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INFORMATION FOR FOREIGN BUYERS

Foreign Buying Power

If you are a foreign buyer interested in Naples, then it could make a lot of sense to make a purchase. Due to the decreased value of the dollar, foreign buyers in certain countries have tremendous buying power vs. earlier years. Not only are Naples home prices down significantly, foreign buying power in some countries are up significantly.

 

Percent Increase in US Buying Power

Canada and Great Britain

The Time Looks Right!

For example since year 2003 the Canadian buying power in the US has increased by 50%. Making a $500k purchase in 2003 the same as a $250k purchase today. That would be the equivalent of US citizen buying Naples real estate at year 2000 pricing.

 

Multiple Listing Service

Real estate brokers in the Naples area pool their property listings into the Multiple Listing Services (MLS). The MLS system can then be accessed by all real estate brokers and their agents. The brokers will then split the commission earned from the seller based on pre-arranged agreements. Through this system, sellers get the greatest amount of exposure for their property, to a very large number of buyers. And buyers can work with just one agent that would have access to all listings. A great service for both sellers and buyers.

Compensation for Services

Unless otherwise arranged, sellers compensate the broker for their service. Buyers can take advantage of a wide range of services offered by me to help identify properties, negotiate price and terms, and write offers and agreements. I can show buyers any listed property in the area, and upon a sale will be compensated through the sellers' broker.

Basic Steps

The following are the basic steps related to buying real estate. As your Realtor, I will be coordinating the process throughout the search offer and closing:

1. If planning to purchase with a mortgage, then preliminary contact and discussions with a local mortgage broker would be very helpful (see section on Financing and Mortgage below).

2. When a property is found, an offer will then be made to the seller (prepared by me).

3. At the time of offer, cash needs to be put into the real estate broker's escrow, so the seller knows it is a good faith offer. If the offer is not accepted, then the funds are immediately returned. Foreign buyers should have access to at least $3,000 US through checks, travelers checks or other means for an offer to be submitted.

4. If an offer is accepted, then the closing is typically scheduled for 30 to 60 days from date of acceptance.

5. Shortly after acceptance, an additional deposit of approximately 10% of the purchase price is to be made to an escrow account to secure the offer.

6. A local bank account should be established, and if using mortgage financing, amounts equal to the total down payment plus amounts equal to several months of mortgage payments and expenses need to be on deposit before closing. A local bank account could also be handy for paying monthly expenses (electricity, fees, mortgage payments, etc.).

7. Traditionally, a closing company will coordinate all the legal documents and signatures needed to transfer the property deed and legal notices.

8. Buyers do not need to be present at closing, all activities can be accomplished through the mail.

9. Transfer of services such as electric, phone and cable can all be done through phone and mail.

Financing and Mortgage

If you are not a cash buyer, then many different mortgage programs would be available. The majority of mortgage loans are done through licensed mortgage brokers. Mortgage brokers in Naples will work with many sources of lending funds and banks, to get the best possible rates. Mortgage rates for properties in the Naples area are always very competitive.

There are many advantages to being pre-approved for a mortgage loan. One advantage is the comfort in knowing what could be afforded, plus sellers view pre-approval for a mortgage as a positive thing. It is best to start the approval process slightly ahead of beginning your property search. Basically, you would need a letter from your banker and certified/chartered accountant stating that you have sufficient capital recourses and/or an ongoing flow of cash income. The letter from your Banker should be a confirmation of your deposits and investments, and a brief description of the length and nature of the banking relationship. Typically for foreign buyers, 30% of the purchase price would be required to be made in cash, but if you have strong finances then 20% down would not be a problem.

Tax Implications

Foreign buyers, same as US citizens, will be subject to various state and county taxes at the time of purchase (info here), annual taxes based on the value of the property (info here), and on gains (the selling price less the original purchase price) when the property is sold.

Foreign buyers are also eligible to defer the tax on gains when they sell, by doing what is called a 1031 exchange. A 1031 exchange may be available when you sell an investment property held for over one year, and then purchase another within a specific time frame. It permits the gain from the property sold to be deferred from taxes, until such future date that the new property is eventually sold. Very specific rules need to be followed, but several companies are available to help coordinate the 1031 exchanges for a low fee.

Foreign Investment in Real Property Tax Act of 1980 (FIRPTA), requires that an amount equal to 10% of the selling price be withheld from a foreign seller of real estate. This amount is withheld to cover the potential taxes on the gain, but the 10% withheld can be much higher than the actual amount of tax due. The foreign seller will then need to file for a tax refund to collect the excess amount of taxes withheld. Some advance paperwork filings can reduced the amount withheld, the wait for the refund and other hassles. I recommend that shortly after the original purchase of real estate, a foreign buyer talk with an accountant, get a tax id number, and be prepare for the future. Eventually a foreign buyer will end up selling, so it is best to plan in advance.