International Investors in Manhattan Apartments, 3 Crucial Tips
Posted by Wei Min Tan on May 15, 2020
International investors buying Manhattan, New York apartments for asset diversification are always sophisticated, successful and global people. It takes much international exposure to venture into overseas property investing. About 50 percent of my clientele are international/foreign investors from countries including Singapore, United Kingdom, Russia, Australia, Denmark, Israel, U.A.E, Hong Kong, New Zealand, Taiwan, Bahrain, Saudi Arabia, Indonesia, Thailand.
I have been fortunate to learn a lot from my international clients over the past 10+ years in this business. Their drive, efficiency and productivity inspire me, and I have adopted many good habits learned from my international clients. In this article, I share 3 crucial tips for international investors currently in the research process. Hopefully this brings some clarity amid the information overload out there.
Contact: tan@castle-avenue.com
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Tip 1: Get good advice from a local expert
Most international investors don’t spend time finding a local Manhattan expert and settle for whatever is most convenient. Below are the wrong ways international investors get their advice, and what I recommend.
I once had dinner with someone at his Wall Street condo. He bragged that 75 percent of owners there are foreigners and it’s the foreigners who had money. Truth was that New York locals didn’t want that development, it was too far from transportation, and Wall Street is dead at night. So that development, capitalizing on the Wall Street address, went abroad to sell to foreigners.
The wrong (but usual) way international investors get advice
The typical scenario is the international investor finds a new launch condo because the project is being marketed in the investor’s country. The “advice” the investor gets is coming from the sales agent from that new development project. This is one-sided advice because the sales agent represents the interest of the developer.
Deal example (below): International investor client’s apartment at 200 Chambers in prime Tribeca. Rented out immediately after closing. Proximity to Whole Foods, Goldman Sachs’ HQ, Hudson River Park make this a desirable investment apartment.
Weimin’s article, Buying new vs resale condo in New York
Alternatively, the international investor may ask a friend who lives in Manhattan. Unfortunately, the friend is never a property market expert. Living in Manhattan doesn’t mean the friend looks at 5 apartments a week, 260 apartments a year. The friend will have a full time job, a family to attend to after work, weekends filled with family activities. The last time said friend went to look at apartments was 7 years ago when he bought his condo. While a friend can give some guidance on Manhattan, a friend should not be the international investor’s main source of advice.
Another scenario: The investor may have found a local Manhattan broker online or by referral. This broker sends the client five new condo development websites and asks which the client likes best. If none are of interest, she will send more options in a few days. This approach assumes the client is best able to decide which is a good buy. Some international investors may actually think they know best and like this approach! For a broker, sending new development projects’ websites is very easy. The developers’ marketing material sell themselves! I absolutely do not agree with this approach because:
(1) The international investor does not know the local market
(2) Marketing material is one-sided and only tell 5% of the story on investment feasibility
What should an international investor do?
Find a local expert buyer’s broker who will have your best interest in mind. This requires you to do some research online and conduct broker interviews. Ask questions to gauge the broker’s knowledge of the market and specific condo buildings. Then select one broker to work with. In Manhattan, good brokers expect clients to only work with one broker.
Based on investment objectives, the broker should shortlist apartments and explain the upsides and downsides of each property. If the investor has seen websites of other properties, the broker should explain the upsides and downsides of these properties as well. Why? Because a good buyer’s broker knows all the condo buildings and all the neighborhoods in Manhattan.
Weimin’s analysis, Manhattan property investment performance
Tip 2: Get legal and tax advice
The investor’s lawyer is a key player. A good lawyer will be able to make the contract more favorable to the buyer in areas like contingencies, closing date flexibility etc. The lawyer will also advice on how to best hold the property.
Please do not try to save money by having a production line lawyer. With such a lawyer, it’s cheap but you deal with the paralegal on everything. In the context of buying a Manhattan apartment, a good lawyer’s fee is worth it.
Unless the lawyer has a tax specialty or is also a CPA, lawyers will not give tax advice. This requires the international investor to seek advice from a CPA (certified public accountant) experienced with international investors. Understanding tax treatment of owning Manhattan property is very important. For example, estate, capital gains, income taxes.
Weimin’s article, How recessions impact Manhattan property
Deal example: Represented multiple buyers and got in early at 130 William, condo apartment launch in FiDi. Buy decision based on excellent amenities and low carrying costs.
Tip 3: The bank
For the 50 percent of my clients who prefer financing, having a reliable banking source will make the difference between a smooth transaction and losing the contract deposit.
From contract signing, the buyer gets about 60 days to complete the transaction. In the case of a cash transaction, closing can happen in 30 days or less. The extra time with a financed transaction is because the bank needs to perform appraisal, underwriting, and run through layers of reviews.
Big banks are bureaucratic and slower than small banks. The preferred scenario is a small bank where the mortgage banker (the international investor’s contact person) is in the same building as the underwriter. This logistical benefit, typical in small banks, makes approvals faster.
A recent foreign client used a major international bank where the underwriter is at a different location. It’s common for big banks to have operations functions in cheaper states/locations. The nightmare was that the mortgage banker and underwriter only communicated every few days via email. The banker never got clarity on what the underwriter wanted. Fed up, we renegotiated the closing deadline with seller, moved the mortgage to a smaller bank and got approved/closed in 3 weeks.
Risks with buying new launch condo projects in Manhattan
Investing in Manhattan apartment with tenant in place
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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