The purchase of property in the U.S. has its own set of customs and foreign investors should be aware of these customs and practices. Specific to Manhattan real estate, where a significant percentage of the residential property is cooperative property, a foreigner must come to terms with the concept of owning shares of stock in a corporation rather than bricks and mortar. In addition, cooperatives are free to reject sales and rentals of units based on the cooperative board’s review of the purchaser’s financial and personal application (although cooperative boards may not discriminate against a purchaser on the bases of certain categories protected under law, including race, color, gender, religion, etc.). The cooperative as well as the condominium form of ownership also bear important tax consequences to the foreigner.
A foreign investor therefore has many considerations to make prior to consummating an acquisition transaction. One of the most important decisions will be deciding which of the different structure options to select in which to purchase the asset. For example, the foreign investor will need to decide whether to conduct the real estate business in the U.S. as an individual owner, as a member of a limited liability company or as a shareholder of a domestic or foreign corporation. A foreigner may also acquire property in a trust, as part of an inheritance or as a gift, or might own fractional pieces of property through a partnership.
To meet the needs of each individual, it is important to consider how any purchase is structured. Therefore, it is extremely important for foreign investors to work with a qualified team of legal, accounting and brokerage/valuation professionals who as a team understand the interplay of the relevant tax laws of the foreigner’s home country as those of the United States. The goal of the professional team should be to assist the purchaser in facilitating the most efficient investment, accounting and tax structure in the purchase transaction.
Matters AGMB’s Attorneys Will Cover With Foreign Buyers
- Entity Choice Options (Individual, LLC, Corporation, Trust)
- U.S. Tax Considerations and Reporting Obligations (Income, Estate and FIRPTA)
- Purchase Closing Process
- Due diligence: review of board minutes, building financials, offering plan, house rules
- Negotiation of contract of sale
- Title and lien search review
- Coordination of loan commitment
- Preparation for closing
- Attendance at closing, review and execution of closing documents, post-closing document delivery