Guidelines for Foreign Real Estate Investment in New York City
Caveats Foreign Investors Should be Aware of.
Foreign investors will have a choice between condominium or co-op apartments. Most foreign investors who don’t have residency in the US will be buying a condo as the requirements for a co-op are much too complicated for foreign nationals. 5% of all co-op buildings are investor friendly. Most new developments are condominiums.
Best Legal Structure for a Foreign Investor.
An LLC is the best legal structure for investors to create, which an attorney can easily set up. An investor will need a NY real estate attorney, real estate broker and possibly a CPA (certified public accountant).
Additionally, an investor will need to file a tax return for the LLC and can deduct many expenses including travel expenses related to purchase and upkeep of the property.
Read: Why You Need a NYC Real Estate Lawyer
How to Set-up an International Mortgage.
Foreign investors can typically get anywhere from 40-50% financing. Investors will need to show documents from their country of origin and prove they have sufficient income to cover the monthly expenses.
Taxation.
International investors will need to declare taxes for their LLC on an annual basis for rental income. Rental income will be based on the total revenue generated from the property minus expenses, such as mortgage, maintenance and property taxes.
If the investor plans on selling the property, taxes will need to be paid on the capital gains. If the investor is looking to buy another investment with the funds procured from this sale, taxes can be deferred. This is called a 1031 Exchange.
New York State also charges annual real estate taxes. Taxes can be viewed prior to even seeing an apartment.
Steps in the Buying Process.
1. Offers are made orally in New York City. When an investor has found the right property, a bid or offer will be placed through their agent.
2. The seller may counter the offer. This will begin a negotiation process that will eventually lead to a "meeting of the minds," at which point price, terms, and closing date will be agreed upon.
3. A real estate attorney is required in all property transactions in New York City. The seller's attorney will begin preparation of a contract of sale, and during that time the investor’s attorney will begin to examine the financial condition of the building. The real estate agent can assist investors in finding experienced attorneys.
4. After the investor’s lawyer concludes that the financial condition is satisfactory, the by-laws of the building are adequate, and the contract of sale is also acceptable, the investor’s attorney will allow them to sign the contract. At that time the investor will usually be required to present a deposit of 10% of the purchase price. The contract plus the deposit will then be forwarded to the seller for signature. This money will be held in the seller's attorney's escrow account until closing.
5. If financing, the investor should move forward with their loan application. Your real estate agent can assist you in finding a mortgage broker. It is advised that you pre-qualify for a mortgage with a brokerage firm prior to beginning your housing search.
6. The investor will, by now, have received the board requirements and application materials from their real estate agent. Required materials typically include: an application, a financial statement signed by a CPA, all requisite support for the investor’s financial statement, three years of tax returns, bank statements, letters of personal and financial reference, letters of professional reference, the contract of sale, bank documents (if financing) indicating that the loan is in place, etc.
7. The application will be forwarded to the Managing Agent for review. Upon determination that everything is in order and credit checks were acceptable, it will be forwarded to the Board of Directors. No applications will be accepted by a Managing Agent unless they are complete.
8. Something foreign investors should be aware of is that even if they purchase a property in cash, they should purchase title insurance. Title insurance will help if there is any kind of issue with the title, the insurance will cover the purchase price. Buyers should also purchase condo insurance as a preventative measure in the case of fire, water damage, etc.
9. For closing, the investor should be prepared to pay the following fees:
- Additional closing costs for resale- 3%
- Additional closing costs for a new development- 5.5%
- Included in the closing cost is your attorney’s fees
- The broker’s fee is paid only by the seller at the closing
- All expenses can be deducted when the investor has to file their tax return
Why Buy in New York City.
New York City real estate is a secure and stable investment. Prices in London and Hong Kong are at $4,800/sqft. In Manhattan, prices for ultra luxury condominiums range from $2,000 - $3,500/sqft and still have significant growth upside. In the past year, Manhattan average square footage prices have increased by nearly 17%. Luxury condos are available from $1,200 - $2,000/sqft. Investment in up and coming areas are also available in boroughs outside of Manhattan, such as Brooklyn and Queens, where price increases are trending similar to those in popular Manhattan neighborhoods.
Additionally, given the oversupply of the luxury high-end real estate market in New York City, now is a buyer's market. Opportunities exist for aggressive negotiation and to get great deal.
Read: 2017 Luxury Real Estate Outlook
What can Blooming Sky Provide?
Blooming Sky is a full service real estate investment and advisory service. We are licensed real estate brokers in the New York City market who can accommodate any language to effectively communicate. We also provide access to the most reputable real estate attorneys and accountants to ensure that investors are properly protected from liabilities and prepared for tax accounting.
We provide all this access free of charge. Our real estate brokers make money from the listing agent (the real estate agent who sells the property has to pay the commission of our agents). We also do not charge any fees for connecting your clients to real estate lawyers and tax accountants. These individuals charge their own fees and have already been pre-vetted by Blooming Sky and are competitive in pricing and service.