Why Buying Property In the USA is the Intelligent Way

One of the trends that has been increasing in popularity lately is using your self managed super fund for buying property in USA. Unlike most of the countries that only allow citizens to purchase property within the country, the United States has almost the same treatment for real estate sales to foreigners as sales to citizens. The only limitations usually come from various forms of community associations. Simply put, a community association is an organization or a legal entity which is in charge of managing real estate withing a specific neighborhood or building. These associations are mandatory, which means that simply by purchasing property within those communities, you are agreeing to be a member of that community and obey all of the rules.

So why is buying property in USA using your SMSF so popular? Well, there are actually two reasons. One of them being that US property costs much less than in Australia, and the other one is that the rental yield is higher. Just for comparison, property in the US typically costs between $40k and $150k, while the rental yield is between 13% and 22%.

If you make a decision to invest in property overseas, you should seek out professional advice. Although theoretically there are no special rules that apply to direct overseas properties, there are a few issues such as the following.

You need documentary evidence that the SMSF owns the property and its ownership is recognized in the country where the asset is located, in this case the United States.

Just like any investment you make using your SMSF, property in the United States must be consistent with the sole purpose test. This means that a residential property in the United States, can not be leased to any of the fund members or their relatives.

You need to consider the potential risk and return of the investment. You need to take into consideration things such as the exchange rate between the US and the Australian dollar and the cost of flights to inspect the property which may be closely investigated by the ATO for potential breaches in the sole purpose test.

And finally, the SMSF auditor may need some special documentation that verifies the existence and the ownership of the property.

So before you invest in US property, do a little research to locate popular areas to purchase property such as Dallas, Texas, Memphis, Tennessee, Miami, Florida, Georgia, Atalanta and so on. Make sure you speak with a financial adviser or accountant who knows all the ins and outs of SMSFs and confirm whether your fund is currently in a position to make such an investment.