and nobody told me about it before I acted so as you can imagine I am a little upset. I have a house I want to buy right away but it looks like I need to change my corporate structure.
My accountant in the States is saying that I can elect to change the C-corp to an S-corp which does not attract the double taxation and apparently is more similar to a Pty Ltd company than an LLC.
Have you been able to resolve this issue yet. If so how have yoiu done it? Any information you can share would be very gratefully received.
