You have $200,000 in US dollars and want to put them to work in the United States. The options are multiple: savings accounts, Treasury bonds, stock ETFs, rental properties, private lending. Each has a different profile of risk, return, and tax treatment.
But there is one factor that most analyses ignore and that completely changes the calculation: taxes. What matters is not the gross return but what actually stays in your pocket after taxes. And for a foreign investor (NRA, Non-Resident Alien), the tax treatment of each instrument is radically different.
In this article, we will compare five investment options with $200,000 over one year, calculate the net after-tax return for an NRA, and project the results over five years.
The five options compared
1. High-Yield Savings Account (4.5% annual)
The simplest and most conservative option. You deposit the dollars in a high-yield savings account at a US bank.
Gross annual return: $9,000
Taxes: Bank account interest is subject to 30% withholding for NRA. There is no exemption or tax treaty that eliminates this withholding for most Latin American investors.
Net return: $6,300 (3.15% effective)
This is the lowest-risk option but also has the lowest net return. The 30% withholding significantly reduces the actual return.
2. US Treasuries (4.7% annual)
US Treasury bonds are considered the safest asset in the world.
Gross annual return: $9,400
Taxes: Treasury bond interest is exempt from withholding for NRA. This exemption is established in the US tax code and applies regardless of the investor's country of residence.
Net return: $9,400 (4.7% effective)
Better than the savings account due to the tax exemption. This is the benchmark against which to compare the other options.
3. S&P 500 ETF (~10% historical annual)
Investing in an ETF that tracks the S&P 500 index provides exposure to the 500 largest US companies.
Gross annual return: Variable, historical average ~$20,000
Taxes: Dividends are subject to 30% withholding for NRA. Capital gains from stock sales are exempt from US taxes for NRA (as long as there is no substantial physical presence in the US).
Estimated net return: Variable. Considering a 1.5% dividend yield (~$3,000 in dividends, $900 withholding), the tax impact is moderate but total return is highly variable.
The main issue is not taxes but volatility. The S&P 500 can drop 20-30% in a year and recover in the following years, making it unsuitable if you need certainty in your returns.
4. Rental Property (6% cap rate)
Buy a property and rent it out. This is the classic image of real estate investing.
Gross annual return: $12,000 (6% cap rate on $200,000)
Taxes: Rental income is subject to income tax for NRA. You can elect to be taxed as "effectively connected income" and deduct expenses, or accept the 30% withholding on gross income. Additionally, upon sale, FIRPTA (Foreign Investment in Real Property Tax Act) applies, withholding 15% of the sale price.
Estimated net return: ~$8,000 (4% effective), considering operating expenses, vacancy, maintenance, and tax complexity.
The return is acceptable but the operational and tax complexity is significant. It requires active property management, local market knowledge, and specialized tax advice.
5. Private Lending (10% annual)
Lend money to real estate operators in Florida, secured by a first lien mortgage on the property.
Gross annual return: $20,000
Taxes: Interest from private real estate loans can qualify for the Portfolio Interest Exemption (PIE), which exempts them from withholding tax for NRA. If the loan is correctly structured, the gross return equals the net return.
For a detailed analysis of PIE, check our article on the Portfolio Interest Exemption for foreign investors.
Net return: $20,000 (10% effective)
Collateral: First lien mortgage on real estate property, with a conservative LTV of 60-65%.
Comparison table: net return for NRA
| Instrument | Gross | NRA Tax | Net | Effective Return | |---|---|---|---|---| | High-Yield Savings (4.5%) | $9,000 | -$2,700 (30%) | $6,300 | 3.15% | | US Treasuries (4.7%) | $9,400 | $0 (exempt) | $9,400 | 4.70% | | S&P 500 ETF (~10%) | ~$20,000 | Variable | Variable | Variable | | Rental Property (6% cap) | $12,000 | Complex | ~$8,000 | ~4.00% | | Private Lending (10%) | $20,000 | $0 (PIE) | $20,000 | 10.00% |
The difference is striking. Private lending with PIE generates more than double US Treasuries and more than triple a savings account, after taxes.
5-year projection: the compounding effect
The difference amplifies dramatically over time. Assuming reinvestment of returns:
| Instrument | Year 1 | Year 3 | Year 5 | Total Accumulated | |---|---|---|---|---| | High-Yield Savings | $6,300 | $19,494 | $33,468 | $33,468 | | US Treasuries | $9,400 | $29,449 | $51,140 | $51,140 | | Private Lending | $20,000 | $66,200 | $122,102 | $122,102 |
Over five years, private lending generates $122,102 in net returns, compared to $33,468 from the savings account. That is 3.6 times more. The difference is not marginal: it is transformational.
You can simulate your own scenarios with the return comparison calculator.
Risk analysis by instrument
High-Yield Savings
- Risk: Minimal. Deposits insured by FDIC up to $250,000.
- Downside: Low real return after taxes and inflation.
US Treasuries
- Risk: Virtually zero in terms of default (US government backing).
- Downside: Moderate return. Interest rate risk if sold before maturity.
S&P 500 ETF
- Risk: High in the short term. Significant volatility.
- Downside: Not appropriate if you need predictable returns. Excellent long-term (10+ years).
Rental Property
- Risk: Moderate. Vacancy, maintenance, problematic tenants.
- Downside: High operational and tax complexity. FIRPTA upon sale.
Private Lending
- Risk: Moderate-low with conservative LTV. Capital is backed by real estate asset.
- Downside: Illiquid during the loan term (6-18 months). Requires rigorous due diligence.
To understand in detail how the tax treatment compares for foreign versus domestic investors, check our tax comparison between investors.
Why private lending is the most tax-efficient option
The combination of three factors makes private lending exceptionally efficient for NRA investors:
Competitive rate: 9-12% annually, significantly higher than traditional fixed-income instruments.
Tax exemption (PIE): Interest qualifies for the Portfolio Interest Exemption, eliminating the 30% withholding that applies to almost all other fixed-income instruments.
Tangible collateral: Unlike bonds or savings accounts, the investment is backed by a real estate asset with a verifiable value and a conservative LTV.
No other fixed-income instrument combines these three attributes simultaneously for a foreign investor.
Important considerations
No investment comparison is complete without mentioning that each investor has different circumstances, goals, and risk tolerance. The "best" investment depends on individual context.
Diversification remains a fundamental principle. A solid strategy could combine Treasuries for liquidity and safety with private lending for yield, for example.
Additionally, the legal and tax structure should be reviewed with qualified advisors in both the country of residence and the United States. Bilateral tax treaties may affect the treatment of certain instruments.
If you want to understand how the process of buying property in Florida as a foreigner works, we have a complete guide on the subject.
Conclusion
For a foreign investor with $200,000, private real estate lending in Florida offers the highest net return among fixed-income options, thanks to the combination of competitive rates and the PIE tax exemption. Over five years, the difference versus traditional instruments is more than 3x in accumulated returns.
This article is for informational purposes only and does not constitute tax, legal, or financial advice. Consult qualified professionals before making investment decisions.
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