One of the most important considerations when looking to invest in real estate is "location." The location of a property is by far one of the biggest driving factors behind its value. Even the nicest property in an undesirable location will be worth less money than an undesirable property in a desirable location. Real estate investors are on the constant prowl for their next big investment. One location which draws a lot of attention is New York. New York real estate is not only for New Yorkers – there are plenty of people from out-of-state (for the purposes of this article, we'll refer to such people as "foreigners") that look to New York for investment opportunities. When foreign investors look to invest in New York, there are a few questions that are often brought up. This article will discuss a few of them.
- Do foreign investors need to obtain permission to invest in New York real estate?
The short answer is no. Permission is not needed for a foreign investor to invest in New York real estate. However, there is a caveat: if an investor is using a foreign entity to conduct business in New York, the entity must be registered with the New York Secretary of State and obtain a "Certificate of Authority" to do business in New York.
- What "investment vehicles" are typically used by foreign investors in New York?
Like New York investors, those from out-of-state typically use one of two different entity types for their investment vehicle: (1) LLCs (limited liability companies), or (2) corporations. One of the main reasons to utilize one of said entities is the investment's tax ramifications – which should be discussed with an accountant. Another reason is to shield an individual from potential personal liability. If used correctly, an individual can distance themself from potential liability that they would otherwise be exposed to if they were to make the investment in their individual capacity. Although LLCs and corporations are often used for similar purposes, they differ in their makeup.
LLC
What is an LLC? A limited liability company, aka LLC, is an unincorporated business organization of one or more persons who have limited liability for the contractual obligations and other liabilities of the business, according to the NYS government. An LLC is made up of "members" who own membership interests in the LLC, which often correlate to the amount of power and control the respective LLC members have as it relates to the management and operation of the LLC's business activities. A New York LLC is formed by filing its "Articles of Organization" with the Secretary of State of the State of New York. The governing document of an LLC is called the "Operating Agreement."
Corporation
What is a corporation? A corporation is a legal entity separate and distinct from the individual(s) who compose the business, which has rights and abilities similar to those of a natural person, according to the NYS government. It is owned by shareholders, whose voting powers are based on the number of shares they respectively own. The day-to-day operations of the corporation are run by officers and overseen by a board of directors. A corporation is formed by filing a "Certificate of Incorporation" with the Secretary of State of the State of New York. The governing document of a corporation is its "By-laws," although the corporation's shareholders may elect to enter into a "Shareholder Agreement" which supplements the terms and provisions of the By-Laws.
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