International Buyer FAQ’s

Can foreign nationals own property in USA?
Foreigners are free to purchase real estate in the USA. There is an abundance of finance and mortgage facilities available to foreign investors in all areas of the States.

Why should I choose USA?
The sheer expanse and variety that the USA offers property purchasers means there is something to please every taste. With a current slowdown in the market, many cash buyers are taking advantage of bargain prices in hotspots such as Florida and Las Vegas, which retain their appeal and relative market buoyancy. Tourist locations are firm favorites amongst foreign buyers who enjoy a second home or cash in on strong buy-to-let yields from their investments in high demand resorts.

What is the economic and political situation?
The USA is the world’s largest economy. Despite economic losses during the Iraq and Afghanistan wars, and Republican losses in the mid-term elections, USA still offers investors strong potential. Barack Obama won a landslide Democrat victory as President of the USA on 4 November 2008. Although he has a tall order ahead to rectify the state of the nation’s economy, politically, many citizens and investors in the USA now also hope for improvements. Emphasis on political stability and world peace is high on the agenda, a concept that will bring with it refreshed confidence and investment potential for the USA.

Many investors see this as an ideal time in which to buy, while interest rates are their lowest. They are favouring top-end luxury property or other options located in busy tourist locations where values will continue to rise. In today’s economic climate, the strength of the Sterling and Euro against the Dollar allows many foreign investors to purchase even more for their money.

How do we travel to USA?
The Open Skies agreement has made travel options from Europe to the United States incredibly easy. European carriers, Air Berlin, Air Europa, Air France, Alitalia, Avior, British Airways, Finnair, Iberia, Lufthansa, Swiss Air, Transaero, and Virgin Atlantic all have service to Miami International Airport. Aer Lingus, British Airways, Luftansa, Martinair, and Virgin Atlantic all service the Orlando International Airport. US carriers American, Continental, Delta, USAir and United all fly direct from most major European cities to the United States and all service Key West.

What is the direct flying time from most Western European countries to USA?
7 – 11 hours

Is a visa required to enter USA?
Under the Visa Waiver Program, some foreigners are allowed to stay in the USA for 90 days without applying for a visa. Currently, 27 countries participate in the Visa Waiver Program, as shown below:

Visa Waiver Program – Participating Countries:
Andorra, Australia, Austria, Belgium, Denmark, Finlnd, France, Germany, Ireland, Italy, Japan, Liechtenstein, Luxembourg, Monaco, The Netherlands, Iceland, Norway, New Zealand, Portugal, San Marino, Singapore, Slovenia, Spain, Sweden, Switzerland, United Kingdom.

Those wishing to stay between 90 days and six months must hold a B2 visa. To be successful, applicants must prove they have sufficient funds to support themselves during their stay.

A Buyers’ Guide To Property In USA
When buying property in USA, you will need to be aware of many factors that will affect your purchase. This section gives you a general overview of the USA buying process. There are no restrictions to foreigners owning property anywhere in the USA, but it would be unwise to assume that, because it is an English speaking country the buying process is the same as in the UK. Taxes and requirements vary from state to state and it is essential to seek out the services of local professionals who understand the procedure.

Agreement of Sale
Once you have found the property of your dreams, you will make an offer and an agreement of sale will be drawn up. This commits both the seller and the buyer to the sale, but subject to certain conditions such as the buyer obtaining a mortgage and the seller ensuring that the title to the property is “clean”. The buyer should be aware that the commitment to certain dates is binding. It is important to adhere to dates and conditions set out in the agreement, otherwise the seller might take the opportunity to pull out of the sale, particularly if a better offer comes up.

Costs
The costs involved will vary according to factors involved in the purchase agreement and the type of loan the purchaser has applied for. A good rule of thumb is to allow between 3 and 5% of the cost of the property. Many of the costs involved with the loan application will have been paid for in advance. Typically the costs required on closing are the down payment, fees involved in setting up the loan (application fee, credit report, etc.), inspection fees, mortgage insurance, title insurance and stamp duty.

Title Insurance
Title insurance protects the buyer of real estate in the case where a situation arises in which the title to a property is clouded. This is when a person or entity has an interest in the property that was not found or disclosed at the time of sale. For example a lender may have a lien on a property that was not discovered for some reason. The title insurance protects the purchaser from any expenses or loss that may occur as a result of this defect in the title.

Taxes
Taxes in the USA will vary according to where you live and whether you are considered resident or non-resident for tax purposes. Local taxes are levied to cover education and other services. USA income taxes and capital gains taxes are fairly low, but inheritance tax needs good planning. It is essential to employ a professional to guide you through the tax system.

Surveys
In the USA this is called an Inspection Report and is an essential to have before buying a property especially as the buyer buys a property in the condition it is in at the time of sale. There can be no complaints or compensation for defects once the purchase is closed between buyer and seller. Apart from looking at the structure of the property an inspection should also be carried out for termite infestation and radon. Do not expect the seller to make all the repairs you demand, make sure that this is included in the sales agreement before you sign.

Finance
If you possess property in your own country and would like to borrow against this in an equity release plan, please contact us as we may be able to assist you finding an independent financial advisor who will help you raise the necessary finance.

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How easy is it to purchase property for sale in Florida?
Purchasing a property anywhere in the continental USA is in general terms far less complicated than virtually any other country in the world. Florida is very much a “user friendly state” giving the buyer an extremely easy and safe approach to home ownership. The single most important factor is to ensure that you use the services of a fully licensed Real Estate Agent.

Is it easy to obtain a mortgage in Florida?
Subject to status, obtaining a mortgage in Florida is relatively straightforward. Loans of up to 70% are available for non-residents, and are secured against property for sale in Florida. Obtaining a US mortgage has become more difficult since the credit crunch and loans of 80% or even 90% are no longer available. There are several mortgage programs currently available where you can choose a fixed or variable rate mortgage. Repayment terms range from 5 to 30 years with no age restrictions. Please contact us as we have may be able to assist you in finding a financial institution that can provide you with the most suitable and competitively priced mortgage relative to your personal requirements.

Are there any other costs that I should be aware of, in addition to the purchase price?
If you intend to let your property in Florida when you are not using it, you will need to comply with local legislation. This includes obtaining a hotel/lodging license and ensuring that safety features such as commercial grade fire extinguishers, smoke detectors and emergency lighting are fitted. Wherever possible, we insure that these costs are included in the final price.

For all purchasers using a mortgage, there are closing costs to be paid. These are costs incurred when completing the purchase of a home. At the beginning of the loan process there is a fee for the credit report and appraisal, usually they are approximately $300 to $500. As the loan completes there are other expenses to be paid, such as the mortgage set-up fee, legal costs associated with the purchase and registration of the property, title insurance, and various pre-paid items, such as 12 months household insurance and association fee. As a guide, purchasers should allow around 5%-6% of the Florida property’s total purchase price to cover all closing costs. This figure drops to around 1.5% if you buy your property for cash, as most of the costs are associated with the US mortgage.

I understand that there are certain rental restrictions in Florida- is this true?
Yes, due to the fact that Florida attracts so many families from the northern states, Canada and overseas, that spend only part of the year within its borders, there are many restrictions as to where and when short- term rentals are permitted. In Key West vacation rental or unit means an attached or detached dwelling unit that is rented, leased or assigned for tenancies of less than twenty-eight days duration.

An owner or agent is required to obtain an annual special vacation rental permit for each dwelling unit prior to renting any dwelling unit as a vacation rental, as defined in Code Section 9.5-4 (V5), except as provided for under section 9.5-534(b). A special vacation rental permit is non transferable between owners. A change of ownership of the vacation rental unit shall require the new owner or his agent to obtain a new vacation rental permit for the residential dwelling unit.

How many weeks do I need to rent my home to cover all of the running costs?
This is dependent on the type of property chosen, the location and the amount and term of the mortgage. As a general guide, if you secure up to a 70% mortgage you will need to rent out your Florida property for about 30 weeks per annum to break even on an average sized four-bedroom villa. If a fairly large home is selected it only takes another two or three weeks to cover the difference in out goings. A normal year of bookings will provide 21K-25K per year in rental income on a 4 to 5 bedroom home.

If I am purchasing a second home or “holiday” home that I intend to rent out, to what standards should I furnish the home?
The home should be furnished with all kitchen utensils, dishware, flatware, barware, glassware, pots, pans, kitchen towels and tablecloths. Bedding (sheets, pillowcases, blankets, duvets/beadspreads) and towels (outdoor pool/beach towels, bath towels, hand towels, washcloths) and toilet paper should also be supplied. It is always good to have cleaning items including paper towels on hand for not only the renters, but for the cleaning service you use as well. Food items, personal care items and laundry items are the responsibility of the renter. It is also adviseable to have printed instructions on how to operate the washing machine/dryer, dishwasher and television/cablebox, elevators, security and key systems. Remember that the US does use the metric system. Lastly, it is always a nice gesture and greatly appreciated, to have dining, sightseeing, transportation and entertainment information or recommendations for your renters.

Do I need to use a lawyer for my property purchase?
We strongly recommend that you engage the services of a fully independent lawyer to oversee and advise on your property transaction.

Is purchasing a property in Florida a sound investment?
Providing that you purchase the correct type of property, in a location that is suitable, real estate in Florida can be one of the best investments currently available anywhere.

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USA Investment Tax Planning
When purchasing property in the USA the following taxes are likely to be charged within the state you are to purchase:

Sales Tax – In Florida this tax is not imposed on the purchase of property. However in 36 US states a property transfer tax of between 1% and 5 % is charged on the assessed value of your property.

Stamp Duty – this tax is a charge made when a mortgage has been obtained for the purchase of the property and consists of documentary stamps calculated on the total of the loan. In states such as Florida, stamp duty is charged at a rate of 35 cents per $100 of mortgage. In addition to stamp duty, investors must pay an Intangible Tax at 0.002% on the mortgage amount. Therefore, if you obtain a $100,000 mortgage, $350 in Documentary Stamps and $200 in Intangible Tax will need to be paid. It is important to note that neither of these taxes will be charged if cash is used to finance the property purchase.

Capital Gains Tax - Capital Gains Tax also varies according to state, but if the property is owned for more than a year, the rate can amount to anything between 8% and 15%.

Inheritance Tax – these relate to gifts or transfer of ownership either while you are alive or upon your death. Both federal and state inheritance taxes will apply while there are great differences between the states relating to how your estate is taxed upon your death, so it pays to find out what your liabilities might be before committing to an investment.

Local Taxes - the local tax amount is on the assessed value of the property but is likely to be about 75% of the market value, depending on your state. The good news is that in 2006 ten US states decided to review local taxes in order to decrease them to more affordable levels.

Tax on Rental Income - all rental income is subject to USA tax. A standard withholding tax rate of 30% is applied to all rental income and is paid locally. In some states a double taxation agreement exists between the state and the UK, eg. Florida. Tax on rental income can be very low if handled correctly by your financial professionals, as generous allowances are in place, including mortgage interest relief as well as the cost of your inspection flights.

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Buy a property in Florida. The Floridian system of property purchase is quite different from other countries and has several pitfalls for those unfamiliar with it, so appropriate professional guidance is essential.

In Florida, nearly every property for sale is listed on a central database available to all estate agents (known as realtors in the US), so there is no need to visit individual agents. Agents tend to work as seller’s agents or buyer’s agents. It is wise to consult a buyer’s agent experienced in working with your countries purchasers.

Cover the costs. To cover legal, title insurer and notary fees, title insurance premiums, transfer taxes, property taxes and mortgage fees (if applicable), you should allow around five per cent of the purchase price.

Understand the purchase process. Once a price is agreed, the purchaser pays a small goodwill deposit before making a formal offer in the form of a purchase contract. When signed, this is binding, though contingency clauses allow either side to withdraw in defined circumstances. A 10 per cent deposit is then paid into an escrow account. A title insurance company scrutinizes the public records and insures the property against any third party claims. Completion, including the transfer of the balance of the purchase price into the escrow account, can then take place.

Time is a crucial element of the US home-buying system. If you fail to observe dates stipulated in the contract, you risk losing your deposit.

Obtain a mortgage. When working out how to finance your property purchase, consider all the options. Paying cash, if you can afford to, is often recommended, but you may not want to tie up a relatively large sum in this way. If this is an option for you, be sure to consult one of the specialist currency exchange companies in the market, as you can get far better exchange rates and potentially save thousands in the process. The other options are remortgaging your home or arranging a mortgage on your Florida property through your country’s or US lender. Remortgaging offers the easiest solution. Releasing equity in your home means that the second home can be purchased for cash, without the need for another mortgage. However, this may only be feasible for those who own their first home outright.

Get a mortgage in Florida. If you decide to obtain finance in the US, bear in mind that most mortgages available to foreign nationals require a minimum 20 per cent down payment. Some even stipulate 30 or 35 per cent.

At the beginning of the process, make sure you obtain what is known as a Good Faith Estimate. This is a standardized document used to detail all the costs of obtaining your mortgage, including both monthly and one-off payments.

If possible, try to secure a self-certified mortgage. Unlike in other countries, this kind of mortgage does not necessarily carry a higher interest rate than a fully documented mortgage, and it could save you a lot of time and trouble spent assembling documents.

Understand the taxation system. The US taxation system is a complex one, and may involve payments to at least four different levels of government: local, regional, state and federal. A Double Taxation Treaty between the US and the EU prevents double payment of taxes.

Income tax, a progressive tax ranging from zero to 35 per cent of taxable income, forms the bulk of taxes collected by the US government.

Florida ranks lower than many other US states in terms of the tax burden it imposes. It is one of only nine states that do not levy a personal income tax. More than half of its non-federal revenue is collected at local level, mostly through property taxes, which, for homeowners, amount to approximately 1.5 per cent of their property’s value per annum.

All rental income in Florida is subject to tax, which is charged on a sliding scale (currently 15 to 34 per cent), depending on the amount. ‘Intangible personal property’ (that is, stocks, bonds, mutual funds and so on) is also taxed.

Florida’s sales and use taxes provide over half of state revenue. Sales tax applies to most retail items (excluding groceries, medicines and certain other items), as well as to car and hotel room rentals and theater tickets. The rate is currently 6 per cent. Local governments may levy an additional local sales tax of up to 1.5 per cent. The use tax is levied on wholesale items brought into Florida for sale.

Residency
Florida’s immigration laws are strictly enforced. Those seeking a Florida Green Card, which entitles them to live and work in the state, face close scrutiny by the Immigration and Naturalization Service, particularly if they wish to start a business.

Sources:

http://www.propertyshowrooms.com/

www.monroecounty-fl.gov/Pages/MonroeCoFL…/vacationrenewal.pdf

http://en.wikipedia.org/wiki/Double_taxation

http://www.irs.gov/businesses/international/article/0,,id=96739,00.html

http://www.wikihow.com/Buy-Property-in-Florida

http://dor.myflorida.com/dor/taxes/sales_tax.html

http://www.sellmeflorida.com/floridian-taxes.html

http://en.wikipedia.org/wiki/Open_skies

http://www.investment-property-guru.com/buying-overseas-property.html