United States: Overview

RENTAL YIELDS

U.S. rental yields low to moderate

Average yield is low in the US at 3.17%. Yields throughout the country range from 1.4%-5.5% The highest yields can be found in posh areas like Upper East Side and Upper West Side, Manhattan in New York. Southern California houses earn moderate gross rental income as well.

Nationwide, rents fell by 0.4% in real terms in 2005, after a flat 2004 and a rise of only 0.61% in 2003. Between 1990 and 2005, rents ro by only 5% in real terms, compared to 49% real house price growth.

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TAXES AND COSTS

The complicated U.S. tax system

Rental Income: Rental income is categorized as either Effectively Connected Income, wherein it is taxed at the progressive federal tax rates, or Fixed Determinable Annual Periodical income, wherein it is taxed at 30% withheld by the tenant. States also levy income taxes at varying rates.

Capital Gains: Capital gains tax for properties held for more than a year is 5%; otherwise the tax is 15%.

Inheritance: Federal estate tax is progressive with rates at 18% to 45% and an exemption of up to US$2,000,000. A Generation-Skipping Transfer Tax is also being levied on transfers to beneficiaries who are more than one generation younger than the transferor.

Residents: Resident foreigners, like U.S. citizens, are taxed on their worldwide income.

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BUYING GUIDE

U.S. buying costs range from low to moderate

Roundtrip transaction cost is around 7.6% to 11.2%. Significant costs include the 6% real estate broker's fee and real estate transfer tax, at 0.1% to 2% of property value. Total costs for legal fees, title search and insurance, and registration fees range from 1.5% to 2.2%.

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LANDLORD AND TENANT

U.S. housing law is pro-tenant

Strong anti-discrimination laws make the US slightly pro-tenant.

Rent Control: There are subtle rent control laws in 5 states; however their laws also have provisions to give landlords a fair return of investment.

Tenant Security: It is advisable for landlords to write a report citing all the allowable reasons when declining a prospective tenant. Tenants can also charge landlords with intentional infliction of emotional distress to fend off eviction.

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ECONOMIC GROWTH

Growth despite the housing slowdown

The United States of America has the world's largest economy, the third biggest population (297 million), one of the highest GDP per capita (US$37,714), and the third largest land area. The US is composed of 50 states, one administrative capital (Washington D.C.), several territories (Puerto Rico, Guam, etc.) and "associated states" such as Palau.

Despite the housing slowdown, the US economy expanded by 3.3% in 2006, after a 3.2% increase in 2005. Personal consumption expenditures and non-residential investments fueled economic growth, while residential investments and imports exerted a downward pressure to the economy. The housing market is expected to recover in the middle of 2007, by then the economy is expected to grow stronger.

The interest rate increased significantly, from 3.5% in 2005 to 5.2% in 2006. The 30-year fixed mortgage rate stood 6.41% in 2006, a rise from 5.87% in 2005, but a considerably low rate compared to the 15% mortgage rate in the early 1980s. The inflation rate was 3.3% in 2006, slightly lower than the 3.4% inflation rate in 2005.

Real wages grew by an average of 3.7% from 2002 to 2005. In 2006, wage growth reached 6.8%, the highest since 1989. The unemployment rate was at five-year low at 4.6%.