How to buy a NYC apartment: The international edition

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Buying an apartment in NYC is challenging enough for the natives, which is the raison d'etre for BrickUnderground's popular How to Buy a NYC Apartment guide.

If you're a foreign citizen, however, things get even trickier. We suggest beginning with a close reading of the above guide to build a basic understanding of how the real estate game is played here.

Then keep in mind some additional provisions that apply to you as an international buyer:  

1. Forget co-ops (for the most part)

Never say never, but generally speaking, foreign buyers will find it difficult to buy in a co-op versus a condo building.

(Why should you care? For one thing, although they tend to be more modern, condos cost around a third more than co-ops.)

International buyers typically "won’t be able to produce the kind of documentation a co-op usually requires when reviewing an application--at least two years’ tax returns, for example,” explains real estate agent Ellen Cohen of Stribling and Associates, who frequently works with foreign buyers, especially from Canada and France.

“The co-op board review is a highly intrusive and invasive process, and foreign buyers usually don’t have much of an appetite for disclosure," observes real estate agent Shirley Hackel of Warburg Realty.

"Boards want to see a complete financial statement detailing assets and liabilities as well as back-up documents that verify all line item numbers.  I can think of one recent occasion where I sold a condop apartment to a Brazilian national, and in lieu of submitting tax returns and a financial statement, the board permitted the buyer to pay two years worth of maintenance which they are holding in escrow for two years," Hackel says.

In addition, most co-ops frown on buyers who intend to use their apartments as a part-time residence or be tempted to rent them out when not in use. 

All of this doesn’t mean a foreign national can never buy in a co-op building. A real estate broker who works with many foreign buyers should know which buildings may be more open to it.

Once you find one, it will help if you have lots of U.S. based liquid assets.

"Bank accounts and real estate owned in other countries are more of a liability than an asset," says Cohen. "Cash ... in the U.S. is what buildings are looking for. If a non-U.S. citizen (an expat) can show that they have significant assets in the U.S. then there is no reason for a co-op to deny them. It also helps if they already have a green card."

If you do find a co-op that's open to international buyers, understand that the outcome can depend in part on your visa.

Most people who are sent by their company to the U.S. will have a "nonimmigrant" work visa. However, there are visas that will allow an employee to eventually file for permanent residency status, if their company chooses to sponsor them.

According to the Society for Human Resource Management (SHRM), one such visa is the H-1B, which is also the visa most commonly sought by U.S. Employers.

Under the conditions of the H-1B visa, a person can only work for the company that issues it and they immediately lose their status if they lose their employment. However, they can live in the U.S. for several years as long as they are with that company. Also, after only one year, an employer can already petition for a permanent residency status for their "nonimmigrant" employee.

“An H-1B has a sponsor status through a company and can ultimately file for a green card or citizenship. As an H1B, they have indefinite legal working status as long as they are with the company that they are employed / sponsored with," explains Jennifer Chiongbian of Rutenberg Realty who works with many foreign buyers from Asia and Europe

"H-1B’s will have credit history and ultimately be able to get financing and typically end up staying here in the U.S. for a longer period of time, and more often than not, file for residency status [green card]," says Chiongbian.

2. Get your accounts in order, set up credit--and embrace America's credit culture

If you do go the co-op route--or if you need to obtain financing to afford an apartment here--your credit history will be very important.

However, international citizens residing in the U.S. tend not to be familiar with the kind of credit culture we have here: Americans start building credit very early on — through student loans, for example. So by the time they are ready to buy their first home they can be in good shape to obtain financing for the purchase. 

Even if you're planning on paying in cash, a credit history is important if you're going the co-op route. Co-ops boards want to fill their buildings with financially responsible shareholders. And good paying habits are important when common charges are at stake.

Without an established credit history it can be difficult to start a credit history--that is, to qualify for credit in the first place--which can be quite a conundrum for expats.

“As soon as you get into the country and get your social security number, open a bank account" so you can start the process of building credit, advises Stribling's Cohen.

Next, get a credit card and use it--even if it bothers you.

“It’s very important to wrap your head around the U.S. credit system," says Cohen. "Many [people] balk at the idea of having to buy things on credit, having to accumulate debt in order to be able to borrow even more money to finance a real estate purchase.”

Developing a U.S. credit history isn't enough--it must also be a good one. Be sure to acquaint yourself with the way credit scoring works so you don’t inadvertently give yourself a bad rap by making late payments, maxing out credit limits or take part in any other credit-destroying practices.

3. Getting financing is tough--but not impossible.

“There are only a handful of U.S. lenders who will lend to foreign nationals," notes Hackel. "Banks like Citi and HSBC who have branches in international cities will consider making a loan if the buyer already has an account at the bank and is a customer in good standing of about 12 months.” 

Getting a mortgage, if you need one, is more complicated for international buyers, says Joe D’Alessio, a mortgage consultant with HSBC. 

At HSBC bank, for example, buyers must have $100,000 in assets deposited with the bank, says D'Alessio.

HSBC then puts together a 'profile of credit-worthiness' for foreign buyers, which is not a credit report in the usual sense, as there are some countries that did even not allow international credit reporting up until a few years ago. So HSBC pieces together the information that makes them comfortable to qualify a client. Credit-worthiness is mainly established with an accountant letter, income and employment verifications, and, of course, assets.

After the buyer has been been approved, the building must be approved.  

There are some differences in the guidelines for international and U.S. buyers. D’Alessio says the buildings are approved by HSBC on a case-by-case basis, based on Fannie Mae guidelines.

“The maximum financing available for international clients and U.S. clients is 70% and 80%, respectively," he says. "If the building is not warrantable, the maximum financing available to international clients is 50%. For U.S. clients, the maximum financing differs depending on the building’s warrantability.”

Some qualifying factors in order for a building to qualify for an HSBC loan: It must be Fannie Mae eligible; 90 percent of the units must be sold; no more than 10% of the units can be owned by one individual/entity; no more than 20% of the building can be commercial and the board needs to be controlled by the unit owners rather than the original sponsor of the building.

“Our guidelines for loan to value are calculated on a case-by-case basis and are underwritten based on the particular client's credit profile,” D’Alessio says. The maximum loan amount for qualified clients is $3 million.

4. Understand the tax and withholding implications

Any foreign citizen wishing to buy in NYC should know about the FIRPTA (Foreign Investment in Real Property Tax Act), which applies when you're ready to sell.

"Generally, the buyer is required to withhold 10% of the sales price and pay it to the IRS instead of paying the full sales price to the seller," explains real estate attorney Adam Stone of Regosin, Edwards, Stone & Feder.

"Then it is up to the seller to file the appropriate tax documentation with the IRS to show whether it is entitled to a partial or full refund, depending on the seller’s situation," says Stone. "This way, in case there is any gains tax due from the transfer, the IRS has its money up front – rather than trying to collect from a foreign person they don’t have jurisdiction over when the corresponding income tax returns would come due."

If you derive rental income from your New York City property, you will face other tax consequences, says Stone.

"Anyone from abroad thinking of buying property in New York should consult an accountant to determine the exact tax implications," he says.

5. Assembling the right team

Bearing in mind all of the above complexities, know that you'll need to assemble a good team to assist you with all phases of your real estate transaction.  This team may include an accountant, tax advisor, real estate attorney, mortgage broker/banker and even a contractor or concierge service, says Ty Havlioglu of Town Residential.

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