[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 advantage 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 to 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 the world's largest domestic market and has a structure that clearly guarantees legal ownership, so it is evaluated as an investment destination that can pursue asset defense and profit generation at the same time. 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 with 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, tax reduction systems, and taxation methods. Various tax reductions and tax-saving strategies exist throughout the United States, and their application requirements also differ 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 rate of 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 in more detail 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 in New York State are promising as practical 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 KRW 1.9 million). The sale price of this type of real estate is about $150,000 (about KRW 200 million), and it is a structure that can realize a rental yield of about 8-9% per year even without an actual owner. In particular, if certain requirements are met, it can be used as a complex asset management platform rather than a simple investment, as it can be used as a tax reduction through conversion to actual residence or as a tax saving strategy when gifting or inheritance after long-term holding. However, given that 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 sales process, but also at the holding and transfer stage. Ultimately, investing in U.S. real estate is not simply purchasing assets, but requires the same strategy and structure as operating an overseas business. Only by comprehensively analyzing all factors such as tax, law, profit, maintenance, and foreign exchange risk and preparing a response strategy can you prevent unexpected losses and achieve stable profit realization and asset defense 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 what surpasses expectations. When investing in residential real estate in the United States, only investors with legal safeguards can smile to the end. Small and Medium Business Team[View full article]
[Contribution] U.S. residential real estate, how to achieve stability and profit at the same time (Shortcut)