Foreign investors have always been attracted to Manhattan’s high-end luxury residential properties—and for simple reasons: Owning New York City real estate over extended periods of time yields a high rate of return; it’s the financial and cultural capital of the world, and a popular second home location; there are frequently economic concerns abroad; and, especially of late, the weakened U.S. dollar is an invitation for foreign capital.
I asked Michael J. Romer, Esq., Romer Debbas LLP, to separate a couple of myths from facts for foreign investors.
1) If you’re a non-U.S. citizen, purchasing an apartment in your name is a smart strategy: FALSE
“It is rarely if ever a good idea for a non-U.S. client to purchase in his or her name,” says Romer. “The tax liability can be prohibitive. For example, if a non-U.S. client purchased an apartment in an individual capacity and then passed away, the estate could be subject to estate taxes (federal and estate) in excess of 50% here in the U.S. – in addition to estate taxes in his/her home country. For the foreign buyer, the structure of the deal (i.e. determining the vehicle through which to purchase) is the most important part and should be done as early in the process as possible.
The solution: Hybrid LLC/Off-shore entities and trusts can avoid these issues.
For the foreign buyer, the structure of the deal (i.e. determining the vehicle through which to purchase), is the most important part.
2) Co-ops are not available to the Foreign Buyer: FALSE
“Although the condominium is by far the preferred target of the foreign buyer for many reasons—especially the ease of subletting—the co-op is still a possibility if the building does not require that the unit owner’s maintain it as their primary residence,” says Romer. “In the last few months, our office handled several high-end co-op transactions for non-U.S. buyers of second homes.”