What Foreign Nationals Should Know Before Buying Florida Real Estate
A good place to start is with the question, why do you want to buy real estate in Florida? The answer to that question should guide you in making some buying decisions. Are you buying a vacation (holiday) home for personal? Are you buying Florida real estate as an investment to generate rental income? Maybe you want to do both and buy a property you can use when visiting Florida and rent out the rest of the time.
How to Find Properties in Florida
Multiple Listing Service (MLS)
Perhaps you want a home for your personal use and are not concerned about generating income. A good place to start looking is the MLS. Real estate agents, or “Realtors,” use the MLS to list homes for sale when they’re representing sellers. They also use the MLS to look for homes for buyers when they are acting as the buyer’s agent.
The MLS may not be the best place to look if you want to buy an investment property strictly for business and not personal use. For an investment property to be profitable, like any other business, it is very important to buy at a low price. There are some bargain properties and “motivated sellers” on the MLS, however, it is generally considered a “retail” market. With some exceptions, the MLS prices are likely to be higher prices than the price point you will need to make an investment property profitable. If rental income is not your main purpose and you’re happy to make some money when you’re not using the home, then a retail purchase may work fine.
Agents vs Realtors
When selecting a real estate agent, you should work with a Realtor. Not all agents are Realtors. Becoming a Realtor requires the agent to join a local Realtor association and do regular training. This may include getting special certifications. There are Realtors who focus on foreign national business. They may have the CIPS certification (Certified International Property Specialist). These Realtors are trained to work with foreign buyers and better understand their needs and concerns.
Realtors get paid on commission based on a percentage of the sale price. What’s important for buyers to know, and beneficial to buyers, is that the seller pays your agent’s commission. The buyer’s agent doesn’t collect any fees from the buyer. It makes great sense for a foreign buyer to work with a buyer’s agent.
There are many new home communities being built throughout Florida. If you like the idea of owning a brand-new home, you’ll find plenty of opportunities. New home buyers should work with a buyer’s agent to help them through the buying process. Once again, the buyer will not have to pay their agent. The home building company pays the buyer’s agent’s commission.
Some real estate agents have received special training to represent new home buyers. The certification they receive from this training is called New Home Co-Broker. If you find an agent with this certification, you should feel reassured that your agent will take good care of you.
Buyers should be aware that the purchase and sale contract prepared by the developer will be complicated and very much in the developer’s favor. Unlike retail sales off the MLS, the builder will almost never negotiate any of their contract terms. There is also some added risk in making a contract to buy a home that has not been built yet. It would be worthwhile to consult with a real estate attorney before signing a pre-construction purchase contract.
There are opportunities to purchase properties “off market.” This refers to homes not listed for sale on the MLS. Are you looking for an investment property only, and not for personal use with profit margin as the main concern? You may want to seek out off-market deals.
Investors recognize that you don’t make money when you sell, you make money when you buy. This means that to succeed with any investment property, you will likely need to buy it at a price below retail. That’s where the real estate wholesaling market comes into play.
Throughout Florida, there are real estate investors known as wholesalers. Their business model is to find sellers. They usually do this through direct mail campaign and other marketing strategies. Then, they enter into a contract to buy the home at an agreed price well below market value. The wholesaler does not intend to close the deal and become the new owner.
Instead, wholesalers find end-buyers to whom they transfer their rights as the buyer in the contract. The end-buyer pays an amount of money to the wholesaler to acquire their contract rights and then closes the deal. For example, a wholesaler may sign a contract with a homeowner to buy a home for $120,000 that is actually worth $150,000. The wholesaler then transfers their rights as the buyer to the end-buyer for $10,000. The end-buyer ends up acquiring the home for $130,000 total (the $120,000 purchase price plus the $10,000 transfer fee). This is a good deal for the investor because they’ve bought a property worth $150,000 for $130,000.
Wholesalers usually keep lists of investors who may want to buy the properties they have under contract. The wholesalers contact those investors when opportunities arise. The best way to build relationships with wholesalers is to become active with local real estate investor associations. They are also known as “REIAs.”
How to Buy Florida Properties
Making a Purchase Offer
When you find a property you want, the next step would be to make an offer to buy it. In Florida, the custom is to present an offer in the form of a purchase and sale contract. The buyer’s real estate agent or attorney will typically use a standard form contract and fill-in the information relating to that purchase.
There are some important terms aside from the sale price included in the contract. For example, the buyer may state whether it’s a cash purchase, without lender mortgage financing. In the alternative, the buyer could make their obligation to close contingent on being approved for financing.
The buyer will almost always make an initial payment. This is known as an “earnest money deposit.” It occurs when the seller accepts the offer to purchase. In most deals, if the buyer fails to complete the purchase, through no fault of the seller, the buyer loses the deposit to the seller.
The Closing Process
Once a contract is accepted, the buyer and seller agree to the price and other terms. The contract then goes to a closing agent. The closing agent is responsible for preparing documents to be signed at the closing and issuing a title insurance policy. If you are financing the purchase with a bank mortgage, the lender will always require the buyer to get title insurance. In that case, there will be two title insurance policies—one for the lender and one for the owner.
If the buyer purchases the property for cash and without lender financing, an owner’s title policy is not required. It would be a very bad idea, however, to buy a property without title insurance. The purpose of title insurance is to compensate the owner (and lender) in case matters are discovered after the closing affecting the quality of the title to the property.
For example, there could be a lien on the property resulting from the time a previous owner held title. There are good reasons why mortgage lenders require title insurance and buyers should follow the lenders’ example.
Another step between the contract and closing is the property inspection. Most purchase contracts have a clause stating that the buyer has a certain amount of time to inspect the property. The buyer hires a licensed property inspector to look for defects to the property. Defects would affect its value or possibly cause the buyer to cancel the deal.
Most purchase contracts are written so that if an inspector discovers defects, the buyer has the right to cancel the deal and get a refund of their earnest money deposit. Often, instead of canceling the deal, the buyer and seller will negotiate a price reduction or have the seller pay for repairs of defects found in the inspection.
The final step in the home-purchase process is the closing. This is an event where the buyer and seller sign various legal documents and title is transferred to the buyer. In most cases, both sides of the transaction don’t have to actually appear in person at the closing. It is common, especially with foreign nationals, to do a “mail-away” closing. Closing documents may be delivered to a buyer or seller outside of Florida. It will include instructions to sign and return the papers to the closing agent.
A foreign national signing closing documents through a mail-away will have to find a notary public to witness and notarize the signing of certain papers. This is a very important detail that may cause complications. In the U.S., it’s usually easy to find notaries. However, in other countries, that’s not the case. Sometimes, the best option is to make an appointment to bring the closing papers to be signed at a U.S. embassy. You can use a notary public there.
Financing the Purchase
When buying in the U.S., it’s important to obtain the most competitive rate of exchange. Banks typically offer poor exchange rates and high fees. So consider using a foreign currency exchange company like moneycorp who offer highly competitive exchange rates and free international transfers.
You will need to convert your currency into the currency used in the country in which you are buying. Exchange rates fluctuate constantly. The rate that is available when you sign a contract compared to the rate available when it comes time to close could be very different. Currency exchange specialists have the ability to lock into an exchange rate for up to two years. This protects you from a negative exchange rate movement.
If your purchase funds ultimately need to go to a closing agent, send the funds straight there. You can avoid transferring money to a bank only to later forward the funds to the closing agent. If you first send the money to your personal US bank account, they may charge you a “receiving wire fee”. There may also be a “sending wire fee” when later transferring the funds to the closing agent.
If you do decide to transfer funds to your personal US bank account, be aware that the bank may require for you to be physically present when you want to transfer any funds out of your account. If you are not going to be in the U.S. when the time comes to transfer funds out of that account to the closing agent, then you’ll need to make those arrangements while you’re in the country and able to visit a branch.
Foreign National Mortgage Loans
If you plan to buy your Florida property with a mortgage loan, you should start applying for financing before making the purchase offer. Sellers will want to know that you’re able to buy the home and won’t be wasting their time. For this purpose, you can start working with a mortgage lender to get pre-qualified. The lender will give you a pre-qualification letter to show the seller that you’re a serious buyer.
The U.S. lenders who work with foreign national buyers usually finance four types of deals:
- Primary residence purchase. These loans are given to foreign nationals with a Visa allowing them to work in the U.S., but who are not permanent residents.
- Second home purchase. Lenders lend to borrowers to purchase a vacation (holiday) home for their private use and not to rent out.
- Investment property. This is for foreign borrowers who want to purchase a property for business purposes. This usually involves renting the home for short-term or long-term use.
- Commercial investment property. This is financing for the purchase of commercial real estate (retail, industrial, multi-family, storage, etc.) for investment purposes.
The questions you’ll need to ask to determine which lender is right for you include, but are not limited to, the following:
Which type of loan described above do you require?
- What are your financial circumstances, including how much cash do you have to deposit, how much is your income and what is your credit rating?
- How much time do you have to complete the application process and close the deal?
- Can you come to the U.S. to complete the closing, or do you need to sign closing papers in your home country?
Every mortgage company has its own lending standards and borrower requirements. There are three types of Underwriting you can select:
- Full Document Loan: Full disclosure of finances with documentary proof as cash sources, assets and liabilities as well as credit reports and / or Credit reference letters.
- Stated Income: Same as Full Document Loan, except no declaration or proof of income.
- Lite Document Loan: ID and proof of address in home country, proof and sourcing of your funds.
The rates will be based on the loan type (Owner occupied, Investment or Second Home) and the Underwriting basis you select. (Full doc, Stated income or Lite Doc).
In addition, most lenders will not lend an amount above 70% of the home’s value, meaning the borrower is required to make a down payment for the difference.
If you expect to use lender financing to buy your Florida home, the best thing to do is to research mortgage companies and start working on your application long before you are ready to make a purchase offer.
How to Hold Title
There are legal considerations for all foreign national buyers. One important decision is how you want to hold title to the home. A buyer can own a property in their own individual name. When two or more people own a property together, they need to decide the legal method for holding title. The main reason to choose a certain way to hold title is to decide what happens to that ownership interest when an owner dies.
A way to hold title available to married couples only is called tenancy by the entireties (“T by E”). When a married couple owns a property together as T by E, that comes with automatic survivor rights. Both spouses own the home together and when one dies, the survivor becomes the sole owner automatically and without any court action required.
There is another form of title ownership with survivor rights known as joint tenants with rights of survivorship (JTWRS). This is very similar to T by E, but the main difference is that any two or more individuals may share title this way and they don’t need to be married.
Another legal form of title ownership between two or more people is known as tenancy in common. Instead of having survivor rights, as with T by E and JTWRS, when one owner dies, that ownership share passes to the heirs of the deceased owner. Who inherits title may be determined by their last will and testament. If they die without a will, Florida law determines who receives the title. For example, if the deceased leaves a surviving spouse, the spouse will likely take title or possibly share it with surviving children, depending on some circumstances.
It’s very important to instruct the closing agent as to which of these options to hold legal title you want. If this isn’t made clear, the closing agent could prepare the deed incorrectly, which could lead to unwanted consequences.
Holding Title Through a Business or Trust
Foreign buyers should also consider forming a business or a trust to hold title to an investment property. It’s important to get legal advice in making this decision. Two of the most common forms of title ownership in Florida, aside from individuals holding title, involve the use of a limited liability company or land trust.
Many investors form a limited liability company (LLC) to be the title owner. LLCs are relatively easy and inexpensive to form in Florida and there’s no requirement that the company’s owners be U.S. citizens or permanent residents.
Florida Land Trusts
Another popular legal option for owning property in Florida is a land trust. There are different types of legal trusts, both in the U.S. and other countries. In Florida, property owners can form a specific kind of trust, known as a land trust. The land trust is limited in its ability to be used for real estate only. It is a versatile legal tool that has many advantages, including privacy by taking the owner’s name out of the public records, asset protection and estate planning benefits.
By using a land trust to hold title, foreign nationals can avoid a legal action, known as probate, following the owner’s death. Any foreign person who dies while owning title to property in Florida would usually require probate to be filed in the local court for the county in which the property is located.
The purpose of probate is for the court to oversee the transfer of title following death to the heirs named in a last will and testament. If the deceased left no will, title is transferred according to Florida law. Holding title through a land trust avoids this legal action because the trust itself has language stating who will take over the property after the previous owner dies. This allows the owner to avoid probate completely and save their heirs the cost, stress and inconvenience of the legal action.
We hope you have found this information valuable in understanding how to buy real estate in Florida. Contact us with any question and we can help to help you get started.