Summary: This is the first in a series of articles dedicated to H1B visa holders who are looking to invest in real estate. More specifically, cashflowing rental properties. In this article, we answer the question, can H1B visa holders invest in real estate? Be sure to check back for future articles in this series!
[Disclaimer: We are not accountants, lawyers or financial advisors, so please consult your own team of professionals about the topics covered in this article.]
Over the years, we have encountered many doctors and high income professionals in our community who are in the U.S. on a visa. Most commonly an H1B visa.
They want to create generational wealth through real estate, but they are concerned that their involvement in real estate will negatively impact their immigration status.These are legitimate concerns since there are strict rules against employment with anyone other than the employer who is sponsoring their visa.
H1B applies to “people who wish to perform services in a specialty occupation.” They were granted the visa because of a highly specialized skill and as a result, their incomes are usually higher.
However, like many members of our community, just because you have a high income doesn’t mean you are wealthy. Many high-income professionals are laden with debt. High-income earners also pay the highest tax rates with limited options for sheltering income. And therefore, high-income H1B visa holders are looking for ways to grow their wealth faster with real estate.
Can H1B Visa Holders Invest in Real Estate?
So the question is, can H1B visa holders invest in real estate?
In writing this article, we consulted with our team of professionals. Before you make any investment decisions, you should consult your own team of professionals.
According to our professionals, you can invest in real estate while on a visa.
As H1B holders, you are restricted from employing yourself in a company that invests in real estate. However, investing in real estate doesn’t require formation of formal corporate structures and self-employment.
You can invest in real estate funds or syndications as these are considered passive investments.
Can H1B Visa Holders Buy and Manage Rental Properties?
But what about rental properties? Isn’t buying and managing a rental property considered non-passive?
For example, if you are self-managing a property, is this no longer passive?
According to our professionals, there are no restrictions on H1B visa holders buying and managing rental properties. Even the IRS considers rental property investing a passive activity.
While rental property investing is generally a passive activity, there are ways to make it non-passive.
For long-term rentals, you can do this by achieving Real Estate Professional Status (REPS). For vacation rentals, also known as short-term rentals (STRs), you can achieve this status by materially participating.
This is of great interest to high-income H1B visa holders, as it is with many members of our community, because achieving REPS or taking advantage of the short-term rental tax loophole allows you to create a tax shelter with real estate.
This is one of the most attractive aspects of real estate. You can generate cashflow and at the same time, you can create paper losses to shelter your W2 or 1099 income.
Can an H1B Visa Holder Claim REPS or the STR Tax Loophole?
This is probably a gray area. We know that some immigration lawyers say that you cannot because it’s no longer a passive investment. Others we have spoken to said that as long as you aren’t employing yourself, it’s allowed.
Ultimately, you’ll have to consult your team of lawyers when deciding if you are going to take advantage of these tax loopholes to shelter income.
Is it Worth Investing as an H1B Visa Holder?
At this point, you might be wondering: if you can’t take advantage of the tax benefits of real estate investing, is it worth venturing into it?
In our opinion, yes! The reason is, the tax benefits of real estate is an important aspect of investing but not the most important. If you follow us, you will have heard us say, “don’t let the tax tail wag the dog.” In other words, don’t invest in something for the tax benefits. Instead, we believe the most important is cashflow and forced appreciation.
For us and many members of our community, we aim for a baseline amount of cashflow. However, real wealth is created with forced appreciation.
One example is our $3 million, 32 unit property. We were only able to afford the down payment on this property because we had forced appreciation on three smaller properties and used a 1031 exchange to buy the 32 unit. From there, we forced appreciation on this property and grew the value from $3 million to now over $5.5 million.
We were able to shelter over $800,000 of W2 income with REPS. However, that is only a tax savings of about $250,000 (assuming a 30% effective tax rate). This is compared to the $2.5 million of forced appreciation.
So while the tax benefits are great, you can see the forced appreciation is the larger source of wealth creation.
The bottom line for H1B visa holders is, even without REPS, you can grow your wealth passively. The key is learning how to buy properties the right way. The way to do that is to ensure that the properties cashflow and by forcing appreciation.
To learn how to buy rental properties, be sure to check out our real estate courses Zero to Freedom and Accelerating Wealth. If you want to hear why we created these courses and how they can help you achieve your goals faster, CLICK HERE.
Have you found a way to creatively fund your real estate portfolio and achieve financial freedom? Join the conversation! Follow our Semi-Retired MD Facebook page and join our Physicians (for MDs or DOs only) or Professionals group!
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