In New York City and the United States in general, foreign property buyers are welcomed and typically not confined to specific property types. But while New York City itself is a highly global city, real estate purchases here can have some particular nuances, especially as they may concern a foreign buyer. Before you make any decisions, it is important to speak with a qualified foreign investment attorney.
Which is Better For a Foreign Buyer – A Condo or a Co-op?
Besides rental units, there are two predominant forms of apartment housing in New York City – the condominium and the co-op. While condos and co-ops are similar in structure, they each have differentiating characteristics.
Condos offer apartment ownership where the buyer owns the unit they live in and a portion of the common areas of the building. A condo owner will pay monthly maintenance to care for these common areas which are typically maintained by a professional management company.
Condos will generally have fewer rules and restrictions than co-ops, especially as they are concerned about using foreign funds for purchase and maintenance. While condos are typically more expensive, they are also more flexible. They generally allow international buyers and investors to rent out or sublet their units with very few restrictions, but this will depend on the individual condo association by-laws. Each potential buyer must get the approval of a condominium board of directors, but this approval is usually just a formality.
Co-ops are also apartment dwellings, but unlike condos, the building is owned by a Cooperative Housing Corporation, and the buyer buys a share in the corporation with a proprietary lease on the unit rather than owning it outright.
While co-ops are usually more reasonably priced and can be perfect for some buyers, they are typically less suitable for foreigners and investors. While it is not impossible for an international buyer to purchase a co-op unit, co-op boards tend to be very demanding and a foreign purchaser may find the whole ordeal much more challenging.
Approval by the co-op board of directors can be time-consuming and difficult. Co-op boards typically want to see that their shareholders have established credit in the United States, work here, and file a U.S. tax return. They also usually have stringent rules on renting out, subletting, or renovating units. When an owner goes to sell their unit, it will be subject to the approval of this board as well, which can turn down any prospective potential buyers.
Financing For Foreign/International Buyers
A mortgage loan financing option is available for foreign buyers. It can be obtained through either a U.S. or non-U.S. bank. Lenders have tightened credit criteria since the 2009 credit crisis and will now require about a 40% down payment from foreign buyers.
Financing allows the buyer to leverage funds and magnify returns. For example, an investor might buy a condo for $1 million cash and get the appreciation benefit of one apartment. If the investor is able to obtain mortgage financing with a down payment of 50%, he can buy two apartments and benefit from the appreciation of both properties.
There are two ways to finance foreign buyers:
U.S. lender financing – This is an option that can be arranged easily through a bank in America. It usually requires a 40% down payment (60 percent loan-to-value). The buyer must also show proof of liquid assets. These liquid assets are often based on multiples of monthly payments. The buyer would need to pay approximately 2 percent mortgage tax since the financing is done in the U.S.
Home country financing – This is when a foreign investor obtains an international mortgage from their home country. The main difference between this type of financing from US lender financing is the savings on mortgage tax and other bank fees. There may also be additional fees that are associated with financing banks.
An international investor must do a cost-benefit analysis before choosing which financing suits them best. It is a matter of comparing loan terms and amortization periods, interest rates, costs, etc. Speaking to an experienced foreign investment lawyer may help.
Sishodia PLLC has a team of NYC real estate attorneys who are experienced in dealing with foreign investments. They may be able to help you understand which type of financing will suit your needs best. Contact us today to schedule a consultation.
Other Challenges For Foreign Purchasers
When a foreign purchaser is looking for financing for a property in New York, they will not have access to conventional mortgage financing for their purchase. These loans are specifically for United States citizens who work here, file federal income taxes, and have U.S.-based credit histories.
While there are several available lenders for foreign nationals, they tend to require larger down payments and charge higher interest rates than traditional conventional lenders.
Getting Experienced Assistance as a Foreign Buyer
The best way for a foreign buyer to understand their options for buying property and financing this purchase in New York City is to get the advice of an experienced New York City real estate lawyer. At Sishodia PLLC, we have worked with international clientele from around the world, helping them make knowledgeable and educated decisions about real estate purchases in New York City. Contact our skilled NYC real estate attorneys at (833) 616-4646 or schedule a consultation with us via our online contact form.