Buying property in Florida is more than a growing trend. It is a lifestyle commitment.
Vacation homes in Florida are some of the most popular properties anywhere in the world. Florida has earned the reputation, not only as a great place to live and vacation, but also as a location that delivers excellent facilities and employment options. Buying Property in Florida is the first step to realizing these dreams.
Buying Property in Florida
For overseas buyers buying property in Florida, the current real estate market offers even greater value for money. The prices are still very low, the exchange rates are very favourable therefore the risk is low, because you can now buy a new homes at great prices.
Now you are looking for your own new home in Florida, it may be time to put your holiday state of mind onto the shelf for a while. Not too far away, as your vacation experiences of the past will guide you in your choice if you are buying a property that will be rented out. Anywhere in the world you consider investing, you need to be informed and buying property in Florida is no exception.
Taking a vacation in someone else’s property in Florida is not the same as buying property in Florida.
It is time to put on your sensible hat,
This is because it is your money that you will be investing. You need to be sure that the property that you intend to buy is the Florida property that meets your requirements in every way. It needs to meet them now and in the foreseeable future, as against the property that your realtor wants to sell you.
Where to buy in Florida
If short term rentals and the occasional family holiday are your aim, then Orlando and central Florida is still the best area in which to invest. This is where you will get the highest rental income for your investment.
However, if you have already “done” the theme parks, then perhaps a property on the west coast will better suit you and still meet your requirements. Although there are not many rental zones in coastal regions when compared to the Orlando areas, there are some in beautiful locations. These include Sarasota, Bradenton, Siesta Key, Englewood, Venice, Fort Myers, Bonita Springs, Naples and also in the Florida Keys and in the Miami area.
Regardless of which area you decide on outside of Orlando where the rental season is virtually 12 months, there is a seasonal rental market. During the winter months the “snowbirds” migrate from the cold northern states and Canada, in the spring time there is the famous “Spring Break” and then in the summer months the Europeans and British head over the Atlantic with their families.
At the end of the day the choice will be yours. Once you have made this crucial decision, it is time to find a realtor that understands what your requirements are and one that shows you the right property to meet your requirements.
MLS – Multi Listing System
Realtors in Florida, as in the rest of the USA, list their properties on an MLS – Multi Listing System – this system places every property on the open market on the desk of your chosen realtor, so that they can share them with you.
Do not make the mistake of making appointments with several different realtors because you will pay for it in the end. If you cannot place all of your trust in one realtor and be loyal to the service they are giving you for FREE, why should they place any trust in you as a serious buyer.
By all means look at property magazines which advertise properties in your area of interest, but at least have the courtesy to inform them and let them make the call on your behalf. When it comes down to the nitty-gritty of closing you will understand why!
What Type of Property?
Buying Property in Florida especially a vacation home is the dream property for hundreds of thousands of Americans and international families. What could be better than a stunning vacation home in Florida? One that you and your family can use several times each year and even rent out to help cover the costs?
In many parts of Florida, private houses and single family homes with a private pool and its own BBQ, are the most popular type of vacation homes. They provide space and privacy in a way that other properties simply cannot!
In key rental areas (Short Term Rental Zones) around Orlando most tourists prefer to rent a private home. Especially if they have kids, they appreciate the extra space, private pool and games rooms. Plus, most resort communities offer a huge range of amenities.
Single Family Homes
A single family home is exactly what it sounds like, a home built to accommodate one family on their own lot with no attached neighbours. Single family homes are the principle property purchase in the United States, especially outside of large cities – where condos are more prevalent.
The dream of the private yard surrounded by a white picket fence, has moved on a little. Nowadays most single family homes are constructed on gated communities which offer a wide choice of amenities. Virtually all single family homes will be residential homes – they can be rented out on long term leases or lived in by the owner. They are NOT an option for owners who wish to rent out the property on a ‘week by week’ basis.
Prices for single family homes tend to be less expensive than identical vacation homes in similar communities purely because they are residential and NOT for short term rental. Architectural styles cover most genres and themes, although certain areas of Florida may OPT for more of one style than another.
Townhomes are good option for many vacation home buyers, as they sit nicely between private vacation villas and condos – or on residential communities between condos and single family homes. Many times you will have access to community amenities, swimming pools and tennis courts etc without the expense. Your garden will be taken care of, the pool cleaned and their will normally be a maintenance company either onsite or nearby.
Many townhome communities also have contracts with management companies who will look after your property in your absence for a fee. They may also provide rental facilities and help with renting your property out. You will have to pay HOA fees – Home Owners Association – which are monthly quarterly or annual fees each owner will have to pay to cover the maintenance charges.
Vacation condos are extremely popular in many coastal towns and cities in Florida. Many of these are owned by out of state owners who wish to enjoy extended periods of time in Florida, but with the convenience of having the ability to lock and leave the property. Most condo buildings will have an onsite condo manager who will take care of the property in your absence.
In certain areas in Florida, these condos – which are often located within walking distance of the beaches or in downtown urban areas – will be rented out when not in use. You will need to confirm how many rentals you are allowed each year and what type of rental zone you are in.
Many condo associations will allocate a specific amount of the monthly HOA fees to be set aside in a sink fund. These monies can be utilised when repairs to the community need to be done, after receiving authorisation – often in the form of a vote – from the condo owners. Read a little here about Condo Docs and HOA – Homeowners Associations
One of the most desirable types of property is waterfront. Either on a river, on the beach, on a canal or at the very least, close to the water and the islands or keys. Due to limited supply of waterfront land and the demand for a property that either overlooks the water or land with docking facilities, waterfront properties are probably the most sought after in all of Florida.
The downside to owning waterfront properties in Florida is the price. Waterfront properties are the most expensive pieces of real estate in Florida and in many areas you will be looking a gift horse in the mouth if you find a piece of waterfront real estate for less than $750,000. But as the old adages go – Location, location, location and you get what you pay for!
Understanding the Buying Process
The questions that you need to ask may seem fairly straightforward, but they need to be asked anyway. Without a full understanding of the buying process, the responsibilities of your realtor, the listing agent, the developer, the vendor, the title company, the finance company, the escrow agent and your own responsibilities, you run the risk of NOT buying what you thought you were buying and probably for all of the wrong reasons.
Before you even start to view properties you need to understand that in Florida, there are buyer’s agents, seller’s agents and developers. Commissions are divided between the seller’s agent and the buyer’s agent at closing -completion.
The only person that will give you an unbiased opinion of a property is a buyer’s agent. The buyer’s agent is retained by you at NO COST to research the market, find suitable properties based on your criteria and guide you through the purchase procedure. Upon completion they will receive a commission that is already INCLUDED in the sales price.
Seller’s agents are realtors that list properties and represent the owner. They are NOT always obliged to disclose all of the information regarding the property, its title, its condition and you may find many properties sold “AS IS”.
Developers essentially sell their own property and ONLY their own property. Any price that you see advertised will already include the sales commission, so do not expect a developer to give you the discount. It is in the interests of the developer to sell their properties as fast as possible and unfortunately a property that may be offered with a lower price is typically;
a property that may be smaller
the property may be in a poor location
it may be prone to traffic noise from a new highway that will pass your door just a few yards away.
IT IS NOT because they like your face or the clothes you happen to be wearing. The majority of salespeople in the developer’s sales office are just that – salespeople, who are employed to sell the development.
You must, at all costs, avoid calling the numbers on For Sale signs as you will forfeit the rights to use your own buyer’s agent. Do Not contact a developer directly and ask for details, as again you will be forfeiting your right to use your buyer’s agent in the purchasing process. Once your name and details have been registered with a seller’s agent or a developer you are automatically giving up your rights to professional information that your buyer’s agent could have given you for free.
International property fairs and exhibitions get a special little section for themselves. When you visit a property exhibition, try asking whether the salesperson on the property stand is a licensed Florida realtor. You may be surprised to discover that the majority of these sales people have NO formal understanding of the Florida real estate market. They are employed by international estate agencies to promote just a few developments within a given area. You may get lucky and find a salesperson that actually knows the area quite well, but are they qualified to advise you to invest in one development over all of the others, when there could be twenty pre-construction developments around the corner that can offer you better value for money all round?
Very few Florida licensed real estate agents travel overseas because it is too expensive when they have no guarantees that the trip will yield sufficient buyers.
Using the right agent
There are in the region of ten thousand realtors in Florida, all of whom work through a brokers office. You need to be aware that just because a realtor works through a well known brokerage company, it does not necessarily mean that they are the best realtor for you to use.
When you walk into a real estate brokerage, you will normally be “allocated” to the person either on the front desk or the realtor on top of the list. This realtor may not have sold properties to out of state buyers before let alone overseas buyers. They may specialise in residential real estate and be the top realtor in the area. BUT if they are not experienced in selling YOU what you require, then they are not the buyer’s agent who you want working for you.
Use a buyer’s agent
Choosing the right realtor is the key to your success in buying the right property, in the right area, at the right price, that will meet all of your requirements. To you, their services are FREE. It makes sense to use someone else’s experience especially when yours is very limited in this geographic location.
Buying your property
Buying a property in Florida is generally very inexpensive when you look at the closing costs. Whereas as in many Mediterranean countries and others around the world, you may be required to pay 10-11% of the purchase price in costs, in Florida these are typically 2% for cash and a further 5% should you require a mortgage!
When buying a property in Florida you are required by law to be given a complete list of the costs that you will incur. This Settlement or HUD Statement – Housing and Urban Development- will show all of the financial details, of who pays what during the closing process. Buyers are referred to as Borrowers regardless of whether they require a mortgage or are buying for cash. This statement often arrives only a day or so prior to closing, but your realtor will help you to understand it and answer any questions. You can view details about his statement here HUD Consumer
Title Search & Insurance
Title Insurance is a policy that you take out to insure against any liens that may be against the property but have not shown up during the regular title searches. The cost is based on the purchase price as a percentage. It is advisable to get a few different quotations before signing. A good realtor may be able to obtain refunds based on the vendors previous policy which could reduce your costs.
Inspections & Fees
As many homes in Florida are wood framed and / or contain a high volume of wood, it is essential to ask for a Termite Report. The report could stop you buying a home that is ready to collapse, especially if you are buying an older property.
House inspections are similar to a basic survey in the UK and will report on the overall condition of the property. This include the integral workings – air conditioning and irrigation systems etc.
The Land Survey will show where the current property meets with the plans and the boundaries. If there have been alterations and extensions, these can be amended at this point using information from the House Inspection Report.
Legal Fees can vary depending on whether you use just a Title Company – which is what most Americans do – or employ a local attorney/solicitor. We advise against using an international lawyer as they are seldom qualified in specialised property law and local information.
Once you have completed on the property you will need to have the transfer of ownership recorded at the County Courthouse. Any mortgage will also be registered at this time.
Once completed you will need to buy insurance for the property; Prices vary depending on the type of property, the construction materials, the location, the age and the value. If you are planning on renting out the property you may be required to take out additional insurance in the form of public liability in case one of your guests has an accident.
Florida Property Taxes
In Florida you will pay your property taxes in arrears with various discounts available that are calculated on a sliding scale of time, if you pay the fees prior to the official payment date. You should ask your management company if they are qualified to deal with your taxes. If they are not, speak to an accountant or CPA.
Mortgages in Florida
When buying a property in Florida you need to organise your finances relatively quickly in many cases. You need to understand the American glossary of terms used by mortgage companies and banks as they can differ from what you are used to. If you do not understand what is being said, ask for a translation. Mortgage brokers in America are used to dealing with Americans. Inexperienced brokers may quote you figures that are lower than they should actually be. This is because nationals and residents receive lower interest rates as well as are not obliged to pay quite as high deposit.
Overseas buyers will typically need to pay between 20-40% down as a non-resident.
Some overseas buyers may prefer to arrange finance in the home country or even release equity from their principle residence. Arranging a mortgage in the USA will mean that the loan is in dollars and repayments will have to be in dollars. A weak dollar currently means that your repayments could continue to be low or, should the dollar strengthen, increase accordingly.
Raising a mortgage in will typically cost 3-5% of the value of the loan. The fees will cover:
- Application fee
- Credit Report fee
- Appraisal fee
- Loan origination fee
- Loan discount fees – these are known as points
- Lenders Legal fees
- Lenders Title Insurance
- Document preparation
- Legal documentary stamps
Many developers will offer certain discounts or allowances against mortgage and legal fees. Unfortunately they may only be available if you use their preferred lending and title partners. Before accepting, try and find out if you will be better served with an “unbiased” company.
Deciding on the right type of property in Florida
Before you arrive in Florida you will no doubt become utterly confused with the different types of properties, the wide range of prices, the choice of locations, resale listings and new pre construction developments.
You will discover 3 bedroom homes at under $150,000 and almost identical ones at double that price. Why the disparity? The costlier home may be part of a better community, there may be better amenities, it may be constructed to a higher standard. The most likely answer is that it may be within a rental zone.
What is a rental zone?
Florida rental properties are governed as such, by Rental Zones which vary from county to county, town to town and even from development to development. A rental zone is an agreed area that allows rentals and they can be extremely varied.
Rental Zones may allow a property to be rented out just four times each year, others may allow twelve times per year. More sought after areas are allowed monthly, fortnightly, weekly and even daily rentals. This is the case with Disney area in Central Florida. Each rental zone has a value and each property within that zone has a price.
An experienced buyer’s agent will advise you as to which areas best meet you requirements.
Approximately 70-80% of tourists visiting the Orlando and some coastal areas prefer to rent a vacation home. This a private house on its own land with a pool – as against a condominium or even a townhouse. Having researched historical rental information, it makes sense to buy a vacation home if you can, as you “should” achieve a higher rental occupancy.
Certain towns on the Gulf of Mexico and on the south eastern Atlantic coast in and near Miami may show a near reversal of these percentages. This is because some groups of tourist tend to prefer being able to walk to the stunning beaches. Ultimately condos are best suited for this accessibility.
If you are buying the property purely as an investment, you should explain your requirements to your realtor.
Be as clear and definitive as possible with your Realtor
- Are you an investing to rent short term, long term?
- Do you require cash flow to be derived from the rental?
- Can you hold the property long enough to achieve a worthwhile capital appreciation?
- What is your exit strategy?
- Are your finances and credit reports in order?
- Do you wish to “Flip” the property prior to completion?
- How many properties are you looking to invest in?
- Are you interested in commercial properties?
- Do you want a property that will be predominantly used as a rental property, but be available for you wish to use as well?
- Are you looking for a second home that “could” be rented out on occasion to family and friends?
- Are you looking for a second home that will never be rented out?
- At some point in the future are you hoping to relocate or retire to Florida in the future?
- Are you looking to relocate very soon?
As you will see, there are a number of questions to be answered BEFORE we can even start looking at pretty pictures of homes and condos.
Next on your agenda is to decide whether you wish to buy a resale property or a new off plan property. Each has its advantages and only you will be able to choose which will be better for you.
Resale Properties in Florida
Buying a resale property in Florida can offer several advantages which – subject to like for like pricing – can rarely be replicated by new developments.
The Upsides of buying property in Florida
The floor plans tend to be larger with more square feet per room as well as bigger gardens and other outside spaces. Locations, particularly on the coasts can be excellent, allowing for a casual stroll to the beaches as against 10-20 minutes in the car. Communities tend to established and in most cases well cared for, which reading between the lines indicates that owners are paying their monthly HOA – Home Owners Association – fees. If the property is located within a rental zone, it could have an established history of rentals and possibly bookings in place for subsequent years.
The Downsides of buying property in Florida
On the down side, the properties will not be covered by a warranty and depending on the age will not be built to the latest building codes. Some homes, especially if they have not been primary residences may not have been maintained properly. Some many now need of new wiring, plumbing, roofing or if you are lucky just a little TLC. In many areas of Florida there may be no sewage connections, in which case you have to look at a cesspit. Rising damp and lead based paints are also worth looking out for, as correcting them is not cheap.
If the property has been altered or extended at any time, it is of the utmost importance that the vendor can show you the relevant licenses. These will have been granted by the relevant local authorities. Should you buy a property in Florida that has been illegally extended or altered, you are responsible as the current owner. Consider yourself Warned! An unbiased, independent Home Inspector should include any alterations and extensions in his report.
New homes and pre construction properties
Building codes in Florida change year in and year out, as new materials and innovations in construction are updated. By investing in a new pre construction property you will have the ability to choose a property that is built to the latest regulations. Some builders even take pride in using the building codes as a bare minimum when designing their new homes. Virtually all new homes will easily pass the home inspection without throwing any surprises your way.
When visiting an off plan development with your buyer’s agent, you will be given a guided tour of the development. You will be shown plans, specifications, given details of the community amenities, the lot distribution and a whole host of other information. It is here that you will find your agent to be invaluable. They will be able to advise you on the best lots, the most favoured floor plan and whether it is necessary to take advantage of ALL of the upgrades on offer.
Your agent will be able to inform you of any known issues. An experienced Realtor will give you an honest opinion to the developer. Most developers in Florida have been around for at least a few years. Your agent will know the good from the bad, those that deliver on time and those that don’t.
New off-plan developments are bought for one or more of several reasons, some of which are mentioned above.
Other reasons may include:
- Insufficient funds to buy immediately – by investing in an off plan development your payments are essentially staggered throughout the course of the build with some high-rise condo development taking 2-3 years to complete
- The investor is buying for the future and does not need to close on the property for several months or even years
- Investors are keen to buy off plan developments as they can typically pay 20-30% down as deposit and then forget about it until completion. Some investors will invest with the intention of “Flipping” the property either before or at completion, which can create excellent profits with only a relatively small amount of risk.
If you wish to invest in this manner we normally recommend smaller developments. This is because all properties will be completed and delivered at the same time. By doing so, you take the developer out of the equation. This can be important because you will not be competing with developer pricing on subsequent phases. Also if the market turns and you cannot sell the property before completion, at least it will be desirable on the rental market.
Before agreeing to purchase a new development there are a few questions that you should ask:
- Who are the developers and what is their reputation like?
- If there are no show homes ready on the development are they willing/able to show you finished properties on other developments – speak to other owners if possible.
- What is the completion time for the ENTIRE development – NOT just your property?
- If you are considering a home in a phase that is coming to an end, will the floorplans on the next phase be of a better quality/larger/ more fixtures and fittings etc…?
- How much are the monthly/quarterly/annual HOA fees expected to be?
- Ask the developer to give you a copy of the community statutes and regulations. Many gated communities have strict regulations on what you may and may not do?
- If the property is located on a community with a golf course, is golf club equity included in the price. How much are the annual subs, are the memberships/ tee times transferable to guests?
- Does the developer operate on a ZERO FAULTS POLICY? All faults must be registered AND rectified before completion?
- Is it cheaper to have the swimming pool built by the developer or by an independent contractor once you have completed?
Long Term or Short Term Rental
Buying a property in Florida for Long Term Rental
One of the key differences with a Long Term Rental is that you give up the possibility to use the property yourself when you rent the property out on an annual contract. Many serial investors prefer to do this as they have carefully calculated their leveraging and will normally know to within a few days each year how high their occupancy has to be, to meet their monthly obligations.
When you have long term rental contracts, the tenant is liable to pay for the utility bills, the telephone and in many cases looking after the gardening and minor repairs.
Buying a property in Florida for Short Term Rental
Short Term – holiday contracts yield a higher weekly revenue, but the owner is liable for all of the costs, utilities, maintenance and cleaning costs. The upside is the property can be used by the owner when it is not occupied. You can read more here.
Renting your Florida home
Many new owners expect their brand new vacation home to generate maximum occupancy in year one. This is rarely feasible unless you are in a surging market such as Orlando! The property will be entering into a rental market, competing against other properties that already have an established client base, a good relationship with the management company and the chances are that their community will be 100% completed and functioning well.
One proven way of increasing your occupancy rates is to promote your property yourself. Yes, your management company will tell you that they can achieve maximum occupancy in season – anyone with half a brain can. So let us assume that you are going to get 12 weeks occupancy from your management company. Is that enough to cover your monthly outgoings for the year? Doubtful, wouldn’t you agree!
Your job, as the owner is to promote your property anyway that you can and one of the best ways to do this is via self advertising your property on the internet. There are a number of websites that specialise in advertising private properties. By doing this professionally, you can begin increasing your occupancies and your rental revenues.
A short term rental property will require furniture and furnishings which will need to be paid for. There are two veins of thought on furnishings. Many agents that you speak to and unfortunately many management companies will recommend spending the bare minimum on furnishings, stating that things will get broken and will need replacing on a regular basis. Developer’s furnishings are typically of poor quality and aimed at the same short term rental market in the same way that every other property is.
We have a different view!
Having sold, furnished and rented properties ourselves for many years, we genuinely believe that by furnishing to a higher standard and making the property look like a home, as against, just another property in Florida, you will achieve higher occupancies with fewer breakages in a shorter period of time. If you can afford to spend $30.000 furnishing a $300-500,000 home, don’t be cheap and spend $8-12,000 because it will show. You should not cater for your own personal tastes but choose a style that will appeal to nine out of ten clients. Don’t follow the crowd and furnish everything in floral patterns, with an “eclectic” mix and match effect. Choose a style that compliments the architectural style and use it throughout the property.
Long term properties however are mostly rented out unfurnished, unless they are catering for the corporate rental market in which case you will have no excuse for not furnishing to the highest standard.
On the whole short term rentals and long term rentals will yield a similar amount after taxes and costs per annum outside of the Disney area.
Your management company should deal with your rental taxes regardless of whether they are managing a short term or long term property. Non payment of taxes is illegal. If you have a question, speak to a local accountant.
The Buying Process – Buying Property in Florida
Once you have found the right property in Florida and you are sure that it is will meet all of your requirements, it is time to make an offer.
You will need to have your buyer’s agent write up a formal offer which will include the offered price and contingencies, such as house inspections a mortgage acceptance, your preferred terms and conditions. These must ALL be documented in the contract because once accepted and signed by the vendor, it is legally binding. Once signed the vendor cannot sell the property to anyone else as long as the contract is in force.
It is rare that first offers are accepted and you should be prepared for a counter offer from the vendor. The vendor may wish to make alterations to the price and or the terms you have put forward in the original contract. Any and all alterations must be initialled by both the vendor and the buyer. Depending on the market and the financial situation of both parties, the contract may be exchanged several times before a final agreement can found.
It is expected for a deposit to be paid at the time of making the offer as a show of good faith. These deposit monies are held by an “Escrow Agent” who is a third party to the sale. A second, larger, deposit is sometimes required subject to the acceptance of the final offer and this should be written into the contract stipulating when it will be paid. If you forfeit on the second payment the vendor has the right to negate the contract and keep your first payment.
- The sales contract for resale properties that will be used is a “Standard Contract” that has been drawn up by the Florida Association of Realtors and The Florida Bar specifically to be used in the sale and purchase of real property. This sales contract will stipulate the agreed sales price, the legal description of the property, any terms of financing that are involved, dates of contract signings, payment schedules, who pays what, who is responsible for arranging house and termite inspections, repairs, title costs and any restrictions and/ or clauses that may affect the purchase
- New homes when bought in pre construction from a developer will often have a different contract of sale. This contract will also show the legal description of the property, the price, the terms of payment including any stage payment schedules. There will also be clauses that stipulate time limits for payments by the buyer and the terms of financing.
Important information about developers and their contracts
- Developers are the same throughout the world and Florida is no exception. They are in the business of building and selling their properties. Many developers will supply their own contract which has been written by their lawyers and heavily in their favour. All sales contract MUST have certain clauses included according to Florida Law, but unfortunately some developers will try to convince you that other clauses, could also be necessary.
- Some developers will offer to pay your closing costs and legal fees. You need to be sure that you will be receiving impartial advice. Without legal council you are leaving yourself open to being poorly informed. This could also be the case by using a developers’ in house team of “experts”. Title insurance is another potential problem, especially for absentee owners. Many developers will recommend that they take care of the title insurance for you, what they will not tell you is that you will only receive a copy of the paperwork and its list of EXCEPTIONS until AFTER you have closed, when it could be too late to make amendments, if you find out that details are erroneous or that the title insurance only covers the bare minimum.
- Another favourite with developers is to ask the buyer to waive the LEGAL RIGHT to have the deposit kept in escrow. There are some developers that have the “AGREEMENT TO WAIVER” box pre-ticked. Keep you eyes open!
- When buying from a developer, you will be asked to sign a purchase agreement which will give basic information about the property that you wish to buy. You MUST HAVE a copy of this SIGNED by the developer, because up until it is signed it not legally binding and the developer retains the right to make changes to the property.
- Most Florida developers write their contracts for Americans and NOT foreigners. This can be very detrimental to international buyers. Notification of closing dates can be sent, with only a few days or a one week. If you live overseas, this may not give you sufficient time to book a flight and arrive in Florida. If you miss this deadline you could actually forfeit your right to purchase and in many cases any monies that you have paid.
- Closing documents are another set of paperwork that you have to agree to and have notarized. Unfortunately these documents often arrive only a few days prior to the closing itself. If unprepared, you could find yourself running around like a headless chicken to get them notarized and sent off in time.
- There are other issues that can arise from developers contracts including timelines et by them for you to complete your mortgage application and even the use of home inspectors that are independent and not known by the developer
- Your buyer’s agent will be able to assist you in pointing out specific clauses which could be problematic immediately and in the near future. If you still you wish to go it alone and not use a buyers’ agent whose services are FREE, don’t moan about it when things go wrong!
- One clause that you will find in ALL contracts is the “Time Is Of The Essence” clause. This is extremely important for all prospective buyers AND sellers to understand. If, for example as the buyer, you are required to make a second payment by a specific date, this is legally binding. You cannot miss this payment and expect the contract to remain valid. The “Time Is Of The Essence” clause is applicable to EVERY step of the purchase procedure that is written into the sales contract.
What is Title Insurance?
- Title Company or lawyer is normally appointed by the bank of you are taking out a mortgage. They are appointed to protect the bank and NOT to give you legal advise. If you want independent advise, retain your own lawyer and remember to notify the bank immediately so that you do not pay twice.
- The Title Insurance Policy is there to protect the buyer, should there be “issues” with the title that do not arise during the initial title search. If you do not have Title Insurance and a third party claim is set against the property, that can be proven, you could lose your property. You only pay once for Title Insurance and it remains in place until you or your heirs relinquish ownership of the property.
When you make an agreement to purchase a property, you will pay a small deposit as a show of good faith to the vendor. In the offer, it will be written when the second deposit payment will be due. If you do not make the schedule, the vendor has the right to declare you in default and possibly keep your first deposit.
Time of Acceptance
Another clause you will find in the contractual offer is “Time of Acceptance”. This clauses states a date which must be adhered to, regarding final agreement of the terms and conditions. If either party – vendor or buyer – fails to meet this date, the other party has the right to withdraw previous offers. If you will need to raise a mortgage, you will need to ensure that the date of the “Time of Acceptance” allows you sufficient time to make the mortgage application and receive approval
The House Inspection
This is one of the most important things for you to arrange as it is only you that will pay for it in the future. If, during the small window of opportunity you a have to arrange the House Inspection, you fail to have the inspection done, you will have NO OTHER option but to complete on the property and hope that it is free of problems in the future. For the amount of money that it costs, there really is NO EXCUSE for not having the House Inspection done. When a house is sold “As Is”, this is even more crucial, because the vendor has already established that they will not liable after the closing for ANYTHING.
Deadlines and Payments
From the initial contractual offer being made through to the final closing, there will be a number of deadlines that have to met. Some as mentioned above will be inspections and applications, but others may include stage payments when buying an off plan property from a developer. They will be written into the original contract and must be met.
If you are an overseas buyer you need to be aware of how long it will take to transfer funds from your home country. It can take anywhere between a couple of days to several weeks for international transfers to arrive depending on which banks are involved.
Certificate of Occupancy
This is a certificate that is issued by the County, where the property is located. Until it has been issued the property is not considered “Fit for Habitation” and the closing date will not be set
The Closing or Settlement
This is the final signing between the vendor and the purchaser and the time when the transfer of the property title passes from one to the other. The “Deed of Sale” will be signed which transfers ownership of the property, the balance of the purchase price will be paid along with the closing costs, any taxes that are due and the insurance. Payment for the property will be made with a certified cheque and both parties are given a HUD Closing Statement which will have all the fees and costs itemised on it.
Right before this final signing, the closing agent will check to ensure that all of the clauses that were in the initial contract have been met. They will collect any taxes and fees, witness the deed being signed and then arrange for the property to be registered in the new owners name with the local property registry office. You will be give a certified copy of this document. You need to be aware that the closing agent is NOT obliged to verify or guarantee the accuracy of any statements or clauses stipulated in the contract or to protect you against fraud.
Final walk through
It is advisable to have a final walk through the property as late as possible, prior to signing at the closing, to ensure that no damage has been caused and that all agreed inventory is still in the property.
If you are an overseas buyer and will not be able to be present at the closing, you may be offered the option of a “Mail Away” closing, With this, the necessary documents will be completed by you and sent back via registered post or courier. A power of attorney is another option, but rarely mentioned.
FIRPTA – Foreign Investment in Real Property Tax Act
When a foreigner who is not resident in the US, sells a property, 10% of the sales price will be held back by the closing agent. These monies will be credited to the seller’s income tax on the Capital gain. This legal obligation is called the “Foreign Investment in Real Property Tax Act” or FIRPTA for short. There are exceptions and we advise that you speak to you lawyer or accountant regarding reclaiming these funds.
Any income that is generated in Florida is taxable, whether it be from rental income, banks interest, US stocks or dividends. Taxes in Florida are effectively split into two categories, business taxes and personal taxes. Much depends on your individual situation and whether you are a resident or non resident of the USA. There are a number of treaties and exceptions that can come into play. We recommend that you arrange for an accountant or similarly qualified person to arrange your taxes professionally. Things can become complicated very quickly if mistakes are made and the IRS decide to audit your books.
Capital Gains Tax is charged at 15% when a property is held for over one year. If you are a non-resident you may be obliged to pay tax on your profit after the US Capital Gains Tax has been deducted.
Rental Income can be logged under your personal taxes and will be taxed on the “NET” income after depreciation and deductions
As a non resident buying property in Florida,
You will need to investigate how you will own the property – either as a sole owner, a co-ownership or through either a US or Foreign owned company. Each has it benefits but we advise you to speak to a professional who understands international tax law as some owners may find them liable to pay taxes both in and outside of the US. For example, if you are domiciled in the UK, you are liable for taxes based on your rental income minus any taxes that you have paid on the income by the US. If you are also planning to use the property for personal reasons, this could also have an effect on your UK personal taxes.
Personal Income Tax
Florida does not apply “Personal Income Tax”, instead it has various business taxes which include Sales Tax. This is charged at between 6 and 7% depending on the product, City and County Tax between zero and 5%, plus corporate taxes of 5.5%
You are advised to keep all of your receipts and expenses because in the US you are allowed to claim back far more than you can in other countries. Should you be audited by either the US or your home country you will need to prove that all of your deductions are justified?
Inheritance Tax is charged on any amount over $60,000 for non-residents, with NO exemptions for your spouse unless they are an American citizen. IHT for company owned properties can depend on whether a US or foreign company is involved. There are a number of deductibles than can be applied but you will need assistance from a qualified professional.
Buyers are responsible for any costs associated with the loan.
These costs include:
- State documentary tax (35 cents for each $100 borrowed)
- State intangible tax (.002 of the loan amount)
- Lender fees, documentation preparation fees and Mortgage Broker fees (usually between 1% and 2.5% of your loan amount depending on your interest rate. The higher the interest rate, the lower these fees are likely to be), fees for recording the mortgage and the deed (usually around $150)
- Courier fees (+/- $100)
- Closing Agent fees (usually around $250)
- Title insurance (usually around $300 for the Buyer, if the policy is issued simultaneously with the Seller’s policy)
- Fees for survey (+/- $300)
- Appraisal (+/- $375)and termite inspection (+/- $85).
- You typically have to pay one year’s hazard insurance premium in advance (+/- $1,500).
Example Closing Costs based on a $200,000 mortgage….
Typical Lender fees – the higher your interest rate, the less likely discount points will be charged:
- 1% loan origination fee – $ 2,000
- 1.5% discount points – $ 3,000
- Miscellaneous lender processing – $ 1,000
- Title company fees – $ 500
- Title insurance – $ 600
- Mortgage recording fees – $ 150
- State documentary tax (35 cents per $100 borrowed) – $ 700
- State intangible tax at .002 of the loan amount – $ 400
- Appraisal – $ 750
- Credit report – $ 50
- Survey – $ 300
- Termite inspection – $ 85
- Courier fees – $ 100
- Total closing costs = $ 9,635
Pre-paid items – estimated
- 12 month’s hazard insurance $ 1,500
- 3 month’s insurance in escrow $ 375
- 3 month’s escrowed property tax $ 900
- Total Pre-Paid Items $2,775
Your mortgage Lender may want to escrow a few months of property insurance and property taxes. These will be included as part of your closing costs. If you are a foreign national, most Lenders also require you to show that you have 6 months of mortgage payment amounts in reserve.
If you are paying for the property in cash, most of these fees are not applicable. You will often close for only a few hundred dollars as against several thousand dollars.
Buying a property in Florida IS straightforward, IF you know and understand exactly what is required. Being here and dealing with the paperwork yourself can save you a little money. However the majority of buyers use the services of experienced realtors. We do this on an almost daily basis and understand all of the buying process implicitly.
– Sellers are responsible for costs associated with transferring the Deed – Costs include:
- Brokerage commission ( between 5% to 7% in Florida, but this is negotiable and agreed upon at time of listing your property).
- Title insurance (+/-.0067 of the selling price)
- State documentary stamp tax on the deed (70 cents for every $100 of the selling price)
- Courier fees (+/- $50).
- The Seller may have to pay for certain repairs to the property prior to closing, as agreed in the contract.
- The Seller will usually have to pay a certain amount of property taxes to the Buyer (depending on the time of year). This represents the prorated amount of taxes for the months that the Seller owned the property. When the property tax bill arrives in November, it will be for the previous year. The Buyer will have to pay for the entire year, including for the time the Seller owned the property. This is why the Buyer receives a credit for this at closing.
Foreign nationals will also need to have an Accountant file a FIRPTA withholding, with the IRS, which is 10% of the selling price. By law, the title company has to either withhold this amount – on behalf of the Buyer – until receiving authorisation from the IRS to release this back to the Seller – after the IRS is satisfied that there are no outstanding taxes due as a result of any capital gains – or else they have to immediately remit this amount to the IRS – in the case of the Seller’s Accountant not preparing a certificate of exemption in time for closing. When the title company withholds, it typically takes between 60 to 90 days for a refund. If they are obligated to remit it to the IRS, this could take a year or two to be refunded.
This guide is designed to make you aware of the buying process in Florida and we will not be held liable for errors, typos or changes in legislation or new rulings. All figures, numerical values and estimated prices should be verified by you or you legal representative. We recommend that you take your due diligence very seriously and seek professional and impartial advice regarding any property purchase in Florida or anywhere else for that matter.