New York Foreign Buyers Guide
New York City, a highly desirable and accessible real estate market for international buyers. A prime global location, limited landmass, strong historical capital appreciation, political and market stability. An excellent location for long-term property investment despite cyclical market corrections. Our hyper-local approach focuses on positioning clients in strong NYC micro-markets. Each street, building, neighborhood presents a different opportunity, and that is our strength. We have two decades of successfully positioning clients into risk-averse residential assets with ongoing outperformance.
Better properties rent better and sell better. We believe buying the right property for the right price is where you truly make money with real estate in New York City.
We have two decades of experience representing foreign buyers. Whether looking for an investment property or second home, our tailored services make the process stress-free and rewarding.
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International Buyer’s Guide
Elika works for you by providing expert advice, guidance, and detailed knowledge to help you find and secure the right property for the right price. If you are a foreign buyer interested in purchasing New York City real estate, our guide helps answer any questions you may have.
In recent years, the number of foreign buyers scooping up New York City properties has been rising. Mostly due to the lack of individual taxes or levies on international buyers. For buyers 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. We recommend 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.
Table of Contents
- New York Foreign Buyers Guide
- Why Invest in New York City properties?
- Can Foreigners Buy a Co-op?
- What are the expenses and costs of ownership?
- Ownership Structures and Taxes
- What is a tax abatement?
- What are the closing costs?
- What is the best way to find a property?
- How to estimate the fair market value of a property?
- What are the brokerage fees?
- Do I need a buyer’s agent?
- Will I need the Services of other Professionals?
- Do you provide property management?
Why Invest in New York City properties?
Well, known, if not the most crucial city in the United States. When they think of America’s cities, most people think of New York as the financial capital and then L.A. as entertainment. As the port of entry for countless generations of new arrivals over the years, it’s one of the country’s most diverse cities. It’s also very limited in landmass, meaning real estate here has a high capital appreciation. Additionally, it has various industries, top educational faculties, the headquarters of many companies, and an ever-growing job market – a prime investment location for those who can afford it.
Key Reasons to invest
- Well located globally
- Diversified industries
- U.S. dollar
- Political stability
- Safe Jurisdiction – The Swiss bank of Real Estate
- Foreign Buyer friendly
- Transparent Ownership rights
- Supply and Demand
- Portfolio diversification
- Resilient Market
- Return on Investment – a Proven track record of outperformance
Choosing an ideal ownership structure
As a foreign buyer, you’ll need to decide on the perfect tax and ownership structure before further consideration. The federal government, N.Y. state, and New York City each impose an income tax on rental income generated by NYC properties. These taxes can be as high as 65% and apply to gains from the property’s sale. Along with that, both the federal government and New York State impose a hefty estate tax on the property’s value transferred on the owner’s death.
If the property’s estimated value is 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 U.S. citizens, foreigners do not enjoy any exceptions on either the federal or state estate taxes. For foreign buyers, a smart 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 LLC’s sole member and owner. You’ll need to do some planning and seek the services of an experienced attorney if you choose to go this road.
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 I.D. Individuals, they’ll need an Individual Taxpayer Identification Number (ITIN). In contrast, 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 I.D.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 identification is a valid passport. However, it wouldn’t be prudent to send in your original passport; You can get a certified copy from the issuing agency. Your embassy or consulate can help with this.
Open a U.S. Bank account.
There is no hindrance to foreigners 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.
Who is the “Average” Foreign Buyer in NYC?
You’ll learn when you try to find the number of foreign buyers in NYC because there isn’t an “average” international buyer. That said, most foreign buyers tend to be looking for an investment property or second home rather than a permanent residence. Most are buying for one of three reasons. They’re either buying for a child studying in New YorkCity – purchasing as an investment, or looking for a Pied-à-Terre. This suggests that most foreign buyers are incredibly wealthy, but that’s not always the case. The data shows that they’re all over the map with a large spread across price points and geography.
There are no specific data on the numbers of foreign buyers due to Fair Housing Laws’ concerns. But it’s estimated that international buyers make up about 15% of all real estate transactions in NYC. Despite that, a survey by the NAR of foreign purchases across the country found that while international buyers were spending more than Americans, their medium purchase price was only $499,600. This is far from the luxury highpoint in NYC.
As for origin, the NAR survey found that China makes up the most substantial proportion of investors at 16%. Buyers from Canada come next at 14%. For Europe, most of the buyer’s come from the U.K., France, and Germany. Many Indians, Mexicans, and Venezuelans made many purchases in 2015 when the survey was done.
Can I buy it as a foreigner?
All well and good, but how easy is it to buy NYC real estate as a foreigner? Fortunately, not that hard at all. The market is very friendly to foreign buyers, with many individuals and companies taking advantage of that. For residential properties, condos and townhouses remain the most popular choice for global buyers. Co-op apartments are a little trickier for foreign buyers since these require you to show U.S. tax returns. As you might have guessed, this is usually too troublesome for international buyers.
What type of Property Should I Choose?
If you’re looking for a smooth residential purchase, then condos present the least difficulties. These luxurious apartments provide a modern lifestyle for both individuals and families. With a condo, the buyer owns the unit free-and-square while sharing common areas with other residents. The popularity of condo living has multiplied in recent years, both with local and international buyers. In the last years, many new condo buildings have been built or converted from co-ops. Co-ops still make up most of New York City’s real estate, but the new condos are rising fast and feature some of the latest designs and amenities.
The new condos have the latest modern features, luxurious materials and offer a host of services. Buyers of new condos can also receive, depending on the property, huge savings through tax relief for the first 10-25 years. Amid an ever-growing market, New York condos make up over one-quarter of all its real estate.
Every condo has a Board comprised of residents, making decisions about building issues such as use, repair, and rules. Every buyer has to be approved by the Board, but the process is more a formality than a complicated process. This makes the buying process much easier than a co-op purchase.
Condos have minimum restrictions regarding use or ownership. Part-time residence (pied-a-terre’s), as well as rental arrangements, are permitted under condo regulations. This makes them a more attractive option for an investor or someone who won’t live in New York City all year-round.
Even though condos are priced higher than co-ops, they make up for the difference in convenience and flexibility. In addition to providing an elegant style and superb design, condos make for a great investment. Since it’s easy to buy or sell a New York City condo, more foreign buyers are eager to experience life in a Manhattan condo.
Can Foreigners Buy a Co-op?
Foreign buyers can purchase a co-op apartment, but it involves a more challenging process than buying a townhouse or condo. As it happens, buying a co-op even presents challenges for U.S. buyers. Co-op boards govern the buildings, and every buyer must receive their approval first. Each Board has its own rules about what’s allowed and not allowed. For instance, some co-ops have stringent rules on pets or noise levels. Unlike a condo, co-op owners don’t own the actual unit. Instead, they hold shares, kind of like a joint-stock company.
At all times, the co-op board is looking out for the best interests of the shareholders. As such, they are cautious about who they allow in. They want a buyer who’ll be a good neighbor and contribute to the upkeep of the building. This is why they’re very averse to subletting. Those few co-op buildings that allow the buyer to have requirements must live in the unit for a set number of years.
To gain approval from most co-op Boards, you must be employed in New York, have a great U.S. credit rating, and be able to present a U.S. tax return. As such, they are not an ideal choice for foreign buyers. Co-op Boards are also not legally required to explain their reasons for rejecting a potential buyer. Even if an international buyer does get approval, there are pros and cons to co-op ownership.
- Approval Period – In addition to the approval process being a difficult one, it also takes a considerable length of time, ranging from weeks to months.
- Financing Restrictions – A co-op purchaser is restricted to a certain level of financing (a specific percentage of the sale price), usually equal to a maximum of 80%.
- Rental Restrictions – Purchasing a co-op is not the perfect fit for an investor. There are various restrictions on subletting co-op residences. These rules may forbid renting under any circumstance or allow it for a year or two, but only after the owner has resided there for some years.
- Regulated Use – Certain regulations govern the use of a co-op. These rules can affect various aspects of a buyer’s life, from the allowed number of guests to a proposed renovation.
- Selling Approval – Before selling (or renting, if allowed) a co-op, the owner needs approval from the Co-op Board. This requirement can affect the number of buyers as well as the asking price.
- Flip Taxes – When selling a co-op property, flip taxes are a reality. Their intended purpose is to deter speculators.
- Availability – Since co-op apartments make up over three-quarters of all NYC real estate, there’s a larger selection of available residences.
- Purchase Price – Compared to condo prices, co-op apartments tend to be 10-20% cheaper. However, potential buyers must consider that the monthly expenses may be higher. Monthly costs include the owner’s share of the mortgage (if applicable), general maintenance, essential utilities, and real estate taxes. Co-op members can deduct certain expenses (real estate taxes or mortgage interest on their loan) from their taxable income.
- Residence Satisfaction – Although co-ops may not suit the investor, these apartments can be the perfect full-time or part-time residence. New York co-ops tend to be older buildings (pre-1920), but with age comes quality craft, exquisite details, and luxurious features. Spectacular fireplaces, airy spaces, beautiful detailing, and glorious gardens are all part of the charm of an NYC co-op apartment.
What are the expenses and costs of ownership?
Whether you choose a condo or a co-op, there will be expenses associated with the purchase. On the positive side, specific costs can be deducted from an owner’s taxable income. Real estate taxes and the interest payment resulting from co-op owners’ shared mortgage may be used as a deduction. Investors can also deduct real estate taxes and carrying charges as business expenses in the year of occurrence.
Owning Real Estate
Real Estate Taxes
- Depending on the property, real estate taxes can range from hundreds to thousands of dollars. Whether you’re an average owner or an avid investor, seek information about decreasing your taxes through available deductions.
The Common Charges/Maintenance Fees
- Common charges and maintenance fees are monthly expenses. While co-op owners are responsible for maintenance fees, condo owners pay standard common charges. Monthly charges will vary from building to building but can cost hundreds to thousands of dollars per month. A higher level of amenities in residence translates into a higher monthly charge ($1/square foot on the upper end).
Ownership Structures and Taxes
Tax liability is not the same for U.S. residents and non-residents. Therefore, we feel it is beneficial to introduce an important concept for foreign citizens considering an investment in our real estate market. Those seeking a more detailed and technical treatment on the subject can consult a paper titled “Foreign Ownership of U.S. Real Property” by Charles Perkins, CPA.
Choosing the best ownership structure
Although this may appear to be a simple matter, the choice can have a profound impact on an investor’s taxes, along with legal liability. It is important to give this serious thought before investing in changing it after it can take some time and result in additional expenses. Also, it may result in an unnecessary tax burden. There is a myriad of structures. We will run through some of the basic ones.
The most obvious one is direct ownership. One advantage is simplicity. An investor does not need to consult a lawyer to form a corporate or partnership structure. Second, there are potential tax advantages, including favorable capital gains treatment. Third, it offers transparency, which sellers may like to see, along with the IRS. As for the disadvantages, direct ownership requires filing an income tax return and subjecting estate taxes down the road. There may also be a personal liability that could be limited from a corporate or LLC structure.
Investors can also own real property through a foreign corporation. This usually means any gain upon the sale is taxed at 35%. Although many non-resident aliens elect to purchase real estate under this method to avoid income and estate taxes, it is not easy to accomplish in practice.
Another way to invest is by owning a domestic corporation, which generally will be considered a United States Real Property Holding Corporation (USRPHC), and can get treated as a domestic corporation by holding U.S. real estate to avoid a 35% withholding tax.
Beyond forming a corporation, investors can enter into a partnership. This usually results in a lower income tax burden since individual tax rates on capital gains are lower. If this is done through an LLC, personal liability may also be limited.
This is a very complex area. We have only touched on the capital gains and estate taxes and have not mentioned how rental income, if any, would be treated. Although this article is designed to dispense some basic advice and lead investors in the right direction, it would behoove those interested in delving further to consult legal and tax advice from experts.
Tax Liability: Non-Residents
- Federal Tax – While the federal tax on long-term investments (holding the property for over a year) is 15% for U.S. residents, foreigners pay 30%.
- FIRPTA – Under the Foreign Investment in Real Property Tax Act of 1980 (FIRPTA), income tax is withheld immediately after a non-resident sells the property. New York State withholds almost 6.85% of the proceeds, and the IRS keeps 10% of the gain.
- Forms – The IRS requires a Statement of Withholding on Dispositions by Foreign Persons of U.S. Real Property Interests. New York State requests a Nonresident Real Property Estimated Income Tax Payment Form. We recommend seeking the expertise of a professional tax accountant to assist with these forms. For expert help, contact us.
While there are benefits to buying through an LLC (Limited Liability Company), certain treaties between a foreign country and the U.S. can minimize the advantages. Overseas buyers should enlist the help of a tax adviser who specializes in international law. Elika can put a buyer in touch with a tax adviser who can assess individual situations.
LLC Ownership Structure
- It takes an average of one week to form an LLC.
- The LLC must be established in the same state as the location of the property.
- An LLC can have an unlimited membership, including non-residents and U.S. residents.
- The LLC is required to file tax returns (local, state, federal).
- At the time of sale, owners can sell or transfer LLC shares to a buyer.
What is a tax abatement?
Tax abatement refers to programs that encourage New York developers to continue building and growing neighborhoods. Different properties qualify for various tax statuses. Elika agents can advise owners about the tax status of any NYC property.
NYC Tax Abatement Incentives
- Tax Exemption Program – This program covers new buildings as well as individual restorations. A 421-A or 421-G tax abatement is for new buildings, and a J-51 applies to converted buildings.
- 421-A – The 421-A; program phases out tax exemptions over ten years. The real estate tax will increase 20% every second year until maturity (first and second year – 100% exempt, third and fourth year – 80% exempt, continuing to the tenth year).
- 421-G – The 421-G incentive applies to a specific area – below Murray Street in Manhattan. Available properties within this area will see tax benefits for 14 years. The lower payment is applicable in the initial 8-10 years and will phase out gradually until 2014.
- Additional Incentives – Some NYC buildings are eligible for lengthy abatement periods from 15-25 years. Specific factors, such as location, availability of reasonably priced units, or receiving government assistance through loans and grants, will influence a building’s eligibility for long-term abatement incentives.
What are the closing costs?
Buyers and sellers have to pay closing costs during a real estate sale. This expense can add up to between 1% and 6% of the purchase price. Legal, registration, and federal/state/city fees are in addition to a down payment. These charges must be at closing.
Can I get a mortgage?
Foreign buyers can obtain a mortgage to purchase New York City real estate, and most U.S. banks have created programs to accommodate foreign buyers. The exact laws allow foreign buyers can finance 50% of loans up to $1,000,000 and 65% of loans between $1,000,000-$2,000,000. Foreign buyers will be asked to provide specific documents. Some institutions waive this proof, but these buyers will be charged more in interest rates in return. Elika agents can match foreign buyers with mortgage specialists who can get the best deal for non-residents.
- Proper Visa or Foreign Passport Copy – U.S. banks require proof that a potential buyer can enter the country.
- Credit References – At least four references from credible sources will be requested for mortgage loan applications. These documents must originate from professionals in finance, such as accountants, bankers, or insurance officials.
- Verification of Rent/Mortgage Payments – Proof of rent or mortgage payments are required for at least one year before the application.
- Adequate Closing Funds – Use the closing costs calculator to determine the complete list of expenses.
- Proof of Employment – Foreign buyers will always be asked to verify their employment.
What is the best way to find a property?
Contact Us! As a Real Estate Board of New York and the National and New York Realtor Organizations, Elika has access to all properties in New York City. An Elika buyer’s agent can show you any available New York property that suits your needs. In addition to our professional resources, Elika provides unbiased advice, history, and a detailed comparative market analysis once you’ve decided upon the specific property.
Buying real estate is a complex process, especially as a foreign buyer. Even those who are native to NYC have a hard time navigating the purchasing process. You’ll need to select attorneys and bankers, get financial documents in order, do property research, and a whole lot else before you even get to the point of making an offer. Online recourses may make it look easier and cheaper to do on your own, but it rarely works out well in practice. If you want things to go as smoothly as possible, then a trusted buyer’s agent from Elika can make that happen.
Elika has the expertise, experience, and the latest information about the New York City real estate market. We know that no two transactions are ever the same, which is why Elika provides personalized service for each foreign buyer. You can also take heart in knowing that the seller always pays the agent’s commission in NYC.
How to estimate the fair market value of a property?
Once a property has been selected, an Elika buyer’s agent will perform a competitive market analysis. Based on a range of factors, this will determine the property’s current market value. Knowing this gives you strength in negotiations and protects against ending up with a lemon. We use the following five areas to determine what the right offer price should be:
First, we want to learn how motivated the seller is. A seller that is highly motivated to sell is more willing to negotiate. We can do this by finding out their financial or personal situation (e.g., divorce, already purchased another home, pending foreclosure) to help determine if he/she is flexible on the price or other terms, such as closing costs.
Current market conditions
Next, our agents use the current market conditions to help you. We work in the real estate market and often know the real-time circumstances before the widespread press reports. This is currently a seller’s market for New York City apartments priced up to $3 million, but we’ll likely know when this is changing, given our work on the “front lines.”
We also examine the property’s condition, including the building itself. This is a complex area, with many factors to consider. These include the building’s profile, age, unit mix, ownership share of primary users versus investors, and the electrical/plumbing quality.
Improvements and upgrades
Next, an Elika agent looks at the enhancements. We know which are worth paying extra for and which ones aren’t. Upgraded kitchens and bathrooms usually add a lot of value, but we can focus on how this affects the price. If there haven’t been many upgrades, then it’s essential to understand the potential renovation cost.
Lastly, we look at sales comps. This is when we compare a property to similar ones in the neighborhood that have sold recently. For this to work, the comparison has to be fair. At Elika Associates, we work hard to make sure that is the case. The first place to look is for recent closings in the same neighborhood and, ideally, the same building. Even if two units from separate buildings are more or less comparable, any differences in the buildings will skew the results. That’s why differences in the common areas, shared amenities, and building location is also included in the comparison. Aside from recent transactions, we also look at the listing price and trends for similar condos. Also, Market analytics and public records are included.
With our comparative market analysis, you’ll have an offer price to make with confidence. This will put you in a great position to start negotiations. Even if the seller comes back with a counteroffer, you can send one back, arguing why you feel your offer price is fair. This is all part of the game, and an Elika agent will be there to give advice and fight on your behalf. Elika Real Estate will work with you to assess the market, pick a fair amount, and get the best position in all negotiations.
What are the brokerage fees?
It all looks simple enough, but how much will a buyer’s representation cost? Well, you’ll be glad to know that it won’t cost you anything. Foreign buyers pay no commission when purchasing NYC real estate. That’s because the seller pays the commission on the sale of a residential property. This comes out of the sale proceeds, usually about 6%, and is divided between the brokers for the seller and buyer.
Elika brokers are compensated just like any other broker, so you needn’t worry about fees. Any broker’s fees are included in the purchase price, which means they’ll come out of the seller’s pocket once the deal is closed. Once that closing is complete, half of the 6% commission is paid to the brokerage brought in the buyer, while the other goes to the company listing the property.
Do I need a buyer’s agent?
In New York City, the vast majority of sellers will be represented by a listing agent. They’ll be looking out for the seller’s best interests, so you can expect a tough time if you go it alone. Alternatively, having your broker to represent you will help level the playing field. Things will be made especially hard for you if you want to buy before arriving in New York City or have only just arrived. You’ll need someone you can trust that knows the local market and has experience working with foreign buyers. Someone who can negotiate on your behalf for the best price and terms. An expert who can handle all the paperwork and smoothen out any bumps in the road. Let an Elika agent be that expert.
It’s quite rare for any New York City transaction to go off without a hitch. There’s always something that causes a problem, whether protracted negotiations, problems found in the home inspection, an unknown lien being found on the property, financing issues, or just an obscure piece of legislation that puts a stop on the sale. A dedicated and experienced buyer’s agent can help overcome these and ensure a faster closing.
As such, any foreign buyers interested in acquiring a New York City property should seek the assistance of a qualified buyer’s agent. Elika Associates can do that for you.
The Elika way
At Elika, we know that many foreign buyers prefer to be discerning in their home search and may have unique preferences. After 20 years of representing local and foreign buyers, we know the buying process like no other. Let our experienced agents be your guide and advisor in finding the perfect New York City home. Best of all, our services are free for buyers, so there are no out-of-pocket expenses for you to handle.
Should I hire a Buyer’s Agent?
- Using a broker makes buying is a less time-consuming process.
- They have access to every NYC property in the marketplace.
- Brokers can help with the presentation of documents and applications.
- They can coordinate the team of professionals needed to complete a sale.
- Brokers simplify the buying process.
Will I need the Services of other Professionals?
Purchasing a home takes more than just a broker. You’ll also need a range of other professionals. One of these will be a real estate attorney who can perform a title search, obtain insurance, and check for any building liens. State law also requires that an attorney be present on closing day to complete the sale. Another required professional will be an appraiser to discover the fair market value of an NYC property. A Surveyor will be needed to check the measurements of a property. If you want to make renovations, then you’ll need a contractor and possibly an architect. Lastly, you may need a mortgage broker to provide the financing for the purchase.
Elika can connect you will all of these people and more. We keep an updated list of all the trusted professionals we’ve personally worked with and recommend to you.
Do you provide property management?
We know that many foreign buyers aren’t looking for a primary residence and may only be living in their NYC property on-and-off-again for the year. Such buyers need a management company who can look after the property while they’re away. Other buyers may only be looking for an investment property to rent out as an income source. Either case will need a management company, which is what Elika also provides. Our job is to make things as hassle-free as possible, which is why we provide the full range of management services on top of our brokerage services. New York is a virtual goldmine when it comes to investing, which is why we take the management part just as seriously.
Elika Management Corp. will help find tenants for your investment property if you wish to rent it out. Also, we provide all property management services, such as seeing to the needs of tenants, handling maintenance as needed, and keeping the unit(s). Whether you live locally or abroad, we specialize in managing individual condo and co-op units. This way, we can provide hands-on service and staff to meet our discerning clientele’ needs.