How to finance foreign real estate
Posted by Wei Min Tan on June 30, 2021
How to finance foreign real estate is perhaps the biggest question when thinking about buying property in a different country. Our foreign clients buy New York property either for use as vacation home or as investment to rent out. Buying foreign real estate is a way sophisticated individuals globally diversify their portfolio. Real estate prices in a top international city like London or New York have strong global demand and provide stable price appreciation for the foreign buyer.
How to Finance Foreign Real Estate, 3 min video presentation
About half of our foreign clients finance the transaction while half pay in cash. Here are three ways a foreigner (from Hong Kong, in this example) can finance foreign real estate (in New York, in this example), based on my experience with international clients buying Manhattan, New York property.
A cash transaction means the foreign buyer does not require a mortgage loan. As such, the time it takes to close on the transaction is shortened to as fast as 30 days from the time the purchase contract is signed. This is a seller’s most preferred type of buyer because the transaction can close the soonest and there is no mortgage loan component which may affect the deal. From the buyer’s perspective, the buyer saves on New York’s mortgage tax which is about 2 percent of the mortgage loan amount.
Deal example: 111 Murray was being built and was going to be the newest new development super tower in Tribeca. Represented foreign client on the apartment below. Key driver for our decision was the location, opposite Goldman Sachs headquarters (the green glass building). We waited 2 years and upon completion, prices went up 20 percent.
Cash transaction leveraging real estate in foreigner’s country
A foreign buyer can also get a line of credit from his country through existing real estate there. For example, a buyer from Hong Kong may have multiple properties in Hong Kong with substantial equity in them. The Hong Kong buyer can take a line of credit from his Hong Kong properties to buy the New York property. Assuming the interest rate in Hong Kong is lower than getting a mortgage from New York, the buyer saves on mortgage interest. Also, this would be a cash transaction in New York and hence the foreign buyer saves on the New York mortgage tax.
Getting a mortgage from the foreign country
The Hong Kong buyer can get a mortgage from New York. Yes, banks lend to foreigners buying property in New York. Banks take the same amount of time processing a foreign mortgage as they do a U.S. resident’s mortgage. Down payment required is generally 40 percent of property price, which means the bank would lend 60 percent in loan.
Private banks tend to be more flexible and efficient than the large national banks. From my perspective as a broker who is coordinating all the moving parts of a deal, making sure the client works with a dependable banker is critical. A lot of things can go wrong and delay or even break the deal if the financing process breaks down. Nevertheless, getting a mortgage for a foreign buyer is common practice in the Manhattan real estate market.
Deal example: Negotiated the three bedroom below and helped coordinate financing for client through private bank. We timed the three bedroom purchase to coincide with the surge in rental demand as people moved back into Manhattan post Covid.
Weimin’s article, Investing in Tribeca
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
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