Foreigners' Guide To Buying Real Estate in South Florida
by Hal Feldman (MiamiHal.com) / updated 3/4/2014
First and foremost, forget what you’ve read, seen or been told elsewhere. There are no $90,000 beachfront condos for sale on South Beach. They simply don’t exist. While the Miami/Fort Lauderdale area remains a great place to buy real estate, we aren't giving property away. Believing hyperbole will keep you from ever buying smart in South Florida.
It is true that since 2006, the United States market has been through a major market correction and the epicenter of the market peak and crash was Miami. From the insane prices of 2005 to today’s more appropriately priced properties, investors have always had opportunity. That opportunity remains today.
As a foreign investor, you need to understand that everyone buys the South Florida sun. If it is not you who buys, it will be the next person. With more reasonable pricing and decreasing vacancies, the activity in Miami is back to being incredibly strong. Anything worth buying is under contract in less than a week. Cash is the norm here. Don’t expect any discount for cash. It doesn’t exist. Cash buys you negotiation power on other terms, but not on the sales price.
Finally, since the first day of 2012, any Realtor® in South Florida will tell you that the market is roaring back, at least when it comes to activity and closings. Pricing remains flat to slightly up. Since the 2006 bottom, there has been a 45% recovery in prices. As of March 2014, I expect that to continue, a little at a time.
Somewhat conversely, over the same period, rental prices are climbing sharply. This allows investors who find good properties to get fantastic returns. So, it is still a great market for investors. You’ll make money in rent and you’ll see healthy resale value returns in 5-10 years.
THE REAL ESTATE BUSINESS
Working with a real estate professional in the United States is very different than in many other countries. The key difference is that all Realtors® cooperate through the free sharing of listings in the Multiple Listing Service (MLS). This is very powerful and good for all involved.
It is the norm for a Buyer to select one and only one Realtor® as their partner during their entire real estate search and purchase. As a Buyer, you should share all your details and desires with one Realtor® and they, in turn, will work hard to find you the best properties to meet your needs and goals. Since all Realtors® share listings, there is no need to only show clients our listings. With shared listings, the Buyer gets much better service and selection. They are not limited by any territorial practices of the real estate agent.
In the end, 99% of all sales in the USA come about where the listing agent is not the Buyer’s agent. When this occurs, the commission is split equally between the agents. The Seller pays all of the commissions. There is only a small fee to the Buyer, usually under $300, to account for all the work the Realtor® did to help their client find a property and to cover office overhead. Further, this fee is charged only when the Buyer closes on a property. Everyone is happy and the Buyer was provided the ability to buy from the entire market, not just what that agent had in inventory.
Realtors® in the United States are licensed in a particular State, but often then focus on a city or town as their particular area of expertise. So, one agent will show you ALL of Miami/Fort Lauderdale, but will not show you Orlando or Tampa (different markets).
WORKING AS PARTNERS
Once you have selected a Realtor®, stick with them and keep them up to date. Remember, they are there to keep your best interests front and center. Over the next weeks and months, they will work hard for you. Don’t trade allegiances. It will only hurt you in the long run. Invest your trust in one Realtor® and it will come back to you in personalized attention.
MAKING A PURCHASE
When you are ready to make a purchase, there are a few things to keep in mind:
The purchase of property throughout the United States requires complete transparency. Where there used to be opportunity for various entities to make more money than normal or play tricks, now it is all monitored and transparent.
The United States Federal Government requires that a HUD-1 form be used during the closing process. In short, every charge or credit to either the Buyer or Seller is clearly spelled out on this two-page document. If it isn’t on the document, it doesn’t happen. Period.
So, as a foreign Buyer, you will know exactly how much of and to whom your money is going. Short and simple.
Now, what is the deal with a closing? A closing is defined as the specific time when the Seller is ready to hand over the property (with free and clear title) and the Buyer has all the funds necessary to pay.
A closing used to mean everyone sitting in a room signing documents at the same time. Today, many closings are called remote (or desk) closings because the title company collects all the necessary signatures prior to the closing date and simply assembles the final documents and distributes funds without the need for Buyer or Seller to attend. More than likely, this is what will occur with your purchase. It actually is quite liberating.
During a closing, the Buyer will pay for the property, title work & insurance, appraisals, surveys and other closing company related charges. Your Realtor® will go into detail as to what to expect, but in general be aware that there are charges above and beyond the purchase price that you will pay in order to close. A rule of thumb is to use 1% of the purchase price as the high end for typical closing costs.
RENTING OUT PROPERTY
As a property owner, you have the control to rent out the property when and how you like, so long as you abide by the condominium association rules. For example, you may have no issue allowing large dogs in your rental, but if the condo does not allow it, that is the rule. No getting around it.
When it comes to payments, the renter pays a monthly fee. In Florida, the maximum lease period is one year. People often stay in the rental unit for longer, but a new lease needs to be created and signed each year.
Upon renting, all condo maintenance fees and real estate taxes continue to be paid by the Owner/Landlord. Utilities are placed in the name of the Tenant and are paid directly to the utility companies. If a Realtor® helped you secure a tenant, the Owner/Landlord pays the agreed upon commission at the time of rental. Once a lease is in progress, the Realtor® is no longer a party to the transaction, as their job to secure a tenant is complete.
It is almost always the case that tenants must be approved by the Association before they are allowed to move in. Sometimes, security deposits are required as well. As an Owner/Landlord, you must abide by the Association rules.