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August 16, 2008
European Purchasers
I dont understand why europeans are buying here in the USA.
Sure 'some' of the upwardly mobile are keeping it empty for 44 weeks of the year and just like to have a place in NY to crash when in town or to lend out to friends but how are the rest of the purchases being funded?
Also as an overseas purchaser do you have to pay tax on any rental income earned on a property here in the USA? (or capital gains when you sell)?
What happens if a property is owned by someone living overseas but earning income in the usa?
Anyone have any concrete information on this rather than folklaw heresay?
tia,
Dean
Comments
Europeans are buying as long as the euro stays strong.
Posted by: madamlee at August 16, 2008 2:45 PM
In 2001, one Euro was worth $0.84. Today it's worth $1.50+. Wouldn't you snap up a brownstone at almost half the cost, especially if it's a foreclosure?
As the Euro starts to fall back Europeans are hustling to buy properties here because every penny the Euro continues to lose to the dollar is a penny in their pockets.
Posted by: Steve at August 16, 2008 6:15 PM
I think this whole notion of "the Europeans are coming" to be somewhat false outside of the reasonably high end.
Yes, the euro and the pound (I am a Londoner) are both stronger but property prices are dramatically higher than when our currencies were considerably weaker.
Unless you don't have to work for a living, it's difficult to justify owning property overseas apart from the occasional holiday home. And if you're buying a holiday home, do you want it 7-9 hours away (at a cost of several thousand dollars just for flights), and is NY really a good regular holiday destination or would you rather something more relaxing by the sea? If you think otherwise, you should consider buying property in Spain as their local economy is tumbling off a cliff and they could do with some rich americans to prop up their property prices.
Posted by: the chicken at August 17, 2008 7:51 PM
Not for nuthin', Nantucket is also 9 hours away (6.5 hour drive + 2 hour ferry + 30 min check-in @ Hyannis), unless you have the disposable wealth to be able to afford the outrageous r/t plane fare. My girlfriend owns a house there though. So do lots of Europeans for that matter.
Posted by: Steve at August 17, 2008 10:34 PM
I guess that's kind of my point Steve. Nantucket is a repeat vacation destination, unlike NY (much as I love it).
Nantucket is a playground for the wealthy but it's small enough that there are enough rich people to go around there - ones who don't care about the cost of the airfare. I would expect the Europeans that own houses in Nantucket to live/work in New York/Boston (expat banker types?) rather than flying over from Europe for each holiday.
Over in Europe, New York is very rarely mentioned as a holiday home location. Florida has been popular but $5,000 a pop in airfare for a family of four (and that is cattle class) makes people think twice, even with the falling prices.
Posted by: the chicken at August 18, 2008 7:39 AM
Even empty, NY real estate is a great investment. In ten years you literally can make millions. I bought years ago for $390 and sold for over $2 million. There are few places that you can get that kind of return, right? I am not a finance person, but it seems like a fairly safe plan. And as someone stated above, it's even better if you can buy while housing prices are softened and the euro is high. You don't really need to live in the house or use it for it to appreciate.
I believe that local tax laws apply.
Posted by: superstooper at August 19, 2008 8:55 AM
Of course they are buying property here, duh. The dollar SUCKS and keeps deflating, I can hear the hiss now as I type. A few years ago when I started doing regular trips to Poland the exchange was about 4.5 Zl to $1, now it's like 2 Zl to $1... I WISH I would have just bought Zlotys back then, I would more than double my money.
Posted by: SamHall at August 19, 2008 4:12 PM
That may well be true but NYC is also a global business, shopping and entertainment center. Foreigners don't travel here just for holidays. I know several Europeans who keep apartments in NYC for business purposes, as a US home base for travel in this hemisphere and just for a change of pace.
They're not wealthy either. When they're not using them they do what my friend does with her Nantucket house: rent them out on a short term basis. My friend leases out her house during the on-season (May 1-October 1), which pays 90% of the mortgage and taxes for the year.
Posted by: Steve at August 19, 2008 4:14 PM
Superstooper, it may have been a great investment when you bought years ago but can you say the same now? A five fold increase over ten years is very impressive but are you saying that $2m apartment/house you buy today is going to be worth $10m in another 10 years? And if you're going to leave it empty then you have to swallow the maintenance and property taxes.
SamHall, you have to look at currency on a relative basis. Poland has been doing well at the same time as the US has been declining so that is why the Zloty has strengthened. But many parts of Europe are also facing difficulties now - few areas had as lax lending standards as the US but many saw house price inflation exceed it.
Steve, I guess you and I have different definitions of wealthy ;)
The numbers work if you bought a few years ago but I just don't see how the numbers can stack up for rentals at todays prices - either prices have to come down or rents have to go up. All of the levers to get prices up have already been pulled; lower/discount interest rates (check), lower deposits required (check), lax documentation standards (check), higher multiples of salaries (check), rental affordability (I hear the norm is now 50% of your post-tax income spent on accomodation v 25-35% a few years ago. Check). All of these factors took prices up and prices will come down as they unwind (maybe the last one won't come down but it's not going up - people will leave before that happens).
Posted by: the chicken at August 20, 2008 3:05 AM
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