Foreign Buyers Buying in NYC - What You Need to Know
Steps for Purchasing a Condo
Condo vs. Coop vs. Condop
Financing in the USA what you should know and how to prepare
Buying an apartment under a corporation or LLC
Taxation
Purchase Time Line
Steps for Purchasing a Condo in New York
(Please note you do not pay any commissions everything is paid by the seller only)
1. Mortgage Pre- Approval (Skip this is all cash deal or get financing from overseas)
2. Finding Property
3. Offer on Property
4. Negotiating on the offer
5. Offer Accepted – Seller’s Broker requests Buyer information
6. Buyer information – Legal Name (As shown in the passport); address; phone also Buyer’s lawyer information, address, phone fax and email
7. The Seller’s broker prepares a deal sheet which is handed over to the Buyer’s lawyer ( A deal Sheet is the information that will be included in the contract)
8. The Sellers lawyer contacts the Buyer’s lawyer and send over the contract with the building financials
9. The Buyer’s lawyer reviews the financials of the building, makes sure that the title is valid and that there no liens on the property and that the contract reflects what was agreed on. Once everything has been verified the lawyer explains it to the buyer, reviews terms and negotiates on behalf of the buyer
10. Once all terms are agreed the buyer signs the contract and puts a 10% down payment and sends it over to his lawyer which in term send it over to the sellers lawyer
11. The seller signs the contract
12. The contract is faxed over to the Buyer’s broker
13. The Buyer starts working on the commitment letter (Skip this if this will be all cash transaction)
14. The Buyer’s broker begins working on the Board Package (Condos have applications that needs to be filled, its generally information about the buyer and his financials)
15. The Mortgage broker sends over the signed commitment letter to the Buyer’s Broker (Skip this if this will be all cash transaction)
16. The buyer purchases an insurance for the apartment (its usually about $300)
17. The Buyers Broker submits the signed board package and the commitment letter to the Building Managing agent for the Board review
18. The Board reviews application (usually it takes 3-4 weeks)
19. The Buyers lawyer checks the title and prepares new title
20. The first right of refusal is waived (the building has the first right not refuse the new owners, under this scenario the building will buy the apt from the owner and the buyer will get his deposit back).
21. The brokers, mortgage company and lawyers are notified that a closing date can be set
22. Closing date is agreed with the managing agent
23. Lawyers with the bank get papers in order, the Buyers lawyer gives the final closing cost to the buyer , deed recording is prepared
24. Closing all parties sign and the deed is transferred to the Buyers
I know that in Europe people usually do not hire a lawyer. In New York it’s a must. They make sure that the building you buy into is financially sound and that the apartment you choose has no hidden liens, fraud, ownership claims and so on. As a foreigner you can buy an apartment in New York but please be aware that there are tax issues to consider. This you have to talk to an accountant who is knowledgeable in international investor and taxation. I will refer you to a person that specializes in it and you can call them to ask general questions. Also, I will recommend to you a lawyer who is very good with working with foreign buyers. Please note that I do not get any monetary benefits from them, they all have worked with some of my foreign clients and they were satisfied with them.
Condo vs. Coop vs. Condo-op
Generally coops do not allow foreign buyers to purchase into the building because it causes uncertainty and they know that they will not be able to pursue them legally if a situation arises. Also, generally the coops do not allow subletting (renting), unless under special circumstances.
Co-ops
A phenomenon that's limited almost entirely to Manhattan, cooperative apartments have been the traditional form of owning an upscale apartment for close to a hundred years. In fact, in New York City, 85% of all apartments available for purchase - and almost 100% of the grand pre-war apartments on Fifth, Park and Central Park West - are in co-operative buildings. Co-ops are owned by an apartment corporation. When you purchase within a co-op building, you're purchasing shares of the corporation that entitle you, as a shareholder, to a "proprietary lease." Generally, the larger your apartment, the more shares of the corporation you own. Co-op shareholders contribute a monthly maintenance fee to cover the building expenses. The fee covers such items as heat, hot water, insurance, staff salaries, real estate taxes and the mortgage indebtedness of the building. Portions of the monthly maintenance fees are tax deductible due to the building's underlying mortgage interest. Also, shareholders can deduct their portion of the building's real estate taxes.
A co-op Board of Directors has the ability to determine how much of the purchase price may be financed and minimum cash requirements. Subleasing a co-op can be difficult. Each co-op has its own rules and they should be carefully reviewed prior to application to purchase.
All prospective purchasers must interview with the Board of Directors. Prior to the interview, prospective purchasers prepare a detailed "Board Package" which usually contains personal and professional letters of recommendation as well as a great deal of personal information concerning income and assets. The experience of a PDE broker is invaluable. Your PDE broker can help you find an apartment in a building that suits the needs of you and your family. In addition, your agent will help you prepare a package that you can confidently present to the Board of Directors once you've found the home that is right for you.
Condominiums- Condo
As more and more new buildings are constructed in New York; condominiums are fast gaining in number and popularity. It's not surprising. As opposed to a co-op, a condominium apartment is "real" property. A buyer receives a deed just as though he or she were buying a house. Each individual apartment in a condominium receives its own tax bill. There is still a monthly common charge similar to the maintenance charges in a co-operative. These charges don't include your real estate taxes and are not tax-deductible. They also tend to be lower than in co-ops because there is no underlying mortgage for a condominium building. The straightforward nature of buying a condo coupled with the fact, that in some cases, you can finance up to 90% of the purchase price and sublet them at will, makes condominiums the number one choice for flexibility.
Condo-op
Condo-op is a coop that functions with condominium rules. Generally there is no board approval and no interview and subletting is allowed from day one. This however has been changing and some of the Condo-ops will conduct the process just as coop board would. Some Condo-ops will allow subletting only after a certain time, for example, you must live in the building at least one year before the building will allow you to sublet. Please be aware that rules in coop and Condo-op can change at anytime and the only way to change these rules is by getting involved.
Financing in the USA what you should know and how to prepare
If you plan to finance your apartment in New York
1. You have to have a US Bank account at least 2 month prior to getting a mortgage
2. You have to have an established line of credit (US Credit Cards, or have a credit line with a bank in your host country that has a relation with a US Bank)
3. With the current mortgage crises most banks that lend to foreign buyers expect foreigners to put down 30-40% down payment and they also want to see that you have 6 months of mortgage and maintenance plus the closing cost coming out of the same account
4. The rates of mortgages are determined on basis of your credit history/ how much you are financing and if it’s for investment or a second home, you need to keep this in mind ask several mortgage brokers what the interest rate will be under each scenario. This will help your decision making.
Buying an apartment with an off shore corporation name / local corporation name
Since September 11, 2001 anyone buying property in the USA is required to indicate the owners of the apartment and who will reside there. Many foreigners who use to buy properties in the past with off shore corporations were not required to disclose the names of the executives and board members. This has changed. You still can own an apartment with an off shore company as long as they have a branch in New York or the USA and that company has to disclose its members – sometimes this is overlooked but the condos in New York all require to list the owners who will reside in the apartment and the source of their finances they won’t approve the new owners otherwise.
Taxation
If you own property in the United States you have to file taxes at the time when you buy or sell your apartment. There are special forms and tax rates for foreign nationals. This you need to discuss with your lawyer and make sure you discuss with your international tax advisor. Please note that if you sell property in New York, the Federal Government automatically withholds 10% from the purchase value and the New York State withholds about 7-9% from the purchase price, in order not to have the government withhold your money for the long run make sure that your lawyer files that tax returns when the contract is signed so that at the closing you get the refund back at thee closing which easily be done if it’s done properly. This way you will not have to wait for your funds.
Purchase Time Line
Seek pre-approval for a mortgage: (ONLY IF YOU GET A MORTGAGE IN THE USA)
Typical time frame: 1 - 2 days
You must know how much you can spend before you spend it. Condominium apartments require at least 10% down; cooperative apartments generally require at least 25% down. However, every building is different. 15% of Manhattan's buildings are condominium buildings and the other 85% are cooperatives.
Find an apartment:
Typical time frame: 3 Weeks - 6 months
Depending on what you are looking for, the length of your search will vary. The average person sees 20-25 apartments before deciding on one. Internet-savvy buyers save time by doing their 'homework' before their search. The average number of apartments viewed before buying by our internet buyers is 4-5.
Negotiate on the Apartment:
Typical time frame: 3 days to 2 weeks
Everything is negotiable so inquire about assessments, fixtures, window replacements, air conditioners, rugs, floors, curtains, appliances, working fireplaces, washer dryers, etc. Apartments are delivered 'swept clean'.
Sign a Contract:
Typical time frame: 1-3 weeks
Generally, in a sales transaction, a New York City real estate attorney represents each buyer and seller. The seller's attorney draws up the contract for the buyer's attorney; the buyer's attorney does 'due diligence'-reading minutes, financial statements of buildings etc. The buyers sign the contract and forward the contract with a 10% deposit; the sellers execute the contract. Possible contingencies: Financing, Board Approval, closing dates. (See our list of closing costs associated with buying and selling condominiums and cooperatives.) The quicker the contract can be signed, the better. A contract is binding only after both parties sign it.
Apply for a mortgage: (ONLY IF YOU GET A MORTGAGE IN THE USA)
Receive Commitment Letter from Lender.
Typical time frame: 6 - 9 weeks
Mortgage applications cannot be processed without an executed contract. If an apartment is being financed, the board requires a commitment letter from a lender. These letters are generally the last items to complete a board package/condo application.
Complete a Board Package or Condominium Application:
Typical time frame: 3 - 9 weeks
Cooperative apartment buildings require board approval before a closing can take place. Condominiums require an information packet to be completed before a closing can take place. In order to review a potential purchaser, the Board of Directors for a Coop demand extensive information in a Board Package. Most Boards request the following information: full financial disclosure (net worth) with supporting documentation, employment history, current salary, personal and business references, tax returns for the previous 3 years, credit history, etc. If a purchaser cannot or does not want to supply this information, he/she should buy a condominium. Board packages/Condo applications are given to potential purchasers to fill out after a contract has been executed. If there is no financing, it usually takes about 2-4 weeks to gather the information for the board condominium application.
Submit Board Package or Condo Application for the managing agent's review:
Typical time frame: 1-4 weeks
After the buyer's real estate agent completes the Board package, he/she will forward the package to the managing agent of the building. The managing agent will inspect the package to ensure it is complete. The package will then be forwarded to the Board of Director's of the Coop. After the Board reviews the package, they will decide if they would like to meet the potential purchaser.
Receive Approval from Board:
Typical time frame: 1 day - 1 week
The managing agent will generally alert the Buyer’s broker whether a potential purchaser has passed the board.
Schedule a Closing:
Typical time frame: 3 Days-2 weeks after board approval
Managing agents generally set the date for closings, and lawyers for sellers and buyers coordinate with the appropriate banks on available dates and times.
Typical Time Frame from the time an apartment is found, to the time an apartment closes: 3-5 mos.
