Buying property in the USA

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Buying Property in USA Understanding the US Buzz Words!

Condominiums

Condominiums or condos as they are more commonly known are the equivalent of European apartments or townhouses. Properties and land are purchased on a freehold basis but within a communal area where there are community rules and regulations. 

A president is typically elected by the owners to oversee the day-to-day running of the community, under the guidance of regulations and rules set down by Florida State. 

These rules are known as the Home Owners Associations or HOA. You will also be liable to pay monthly HOA fees to pay for the running costs of the community including the gardeners, pool cleaners and general maintenance; these are very similar to European community fees.

We recommend that prospective condo owners read the HOA documents before agreeing to purchase a property, in order to understand what you can and cannot do, as well as the estimated monthly and/ or annual costs involved.

Owners that intend to use a property intermittently may benefit from buying a condo, as they do not have to be concerned with the day to day upkeep of the property and can be confident that the property, the grounds and the amenities are being looked after in their absence.

Hundreds of thousands live year-round in condos throughout the United States, and Home Owners Associations tend to be run very efficiently. In recent years we have seen in upturn in the amount of American purchasers investing in condos especially as vacation homes that can e rented out dependent upon their location.

Townhouses

A massive surge of interest in townhouses has been witnessed in recent years, not only for rental purposes but also for residential use. Townhouses are popular as they fill the middle-ground between condos and single family homes or villas. They are very popular with families who want to get on the property ladder, and with the retired wishing to downsize.

In many areas in Florida there are numerous townhouses available in short-term rental zones and these can fill the gap between those who want the completely hands-free investment of a condo along with a good sized villa or single family home. 

These townhouses can be found in abundance in tourist areas and also serve to allow developers to construct more properties on a smaller acreage, at a convenient price for the multitude of buyers and investors. Many townhouses in Florida are offered with fully fitted kitchens, lighting and with a large “wish list” of extras, especially when buying off-plan or even during construction.

Single Family Homes

Single family homes and villas have long been the favourite of overseas homebuyers in Florida. Either as an out and out holiday home or as investment property, single family homes and villas are the ideal vacation home especially for many British and European investors who realise how much property they can get for their money, especially with today’s weak dollar against many other international currencies.  

There are many established vacation home communities that are located in short term rental zones in Florida including many luxury communities.

Vacation Homes

Vacation homes in Florida are the staple diet for many European investors as well as Americans from out of State who wishes to invest in the “Sunshine State”.

Buying a vacation home for many is the possibility to take great holidays in Florida with the family, with the added benefit of being able to rent out the property and achieve an income to go towards paying your monthly mortgage fees.

A vacation home purchased with 25% down and with a 75% mortgage should break even with around 24-30 weeks occupancy per annum.

It is essential that you build a relationship with a good, well-established property management company with a large client base of happy owners with decent annual occupancy rates each year. There are many management companies that will offer a wide variety of rates and conditions so it’s worth shopping around and listening to good advice.

Condo Hotels

Condo Hotels / Aparthotels are typically run and controlled by 5 star resort management companies such ar Ritz Carlton and Sheraton. Sometimes referred to as apart-hotels are usually high rise condos, located in high demand, prestigious areas around the world near to casinos, theme parks and upmarket golf courses.

Condo hotels will typically be full resort communities offering fabulous amenities for its guests, including spas, high end restaurants, boutiques and concierges.

It is an effective way of buying into an exclusive resort which can be used as a luxury holiday home or second home which can provide an income. The management companies will maintain the unit in your absence and ensure that smooth running of the property and by doing so increasing the occupancy percentage which in turn can increase the overall value of the property itself.

Buying a property in a Condo hotel is a hybrid investment. Owners pay their property taxes, their insurance and their maintenance fees. The hotel company  will rent our the room/ units, rotating the reservations through the owners and then dividing the derived revenue on an equal basis with the individual unit owner

Condo hotels are suitable for investors who are willing to invest for the longer term where an equity gain can be achieved.

Buying Property in Florida and the Rest of the USA

The USA operates a multiple listing service (MLS) where all licensed real estate agents (or Realtors) and brokers have access to every property in their area. Rest assured that all realtors must be licensed by the National Association of Realtors and pass strict exams to become legitimate professionals.

A real estate agent in Florida can act on behalf of the seller, the buyer or indeed for both parties, but their commissions are charged to the seller in all cases. 

Buyers are advised to contract a Buyers’ Agent to act on their behalf, as US Realtors, or estate agents, will be acting solely for the sellers and are not obliged to disclose any information that may affect a sale.

So-called ‘Title Companies’ are often used instead of lawyers to administer property transactions. These operate on a fixed fee basis, while lawyers can be employed and are a little more expensive than title companies.

If buying property with the intention of renting it out when you're not using it, it's important to note that property in Florida is often subject to zoning regulations preventing, or limiting, short-term lets.   For example, the area of Celebration, Orlando, is a long-term let zone, meaning short-term holiday rentals are not permitted, thus avoiding disturbing the peace of permanent residents.

Buying Property in the USA

Agreement of Sale

The first step is making an offer through your Realtor and once the price is fixed, an agreement of sale will be drawn up, committing both you and vendor the to the sale, but subject to certain conditions such as obtaining a mortgage and the vendor proving the property is “clean” of debts.   Be aware of the importance of adhering to the dates and conditions set out in the agreement, or the seller might take the opportunity to pull out of the sale, particularly if a better offer comes along.

Costs

Total buying costs, including legal expenses, taxes, insurance, etc., amount to between 3% and 6% of the property's price.   Bear in mind, Realtor’s fees are charged to vendors at approx. 6% of the sale price.

Taxes

Property buyers in the USA will be liable for tax, which always varies according to where you live and whether you are a resident or non-resident.  You will need to employ a professional to guide you through US taxes and advise you on inheritance tax issues.  Tax on any rental income received is also levied on all landlords.

Tax on Rental Income - all rental income is subject to USA tax at a standard withholding rate of 30%.  In some states like Florida, a double taxation agreement exists between it and the UK.  You are advised to speak to a professional in order to arrange tax allowances and interest relief on your earnings.

Stamp Duty – this tax is charged when buying with a mortgage.   It consists of stamps that are calculated on the total of the loan at a rate of 35 cents per $100 of mortgage.  In addition to stamp duty, investors must pay an Intangible Tax at approx. 0.002% on the mortgage amount. You can, however avoid these taxes if you use cash to finance the property purchase.

Capital Gains Tax - Capital Gains Tax varies according to state, but you own the property for more than a year, capital gains tax can amount to anything between 8% and 15%. If you own it for less than a year, you will be taxed at the normal tax rate in Florida.  If you've lived in the house as your primary residence for 2 out the last 5 years then you are exempt of up to $250,000 in gain if single, and $500,000 in gain if married.

Local Taxes – again dependent upon State, the local property tax amount is on the assessed value of the property.  The good news is that in 2006 ten US states decided to review local taxes with a view to decreasing them to more affordable levels.

Surveys

Otherwise known in the USA as Inspection Reports, surveys are essential prior to buying a property as it is bought “as seen”, without opportunity for formal complains or compensation after purchase has taken place.  Apart from looking at the structure of the property, an inspection should also be carried out for termite infestation. You are advised to make sure any agreements regarding repairs are included in the sales agreement before you sign.

Mortgages

Mortgages are widely available in the USA, but in Florida you can normally expect to borrow 75% of the valuation or purchase price, whichever is lower.  Loan amounts are normally agreed in accordance with 3.5 times your income amount.  Non-residents will always be required to make a down payment of 20-25% and be able to supply proof of ID, address of current residence and income details.   

It is recommendable to employ a mortgage broker who will pre-qualify you for a loan, making the procedure run smoothly once you have found the property of your dreams.  The broker then monitors the entire process for you, making sure funds are available for the date of completion. 

See also: Property Investment in Florida