U.S. Banking for Real Estate Investorsby Robert Kowalski
Organizing Your U.S. Real Estate Business Cashflow
So as a non-U.S. based investor you decided to invest your money in the U.S. real estate market. Assuming you already read our articles on how to organize your real estate holdings in the U.S. using legal entities such as LLC and corporation, as well as how the taxation of your new business would work, the next logical question would be how to arrange the actual flow of cash from your renters into your real estate business.
There are different ways to solve this logistical questions. Because of the recent difficulties on opening U.S. business bank accounts, in this article we will first cover all the alternatives, and only then touch the tough issue of opening U.S. bank account.
Using Personal Bank Account for the U.S. Real Estate Business
In general, it is strongly recommended that a business entity maintains a separate bank account. This would help keep entity in compliance with IRS record-keeping requirements and will provide for a better way to manage company’s cash flow. Therefore we recommend seeking solutions to open business bank account for your U.S. company, and not use personal bank accounts.
Using Management Company
Using management company for your real estate investment business could solve the problem of having to open a U.S. business bank account (as well as many other problems related with managing cash-flowing real estate investments). A management company would collect the rents, deduct all the fees andexpenses related to managing the property, and withhold whatever taxes necessary to be withheld before making a deposit to your account, which in this case could be based outside of U.S.
Bank Account In Your Country
Your U.S. company can have foreign bank accounts opened in its name. Having such account in your country would make it easier for you to manage your business' cash-flow and might even assist in tax management. With a bank account in your country a management company would be able to wire your periodic payments directly to you.
Keep in mind, in order to open a bank account for a U.S. company in your country the company documents need to be certified through a process called "Apostille/Embassy Certification" (see below).
Bank Account in Another Country
You might as well opt for opening a bank account in an offshore jurisdiction. Many jurisdictions are known for their beneficial environment for business activity and make it easy to open bank accounts remotely, so you might want to consider researching this option further.
Ways to Open a Business Bank Account in the U.S.
After 9/11 and with the passing of the Patriot Act it became really hard for foreigners to open U.S. bank accounts. Today all U.S. banks are required to document verification that the person opening the account is the person on the I.D. they’re receiving. The easiest solutions practically all banks chose to go with is simply having one of the employees in their branches make sure that the person opening the account in the branch is the same person in the photo I.D.
If you still want to open a business bank account for your business in the U.S. there are different ways to possibly accomplish that.
A trip to the US would present you with the best opportunity to open a bank account. If you plan a trip anyway, or have the financial ability (as well as spare time) to make a trip to the US then it would probably be the best solution.
Keep in mind that you need to bring a number of documents, both personal and business related, and it's always a good idea to contact the bank directly prior to arrival to ensure you have all the documents in your possession at the time of visiting the branch.
Below we list all the documents required (or those that might be required) by a typical U.S. bank (however keep in mind that even within the same bank different branches might have slightly different requirements).
If You Have a Personal Bank Account in the U.S...
If you visited the U.S. in the past and have opened a personal bank account your best bet would be to try to contact your bank (preferably the same branch) and see if the would open an account for your business remotely.
Try a Few Online Bank Options
Periodically it's possible to find an opportunity to open an account remotely with an online bank. For example, you can try such banks as Silicon Valley Bank）or EverBank. Also, eTrade seems to have the option of opening a bank account, even though they are technically a brokerage. It's a long shot, but worth trying before anything else.
Keep in mind: online banks typically require an SSN (Social Security Number), but would open an account if you have ITIN (individual Tax Identification Number) as a replacement (ITIN has the same number of digits as SSN).
Use a Reloadable Prepaid Debit Card Account Instead of Traditional Bank Account
In most cases what you need is not a bank account per se, but the functions provided by a traditional bank account. For that you can use a reloadable prepaid debit card from companies such as NetSpend，Payoneer，Payza , etc. What you get is an internationally recognized debit card and an account number with routing and ABA numbers.
With such an account you can set up free Direct Deposit of your paycheck, have your card reloaded at various locations (for example NetSpend list on their website more than 100,000 NetSpend Reload Network Locations throughout the U.S. to add cash or checks), and transfer money using PayPal®, a checking or savings account, or another card account (NetSpend or Payoneer). You should even consider opening accounts with several of those companies, to diversify your financial option.
Verify Your Identity in U.S. Embassy
Some banks would accept I.D. verification through US embassy. A person in a foreign country looking to open a U.S. bank account could go to a U.S. embassy in their country, and someone there at the embassy could sign the I.D. verification form. Obviously, this is really only practical for someone who lives close to a U.S. embassy, however if the only alternative is to travel to the US then it could be a better solution.
Of course, this is only meaningful if you first verify with the U.S. bank of your choice that they would accept it.
Partner with Someone in the U.S.
If traveling to the US or using the embassy solution is not an option, one way to do it is by partnering with someone in the U.S. Many people have friends and family in the U.S. that could assist them in opening a bank account. It is very important to understand that a person you partner with, who will also be the one listed as company representative at the bank, should be trustworthy, so choose carefully.
Keep in mind that this person will have access to all company funds going through this account, and as long as you are not listed as a co-signer on the account, would have exclusive authority to perform such operations as closing or blocking it.
Hire a US Manager/Executive Officer
If you want to keep the ownership to yourself an alternative would be to hire a manager or executive officer for your company, who would represent it at the bank. LLCs for example can be formed as "manager-managed", which in some states would require you to list the manager on company's Articles of Organization. Similar to previous solution that person would have exclusive authority in questions of managing the bank account, so choose carefully.
This solution is different from the previous one in that fact that here you will compensate the manager with a salary (or one time payment), while in the previous solution you compensate them with shares or member interest. To grant this person an authority to represent your company you might need to issue them a Certificate of Incumbency (see below).
When opening a bank account in the US a company representative appearing in person in the bank would need to bring specific company and personal documents. Below you can see the list of all possible documents a representative would be required to have in his/her possession:
Articles of Incorporation/Organization
To open a business account in the U.S., a company must be registered in one of the US states or D.C., and a representative would submit proof of this entity formation to the bank. The type of documentation required depends on the type of entity formed: a corporation must submit Articles of Incorporation, and an LLC must submit Articles of Organization. Some banks would accept filing receipt instead, but majority require a certified copy of Articles.
EIN Confirmation Letter
EIN (also known as federal employer identification number) Confirmation Letter (form SS4) is required by all banks to open a business account. The basic reason is that the bank (and yourself) have tax reporting requirements to the Internal Revenue Service (IRS) based on your account information, and the EIN is required as the reporting identification number.
Typically a bank would require 2 pieces of identification for the company representative opening the account, at least one of these must have a picture. A passport would work just fine, but make sure its not expired.
Proof of Address (Applicant)
Banks require the company representative opening the account to submit a personal proof of address. Examples of eligible documents are utility bills, or foreign bank account statements (preferred). Keep in mind - the document MUST be in English. If it's in language other than English it must be officially translated and notarized. Keep in mind, some banks have multilingual bankers, authorized to accept documents in the language they are certified for, but you shouldn't count on that.
U.S. Business Address
Most U.S. banks will not open a business account without a U.S. physical address. Sometimes the bank will accept the street address of a Registered Agent, otherwise known as a Registered Office. Banks are usually accommodating on this requirement, especially if your type of business is one in which having a physical branch is impractical, for example a company that does business mainly over the Internet.
Some banks also require that the U.S. physical location be within a certain distance (e.g. 10 miles) of the bank branch at which you open the business account. For example, you cannot open a business account in New York if your U.S. physical address is in California.
Minimum deposits vary from bank to bank, with most brick-and-mortar banks requiring as little as $100 (some banks might even have $0 deposit requirements). Check with your bank what would be their minimum deposit requirement for foreign clients.
Letter from a CPA or Company Attorney
This document might be required in some banks, if the bank is located in a state other than the state of registration. For example, if you register a Wyoming LLC and want to open an account in a New York bank, the bank would want to see a statement, written by a company accountant or an attorney, stating that this company does not do business in their respective state (in our example, New York). This should not be a complicated letter, something along the lines of, e.g., "I am such and such, confirming that company ABC, formed under the laws of Wyoming, does not and has no immediate plans to conduct business in the state of New York...". The letter must be dated and signed.
Certificates of Good Standing
Many banks require that companies submit Certificates of Good Standing (also called Certificate of Existence) to show that they are currently doing business and in good standing in the state in which they formed their business. Please contact the bank to see if they have this requirement.
Certificate of Incumbency
Certificate of Incumbency (also called "Incumbency Certificate") is an official document that lists the names of incumbent directors and officers within an organization, and their corporate position within it. An Incumbency Certificate is used as confirmation of the identity of the signing authorities of a company and to prove that they are authorized to enter into legally-binding transactions on the company's behalf. This certificate can be drafted on demand (there are plenty of samples online), and must be signed by the company secretary and sealed by a company seal.
Banking Resolution is a company document issued by the Board of Directors (for corporations) or by Members (for LLCs), giving certain individuals the authority to open a bank account on behalf of the company. Some banks have specific language that they require to include in the resolution (and would often supply a sample), other bank accept resolutions issued by the company, as long as it clearly presents and identity of the individual(s), and the extent of the authorization.
Operating Agreement / Bylaws & Minutes
An operating agreement is an agreement among LLC Members governing the LLC's business, and Member's financial and managerial rights and duties. Corporate bylaws are generally concerned with the operation of the corporation, setting out the form, manner or procedure in which a corporation should be run. Bylaws come with minutes of meetings (in the beginning they would include the initial meeting, where bylaws are adopted by the board of directors).
Some banks would require a company representative to present the bank with a copy of those documents (operating agreement for LLC, and bylaws with minutes to corporations) when opening a bank account (albeit its quite rare).
If you plan to open a bank account in your country or in one of the offshore locations you should be aware of the local regulations and inquire at the bank which documents would be needed to open an account. Typically, at least the Articles of Organization/Incorporation would be required, and this document then needs to be certified for international use.
If you plan to open a bank account in any jurisdiction that is a signatory of a Hague Convention (also called "Apostille Convention") then you would need to have an Apostille attached to a certified copy of your company's Articles (this is done on a state level only).
If you plan to open the bank account in any other country or jurisdiction that is not a signatory of the Hague convention then the process is a bit more complicated and involves certification of the document at the US State Department and then at the Embassy of the country/jurisdiction in question.
Banks to Try
In the current banking market, customers can choose between brick-and-mortar banks, typically big national banks with numerous local branches throughout the country, or Internet-only banks.
The advantage of brick-and-mortar banks, such as Chase, Citi Bank, Bank of America, Wells Fargo, or HSBC, is that they have many local branches where you can visit and speak to representatives in person. On the other hand, the main advantage of Internet-only banks, like Silicon Valley Bank, EverBank, ING Direct and HSBC Advance, is that they do not have the overhead expenses of operating local branches, and therefore can afford to offer their customers better rates on their accounts.
Internet-only banks might be more flexible in terms of accepting applications of foreigners, however many of those banks reject applications without Social Security Number, but would open an account if you have ITIN (individual Tax Identification Number) as a replacement (ITIN has the same number of digits as SSN).
It's a good idea to contact several banks and see what options they have for foreigners who cannot travel to the US. If you can travel in person then you should have no problem opening a bank account, provided you are equipped with all the documents when you show up at the bank. Most banks would permit you to fax or email them whatever document that would be missing, the most important thing for them is to go through identity verification process of the applicant.
Although opening a bank account in the US might seem a complicated issue, it is really only complicated by the requirement of personal appearance at the branch. Therefore its a good idea to plan ahead before a company is formed and see if (a) a bank account in the US is absolutely necessary, or one of the alternatives would work just fine, (b) is it possible (or feasible) to make the trip to the US in person, or (c) is there are third party (friend, relative, someone you would choose to trust) located in the US who would agree to join the company as partner or manager.
Good luck with your new business venture!
About The Author
Robert Kowalski is a seasoned incorporator and business filing specialist with over 10 years experience consulting emerging companies with their business filing needs. Robert served as the chief editor and one of the top contributors to Answers @ MyUSACorporation.com.