Archive for Foreign
Enticing Foreign Investors – Buy a home get a Visa?
Posted by: | CommentsRecnetly, U.S. Senators Charles Schumer (D-NY) and Mike Lee (R-UT) introduced a bill that would allow foreigners who spend at least $500,000 on residential property to obtain visas allowing them to live in the United States. The “Visa Improvements to Stimulate International Tourism to the United States of America Act”, or VISIT-USA Act is similar to an existing program that puts foreigners on a fast track to a green card if they invest at least $500,000 in an American business that creates at least 10 jobs.
The legislation would create a new homeowner visa that would be renewable every three years, but would not be a path to citizenship. There are a number of stipulations and restrictions, however:
- To be eligible, a person would have to buy a primary residence of at least $250,000 and spend a total of $500,000 on residential real estate. Other properties could be rented.
- The purchase would have to be in cash, no mortgage or home equity loan allowed.
- The property would have to be bought for more than its most recent appraised value
- Buyer would have to live in home for at least 180 days each year, requiring paying US Income taxes on any foreign earnings.
- Visa eligibility would be revoked if property was sold.
- Work visas still must be obtained to hold a job.
- Neither buyer nor dependents would be eligible to receive Medicaid, Medicare or Social Security benefits.
Some brokers say that a visa incentive to foreign buyers could potentially even triple sales in their markets.
“California, Florida, New York, Colorado, Hawaii, and Texas — those states will see a huge increase in demand,” Sandra Miller, a broker at Engel & Volkers in Santa Monica, told the Los Angeles Times.
Manhattan Residential Rental Market Report Fourth Quarter 2011
Posted by: | CommentsThis week, we released our Fourth Quarter report for the Manhattan Residenital Rental Market. Manhattan Residential Rentals Market Overview Q4 2011 reported here and summarized below was prepared by Miller Samuel for Prudential Douglas Elliman.
“Tight mortgage credit conditions continued to drive rental prices and activity higher.”
- The median net effective rent (face rent less landlord concessions) jumped 9.5% from $2,950 to $3,121 in the same period last year. The year-over-year-gains were consistent across all rental price indicators.
- The 2-bedroom and 3-bedroom markets outpaced their smaller counterparts,increasing 14% and 18.1% respectively over the same period.
- New rental activity (excluding lease renewals) was up 10% from 7,217 to 7,942 in the same quarter last year.
- About 7.4% of new leases had some form of landlord concession compared to the 40.5% in the prior year quarter. For those leases with concessions, the average amount was the equivalent of 1.2 months of free rent.
- Days on market—the number of days from original list date to lease signing—was at its second fastest pace of 37 days in 15 years, which is when we began tracking this metric.
Foreign Investor? Some Considerations When Buying US Real Estate
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Recently with the devaluation of the dollar and the uncertainty of investments elsewhere around the world, many more foreign nationals have been interested in purchasing Manhattan residential real estate as an investment.
It is no more difficult for a foreign national to obtain a mortgage than for an American citizens buying in New York City if the residence is to be a primary residence (or at least a pied-à-terre). However, an investor who is not prepared to pay in cash and wants to obtain a mortgage for a property that will be used as an investment (i.e. with rental income), will find it difficult or impossible to find a mortgage with low rates.
The foreign national buyer, in addition to putting together a search team including a real estate broker and a mortgage lender (if necessary), should search out a New York City attorney who may be able to help save thousands of dollars in taxes or at least alert you to the tax consequences of the purchase.
For just such an investor, I recently had the pleasure of working with Michael C. Xylas of Abrams Garfinkel Margolis Bergson, LLP. One of the partners, Neil Garfinkel, recently published an extremely informative discussion, very helpful to foreign buyers, summarized below and found in its entirety here.
Foreign investors are lured to US real estate by the stability and security of the US Real Estate market. Generally they can enjoy a steady appreciation of US real property and without the volatility of financial markets, making the prospect of economic gain through rental income and capital growth the strongest attraction. With relative political and economic stability in the US, there are fewer barriers to foreign purchase of US real property. The weaker dollar and lower property prices make these investments even more attractive for foreign investors.
While easy to purchase as a foreigner, real property comes with reporting and tax consequences that must be considered.
“For the purpose of US Income Tax, a Foreigner or non resident alien (NRA) is an individual who is neither a US Citizen, a green card holder nor US Tax resident. The test to determine if an NRA qualifies for the same status as a US citizen or resident individual is based on ‘substantial presence’. This is defined by the number of days that one must reside in the US to achieve such status. For the purpose of US Estate and Gift Tax, the test is more subjective, based on one’s intent of permanency in a particular country. Importantly NRA’s are nevertheless subject to estate and gift taxes on any asset that are actually situated in the US.”
It is extremely important for foreign investors to work with a qualified team of legal, accounting and brokerage/valuation advisors who understand the rules in the foreigner’s home country as they correlate with the laws of the United States; if handled correctly, the transaction will be most suitably structured with consideration for investment, accounting and tax purposes.
Consider the Structure used to purchase the asset while planning your purchase:
- Individual owner (Direct Ownership) and Single Member LLC
- Real property used as a residence for personal use
- Least complex
- Required to file US Income Tax return
- Estate Tax issues, Federal and possibly State
- Shareholder in a domestic or foreign corporation
- Domestic Corporation
- Provides a liability shield
- The Corporation is the taxpayer, eliminating the need for individual annual tax returns
- Does not avoid US Federal estate tax liability
- Two levels of tax imposed on corporation income:
- Corporate level tax imposed
- 30% withholding tax on dividends paid to individual owner/imposed (this could be lower based on a favorable tax treaty between the foreign investor’s country of residence and the US)
- Foreign Corporation
- Limits tax liability, mostly used to avoid US income tax as well as US estate tax.
- Pass on US real property to estate beneficiaries without paying US taxes
- No individual US Tax return, however
- 30% branch profits tax against the foreign corporation ‘dividend equivalent amount’ (regardless of any current distributions to the shareholders, the tax is imposed on corporation’s taxable income that is effectively connected to a US trade or business.
- Foreign corporation which owns a US corporation
- More complex structure, both foreign corporation and domestic US corporation are formed
- Foreign Corporation owns the Domestic US corporation which owns the real estate asset.
- more costly and complicated
- Investor is provided a limited liability shield and does not file any US tax return
- Federal estate and gift tax are not applicable
- Branch Profits tax not applicable
- Ultimate investor would be transparent
- Income tax would be taxed at a less favorable rate compared to individual ownership
- Domestic Corporation
Ownership Tip For Foreign Buyers of Manhattan Condos and Townhouses
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Foreign purchasers of Manhattan real estate often take title to the property through a legal entity rather than in their capacity as individuals. Some of the reasons they opt for this can be privacy issues, income tax deferral issues, gift/estate tax concerns, the need or desire to shield the foreign investor’s own assets from liabilities arising from the ownership of U.S. real estate, and whether it is expected that additional investors will acquire equity interests in the property.
It is imperative that prior to signing the contract of sale the foreign purchaser receives competent legal and international tax advice as to the proper structure to use in order to accommodate the investment.
Foreign purchasers should be cognizant of the fact that certain types of entities in which they want to take title may not be available to persons that are NOT citizens or permanent residents of the United States, such as an “S Corporation”. In using this particular entity the investor would soon discover for one, that it may not be available to them and that the income generated by the U.S. real estate would likely be subject to double taxation.
This post was taken from a tip written by Filippo Cinotti, Esq.and published in PDE Title’s Spring Newsletter. PDE Title is a sister company of Prudential Douglas Elliman Real Estate.
Is it Difficult For A Foreign National To Get a Mortgage in New York City?
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There is a common misconception that it is more difficult for foreign nationals than for American citizens to get a mortgage in NYC. In fact, there are some restrictions, but it is perfectly possible for foreigners to get mortgages for New York City home purchases.
Foreign nationals obtain a mortgage like anyone else
Foreign nationals can approach local NYC banks, national lenders, credit unions and mortgage brokers to apply for a mortgage. Not all lenders offer foreign national programs, but they are readily available.
As a foreign national, one must be prepared to put a down payment as high as 40% of the purchase price—required by the lender because it typically will only loan 60-80% of the purchase price. Interest rates are reasonably priced and there are no forbidden property types so you can finance a condo and a co-op just as easily as a single-family home. Some lenders will require you to prove your Visa status or type of Visa you possess that gives you permission to be in the United States, be it for a business or a pleasure trip or to come to the U.S. to work, study, conduct business or immigrate.
Foreign nationals who hope to purchase co-ops will need to go before the co-op board, just as citizens do. The co-op board may impose its own requirements such as requiring a green card, U.S. tax returns and other conditions. Co-op restrictions may make it more convenient for foreign nationals to purchase condos because the bylaws and rules of condo associations are typically less restrictive than those of co-ops.
If the purchase is strictly for investment purposes I would recommend the purchase of a condo. That said, in New York City, there are “condops” (a cross between a coop and a condo) which may allow you the flexibility as an investor but at a lower cost.
The bottom line is that a foreign national can obtain mortgage financing just like a The bottom line is that a foreign national can obtain mortgage financing just like a U.S. citizen would in order to establish a NYC mortgage. Find a lender that offers foreign national loans and apply for the mortgage. Then sit back and wait for information to be processed—just like a U.S. citizen would have to do.
