Expenses for New York Property Owners
New York has always provided valuable and in-demand real estate among foreign buyers for a number of reasons, not the least of which its prime location as one of the world’s centers for culture, arts, and commerce. Many international buyers, however, may have certain questions regarding a number of areas, from how New York real estate works, to their numerous options. The following is a guide for anyone in this situation, who is considering purchasing real estate in New York despite being a citizen and resident of another country.
One thing important to understand is that no matter what option for New York property ownership one selects, there will be additional expenses associated with it, besides just the purchase. Luckily, an owner can deduct many of these expenses from his or her taxable income, such as real estate taxes, carrying charges, and the interest that a co-op shareholder pays from the mortgage.
- Real estate taxes, depending on the specific property, can amount to hundreds or thousands of dollars. Whether you’re an owner or an investor, you should consult with an accountant about how to decrease your taxes.
- Co-op owners are charged maintenance fees each month, while condo owners are charged common charges as part of their monthly expenses. These charges can range from hundreds to thousands a month. The better amenities a building has, the higher the fee is.
Another important thing to realize is that the real estate market in the United States is extremely friendly to foreign buyers. The most popular purchases at the moment are townhouses and condos in New York City and single family homes further upstate and the greater metro area.
Manhattan condominiums offer wonderful, comfortable homes for families and individuals. The basic concept of a condo is that the buyer owns the apartment and shares the common areas with the other building residents. Over the past number of years, tons of new condos have been constructed in New York City, along with older buildings been renovated into condos, with all of the most modern conveniences. For the first 10 to 25 years, often buyers can find themselves receiving rather sizable savings, in the form of tax relief. Over ¼ of New York’s current real estate are condos.
Why Condos are So Popular
- While every person has to pass the approval of the board, which is made up of residents who make all decisions about the building, such as rules, use, and repair, this process is not as complicated as in co-ops (see below), and is instead more of a formality.
- Condos only impose minimal restrictions on their tenants as far as ownership or use. Sub-letting, part-time residence, and other options are allowed, unlike in co-ops.
- Condos are more expensive than co-ops but are also much more flexible and can be more convenient. They are mostly elegant and beautifully designed, making them fantastic investments.
- Buying and selling New York condos is a relatively simple procedure, particularly when compared to co-ops, so they can be very enticing to international buyers.
Condos and Townhouses Versus Co-ops
It is not impossible for a non-US citizen to buy a co-op unit. It is, however, a far greater struggle. Everyone has to pass the approval of the co-op board, which can be extremely difficult even for United States citizens, because the boards can be discerning and demanding. Being an international purchaser adds an additional layer of difficulty,.
In order to appeal to a co-op board, purchasers have to indicate that they will be good neighbors, easy to get along with, and able to contribute financially to the building’s upkeep. Co-op boards tend to want their shareholders to work in New York, have a nearly perfect credit rating in the United States, and to have a United States tax return, which poses the most significant problem for foreigners.
The Up Sides to Co-op Ownership
- Co-ops can be the perfect residence, while not suited to investors. The buildings tend to be pre-war, often pre-1920, which means gorgeous, long-lasting, sturdy architecture, beautiful facades and details, and luxury. People can expect opulent fireplaces, high ceilings, dazzling gardens, and more.
- There are an enormous number of options, as over 3/4s of NYC real estate is composed of co-ops.
- Co-ops are generally priced lower than condos, at a rate often between 10-20%. On the other hand, the price of monthly expenses, such as maintenance, mortgage (where applicable), real estate taxes, and utilities, could be higher. With that said, co-op shareholders are able to deduct some expenses, such as mortgage interest and real estate taxes, from taxable income.
The Down Sides to Co-op Ownership
- The approval process can be difficult and lengthy. It is not uncommon for it to take weeks, if not months.
- Someone purchasing a co-op unit is only allowed to have a specified level of financing that rarely, if ever, exceeds 80%.
- Co-op usage has very specific regulations, which can have a sizable impact on the buyer’s life. These can include things they may not have otherwise considered in advance, such as getting a renovation approved by the board or the number of guests they are allowed to have at any given time.
- An investor may want to steer clear from a co-op, because they tend to have very stringent rules on subletting that can range from completely forbidding it to only allow it once the owner has lived there for years.
- The owner of a co-op unit needs to get approval from the board to sell or rent their unit.
- When someone decides to sell a coop, he or she will have to pay the co-op board a “flip tax,” which isn’t a tax in a traditional sense but a payment that the seller is required to pay the co-op board in order to be granted permission to leave. Their purpose is meant to keep speculators away.
The best way to find property is to contact GPS real estate. We have access to all of the properties available in New York State, The Greater Metro Area and the City real estate marketplace. We can take you to any and all available properties that you’d be interested in seeing. We also provide history for each property, a comparable market analysis that is thorough and detailed, and advise you of your options.
Buying New York real estate is an extremely complicated procedure that includes presenting documents, researching the property, selecting bankers and lawyers, and meeting with the brokers. At GPS real estate, we are experts in all of the most current real estate processes and procedures and will guide you every step of the way. We personalize our service for each client and promise to help you get your perfect property.
At the closing, both buyers and sellers have to pay the closing costs, which can range from between 1-8% of the price of the purchase. Federal, state, city, registration, and legal fees are required, along with the down payment.
- When someone purchases a property in New York City, he or she is required to pay the NYC Real Property Transfer Tax, which ranges from 1%, for condos which cost less than $499,000.00, to 1.425%, for condos which cost more than $499,000.00.
- Amounting to .4% of the price of purchase is the New York State Transfer Tax.
- Falling in a range of $1500.00-2500.00 is the Seller’s Attorney Fee.
- Title Ownership, as it sounds, gives the buyer his rights of ownership and ensures that a third party won’t ever be able to claim ownership. The cost is $450.00/$100,000.00 of the price of purchase.
- If a property’s cost exceeds $1,000,000.00, a Mansion Tax is applied, which is 1% of the price.
- Mortgage Loan Origination Fees can be in a range of .5%-3% of the value of the mortgage.
- Ranging between $500.00-1500.00 is the Move-In Deposit.
- Many buildings charge $200.00 Application Fees.
- Running between $250.00-500.00 is the Managing Agent Fee.
- The Attorney Fee is then necessary to pay the lawyer for reviewing the documents. The fee depends on how complex the sale is, and can range from $2500.00-$5000.00, with another $500.00 needed to pay for the recording costs.
- Mortgage Tax
will mostly likely range between 1.8%, for those mortgages that are under $499,000.00, and 1.925%, for those mortgages that are over $499,000.00.
- Lieu Search Fees are between $300.00-400.00.
- Mortgage Title Insurance is $200.00/100,000.00 of the property’s value.
- Credit Reports are between $30.00-100.00.
- Appraisals are around $500.00 or more.
- Loan Applications are around $500.00.
- Bank Attorney Fees are between $1500.00-2500.00.
- Misc. Bank Fees, which include escrow and home insurance, can be between $400.00-1200.00.
New York City Real Estate Today
Real estate in New York City continues to be an enticing and safe option. Long term growth and home value appreciation are favored by the enormous supply and demand. Though city condos can be very expensive, they still should be expected to outperform the rest of the New York real estate over the next number of years. The weaker the US dollar is, the more attractive New York City property will become to foreign buyers whose currencies are stronger. Foreign interest will most certainly contribute to further growth in New York City’s condo sector.
Although the current state of the economy is troubling to many people, many of today’s trends indicate that things will continue to go well, overall, for New York real estate. In fact, there is a large number of wealthy buyers in Manhattan whose funds aren’t all attached to real estate. People who live in luxury apartments (which often range between $1000.00-1800.00/sq. foot), probably won’t be as affected by the economy as most everyone else.
With the interest rates lowering, many mortgages are becoming more affordable, which should motivate a large number of buyers.
You will most likely want to have a broker, because most sellers have brokers, and these brokers do not represent the buyer’s rights. They offer protection to the seller, and so the buyer should have one, as well. The top advantages to having a broker is that he or she can intercede on your behalf for a price reduction or request concession. In order to make sure you are getting the property you want, and at the most reasonable price, a broker is indispensable. Without one, a buyer can find him or herself losing a great deal of money, due to not knowing the ropes entirely.
Brokers make the entire process run smoother and in a less time-consuming manner, have access to every available property, help with the presentation of applications and other documents, coordinate the entire team of professionals that one needs in order to complete a sale, and, in short, simplify the entire process.
An important thing to realize is that in New York State, international buyers don’t pay brokerage fees. In other words, you won’t have to pay any commission to GPS real estate. Brokerage fees are paid by the seller and then divided between the buyer and seller’s brokers. Real estate brokerage fee are built into the property’s purchase price, which means that there won’t be any additional fees for you. Once an apartment sells, half of the real estate company’s commission is given to the buyer’s real estate company and the other half kept by the seller’s company that listed the property.
Having an attorney is also absolutely crucial. Attorneys are needed to obtain insurance, perform a search on the title, and research any violations or liens on the building, in addition to negotiating the contract, the initial agreement that goes hand-in-hand with paying the deposit.
Appraisers are needed in order to research a New York City property’s fair market value. Surveyors, as experts of the technical sides of buildings, are needed to research the condition of the property. Architects are needed to check a property’s measurements. Finally, the mortgage brokers are needed in order to help the buyers obtain their needed loans. Nest Seekers International will help international buyers connect with all of the professionals they need to make the process go smoothly and successfully.
Tax abatements are programs that allow taxpayers to be granted a reprieve from paying a certain tax for a period of time, for either a total or a percentage of that tax. As such, they are intended to encourage real estate developers in New York to keep building and enhancing neighborhoods. The tax status a building qualifies for is dependent on the specifics of any given building. Nest Seekers agent are able to advise an owner about the his or her property’s tax status.
- Tax Exemption Program—Covering new buildings and some specific renovations.
- 421-A—Intended for new buildings, this program’s purpose is to phase out tax exemptions over a period of 10 years. Real estate tax increases by 20% each 2nd year until it reaches maturity. For example, 100% exempt for the 1st and 2nd year, 80% exempt for the 3rd and 4th year, until it reaches the 10th year.
- 421-G—Intended for new buildings, this program applies to one specific area, namely below Manhattan’s Murray street. The buildings that are eligible in the area get tax benefits for 14 years. This lowered payment applies for the first 8-10 years and is gradually phased out till it expires in the 14th year.
- Other Incentives—Many New York City buildings can qualify for abatement periods that range between 15 to 25 years. A building’s eligibility will be influenced by factors including the availability of units that are reasonably priced, location, and receiving assistance from the government in the form of grants and loans.
Obtaining a Mortgage
It is not as difficult as one might expect for a foreign buyer to obtain a United States mortgage. Most of the banks in the United States now have programs in place intended for foreign buyers. International purchasers are able to finance 65-75% of their loans, up to $1 million and 60% of their loans that fall in the range of between $1 and $2 million.
In general, foreign buyers are asked to provide a number of specific documents. These include:
- At least 4 Credit References, which must be from professionals who work in finance, such as
- Insurance Officials
- Foreign Passport or Visa
- Adequate Funds for Closing
- Proof of Mortgage and/or Rent payments for a period of at least one year
- Proof of Employment
Though some banks waive this requirement, buyers are then charged higher interest rates. Nest Seekers will provide you with a mortgage specialist who will get you the best deal possible.
While it can be beneficial to buy a home through a Limited Liability Company, or LLC, the advantages for foreign buyers can be diminished by potential treaties between the United States and that specific foreign country. An international purchaser really should enlist a tax adviser who specializes in international law to help. Nest Seekers can put you in touch with one.
Here are some important things to know about LLCs:
- An LLC has to be formed in the same US state in which the property is located.
- LLCs must file local, state, and federal tax returns.
- Once the sale happens, the owners can transfer or sell the LLC shares to the buyer.
- There are unlimited membership requirements to an LLC. It can be composed of US residents and non-residents.
- It takes about a week to form an LLC.
Tax liability for non-US residents is different than for residents. The following is a short outline, which Nest Seekers professionals will help you with:
- Federal Tax—For US residents, the federal tax placed on long-term investments is 15%. For non-residents, it is 30%.
- FIRPTA—FIRPTA stands for “Foreign Investment in Real Property Tax Act.” Passed in 1980, this act immediately withholds income tax after property is sold by a foreigner. The IRS takes 10% of the proceeds, and NY State another 6.85%.
- Forms—NY State requires a Non-Resident Real Property Estimated Income Tax Payment Form, while you need to submit a Statement of Withholding on Dispositions by Foreign Persons of US Real Property Interests to the IRS.
Registering Property Rights
At the time of the closing, the new buyer and his or her details are recorded by the attorney for the buyer, who submits them in to the NYC Register. Documents are photocopied, photographed, and filed.
Purchasing for Rental
The New York Greater Metro area maintains a thriving market for rentals, and though the price of rent has increased over the past number of years, countless people are still searching for rental apartments. New York City, additionally, has a remarkably low rate of vacancy, which proves that a buyer is capable of finding and keeping a regular tenant. The majority of buildings in New York City only offer long-term leases (meaning they last over six months), but some allow for shorter term arrangements, such as month-to-month.
If you plan on buying an NYC apartment in order to rent it out, GPS real estate would be happy to manage the entire process for you, including finding tenants for your unit, helping draw up and sign the lease, and later make sure that the tenant is actually living there and making all of his or her required rent payments. For a small additional fee, we can also manage your bill payments and your tax/maintenance fees.
Our goal is to help you enter the rental business with as little stress or trouble for you as possible, whether you can cover all of your mortgage expenses from the income you receive from renting it out, or only part of it.
Purchasing Real Estate in New York: The Process Organizing
- Before searching for a home in New York City, a buyer should decide on
- his or her desired neighborhood
- the type of housing he wants
- the purchase price he wants
- In considering this a buyer, should decide his specific needs:
- The amount of space in the apartment.
- The building’s amenities.
- The building’s location and proximity to local amenities.
- The buyer should also consider his income level.
- Prior to beginning a search for a new home, a buyer would be advised to meet with a mortgage broker or banker, in order to obtain mortgage pre-approval.
- Pre-approvals help improve your chances with boards of various buildings, gives you better negotiating power, and also lets the buyer realize his spending limits, which he might not have been aware of.
Hiring an Attorney
- Lawyers protect your interests and review all of the contracts, to make sure they’re good.
- Nest Seekers can help you find the lawyer that’s right for you.
Talking to a Tax Specialist
- International buyers really should consult with tax specialists, because tax liability will be different for you than it is for United States citizens.
- There will also be tax liability variations depending on if you’re buying a home as an investment or to live in.
- You can be advised on the United States tax requirements by either
- An accountant
- A tax expert or
- A lawyer
- A deposit of 10% is usually required.
- Opening a bank account in the United States is recommended, or
- Transferring the proper funds to a lawyer’s escrow account.
Searching for the Property and Making an Offer
- Once a buyer finds the property he likes, he can make an offer on it. This offer is not legally binding. Multiple ones may be submitted. Putting in an offer can end up getting a buyer the home he wants for the lowest price.
- Once an offer is finally accepted, the seller’s agent or lawyer will send the building by-laws and contracts to your attorney in order to review.
Negotiating and Signing the Contract
- An attorney will usually take between 5 and 10 days to review a contract.
- The seller’s agent will inform the purchaser of the expected time frame.
- Sellers are allowed to keep showing homes and accepting offers until the contract is signed.
- The contract outlines all of the details of the transaction that is proposed.
- Buyers need to examine the contract’s fine details with their attorneys. This will ensure that you understand all of your obligations and risks, as outlined in the contract.
- Once all parties sign the contract, the buyer must pay a deposit of 10%. You need to either have this in a United States bank or wire the money to the seller’s lawyer, where it will be secured in the seller’s lawyer’s escrow account.
- Deposits will only be refunded under very specific conditions. One is mortgage contingency, which lets a buyer receive a refund if he can’t secure some specific terms of financing. This clause would have to be included in the contract, but they are rarely approved for inclusion by sellers.
Getting Approval from a Co-op or Condo Board
- In order to buy an apartment in New York, you have to be approved by the board of the building, whether it be a co-op or condo.
- A buyer will have to submit thorough documentation to the board, which includes
- Tax Returns
- Financial Statements
- Co-ops also require interviews, which are very strict and stringently enforced.
- Condos’ rules are ostensibly similar to co-ops, but they are far less difficult. The approval process is really more formality than the complex procedure that co-ops require.
Preparing for the Closing
- After signing the contract, one still has time in order to obtain the necessary funds and to do appraisals, surveys, a title search, and check for violations and liens on the property, in addition to reviewing documentation.
- During this time, assuming a buyer has applied to get a mortgage, the bank will check his assets and documentation, along with a building’s financial information.
- Once the bank is satisfied with everything, the complete loan will be wired to the buyer’s attorney’s escrow account, along with the closing costs and down payment.
- It is wise for a buyer to visit the property the day before the closing, just to confirm that the property looks as the buyer expects it to, before closing.
- The closing is when the transaction between the buyer and seller finally occurs.
- All parties are involved in the closing, including
- Seller’s attorneys
- Buyer’s attorneys
- The bank
- The insurance official
- The closing occurs usually between 60 – 90 days after the contract is signed.
- Everyone gathers for the signing of the final documents and for the settling of all payments:
- Title insurance
- Seller’s payment
- By the end, the buyer will have his new title, title insurance, and most importantly, his keys.
Further information can be found on the GPS Guide to Buying & Selling Property in NYC