CoreVest Originates Loans to Foreign Investors
In the recent interview below between Jennifer LeClaire of GlobeSt. and Ed Mermelstein, partner at RheemBell Mermelstein LLP, Mr. Mermelstein corrects a misconception about why foreign investors set up LLCs to transact real estate in the US. He states the reason is two-fold, tax benefits and protection from liability. As a matter of fact, this is not limited to just foreign investors. In many instances lenders require both foreign and domestic investors to set up single purpose LLCs as the owner of real estate and borrower of a loan. As Mr. Mermelstein explains, this helps protect the sponsor from potential liability, but he does not mention how it also protects the lender. Lenders are focused on this because when a lender underwrites a loan they consider the worst case scenario which is they take over the ownership of an asset via foreclosure or an exercise of an equity pledge and the lender wants to make sure they are not stepping into impending liability by doing this. An LLC structure theoretically prevents the liability from passing beyond the entity. This practice is very common in commercial real estate, which includes residential rental real estate transactions.
As Mr. Mermelstein explains, this helps protect the sponsor from potential liability, but he does not mention how it also protects the lender. Lenders are focused on this because when a lender underwrites a loan they consider the worst case scenario which is they take over the ownership of an asset via foreclosure or an exercise of an equity pledge and the lender wants to make sure they are not stepping into impending liability by doing this. An LLC structure theoretically prevents the liability from passing beyond the entity. This practice is very common in commercial real estate, which includes residential rental real estate transactions.
Residential rental real estate in the U.S. has become a popular asset class with investors since the downturn in 2009 because values dropped significantly, rental housing demand skyrocketed and rental rates have steadily increased. Investors consider it a safe investment in the midst of a volatile world.
Historically, investors, especially foreign investors, are cash buyers, primarily due to the lack of available financing. Many lenders prefer not to loan to foreign investors because foreign investors have most of their assets out of the U.S., they do not file U.S. tax returns and they do not have a U.S. social security number and therefore verifiable credit. As Mr. Mermelstein notes, foreign investors have some additional hurdles to overcome, but they are not insurmountable and just require choosing the right lender, like Corevest Finance.Corevest Finance has a foreign investor program which mirrors our domestic investor program. Foreign investors that own real estate all cash should strongly consider taking advantage of the low interest rate environment while it lasts and complete a loan application with us. Completing a data tape and loan application does not cost anything but a little time and could result in significant increased profitability on the investment.
Corevest Finance is always looking for new customers for foreign and U.S. based. We have originators located in many of the major markets which allows us to easily meet with clients in just about any market. If you need a line of credit to expand your fix and flip/hold business or a term loan to leverage your rental portfolio, our experienced originators are a phone call away.
CoreVest is a leading provider of financing solutions to residential real estate investors. We provide attractive long-term debt products for stabilized rental portfolios as well as credit lines for new acquisitions. For more information about how CoreVest can help grow your rental and rehab business, please call 844.223.2231 or submit our contact form.