Can I Invest in a Rental Property While On An H-1B?
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H-1B visa holders have limited options when it comes to making money on the side due to visa restrictions.
Since H-1B is an employer-sponsored nonimmigrant visa, H-1B visa holders cannot engage in activities other than the items on the Labor Condition Application and their Form I-129. These forms were filed by their employer while processing their H-1B application.
This means that H-1B visa holders are not allowed to seek employment with another employer unless they have a concurrent H-1B. Unauthorized employment including freelancing violates H-1B visa restrictions. Violators may have to exit the country and make a new entry.
These rules restrict H-1B visa holders from seeking active employment but there’s still another way to make money - passive income. Passive activities such as making financial investments or being a landlord are not prohibited under the H-1B visa.
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H-1B Visa Holders Are Permitted To Engage In Passive Income-Generating Activities
If you are looking for other sources of income while on an H-1B visa, you should be focusing on passive income. Some ways to earn passive income include:
- Renting out a room, a house or a car
- Opening checking or savings accounts to earn incentive bonuses
- Using carpooling apps like Scoop
- Investing in stocks or in crypto
- Investing in rental real estate
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Getting A Loan To Buy An Investment Property Is Possible While On An H-1B But Be Prepared to Meet Certain Requirements
While there are no citizenship, visa status, or residency restrictions on buying property in the US, the median price of a home in the US is around $227K. If you can’t pay cash for a property, you can turn to a mortgage lender and take out a loan to finance your purchase.
If you are an H-1B visa holder, here are the requirements lenders usually ask for before providing a loan for an investment property:
- At least 2 years of good US credit history
- US employment history of at least 2 years
- Proof of Employment Authorization
- Valid H1-B visa with a validity of at least 3 years in the future or a high chance of visa renewal if your H-1B visa is expiring soon
- Business plan for your investment property and/or the financial statements for the investment property you plan to buy
The requirements for an investment property loan are often more stringent than those for a primary residence. When underwriting an investment property mortgage, the lender will not just look into your salary but on the investment property’s income-generating ability.
Some lenders will only consider buildings which are already leased. These lenders will consider rental income generated and the costs of maintaining the property when determining the value and thus how much they will lend you. Others will focus on forecasts and may request a business plan and ask about your experience in managing properties or as a landlord.
Compared to a regular mortgage, the interest rates for an investment property loan may be higher. Lenders consider rental and investment property loans to be riskier since the home will not be owner-occupied. Although investment property loan rates vary from lender to lender, they are usually between 4 to 13%.
The required down payment for an investment property loan is also higher than that of a primary mortgage. For a one-unit property, lenders may ask for a 15% down and from 25 to 35% is not uncommon for two to four-unit properties. To contrast, you can purchase a primary residence with as little as 0-3% down.
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Tips For Starting Off As A New Landlord
Find resources you trust including a good realtor, a tax advisor, a lawyer, and a handyman.
Find an excellent realtor to help you find a profitable property, a tax advisor like MYRA to help you with taxes, a lawyer for all your legal needs, and a reliable handyman to manage maintenance.
Consider using a property manager.
A property manager takes over the responsibilities of a landlord, so you don’t have to actively manage the property. Your property manager will deal with tenant complaints, repairs, and collecting rent. The standard fee for hiring a property manager is 10% based on the monthly rental value of the property.
Often property managers will take the first month’s rent from a new tenant to pay the real estate agent’s commission and to cover the cost of showing the property to multiple prospects.
Most property management contracts also require the owner to set up an escrow account. This account will be used for repairs and maintenance of the property. Some property managers also ask for additional fees for evicting tenants, filling vacancies, and dealing with repairs.
Screen your tenants.
It is important to screen tenants rigorously. Do a credit, criminal, and employment check, as well as a reference and previous landlord checks. Be aware of local laws about what you can and can’t ask renters before performing such checks.
Make tenants sign a lease and pay a deposit.
A lease is a contract that outlines the responsibilities of the tenant and the landlord. You can refer to the lease contract if you have disputes with your tenant such as who pays for repairs or what can be deducted from the security deposit. Having a lease contract can help you avoid nasty legal battles over tenancy issues.
Most lease contracts require a security deposit or advance payments. Landlords will often collect a security deposit to cover damage to the property caused by the tenant. You might also opt to collect first and last month’s rent upfront.
Research and obey fair housing laws, local laws, licenses, and other regulations covering rental properties.
As a landlord, research and comply with all regulations related to renting out properties in your area. Violating these laws can lead to fines. Consult an attorney or property manager or realtor if you are unsure about the policies in your city.
Prepare for windows of vacancy.
When a tenant leaves, your property could still sit empty for some time. During this period, you will not collect any rent from your rental. If you took out a loan, make sure you have enough of a cushion to cover mortgage payments.
Budget for seasonal maintenance.
It’s important to keep your property in good shape as it helps your property hold its value, prevents tenant complaints, and avoids bigger and more costly issues down the road. Allocate sufficient funds for maintaining the property.
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H-1B Visa Holders Should Account For Certain Risks When Investing In Real Estate
It is possible that your visa may not be renewed and you may have to manage your property from afar.
If your employer suffers from a financial loss or you don’t get a visa renewal, you have to leave the country. If this happens, you may have to manage your rental property from another country which can be challenging.
Being a landlord can be a distraction to your work.
Managing a property can take up a lot of time. It is important to remember that your visa status hinges on your primary job. Don’t let your rental property become a distraction. In extreme instances, this can lead to job loss and compromise your visa.
You may violate the rules of your visa.
H-1B visa prohibits active employment other than your sponsor. If you are spending substantial time managing your property and tenants, you may violate your visa rules. When in doubt, consult your immigration lawyer.
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Alternatives To Investing In Real Estate That You Can Do On An H-1B
Investing in Real Estate Investment Trusts or REITS.
REITS refer to corporations that own, operate, and finance rental properties. These trusts pay at least 90% of its taxable income as dividends. REITS can be publicly traded or privately held. Either way, you can purchase shares from REITS through a broker.
AirBnbing your home when you are out of town.
If a room in your home or your entire home is unoccupied, you can rent it out through AirBnb. How much you’ll earn depends on how often you rent out the property and how much you charge per night.
Airbnbing through leasing.
Aside from Airbnbing your home, you can also lease properties and with Airbnbing purposes in mind. But if you have to check with the landlord if subleasing is allowed. You may also have to give a certain percentage of your AirBnb earnings to your landlord.
Real Estate Limited Partnerships or RELPs.
In a RELP, you invest as a partner and contribute capital to the business. A property manager who serves as a general partner can take care of the business process and your role will be more “hands-off.”
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Be a Strategic H-1B Real Estate Investor
While in the US on an H-1B, you are permitted to invest in a rental property and become a landlord. Landlording can be a lucrative way to generate passive income and build wealth. While you can be a landlord without violating your visa, you should take into consideration all of the risks before investing.