For the final post of Buyers’ Month, I’m doing an audience request: what does buying look like for people who are not US citizens/residents, my international crowd?
Which is great because it’s something I’ve been meaning to put together anyway. And gave me an excuse to do even more research and learn more about the process as it pertains to all kinds of people!
While I can’t give in depth financial info related to taxes and which countries have imposed limits on taking cash abroad (China comes to mind), I can break down how this is similar and different from the process for those US-based, and which property types are usually best in which circumstances.
A lot of international buyers choose, if it’s possible, to go all cash. This allows them to avoid dealing with financial institutions needed to get a loan. But there absolutely are options for financing, even if you do not have a social security number. Unfortunately, these options are often restricted to individuals from certain countries and with high net worths. It is riskier for a bank to give a loan to someone from abroad as it can be harder to go after these people if anything went wrong. It’s the same reason landlords won’t accept out-of-country guarantors, and generally want more months up front from anyone without a US social security number/US credit. From the presentations I’ve heard from mortgage providers specializing in international, it does appear to be a little bit of a “the more money you have the more people will help you out,” but again, there are options.
The process is largely the same as it is for someone based in the US. You need a “bank person,” either if you are getting financing or if you are transferring money into the US to purchase all cash. This should be someone who is well-versed in working with foreign buyers. Your agent will be able to connect you with several options. And you need an attorney, who can, again, be recommended by your agent. Because, just like when you are buying as a US citizen, you
If you are not able to be in the city for your search, your agent will end up doing the legwork and potentially FaceTime-ing you from properties, sending you videos, etc. As VR becomes more prevalent, I think international purchasers will be some of the earliest adopters. Imagine being able to do a “walk through” of an apartment from the comfort of your apartment across the world. Some new development is already toying with this idea, but it’s still in the early phases. The only problem with this is you don’t get the FEELING you get when you stand in an actual apartment, but if you’re buying new development that’s never possible (because it hasn’t been built yet), and if you’re buying solely as an investment, you may not care so much about the vibe of a place. There is obviously a risk when purchasing “sight unseen,” so you want to be very sure you’re working with great people and know what you’re getting yourself into. But again, a lot of foreign investors are buying new development condos, which are always “sight unseen” to a degree, and you are buying based on a floor plan and model unit.
When it comes to actually signing contracts and the closing, a lot of foreign buyers will use power of attorney rather than having to fly in and out whenever signing is required. This is something to be on top of early, so you know how this will be handled and aren’t scrambling to get something signed in a timely manner!
Types of Property:
Condos - Condos are the bread and butter of international buying. Unlike co-ops they do not have a board interview, allow pied-a-terres, and allow unlimited subletting. They are more expensive but, frankly, are much easier to purchase than co-ops. These can be resale or new development. All new development is condo; no one is building new co-ops!
Certain co-ops - Although many co-ops insist on owners having US tax returns and using the apartment as a primary residence, there are exceptions to every rule. If you are planning to move to the city full time, a co-op could be a good option even if all your prior income has been outside of the US. If you are buying . The only time a co-op will 100% definitely not work is if you are trying to rent the place out indefinitely from the beginning. There may be a couple co-ops in the city that would, in theory, allow this, but the board could always change the rules and that would leave you high and dry. It’s better not to take the risk.
Standalone Properties - Standalone properties, either multifamily to be a landlord with multiple tenants or single family to be a single landlord (or to keep for you when you are in the city), can also be purchased by many foreign buyers. It’s much more like purchasing property outside of NYC, so the biggest considerations will be financing and making sure you have someone to handle the upkeep when you are away, as you won’t have the maintenance team provided when you purchase within a building. You also won’t have monthly costs you pay to the building, so it evens out.
I am not a tax professional. I have been reading everything I can about foreign investment for this post to look for any major differences, but it looks like the taxes owed by a foreign purchaser are very similar to those paid by a US-based purchaser. I don’t have any insight into what taxes one might have to pay in one’s own country, but I’ve listed the big ones that come up when purchasing that surprise people who haven’t previously bought in NYC.
Mansion Tax: For every purchase above $1million, you pay 1% of the purchase price additional as a tax to NY. It sucks, but it exists. I’m sorry.
Mortgage Recording Tax: If you are getting financing, you have to pay a mortgage recording tax. Because why not, it’s New York, we are tax city. The lender pays .25% of the total loan amount, and the buyer pays 1.8% for loans under $500,000, and 1.925% for larger loans.
Transfer Taxes: In situations where you are buying new development or buying directly from the sponsor (ie. not a re-sale apartment), you will be paying the transfer taxes. These are 1% for purchases under $500,000 and 1.425% for anything above that to the city, plus an additional .4% to NY State. So many taxes! So you’re looking at 1.4%-1.825% of your purchase price total.
The only tax that I have seen as specific to foreign buyers is an additional capital gains tax that affects SELLERS, not buyers. There are ways to avoid this, but they are very instance-specific so rather than dig into them here, these concerns should be raised during your one-on-one meeting with your agent! And, of course, with your financial advisor.
But again, I am not a tax professional! So please take all of this with a grain of salt.
A lot hinges on your reason for purchasing. If you are buying something just to rent it out, you are restricted to standalone or condo. If you are buying it as a second or third home for when you are in NYC, some co-ops will also be options (allows pied-a-terres). If you are buying it for someone like a son or daughter to live in, the selection of co-ops will be slightly different (allows gifting/co-purchasing). And if you are planning to live in it full time, suddenly you have even more options.
But buyer beware: even if you are paying cash, you will generally have to show a lot of financial documents. And some buyers, especially international buyers, balk at the amount that co-ops require. In NYC more than most other markets, you usually need to open up to your agent and share info you wouldn’t necessarily want to show. Which is yet another reason you need to work with a strong, smart agent you trust. I have had an agent on the other side of a transaction yell at me because I refused to text her my client’s social security number. Not all agents are created equal!!!