In the US there are no restrictions on real estate ownership for foreigners. Significant portion of New York real estate belongs to foreign nationals and foreign corporations. Some types of real estate like Co-ops or special types of housing require buyers to present US tax returns, which makes it difficult or impossible to buy for those who don’t file US taxes. However, there are other types of real estate, such as condominiums and townhouses that have no restrictions and are very popular among foreign buyers.
Co-op buildings are Cooperative Housing Corporations that own an entire building. Buying a co-op, you buy shares in a corporation proportionally to the size of apartment and become a partner in the corporation with your neighbors. Rather than owing real estate outright, you own a ‘proprietary lease’. Condominium buildings are regular real estate where an owner owns a property with a proportional share of common area.
Co-ops comprise the largest portion of New York real estate of about 75-80% of all properties in the City. Co-op buildings (corporations that own them) are governed by Co-op boards, which make every important decision about the building and set building policies and guidelines. Among those decisions, Co-op boards approve every potential purchaser. It is not easy for a foreign buyer to buy an apartment in a Co-op building for several reasons. Co-op potential purchaser approval takes weeks if not months and is a rigorous and notoriously difficult process. The majority of co-ops only approve buyers with New York employment, US income tax and excellent credit history in the USA. The law doesn’t require a Co-op to even provide an explanation for a potential buyer’s rejection.
There are often restrictions on how much financing a buyer can use (for example, no more than a certain percentage of the unit price).
Almost all coops restrict the right to sublet your apartment, which makes it unattractive to investors. Usually, co-op apartments cannot be rented out at all or can be rented out for 1 or 2 years after a certain number of years of owner occupancy. Co-ops regulate your use of the apartment in many other ways including having guests or performing renovations. When selling (or renting it out when allowed) a Co-op, your buyer will be subject to Co-op approval as well, which reduces the number of qualified buyers and therefore reduces the price of your investment. There are often additional “flip taxes’ on the resale of a co-op to discourage speculators.
All these measures are intended to protect interests of other co-op members (shareholders of the company) and make sure that a new buyer is financially stable, and will always be able to pay for monthly maintenance, improvements and expenses of the building. Moreover, residents of co-op buildings often view their building as exclusive clubs and want to make sure that the building attracts only a certain type of people who use it in a certain way that makes all the residents comfortable. The purchase price of most co-ops is 10-20% lower than that of condos. Monthly expenses (maintenance), on the contrary, are usually slightly higher and include utilities, maintenance expenses, real estate taxes, and the corresponding share in the mortgage indebtedness of the building if the building has a mortgage loan. In addition to the mortgage interest on their own loan, co-op shareholders can deduct their portion of the corporation’s real estate tax from their taxable income. Still, co-ops can be attractive for those who would like to use the apartment as a primary residence or sometimes as a pied-a-terre (part-time stay). For the most part Co-ops are older (prewar) buildings with beautiful authentic features, fireplaces, high ceilings, moldings and sometimes even their own garden.
Around 25% of the residential buildings in Manhattan are condos, and their number is rapidly growing. Condominium buildings (condos) are multiple family buildings where you own an apartment and a corresponding share of common areas – a regular form of real estate ownership. Unlike in Co-ops, there are minimal restrictions for who can own a condo as well as on usage of a condo property. Condos welcome foreign investors, allow pied-a-terres (part-time stay) and using it as an investment property, which means that you can rent it out for as many years as you’d like. To manage a building, condominiums usually also have a Board - an elective organ of owners that makes and approves important decisions on use, repair and internal rules that are mandatory for all owners and tenants in the building. There is also a formal approval process of each potential purchaser performed by the Board, however, such approval is a formality.
Condos are priced higher than co-ops, mainly because of the higher liquidity of this type of investment. Simply put, condos are easier to buy and easier to sell than coops. As a result, condos are a more attractive option for buyers from abroad. There has been a lot of condo construction in New York over the recent few years. Many older buildings are undergoing renovation and are being converted to condos as well. In addition, most newly constructed condos offer tax relief for the first 10 to 25 years, which results in significant tax savings. Moreover, many newly constructed buildings boast sleek modern amenities, floor to ceiling windows, mint renovation and superb services. We will be happy to show you both types of properties and help you make a choice that works for you!
As an owner of real estate property in the US you will have to pay real estate taxes and monthly common charges for a condo and monthly maintenance fee for a co-op. Depending on the type and the size of the property, taxes may run from a few hundred dollars a year to several thousand dollars per year. The same is true for common charges and maintenance fees – these range from a couple of hundreds a month to a few thousands a month and depend on the size and type of property as well as on location and amenities available. The more additional services the building offers, the higher are monthly payments.
Be prepared to spend over $1 dollar per square foot per month for your property in New York. As an owner of your home, you can use some of these expenses to lower your tax bill. Real estate taxes can be deducted from taxable income by the owner (the person who actually paid real estate tax) within the same year. Owners of a co-op can deduct part of their monthly maintenance because it consists of, among other things, the interest payment on the co-op building mortgage. If you are an investor, most of your expenses can be deductible in the year they were incurred. Both common charges and real estate tax are treated as a business expense in the year incurred and can be deductible. Please consult your tax advisor if this applies to you. You can also see our tax page for more details.
New York City has adopted several incentive programs to motivate developers to build and develop neighborhoods throughout the city. Until recently most new condo developments participated in one of the forms of the Tax Exemption Program. The program covers not only new construction, but also certain types of conversions and alterations of existing buildings. Generally, if the building was rehabilitated or converted from another use, the abatement is known as a J-51 tax abatement. If it is newly constructed, the abatement is known as a 421-A or 421-G tax abatement. The most common 421-A Tax Abatement program offers phase-out tax exemptions spread over 10 years. Real Estate Tax increases in 20% increments every two years, until it reaches maturity.
Following completion of construction:
Year 1 – 100% exemption
Year 2 – 100 % exemption
Year 3 – 80 % exemption
Year 4 – 80 % exemption
Year 5 – 60 % exemption
Year 6 – 60 % exemption
Year 7 – 40 % exemption
Year 8 – 40 % exemption
Year 9 – 20 % exemption
Year 10 – 20 % exemption
From Year 11 and on – full tax amount.
Another variation of this program is known as 421-G, and it provides tax abatement for developments below Murray Street in Manhattan’s Financial District. Qualifying properties in this area enjoy tax relief for 14 years. Usually the lower tax payment is fixed for the first 8 or 10 years and phases out every year since than until reaches maturity by the year 14. Certain developments qualify for longer abatement periods – 15, 20 or up to 25 years in tax relief. Eligibility factors include geographic location, use of government loans and grants for the construction, and availability of affordable housing units in the building. Your Evans agent shall provide you with full details about the tax status of the properties of your choice.
Closing costs are an additional expense that both a buyer and a seller occur during a sale-purchase transaction. Closing costs in New York are may comprise 1-8% of a purchase amount.
* Buyer’s expenses include legal and registration fees as well as federal, state and city taxes. These costs have to be covered before or at the closing and will come on top of your down payment. Please include these costs in preparation for your purchase. These expenses are described in detail below.
* If you are buying a newly built condo (in NYC it is called “buying from a sponsor”), you will have to pay: New York City real property transfer tax, which equals 1% for properties below $499,999 and 1.425% for properties above $499,999. Another tax payable to the state is New York state transfer tax, which is 0.4% of the sale price. Additionally, you will have to cover the seller's attorney fee which is usually $1,500-$2,500.
* Title insurance is also requited to protect your ownership right from possible third party claims for the entire length of your ownership. It costs approximately $450 per $100,000 of the property price.
* If your property costs more than $1,000,000, you will also have to pay Mansion Tax of 1% of the property price.
* Many buildings collect additional fees such as an application fee of $200 and up; a managing agent fee of $250-$500, and a move-in deposit of $500-$1500.
* You will also have to hire an attorney to review all the documents. This amount can range from approximately $2,500-$5,000 depending on the complexity of the purchase structure plus recording expenses, starting at $500.
* If you are taking on a mortgage to buy your property, more cash is needed for closing. Mortgage loan origination fees or points range from 0.5% to 3% of value of the loan. Such mortgage-related expenses include a lien search of around $300 - $400, various bank fees (such as tax escrow, homeowners' insurance) of $400-$1200, mortgage title insurance, which costs $200 per $100,000 of property value, and a mortgage tax of 1.8% of the mortgage loan for loans under $499,999 and 1.925% of mortgage loans above $499,999. Additionally, you will have to pay $500 and up for an appraisal, $30-$100 per applicant’s credit report, another $500 and up for the loan application. Additionally, there is usually a bank attorney fee of approximately $1000-$1500.
Financing is available to non-residents in the US. Many banks have special programs for non-residents. Usually a non-resident will be able to finance up to 65-75% of an amount up to $1M in loan amount and 60% of the amount between $1M and $2M.
To qualify for the loan a non-resident usually needs to provide:
valid visa to enter the USA or a foreign passport copy
4 credit references from major financial institutions (your local banker, CPA or accountant, insurance company)
verification of mortgage or rent payments for the past 12 months
verification of sufficient funds to close (please use closing costs calculator to estimate closing costs)
verification of employment
Some banks ask for fewer documents but may offer a higher interest rate. We shall be happy to refer you to several mortgage specialists who will offer you the best possible financing options for your purchase.
Financing is a key tool for any successful investment. Not only does it allow you to acquire properties otherwise out of your budget, but it also greatly increases return on your own cash. Financing has tax benefits for investors - all mortgage interest is deductible on an investment/rental property. At the same time, it increases risk - being able to cover the mortgage payment is a key to protecting your investment.
There is no commission due from a Buyer if you use Evans as your agent. In residential real estate, the seller is paying the brokerage fee which is then split between the buyer’s and the seller’s brokers. This rule usually stands for residential as well as commercial real estate deals. Consequently, a buyer doesn’t pay a brokerage fee in New York.
The best way to navigate New York real estate market is to employ services of a professional real estate broker representing YOUR interests. Although some information is available in public sources, including printed media and online, brokers have a lot more information including latest updates at their fingertips not to mention a wealth of experience and knowledge to share. Evans Real Estate is a member of the Real Estate Board of New York as well as the National and New York Realtor Organizations which provides us access to the entire New York sales market - absolutely any property listed by any New York broker. As a result, unlike many European agents, Evans agents can show you ANY property available on the market. Finding your home or a good investment can be very challenging and time consuming. You will clearly benefit from professional advice and guidance.
Moreover, the professional database available to Evans agents provides you with actual historic sales and rental price information and current comparable data for each property or area of your choice. Scheduling viewings with multiple brokers, researching properties, finding out details about buildings and specific rules, qualifications and approval procedures is not as straightforward as it might seem. During this long process you will have to make many decisions such as choosing various service providers like lawyers and mortgage bankers and presenting personal and financial information.
Having a buyer’s broker will help you save time, get access to the entire market for sale in NYC and get assistance in presenting your offer or application in the best possible way. Real estate purchase is a complicated transaction, lasts weeks and sometimes months. It involves participation of many professionals: attorneys, mortgage brokers, title specialists, architects, surveyors, appraisers, each of whom is doing their specific bit of a job. Coordination of such a diverse team is a major effort and can turn life into a nightmare, especially if you are a busy professional. Even though most sellers’ are represented by an agent, not having one on your side leaves you unprotected. Having a broker representing you in the transaction can be invaluable. One wrong move can make or brake a deal or cost you much additional expense. Since the seller’s broker will not fight to lower the price or get concessions for the buyer, it is against his or her contractual obligations and fiduciary duty to the seller. The best part of it is that this service comes at no cost to the buyer. Both the seller’s and the buyer’s broker’s services are covered by the seller.
To structure the sale-purchase transaction, both the seller and the buyer employ attorneys, who negotiate the contract (preliminary agreement, under which a deposit is paid), arrange for the title search and insurance, check for liens and violations on the building, etc. Other professionals that might be needed include appraisers, who determine the fair market value for the property; surveyors, who check the condition of the property and its technical elements; architects, who determine the exact size of the property and make measurements; and mortgage brokers, who help secure a mortgage loan. Your Evans broker shall be happy to recommend real estate attorneys, appraisers, mortgage specialists and other real estate professionals who will be able to help you with your purchase.
Recording of the title with the new owner’s information is part of the closing, and is usually carried out by the buyer’s attorney, who submits the documents at the New York City Register. At the moment of purchase, all title documents are photographed, photocopied and filed so that they can be found and examined by everyone who wants to see them.
Step 1: Preparation
Before you begin your journey into New York real estate, it will be helpful to get prepared so that when you find what you are looking for, you can move quickly and secure the property of your dreams. If you are getting financing, you should speak to a mortgage broker or a banker and get pre-approved for a loan before you start your search. This will not only help you learn how much you can spend but also make you a more attractive buyer and help you negotiate a better price. It is a requirement in New York to have a lawyer who can review your contract and protect your interests during the transaction. If you do not have one, we will be glad to recommend several to choose from including those whom speak your language. It is needless to say how important it is to select a lawyer who you trust and who you are comfortable with.
It is very useful to speak to a good tax advisor in order to help you decide on the optimal purchase structure for your deal. Tax liability varies for US residents and non-residents, as well as whether you buy a home or an investment property. As a result, it is smart to consult with a good tax specialist, fiscal attorney or an accountant. Finally, you need to prepare you finances and especially a 10% deposit for your purchase so that it is readily available when you need it. You may consider opening a US bank account if you don’t have one or otherwise transfer money to your attorney escrow account.
Step 2: Property search and an Offer
Every purchase starts with the selection process. After viewing the properties and selecting the one you really like, you should make an offer to buy it. Such an offer is not binding and you can more than one offer to find the best deal. New luxury property developers (sponsors) however are less likely to negotiate the price and usually expect to sell their properties at asking price. Your Evans agent will always be on your side and do his or her best to get you the lowest price and the best deal! Once the offer is accepted by the seller, the seller’s agent or lawyer sends the contract and bylaws of the building (or an offering plan for a new development) to a buyer’s lawyer for review.
Step 3: Contract negotiation and signing
The usual time for your lawyer to review the contract is 5 to 10 business days (the seller’s agent of the property you choose will advise you on such time limits). Please note until such contract is signed, the Seller may often choose to continue showing the property and accept a higher offer. Terms of the contract are very important and regulate all the details of the future purchase. You should carefully go over the contract with your lawyer to understand the risks and obligations you are taking upon yourself.
Upon signing the contract, 10% deposit of the property price is payable. Therefore you have to make sure that you have the funds readily available in the US. One way to do it is to wire the funds to your attorney in the US. You may also open a US bank account if you wish. This deposit is kept in the seller’s attorney designated escrow account. It is usually non-refundable if a buyer doesn’t go ahead with the deal. You can however negotiate certain conditions under which you can get the deposit back. One of such conditionals is a mortgage contingency – a clause in the contract that guarantees the refund of the deposit if a buyer cannot secure financing at certain terms. It is up to your lawyer to negotiate this clause with the seller, although few sellers agree to include it.
Step 4: Coop or Condo board approval
Board approval is probably the most unpleasant part of a property purchase in New York. It is something that cannot be avoided even if you are buying an apartment in the friendliest of all condo buildings. You will have to put together a very thorough package with a lot of personal and financial information including tax returns, bank statements, personal and business references, etc, etc. Coop board approval is a rigorous process that will usually include a personal interview. Condo board approvals follow the same procedure and require the same amount of documentation. However, it is usually a formality.
Step 5: Preparation and closing
After the contract is signed, you have additional time to secure financing and perform additional research on the property’s legal status and condition. This is the time to do the survey and appraisal, which is necessary for the mortgage. Your lawyer will be reviewing the documents, doing the title search, looking for liens and violations. If you apply for a mortgage, your bank will check all the required documents on your income and assets as well as the building financials. Once everything is in order, your bank will wire the entire amount of the loan usually to your attorney’s escrow account. At the same time your down payment and final closing costs will also be wired to the escrow account with your attorney acting as an escrow agent until the closing. The day before your closing you should do a final walk-through your new property to make sure it’s condition is as agreed and as expected.
Step 6: Closing
A closing is an actual sale-purchase transaction, which usually takes place several weeks after signing the contract. This is the time when all the parties in the transaction (seller(s) and buyer(s), seller’s and buyer’s attorney, bank attorney, title insurance representative, etc) gather together to sign a final set of documents and to make all the payments. At the moment of the closing, your attorney will distribute all the payments including the payment to the seller, taxes, fees and title insurance and other fees are paid. In exchange a buyer will receive the new title along with the title insurance and, of course, keys to the new apartment. Congratulations!
If you purchase your property in New York as an investment and would like to rent it out, we will be delighted to assist you in managing the entire process. We will find a reliable and qualified tenant, assist in signing the lease, make sure the tenant has moved in and is paying rent on time. For a small management fee, we will also take care of your bill payments and make sure maintenance and tax are paid on time. The rental market is usually good in New York so you should not have a problem finding a tenant. Vacancies are low, rents have been going up steadily in the last few years. Please note that majority of New York building allow only long-term leases starting from 12 months or longer. There are several buildings that allow month-to-month leases. Evans agents will be glad to recommend a building that would fit your needs best. You can use your rental income to cover tax, monthly charges and part of your mortgage payments. It is not easy to have all your mortgage payments and expenses to be covered by rental proceeds in New York.
Although predicting the future is not a rewarding endeavor, there are certain trends and factors that are contributing to the market moving one way or another. We can look at these trends and will consider the current market position. The prospect or reality of a downturn works to depress real estate prices and undermine consumer confidence. While this is generally negative for the market, different market segments are affected by this in different ways. Most of Manhattan’s real estate is affordable only for a relatively affluent group of buyers, for whom real estate is not the sole source of wealth and savings for most part. Although this segment is not isolated from the negative influence of the general economy, it is less price-sensitive. Manhattan buyers, who are able to pay (or qualify for a mortgage) around $1000-1500 per square foot, are not likely to be betting their last dollar on real estate and therefore, are less likely to change their lifestyle and sell.
Interest rates at historic lows make mortgage more affordable, so it contributes to price growth or support. For those who are looking to buy, this is a positive motivation to do so now. The following factors are mostly relevant for the condo market, and are therefore very important for investors in general and foreign investors in particular. In the New York residential market, only condo purchases are easily accessible to foreign investors and are easy to handle for local investors. These properties comprise only around 25% of all residential real estate that is available in New York. These limits contributed to the continued growth of the condo prices over the last decade, which considerably outperformed the market. We think that this trend will continue in the coming years.