Buying a house in America and renting it out
7th February 2017
Written by Sven Roering
Reading time: Less than 4.5 minutes
“Do you have any advice for a Vietnamese/US dual citizen that wants to buy a house in other countries, e.g. America, instead of saving money in Vietnamese banks or investing domestic assets in such unstable conditions? How about renting the house while still staying in VN? How about tax and other concerns? I’m looking to buy house in Houston because it seems to have cheapest price range in America. Also, my wife is a Vietnamese citizen and would like to know if it would be possible for her to purchase a house in her own name abroad?”
What would happen to your money?
The most important risk by having your saving denominated in VND is the government and the economy as a whole decreasing the value of the Dong.
Although interest rates on deposits in Vietnam might be relatively high compared to the US and Europe (which are almost zero), it is important to note that when all your savings are denominated in Vietnamese Dong you open yourself up to risks relating to currency depreciation. The most important risk in terms of the long-term value of your VND is that the government and the economy as a whole would very much like the value of the Dong to decrease over time to make Vietnam’s exports cheaper than neighboring competitors and thus allow the economy as a whole to grow. These facts, along with many others, point to the VND becoming less valuable over time compared to developed market currencies like the US dollar.
The fact that you would like to invest in the US and have your savings/assets valued in US Dollars would mean the you would protect your purchasing power over time, i.e. the amount of goods you can buy with one dollar, compared to saving in VND where your purchasing power would decline as the VND becomes weaker.
Renting the house while still in Vietnam
Is it possible to buy property in the US and renting it out? You having a US citizenship is good, and buying property seems like a plausible option, but there are various trends you should consider before settling on this option.
Buying property in the US seems like a plausible option as the US home owners have the benefit of universal property rights and one of the world’s oldest democracies, which means that you would be able to take legal action against any person or government entity that would try to lay a claim against your property.
The fact that you have US citizenship is key because if you solely hold Vietnamese citizenship you would not be able to transfer money to the US for the purpose of investment and would only be able to do so if you could prove that the transfer was made to finance either: emigration, education, travel, supporting a family member or making payment for a good or service consumed in Vietnam, and concrete proof thereof would have to be shown to your banker. Therefore, it would be easiest for your wife to have joint ownership of property with you, which would be paid for from your own accounts.
In terms of investing in US real estate specifically, there are various trends you should consider before settling on this option. Demographics and property purchasing trends have changed quite substantially in the US. Younger people are saddled with more student debt and wages have not grown much over the past 20 years, which means that more people are living with their parents for longer and the frequency of home purchases will decrease over time, which would be a dampener on your property investment in the future. In terms of timing, the best opportunity for you to purchase would have been in mid-2008 just after the real estate crash in the US, and you would have found quite a few bargains available. Generally, real estate prices have recovered substantially and are almost at pre-’07-’08 levels as measured by the S&P/Case-Shiller housing price index.
Maybe reconsider Houston
Even though Houston seems to have cheapest price range in America prices in Houston are currently at an all-time high.
Looking more specifically at Houston, the obvious driver of the property market is the oil industry, which makes up more than 50% of tenants in the metro area. Even though you have mentioned that prices in Houston are still cheaper on an absolute basis than many other cities, when looking at the All Transactions House-Price index measured by the Woodlands-Sugar Land, prices in Houston are currently at an all-time high. Relative prices pared with the bleak prospects for the city’s biggest employer, oil and gas, would mean that there is not much room for growth in property prices and your investment. Try looking at other cities like Chicago, which has a more diversified tenant base and currently has lower relative prices compared to 2008.
In terms of taxation, you would be liable for: state property taxes, which in Texas are 1.93% of purchase value (one of the highest rates in the country), federal income taxes which you would pay on the rental you receive from your tenants based on your tax bracket, and capital gains taxes equal to 20% that you would pay on the profit you make on the property once you sell it. It’s important to note that if you are living in Vietnam and have the rent you receive from your tenant remitted to your bank account s in Vietnam or wherever they are held, that you would continue to be liable for the above taxes as the US, Philippines and Eritrea are the only countries that tax their citizens on income earned regardless of where they live. Perhaps consider securitized property investments such as Real Estate Investment Trusts (REITs) as these are far more liquid, give you access to a diversified pool of property investments and are far more efficient from a tax reporting point-of-view.
Do you have more questions, please contact us.
Tenzing Pacific Financial Investments