ORLANDO FLORIDA VILLA SALES - YOUR DREAM HOME *UPDATED*

Question

Answers (Based on short term rental requirements)

If I buy a property in Florida can I live, work or retire there. ( Non US citizen)

Owning property in Florida does not give any rights to live or work there. You will have the same restrictions as any other tourist. There are various visas which allow longer stays, employment status etc. to check them out visit http://www.usembassy.org.uk/cons_new/visa/index.html

If I buy a Florida Villa or Florida property, what are the implications of buying New?

A very good question!!! Whilst budgets & personal preferences will obviously be a factor, other considerations arise. Due to huge commissions offered by Builders to Realtors & Agents to help promote & sell their homes, biased advice will prompt the unwary to only look at new property. The large numbers of UK web sites offering 'free' advice, from 'Villa owners' who are "pleased to recommend their wonderful Real Estate Agent" are merely attempts to share this bounty via a recommendation fee. They do nothing to help in the investment & have no Legal or Moral responsibility to the purchaser. When selling rental property many Builders 'bundle' the furniture package in with the mortgage, whilst this reduces the cash injection required, it may adversely effect the ability to pay off the mortgage on resale as the appraisal will not take the furniture into account when valuing the property. If you buy at the beginning of the build, it may be months or years before the Estate is finished, this will mean that you and your renters may be subject to noise and dust whilst on holiday. Should you need to sell quickly you may suffer a loss as you will be competing with the Builder on the same site. Most new homes wherever built will suffer "teething troubles" so it is imperative that your agent offers an inspection & walk through service to minimise the impact on renters. Marketing the property will be from a standing start, so you may need to subsidise the outgoings for some time before the returns reach acceptable levels.

The positive view to new purchase is the ability to choose the plot (south facing or lake view, corner lot, conservation views) decor, pool design, kitchens etc. Also some recent developments have attracted 'premiums' from the release date, allowing investors to make a 'flip over' profit on resale prior to building. (The Builders are putting steps in to avoid this practice.) The new property will be Architecturally current which will appeal to renters. There should be Builders warranties or guarantees in place (some are better than others)

If I buy a Florida Villa or Florida property, what are the implications of buying a resale?

It must be zoned for short term rental (if you need to rent it out of course). The furniture is usually included. It may come with management, bookings and a rental database enabling immediate returns on investment. The sub-division is probably complete so no building work, empty sites, noise or dust. Any 'teething problems have been eliminated. The buyer can more easily determine the style, appeal and nature of the Estate as to occupants, cleanliness, security etc. The price is the realistic selling price. The seller should have current utility bills to demonstrate the real running costs. Florida law requires sellers (and their Agents) to identify all known defects in the property. Homeowner?s warranties can be negotiated. If the property is a few years old the Lot sizes and Pool areas may be larger, the pressure on land for building and pricing has meant the newer properties are built closer together and pool sizes have reduced. Gardens and landscapes will have matured, privacy can be better as residents tend to erect fences to the rear and sides of their property.

The downsides are few, contingency budgets need to be included to cover replacing some furniture and equipment. Some re-decoration may be needed.

How do I manage the day to day running of my Florida property, can I pay the bills from the UK.

Whilst it is possible to manage a Florida Villa from the UK this is not a task for the new owner or the faint-hearted. Most foreign owners choose a Management company to oversee the property, clean between let?s, schedule ongoing maintenance and handle the renting of the property. This is done for a monthly fee. They can pay all the bills, but it is a simple task to arrange direct debits from your own US. Bank and this is the safest way to avoid problems.

Will I have to pay any taxes in Florida?

You will have to pay County Property tax, similar to Rates in the UK. These are based on the value of the house (assessed yearly) & the amount the County has to rise to fund expenditure. You will also be required to charge sales and tourist tax on each rental (10/12% total), also a once a year 'Tangible Tax' on the value of the personal property, furniture etc. used in the rental home is levied. You should also apply for an Individual Tax Identity Number (now mandatory since Nov. 2003) and account for tax on any profits from the rental of your home. Due to the favourable tax treatment of property in Florida this usually results in a carry over loss.

What is an ITIN number? Why do I need one? How do I get one? Why is it important?

An ITIN or Individual Tax Identity Number, is a number required to identify, for tax purposes, anyone who will have a liability to fill out an Income Tax Return or report investment earnings.(Not necessarily have a tax liability) for Federal (US) tax purposes, and who is not eligible to register for a SSN (social security number). This will encompass most non-resident aliens, and for our purposes all non-resident Aliens who own Florida Real Estate.

They are obtained by filling out a W-7 form, downloadable from US Government web sites, & sending, or taking them to the US Embassy in the UK, The Philadelphia Tax office, or a satellite Tax Office in Florida, there is one in Orlando. You will need supporting I.D. documents. As there are a number of complications to this procedure, please feel free to seek our advice on the above.

This number is important for two significant reasons. The first being that when a non-resident alien sells their Florida Real Estate there is a requirement for 'withholding' tax of 10% to be retained by the buyer (or their representative) & forwarded to the Revenue to offset possible Tax liabilities (Capital Gains etc.) For the seller to redeem this tax, or avoid the withholding totally, he will need an ITIN number, and other documents, Form 8288-B & a copy of the sale contract.

The second reason to obtain an ITIN is that since December 2003, the Alien buyer will require this in order to 'close' or complete the contract to purchase. As the application can take 6-10 weeks to be approved this could seriously jeopardize the purchase, and could prevent the buyer taking up special deals which involve 'closing' on a nominated date. At the very least it will slow down the closing procedure.

There are complications to obtaining the ITIN, we have discussed these with the Revenue Service and believe we can help if you want to obtain this number prior to viewing property. There is an obvious advantage to this. Please call us if you would like help in this area.

Can I get a mortgage in Florida to buy a Villa for Rental?

Mortgages are readily available (subject to status) for US or Alien (foreign) buyers. However a Foreign buyer will need at least 20% for a down payment & a further 4% to 6% in funds to cover closing costs. A deposit of 30% will ensure easier qualifying with less paperwork, as it means the lender will have no problems recouping his investment should the Mortgagor default. For further information please contact us & we will put you in contact with our Associate Mortgage Broker

What documents do I need to take to help when applying for a 30% deposit mortgage in Florida

Two letters of satisfactory credit status, from Bank manager & possible other lender. Credit Card statements (recent) Proof of funds to close, that is account statements showing funds covering the deposit & closing costs on deposit in your account. Employment details (recent self-employed accounts) Statement of income (P45 or similar). If your intention is to buy, it would make sense to open deposit & cheque accounts with a Florida Bank. Placing funds to cover deposit & closing costs in the accounts will help the above & facilitate early offers on desirable properties.

Can I get a fixed rate mortgage there or is the rate variable, what are the current rates.

The mortgage market in the US is quite a complicated affair. Just like at home there are fixed rates, variable rates and combinations of the two. To get the full picture we would advise you to speak to an independent Mortgage Broker or Mortgage Banker, who will be able to give you direct comparisons of cost and advice on the most suitable arrangement for you. Please contact us and we will put you in contact with our Associate Mortgage Broker.

Do I need a Lawyer or Attorney to handle the transaction?

The Real Estate Business in Florida is regulated under Florida Statute & overseen by the Florida Real Estate Commission. The overwhelming majority of transactions are handled by Real Estate Brokers & Title Agents both of which have to be trained & Licensed by the State to operate. The procedure is highly regulated & although there are pitfalls (as in any walk of life) dealing through licensed practitioners should protect everyone's interest. So the short answer is no but you can use one if you want to.

What does 'Short -term' Zoned mean & why is it important.

Counties in Florida have the rights, under 'Police Powers' to restrict or determine the use to which Private property can be put. They can zone areas to restrict or deny short-term renting & can enforce the restrictions through the courts. This is important because if you buy a property that is not specifically zoned for short-term rental activity you may not be able to subsidize your costs from renting. The situation is further complicated in that not all Counties have addressed the short-term rental issue, & even though there are no restrictions in place at present they may introduce restrictions, retrospectively denying the activity, subsequently causing the owner to cease renting.

How can I avoid being caught by the above zoning restrictions?

Deal through a licensed professional. Ask if the property is Zoned for Short-term rental. Ask to see the Deed Restrictions. Check with the County. Do not merely ask 'can I rent short-term' as, if there are no Ordinances in place the answer would be Yes. This would not avoid subsequent restrictive Ordinances being enacted denying the activity.

Can you explain the different terms used in the US? Real Estate industry & how their meanings differ from those in the UK.

The procedures & terms are quite different & do lead to initial confusion. For instance when 'Survey' is mentioned they mean a survey of land to determine that the boundaries are where they should be & that the plot is in the position it is legally described as. This avoids future boundary disputes. This 'Survey' does not refer to the condition of the Villa. What we call a survey is their 'Home Inspection' this is at the buyer?s discretion & cost & will list the condition of all the relevant items, plumbing, air conditioning etc. of the house. Sub-Division is what we know as an Estate of Houses. They are usually named, with a distinct boundary (wall, fences, hedges etc.) and have a Homeowners Association. 'Appraisal' is our Valuation of the property. This is a rather more scientific means of establishing the 'fair market value' by comparing the asking price with similar properties recently sold & currently on offer, due to the MLS this is a very accurate method of ascertaining the true Value. If a mortgage is required this will be the figure the Mortgage company will use to size the loan amount, any offer above the appraisal will need to be funded by cash. Title (Ownership) is passed to the buyer by a Deed, the General Warranty Deed being the most comprehensive for the buyer. A new deed is written for each transaction, the previous owner?s deeds having no relevance. The buyer is protected in having 'Clear Title' to the property in most cases by a 'Title Insurance Policy' which is paid for by the Seller & protects the buyer in the event of a claim of ownership by a third party. Naturally, the Insurance Company checks the chain of title through the State & County records prior to issuing the policy. 'Homeowners Warrantee Insurance' is not insuring the property against external hazards, but is insuring some of the major items such as air conditioning units, boilers etc. against breakdown in the first year of ownership. This is usually paid for by the seller & can be renewed annually by the new owner. If you are buying without a US mortgage you must be certain to have arranged buildings hazard insurance from the date of 'closing'. Closing is simply the final 'exchange of contracts' & money when Title (ownership) passes from Seller to Buyer.

What is the difference between Realtor® & Real Estate Broker

Both are Licensed by the State of Florida to perform 'The Services of Real Estate' in Florida. The Realtor® however is a member of The Board of Realtors, a County, State & National body that imposes a strict Code of Ethics on its members in its dealings with the public & other bodies. Ongoing Education and Training is available to Realtors, who can gain accreditation in specialised areas of the Real Estate business. The Realtor has access to the Multi Listing System, which has major benefits for his clients both sellers and buyers

What is the M.L.S.

M.L.S. stands for the Multi Listing Service. This is a computer service which allows Realtors® to advertise details of the properties that he is currently listing for sale, and also view properties listed by other Realtors®. In doing this the Realtor offers cooperation in finding buyers and sellers to all other Realtors®. The benefits to clients are that properties sell much quicker and Buyers can deal with one Realtor® to see all the available properties without visiting numerous Brokers to find one suitable. Other benefits being the wealth of information easily sourced. i.e. Tax details, property history, comparable sales locally etc. allowing the Realtor to help in making realistic offers and saving wasted viewing time by preparing a Comparative Market Analysis establishing the average price based on similar properties sold recently.

Can I make a profit from owning Florida Real Estate, & if so how much.

Taking this question to refer to 'Short-term rental' property the answer is a qualified Yes. Qualified because as in any business it is also possible to make a loss, & the profit may not be realised, as cash flow, until the property is sold at some future date. The point to be realised is that you are actually buying a business, not merely a house. For a business to be successful the costs must be less than the earnings. In any business the more of the work that is delegated the higher the costs. The revenue comes from renting the property; if the owner takes no part in this activity then he has to pay commission in some form or other to the party that markets the home. If the owner does all of the marketing he avoids subsequent commission costs. Other factors are how much of the purchase price is financed. The greater the mortgage the higher the number of weeks rental required to meet costs. A scenario that shows all of the costs are just covered by the rentals with no surplus means that at a future date, when the mortgage is satisfied, the house has been purchased for only the initial cash deposit, & the profit will be realised at the sale of the property. In practice the answer is complicated by many factors, the initial house cost, exchange rates, rental charges, interest rates, method of funding, house inflation etc. It is probably a fair assessment to say, that, if the only reason to buy Florida property is to make large profits, then there may be better places to put the investment. Most people enter this market because they want a stake in Florida, want to spend time there & view the investment as a longer term project. In fairness it should also be noted that many people own multiple homes & run successful businesses in this sector. The advice must be, set out your aims, review all of the facts, seek advice from people like ourselves, reject 'guaranteed return' schemes, & only progress if you are completely happy with the facts.