Buying New York Residential Property – Setting Expectations
Posted by Wei Min Tan on March 1, 2022
Bravo for taking the step towards investigating the property buying process. Here is a summary of key points for a foreign/overseas investor to understand when buying property in New York.
Don’t expect to find a good deal from your computer 6,000 miles away
Real estate is very local. Even local New Yorkers won’t know which is a good deal unless they walk the streets and visit apartments every day. You absolutely can’t find a good deal from browsing online from 6,000 miles away.
Everything you see online will look good because they are posted by the seller’s broker. What you need to know are both upsides and downsides, the latter you won’t be able to find out online.
If you are a buyer, get a real estate agent
In the US, agent commission for both buyer and seller sides come from the seller. However, the buyer’s and seller’s agents still represent the interest of their respective clients. There is no “discount” for not having a buyer’s agent. It just makes the seller’s agent happier since she would be getting the entire commission which would otherwise be split 50/50 if there was a buyer’s agent.
Deal example: 88 Greenwich in FiDi. Corner apartment with double height, 17 feet ceilings makes this apartment very voluminous. Buyer client purchased with tenant in place. It has since been re-rented to another long term tenant. Building was a great value buy and one block south of New York’s largest development, the four World Trade Center buildings. We targeted rental demand coming from professionals at the WTC.
Securing the deal
In New York, a real estate contract needs to be in writing. This means, even if you have an agreed upon price with the seller, the seller’s agent could continue showing the property to other potential buyers. To secure a deal, a contract needs to be fully executed – buyer needs to sign, put down the 10% deposit and seller needs to countersign. The fully signed contract then has to be delivered to buyer’s attorney.
Until a contract is fully executed, both buyer and seller can back out. In a heated market, the seller could continue entertaining higher offers. Speed in getting the contract signed becomes crucial to securing the deal. This is where having a strong team, especially attorney and broker, reduces the chance of losing the deal to someone else after the price and terms have been agreed upon.
Freehold or leasehold
The vast majority of properties in Manhattan, New York are freehold. Freehold vs leasehold is a British concept. It’s the top question when discussing properties in the UK or Commonwealth countries. In New York, it’s almost all freehold except for Battery Park and a few buildings spread around Manhattan.
Weimin’s article, Average Manhattan apartment prices.
Foreign buyers invest in Manhattan for its stability and global status. Many clients also buy because of a child coming to New York or the United States for college. It’s almost never because they want to make enormous returns, which they know can be better realized in an emerging market. The risks are lower in Manhattan and hence the returns are lower. Property here won’t appreciate 50 percent a year.
Deal example: 959 First Avenue, client purchased at pre-construction stage. Amazing interiors and the reservation deposit was only 10 percent, maximizing leverage and minimizing risk for buyer. Represented multiple buyers at the $2 million price point.
Capital gains and other taxes
The four types of taxes to be concerned about are capital gains tax, income tax, monthly property tax and inheritance tax. Reference our New York Residential Property Capital Gains And Other Taxes article for an overview.
Mortgage financing for foreign buyers
While many foreign buyers still buy all cash, mortgage financing is available. Banks ceased financing to foreigners during the 2009 financial crisis. Then they started opening up, and now foreigners have financing options again. Reference our writeup, Mortgage Financing For Foreign Buyers.
Weimin’s article, How to buy property in New York
What We Do
We focus on global investors buying Manhattan condos for portfolio diversification and long term return-on-investment.
1) Identify the right buy based on objectives
2) Manage the buy process
3) Rent out the property
4) Manage tenants
5) Market the property at the eventual sale
Deal example: 200 Chambers in Tribeca. Top building commanding top rents. This was a blue-chip strategy because while price per square foot was high, rents were high as well. The building’s low carrying costs makes the rental yield attractive. This corner unit has dual exposures to the N/E. Whole Foods is behind the building. Purchased at around $1 million and appreciated significantly since.
Article was updated March 1, 2022
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