In recent years, the number of foreign buyers scooping up NYC properties has been on the rise. Mostly due to the lack of special taxes or levies on international buyers. It might take some time and work, but you’ll find that you are treated no differently than domestic buyers. The only exception is your tax treatment should you choose to sell or if you were to pass away. To make the process as straightforward as possible, it is recommended that you hire an experienced buyer’s broker. They’ll serve as a guide and put you in contact with all the right people.

Any successful property acquisition involves two distinct phases. The first, initial planning and the second, finding and buying.

Phase One: Initial Planning

1. Choose an ideal ownership structure

As a foreign buyer, you’ll need to decide on the ideal tax and ownership structure before you can begin looking for a property. The federal government, New York state and New York City each impose an income tax on rental income generated by properties in NYC. Combined, these taxes can be as high as 65% and also apply to gains from the sale of the property. Along with that, both the federal government and New York State impose a hefty estate tax on the value of the property transferred on the owner’s death.

If the property is valued at over $60,000, the federal government imposes up to a 40% tax. The New York State Estate Tax has a maximum rate of 16%. Unlike US citizens, foreigners do not enjoy any exceptions on either the federal or state estate taxes. For foreign buyers, a clever way of getting around this is by setting up two separate entities. You can purchase the property through a Limited Liability Company and form an offshore company to act as the sole member and owner of the LLC. You’ll need to do some planning and seek the services of an experienced attorney if you choose to go this road.

2. Obtain a U.S. Tax ID

Whether you’re planning to own the property in your name or through an LLC, you’ll still need to obtain a U.S. tax ID. For individuals, they’ll need an Individual Taxpayer Identification Number (ITIN) while business entities will need an Employer Identification Number (EIN). These are required for tax-reporting and opening a U.S. bank account. The application process for these ID’s can take as much as ten weeks or more so you should apply for them well in advance.

You can apply for an ITIN through the Internal Revenue Service (IRS) by submitting Form W-7, proof of identity and proof of foreign status. The most commonly used proof of identity is a foreign passport. However, it wouldn’t be prudent to send in your original passport; You can get a certified copy from the original issuing agency. Your embassy or consulate can help with this.

3. Open a U.S. Bank account

There is no hindrance on foreigner’s opening U.S. bank accounts. However, all banks must follow a set of rules known as Know your Customer (KYC). These rules require a bank to obtain specific information on their customers such as their ITIN, EIN, a copy of the customer’s passport or driver’s license, information on their sources of income and copies of their utility bills. The whole process can take several weeks and depends on how soon an ETIN or EIN can be acquired.

Phase 2: Finding and Buying Property in NYC

1. Find a property

To help you navigate the NYC real estate market, you should hire an experienced local buyer’s agent. Preferably one who specializes in the neighborhood that you’re interested in. As a foreigner, you’ll be largely restricted to condos in your search. Co-ops have rather strict rules on subletting and home rules which require a buyer to make the property their primary residence. Multi-family or townhouses also present difficulties because of the maintenance work that would be required. Condos present the least difficulty as your condo fees will cover the insurance policy, building maintenance and maybe some of the utility bills.

2. Financing

It surprises many foreign buyers to learn that they can qualify for financing from a U.S. bank. However, this will come with some restrictions such as a limit on the loan amount and a requirement that they keep a certain amount of money on deposit with the bank. As a reference, the current average rate for a 30-year mortgage is 4.48% (2018).

3. Make an offer

Once you’ve found a property that you are satisfied with it’s time to make an offer. Your broker will handle any negotiations and work to get the best deal possible in your favor. Once an offer is accepted the seller will send out a deal sheet to all parties involved. This provides a broad overview of the transaction and lists the who’s who in the deal such as the brokers, the attorneys, the lender and the buyer and seller.

4. Sign the contract of sale and make the down payment

Once the final details have been hammered out a contract of sale will be issued by the seller’s attorney. In NYC, a contract does not become binding until both parties have signed and the seller retains the right to make the final signature which gives them a lot of leeway in negotiations. Once signed, it becomes legally binding with neither party now able to back out with legal consequences. At this point you, the buyer, will be asked to make the down payment, usually a minimum of 10% of the offer price. This will be kept in an escrow account until the final closing.

5. Submit your application to the condo board

Condo boards have the right of first refusal so even if you’ve reached an agreement with the seller you’ll still to pass the condo board application. Your application package will include details on your financials, the transaction in question and your details. Condo boards tend to be a lot less intrusive than co-op boards, but you should still make sure everything is in order before applying. Most contracts of a sale will include a clause that allows the buyer out of the contract with no legal consequences if the condo board rejects their application.

6. Close the sale by the power of attorney

The time it takes between the signing of the contract and the closing date is subject to a lot of variables such as financing, board approval and the people involved. In general, a closing in NYC takes 30-60 days through 90 days is not uncommon. How fast and smooth the whole process relies a lot on the competency of your attorney. In New York State a closing can only be done by an attorney so make sure you choose a good one.

Fortunately, the buyer does not need to be present on the actual closing date. This is when the remaining amount is paid to the seller, and the property deed is transferred to the seller. You can use the power of attorney to have them act on your behalf. However, to be declared effective under state law the power of attorney must be notarized in a U.S. embassy or consulate. Scheduling an appoint for this can take anywhere from one to three weeks, so foreign buyers have one set up well ahead of time.

Summary

Purchasing property in NYC as a foreign buyer presents little more difficulty than a domestic buyer. However, the process can still be a long one, even for local buyers, so foreign buyers should have everything well planned out before even looking for a property. If you’re planning to sublet the apartment or sell in the future, there will be some extra tax hurdles to overcome which will be covered in a future article.

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