Buying Holiday Property in Florida

Prepare your finances. When making an offer on a property you will need to have monies available for deposit as well proof of funds for a cash purchase or pre-qualification for a mortgage.

• As part of an offer on any property your “Good Faith Deposit” can have as much importance on your offer being accepted by the sellers as your offer amount does.
• Along with your “Good Faith Deposit” and offer you must also provide a “Proof of Funds”.  This proof of funds can be a bank statement dated within 30 days of your offer date with your name the banks letterhead and account balance or a letter from your bank’s representative stating these.

Select a property. Villa, Townhome or Apartment.  In Florida all Realtors are able to show and sell other agents’ property listings that belong to their association.  Fortunately our association, ORRA, reaches from the east coast beaches through the greater Orlando/Kissimmee areas to the Gulf Coast beaches and south giving our buyers tens of thousands of choices in property.

The question to ask is, “Are we buying this mainly for our family’s use or are we only going to use it for a limited number of weeks per year and do we want potential rental income to cover some of our costs?”

• If you are considering rental income to cover some costs and want to also use the property for holidays then you must buy a property that is zoned for short term rental.  These short term rental properties are located mostly around the attractions and/or beaches.
• If you are buying a property solely for the use as second home and are not interested in renting the property you can purchase any property and may even qualify for a mortgage.

Make an offer.  Once you have selected a property and have your “Good Faith Deposit” and proof of funds ready the next step is to make an offer.  The most important factors in making a successful offer in today’s property market is to be educated on the property’s current value and to understand what type of sale it is.  To determine a property’s current value we will prepare a market summary and analysis for your review which details the most recent comparable sales and comparable active listings for the property you are interested in.  Today you will find that all property listings fall into one of three categories; traditional sale, short sale or bank owned.

• Traditional Sales- These types of sales are that most buyers are used to.  You the buyer make an offer through your agent to the sellers’ agent and then you negotiate to a final accepted contact for sale.  Only 20% of all sales in the Central Florida area last year were traditional sales.
• Short Sales- A short sale occurs when the anticipated sales price will not be enough to pay off the existing mortgage(s) on the property.   Because of the decrease in property values over the last few years many homeowners are underwater and need to sell.  The difference between what the seller owes on the mortgage and what the property will sell for in today’s market creates a short sale situation.  As a buyer of a short sale you would make an offer to the seller of the property but all terms of the contract would have to be approved by the sellers’ mortgage company(s).  This process of short sale approval usually takes 30-90 days and can be very frustrating to all involved.  After months of waiting the sellers’ mortgage company may come back and approve the short sale at the agreed upon terms, they may ask for an increase in the sales price or they may deny the short sale all together.
• Bank Owned Sales- These types of sales include properties that have been taken back by the bank through foreclosure.  The offer process on bank owned properties is very similar to traditional sales in that you are making an offer directly to the bank or one of their authorized representatives.  The main difference in bank owned listings is the property’s list price.  Because banks don’t want to own properties and sitting on them can cost the bank real money they usually instruct the listing agent to list the property at a price that will bring multiple offers within one to two weeks of the property being listed on the market.  In many cases bank owned properties will sell for more than the list price.  With many buyers not wanting to wait around for short sale properties to go through the approval process bank owned properties are the preferred option for many buyers creating an auction type atmosphere.  Again, the most important factor is to be educated on the property’s most recent comparable sales when making an offer.

Completing the purchase/Closing.  Once your offer has been accepted by the seller, or in the case of a short sale when the sellers’ lender has approved the short sale, you then move into the inspections and closing phase of the property.

• Your “Good Faith Deposit” must be deposited immediately with the sellers’ chosen title and escrow agent when the seller has accepted your offer and the contract has been executed.
• At this time we would assist you with scheduling your home inspection of the property which must usually be completed within 5-10 days.  These inspections usually cost $400-$500 US dollars.  Once you have reviewed the home inspection you can choose to continue with the purchase, address concerns or walk away and receive a refund of your good faith deposit.  Since all short sale and bank owned properties are sold “As Is” the sellers will not make repairs and your original offer amount should reflect this.   If you choose to continue with the purchase you are then expected to complete the purchase by the timelines set forth in the contract.
• During this time the sellers’ chosen title agent will be preparing all transfer of ownership documents and gathering all relative information to calculate the buyers’ and sellers’ closing costs.  These closing costs for a cash purchase usually run below 1% of the sales price of the property but can sometimes be higher the HOA/management company has specific transfer fees that are higher than normal.  Closing agent or title agents are typically backed by property attorneys and provide title insurance to show that the new owner owns the property free and clear unless certain inclusions apply (for example; paying HOA fees on time, etc).
• Most sellers and banks will require you to close within 30 days of the acceptance of your offer.
• In most cases, closing or transfer of ownership documents can be emailed or faxed to you for signatures and originals can be express mailed back.

Select a property management company. Some properties will require using an onsite management company.  These resort style properties typically handle upkeep and rental of all villas/apartments in the development. Other properties, typically villas, need independent management companies for upkeep and rental. Either way, management companies will take a percentage of the rental income for their efforts. This can range anywhere from 15%-50%, depending on the extent of their services.  They may also charge a monthly management fee of $150-$300 even if the property is not in the rental program.

Furnishings. Many resort style developments offer furniture packages included in the purchase price of the property. This is because they have to maintain a standard of quality with the entire development. Also, many resale holiday properties will come furnished. If your property does not come with furnishings then you will need to purchase a furniture package. Furnishings are very important when it comes to rental! Because the internet has become such an important part of advertising rental property, competition has become very fierce. When purchasing furniture it is very important to pay attention to quality and the appeal to potential renters.  Your management company should have guidelines to follow regarding furnishing a property for successful rental outcomes.

As an owner.  You will be responsible for annual property taxes which will be billed to you in November for the current year.  In most cases these property taxes are 2% or less of the property’s assessed value.  The local county property appraiser will assess every property based of recent comparable sales of the property.  If you are renting the property as a short term rental you will also be responsible for sales taxes, your property management company can track and assist you with these details.  You will also need to carry a home owners insurance property suited for your specific property.

Selling your property.  At some point in the future you may consider selling your property and it is important to work with an agent that understands your buyers and what effect selling will have on you. As a foreign owner of property in the United States you will be responsible for paying income tax on any income earned from the sale of a property.  In order to insure its payment the IRS requires the buyer to withhold 10% of the sale amount.  For more information please consult with a local tax advisor.

Whether this is your first time buying property abroad or you are an experienced investor, rest assured with over 11 years of experience in the Central Florida holiday property market we can comfortably guide you from your selection of property through your purchase and eventual sale, all the while assisting you with every step in between to insure a smooth transaction.

*This is only a guide and many times there are special exceptions in the buying process.  If you have any questions feel free to contact us by phone or email.