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Odd, In Manhattan, the initiative requires buyers in sales of more than $3 million to be reported; in Miami-Dade County, it requires reporting on sales

by KannO 11y ago

Odd, In Manhattan, the initiative requires buyers in sales of more than $3 million to be reported; in Miami-Dade County, it requires reporting on sales of more than $1 million. In Manhattan, 1,045 residential sales cost more than $3 million in the second half of 2015, worth some $6.5 billion in aggregate, according to PropertyShark, a real estate data company. So now illicit money laundering in will effectively shift from luxury real estate into the normal real estate markets..? In its investigation, The Times found that nearly half of homes nationwide worth at least $5 million are purchased using shell companies. In Manhattan and Los Angeles, the figure is higher.

jacobolus 11y ago
The point of the new rules is to target current money laundering in the easiest way possible. Trying to inspect all real estate transactions would be incredibly expensive and cumbersome for the state. It’s possible that folks trying to launder money will switch from doing a single $20M transaction to doing 20 $1M transactions instead, and not change their level of overall activity. At the very least it’ll be a pain in the ass for them, though. This might not be the ideal policy, but it’s easily explainable if you try to look at it from government officials’ perspective. (So I wouldn’t really call it “odd”.)
- mc32 11y ago
  >Trying to inspect all real estate transactions would be incredibly expensive and cumbersome for the state. And the titles companies on whom executing this regulation will fall... It's not like they all have the resources to hunt down shell companies all over the map.
AaronFriel 11y ago
If you think about it economically, then this move and the lower limits are really quite straightforward. Money laundering through property surely has some marginal cost. The goal of the federal government here is to reduce money laundering, because any strategy to totally eliminate it would be irrational, because if the goal is total elimination then you're ignoring all other societal costs. (See: war on drugs.) This strategy makes it more difficult to launder large amounts of money, and that's their goal. Hypothetically, let's say that the overhead to launder a billion dollars is 20%. If this increases it to 25%, then they've effectively taken 50 million dollars out of illegal circulation. That's a heck of a lot more effective than drug busts. For clarification, I have no idea what the overhead on money laundering is, but I can't imagine it's cheap to move vast sums of money around off the books.
prostoalex 11y ago
> nearly half of homes nationwide worth at least $5 million are purchased using shell companies If one does not need a mortgage, this is actually the recommended way to transact on a high-value property. It makes estate planning easier, it somewhat protects privacy, and when it's time to sell, one simply sells the underlying LLC, which ironically is a much simpler business transaction in most states than selling a piece of real estate.
- hkmurakami 11y ago
  Correct me if I am wrong, but I was under the impression that you can get a mortgage using a LLC, but you do need to go to a private bank and arrange a custom deal for it. (I seem to recall Zuckerberg doing this for his Palo Alto home with a variable interest rate loan that started with 2% or so)
  - prostoalex 11y ago
    For clients of that size it's most likely a variant of a pledged asset line http://www.schwab.com/public/schwab/banking_lending/pledged_asset_line.html http://www.schwab.com/public/schwab/banking_lending/pledged_... at some subsidized rate in order to win their wealth management and private banking business. I mean, if you have significant holdings and if you're okay with borrowing on a floating rate, and if you think you can survive a margin call, Interactive Brokers will lend to you at 0.86% if you park $1m+ of securities with them. https://www.interactivebrokers.com/en/?f=interest https://www.interactivebrokers.com/en/?f=interest You'd be hard-pressed to find a mortgage on similar terms. It's a mortgage in layman's terms as there's some principal and interest, but in reality the financial institution won't send an appraiser, there's no mortgage deed issued to the bank, the balance and interest payments are not sliced and diced into securities to be resold. With that said, mortgages for LLCs are the preferred financing instruments for real estate investors, so they're actually a significant line of business for some banks and yes, they're very doable.
  - bsurmanski 11y ago
    So, even Mark Zuckerberg can't afford a house in the bay area. /sarcasm
im2w1l 11y ago
Are you saying this will affect the prices in normal real estate markets?

by KannO 11y ago

jacobolus 11y ago

The point of the new rules is to target current money laundering in the easiest way possible. Trying to inspect all real estate transactions would be incredibly expensive and cumbersome for the state. It’s possible that folks trying to launder money will switch from doing a single $20M transaction to doing 20 $1M transactions instead, and not change their level of overall activity. At the very least it’ll be a pain in the ass for them, though. This might not be the ideal policy, but it’s easily explainable if you try to look at it from government officials’ perspective. (So I wouldn’t really call it “odd”.)

mc32 11y ago
>Trying to inspect all real estate transactions would be incredibly expensive and cumbersome for the state. And the titles companies on whom executing this regulation will fall... It's not like they all have the resources to hunt down shell companies all over the map.

AaronFriel 11y ago

If you think about it economically, then this move and the lower limits are really quite straightforward. Money laundering through property surely has some marginal cost. The goal of the federal government here is to reduce money laundering, because any strategy to totally eliminate it would be irrational, because if the goal is total elimination then you're ignoring all other societal costs. (See: war on drugs.) This strategy makes it more difficult to launder large amounts of money, and that's their goal. Hypothetically, let's say that the overhead to launder a billion dollars is 20%. If this increases it to 25%, then they've effectively taken 50 million dollars out of illegal circulation. That's a heck of a lot more effective than drug busts. For clarification, I have no idea what the overhead on money laundering is, but I can't imagine it's cheap to move vast sums of money around off the books.

prostoalex 11y ago

> nearly half of homes nationwide worth at least $5 million are purchased using shell companies If one does not need a mortgage, this is actually the recommended way to transact on a high-value property. It makes estate planning easier, it somewhat protects privacy, and when it's time to sell, one simply sells the underlying LLC, which ironically is a much simpler business transaction in most states than selling a piece of real estate.

hkmurakami 11y ago
Correct me if I am wrong, but I was under the impression that you can get a mortgage using a LLC, but you do need to go to a private bank and arrange a custom deal for it. (I seem to recall Zuckerberg doing this for his Palo Alto home with a variable interest rate loan that started with 2% or so)
- prostoalex 11y ago
  For clients of that size it's most likely a variant of a pledged asset line http://www.schwab.com/public/schwab/banking_lending/pledged_asset_line.html http://www.schwab.com/public/schwab/banking_lending/pledged_... at some subsidized rate in order to win their wealth management and private banking business. I mean, if you have significant holdings and if you're okay with borrowing on a floating rate, and if you think you can survive a margin call, Interactive Brokers will lend to you at 0.86% if you park $1m+ of securities with them. https://www.interactivebrokers.com/en/?f=interest https://www.interactivebrokers.com/en/?f=interest You'd be hard-pressed to find a mortgage on similar terms. It's a mortgage in layman's terms as there's some principal and interest, but in reality the financial institution won't send an appraiser, there's no mortgage deed issued to the bank, the balance and interest payments are not sliced and diced into securities to be resold. With that said, mortgages for LLCs are the preferred financing instruments for real estate investors, so they're actually a significant line of business for some banks and yes, they're very doable.
- bsurmanski 11y ago
  So, even Mark Zuckerberg can't afford a house in the bay area. /sarcasm

im2w1l 11y ago

Are you saying this will affect the prices in normal real estate markets?