[Contribution] U.S. residential real estate, how to achieve stability and profit at the same time

Recently, the U.S. commercial real estate market is undergoing a structural transition. Due to the prolonged high interest rate trend, the establishment of telecommuting, and the expansion of online consumption, commercial assets centered on offices and retail are recording high vacancy rates everywhere. In some urban areas, the vacancy rate is close to 30%, and the real estate value adjustment that began in earnest after the pandemic has not yet ended. As uncertainty in the commercial real estate market grows, residential real estate, which has the advantages of relatively stable cash flow and possession of real assets, is attracting attention as a new alternative.

In fact, residential real estate in the United States can expect a rental yield of 7-9% per year depending on the region, and is strengthening its position as an investment asset that generates fixed cash flow even in a high interest rate environment. In particular, from the perspective of foreign investors, the United States is considered an investment destination that can pursue both asset protection and profit generation as it is the world's largest domestic market and has a structure that clearly guarantees legal ownership.

However, the essential key to investing in real estate in the United States is not simply whether you can buy it, but how to operate it and what structure to manage taxes and risks. In particular, in the case of residential real estate, various maintenance costs such as property tax, education tax, insurance premium, management cost, and repair cost are continuously incurred. In addition, since the United States has multiple tax systems at the federal-state-local government level, investors must have a prior understanding of regional tax rates, exemption systems, and taxation methods.

There are various tax reductions and tax savings strategies across the United States, and the application requirements vary from state to state. In particular, in high-density residential areas in the eastern region (New York, Massachusetts, Pennsylvania, etc.), tax reduction systems for actual residents or the elderly are relatively well developed. As such, the tax environment has a direct impact on the return on investment, so it must be comprehensively approached from the perspective of the total cost of ownership as well as the simple sale price.

These institutional characteristics can be understood more specifically by looking at New York State as an example. New York State is one of the representative states with a carefully designed tax reduction system for actual residents. First, the STAR (School Tax Relief) system is a program that provides education tax relief to actual owners whose annual income is less than $500,000. Additionally, if a senior citizen aged 65 or older resides in the property directly, they can receive a property tax reduction of up to 50% through the Senior Citizen Exemption system. In this way, when combined with a mid- to long-term holding strategy for actual residence or retirement purposes, the tax burden is significantly reduced.

So, which areas within New York State are promising as actual investment destinations? A representative example is Syracuse. This city is a typical university city centered around the large campuses of Syracuse University and the State University of New York (SUNY), with a high proportion of out-of-state and overseas students and a lack of dormitory supply. As a result, rental demand for one-room or small apartments is steady, and the average monthly rent for a studio type (one-bedroom) is about $1,400 (about 1.9 million won).

The sale price of this type of real estate is approximately $150,000 (approximately KRW 200 million), and it is structured so that a rental rate of return of approximately 8-9% per year can be realized even without actual residence. In particular, if certain requirements are met, it can be used as a complex asset management platform rather than a simple investment place as it can be used as a tax reduction through conversion to actual residence or a tax saving strategy when gifting or inheriting after long-term holding.

However, since U.S. real estate is both a profitable asset and a high-risk contractual asset, professional legal and tax advice must be obtained first. Foreign investors are exposed to complex legal and institutional variables, such as application of FIRPTA (Foreign Real Estate Transfer Tax Act), possibility of disputes in lease contracts, state-specific tenant protection laws, and various litigation risks. A comprehensive risk management plan must be established taking into account all possible risks not only during the trading process but also at the holding and transfer stage.

Ultimately, investing in U.S. real estate requires the same strategy and structure as operating an overseas business, rather than simply purchasing assets. Only by comprehensively analyzing all factors such as taxes, laws, profits, maintenance, and foreign exchange risks and preparing response strategies can you prevent unexpected losses and achieve stable profits and asset protection at the same time.

In an era where overseas asset allocation is more important than ever, structure is more important than information, and preparation is more important than expectations. When investing in residential real estate in the United States, only investors with legal safeguards can smile to the end.

Small Business Team

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[Contribution] U.S. residential real estate, how to achieve stability and profit at the same time (link)