Can foreign nationals purchase real estate in New York City?
What is meant by a Condominium, Townhouse, Co-op, and Condop? How do they differ?
What kinds of costs are associated with real estate ownership in New York City?
What tax abatements exist for developers and purchasers?
When buying New York City real estate, what will be the closing costs?
Is it possible for a foreign buyer to get a mortgage for a purchase in New York City?
Who pays real estate brokerage fees in New York City?
What is the best way to find property in the New York City real estate market?
How to check title and conduct due diligence?
How are property rights registered in New York City?
What steps are required to purchase real estate in New York City?
Foreign nationals can purchase real estate in New York without any major obstacles. In fact, foreign-born owners make up a significant part of the overall New York market. Condo and townhouse ownership are the most popular forms of real estate for foreign nationals because they do not usually require the purchaser to produce U.S. tax returns, which are almost always required for the purchase of shares in a co-op.
For more information please visit our page Foreign Investors.
A Condominium (Condo) is the ownership of a single unit in a multi-unit property where the rights to the land and the real estate are held directly by the owner. A condo is the most flexible form of ownership for an investor looking for a property in a multi-unit building. In a condominium, the managing body of the building is the board of directors. While a condominium purchase requires approval of the board, it is mostly a formality, unlike co-ops.
In New York a townhouse is usually a 2-5 story building on a 1,500-2,500 square foot lot which was built in the 19th or early 20th century and has a single owner. Single-family townhouses that are in good condition but retain original architectural details are highly sought-after and extremely rare. For this reason, single family townhouses in good locations command significant prices. Often townhouses were broken up into multiple rental units. This type of property is known as multi-family property.
When an individual purchases an apartment in a co-op (or cooperative) building, he or she is actually purchasing shares in a company that owns the rights to land (be it fee simple or leasehold) and the improvements (a building with multiple units). Simultaneously, the purchaser receives a proprietary lease which allows him or her to occupy a certain unit in the building. As any company with multiple owners, the co-op is run by a board of directors which makes decisions for the rest of the shareholders. The board of directors has the right to regulate who can buy an apartment in the building and who cannot. Moreover, in practice, the board has the power to reject anyone they subjectively believe would not be a good fit for the building without explanation to either seller or prospective buyer. In order to purchase a co-op a prospective buyer most often fills out a board package which will include information such as assets, credit history, U.S. employment status, tax returns, and other personal information. On average, the board of directors reviews an application for 1-2 months before a decision is made to accept a purchaser into the building, however this can take as long as 6 months in some cases.
Unfortunately getting into the building is not the end of the problems with owning a co-op apartment. Very often co-ops will not allow the owner to rent out the unit, and if they do usually each tenant has to go through a similar process getting accepted by the board. In addition, the co-op may take a percentage of your revenue from the rental, usually 10%. As if this wasn’t problematic enough, often coops demand 1-3% of the value of the apartment when an owner goes to sell it. This is known as the flip-tax. All these funds go to the coop’s annual budget. These factors make purchasing a co-op apartment unattractive for most investors, especially foreign investors.
A Сondop is a classification that is often misused by brokers to mean a co-op with flexible, “condo-like” by-laws. However, technically the definition of a condop is a building that has both condominium and cooperative ownership. This is most commonly seen when a building has retail on the first floor and apartments above. Often these properties will be condops, such that the retail is a condominium and the residential floors are owned separately by a cooperative.
More information about Property Types.
Residential real estate has two main costs associated with it, namely common area maintenance charges and property taxes.
Condominium owners pay common area maintenance charges and property tax separately and usually on a monthly basis.
Co-op owners pay for both common area maintenance and property taxes in single monthly payments to the cooperative called maintenance.
For stand alone properties, the main cost to the owner is property taxes as there is no set common area maintenance.
In New York there are a number of programs that developers have used to reduce property taxes during the development process and also to provide deferred property tax for the end-purchasers. These programs exist only for new development and reconstruction projects. As a purchaser you should be aware of the pros and cons to buying in a building with a tax abatement.
NYC Tax Abatements
The 421-A program gives tax incentives for purchasers for 10 years. The real estate tax will increase 20% every second year until maturity.
The 421-G incentive applies only to developments in Manhattan's Financial District. Eligible properties within this area get a 14 years tax abatement which, like the 421-A, is gradually phased out.
Some U.S. banks are able to finance non-resident buyers, especially if the borrower has U.S. source income or assets. The terms of the loan are usually less attractive for non-residents compared to those offered to residents of similar credit.
International buyers who seek a mortgage should be ready to provide specific documents, which at the very least will include:
- Valid foreign passport
- Valid U.S. visa
- Credit references
- Proof of sufficient net worth and liquidity
- Adequate closing funds
As a foreign buyer, should I own property under the name of a U.S. company?
Although there are privacy benefits to buying through a limited liability company (LLC), certain tax treaties between a foreign country and the U.S. can minimize the advantages. Foreign buyers should seek the help of a cross-border tax adviser.
As a general rule, buyers do not pay brokerage fees in NYC. This is especially true for residential real estate, where the seller pays a fixed brokerage fee which is divided between the seller's broker and the buyer's broker. For this reason, it is in a buyer's interest to work with a single broker who represents their interests. For more information about real estate agency relationship visit Your Agent page.
The best way to find the right property is to contact an experienced broker whom you can relate to and who fundamentally understands your requirements. All brokers who are members of the Real Estate Board of New York (REBNY)'s Residential Listings Service have access to the same database of listings but often there are off-market properties that a broker is aware of.
Buyers should be aware that in New York City, the value in hiring a buyer's broker is not in his or her ability to get you access to listings, but in the quality of advice and support they give you. Hiring a buyer's broker usually costs you nothing but can create tremendous value to you in the process. For more information about real estate agency relationship visit Your Agent page.
Buyers need the services of an attorney to perform the title search, obtain title insurance, and look for violations or other liens on the building in addition to negotiating a contract. Often this has to be choreographed around the work of appraisers, surveyors, architects, and bankers who may be essential to the process. Etage Real Estate connects their clients with the best professionals in the industry to streamline to purchasing process.
At a closing, the buyer's attorney will submit the deed showing transfer of ownership, to the New York City Register, which, once registered gives title to the new owner. Moreover, at the closing, all transaction documents are photocopied and retained by both parties should there be any issues.
Determine Your Preferences
Before buyers begin searching actively for a property, they should try to focus on determining the following:
- Type of ownership they seek (co-op, condo, townhouse, etc)
- Type of building they prefer (pre-war, post-war, new development)
- Degree to which they are ready to do renovation work
- Neighborhood profile they seek
- Flexibility of move-in date
If a buyer plans to obtain a mortgage as a condition to closing, they should speak with a banker or mortgage broker to obtain a pre-approval for a mortgage. Pre-approval helps buyers recognize their spending limits and speeds up the documentation process.
Hire An Attorney
Lawyers are an essential part of the real estate purchasing process. Lawyers review contracts and work with the buyer's broker to protect their clients' interests. Etage Real Estate has relationships with law firms who can assist you in this matter.
Talk to a Tax Advisor
While it is less important for U.S. residents, foreign buyers should consult with a tax advisor prior to purchasing a property. The way in which the purchase is structured and financed will determine the tax liabilities associated with foreign ownership. Non-resident purchasers should hire an advisor who specializes in structuring cross-border real estate transactions and who is familiar with both U.S. tax codes and the tax codes of your home country. Etage Real Estate can assist you in finding the right advisor.
Prepare Your Finances
The real estate market is very competitive in New York City and often a buyer has to sign a contract and put down at least a 10% deposit within a matter of days if they want to prevent someone else from stealing the deal from them. Foreign buyers are advised to open a U.S. bank account or transfer funds to an attorney's escrow account as soon as possible to avoid potential complications.
II. Searching for a Property and Making an Offer
Once you have found a property that meets your requirements, your broker will submit an offer on your behalf. This offer is not legally binding and buyers often submit more than one offer. Submitting an offer is the first stage of the negotiation process. If the offer is accepted, the seller's lawyer will send the buyer's lawyer a contract.
III. Contract Negotiation and Signing
Until the contract is signed by the buyer and the deposit sent, the sellers can continue to market the property and accept offers. The contract is considered valid when the seller counter-signs the contract and delivers it to the buyer, or when the check for the deposit clears. Deposits are held in the escrow account of the seller's lawyer. Deposits are only refundable under specific conditions such as mortgage, board approval, or due diligence contingencies.
IV. Co-op or Condo Board Approval
While mostly a formality in condo buildings, board approval is required for buyers of co-op apartments. To be considered by the board, a buyer must submit thorough personal and financial documentation (known as the board package) including personal and professional references, financial statements, and tax returns to the managing agent of the building, and often they require up to 8 copies! In addition, buyers are often interviewed by the board after the board package has been reviewed. If after the interview the buyer is accepted by the board, the latter submits a letter to the managing agent giving their consent to proceed with the transaction.
V. Preparation for Closing
Once the contract is signed, the buyer is given time to arrange his funds and conduct due diligence on the property. During this period, the buyer's attorney will perform a title search and check for violations and liens on the property. If a buyer has applied for a mortgage, the bank will check a buyer's documentation and assets as well as the financial information on the building. If both the bank and the buyer's attorney are satified with the results of the due diligence, the bank will wire the loan amount to the escrow account of the buyer's attorney. Buyers are advised to do a quick walk through of the property on the day of closing to make sure that the property has not been modified in the time since the buyer last toured it.
The closing of a real estate deal involves multiple parties (seller, buyer, attorneys, the bank, insurance official, and brokers). During the closing, all parties gather to sign the final documentation and settle all payments. The closing is finished when the buyer has the deed and all sets of keys in hand.
For more information please visit out page Purchasing Process.