According to NAR or the National Association of Realtors, Florida is the state with the most foreign real estate investors nationwide. Roughly 41% purchase homes, 22% invest in rental property and 21% make double use purchases that serve as rental homes and rental property at different times of the year. While many other countries only allow land sales to citizens from that country, the U.S. is rather unique in that foreign buyers are allotted the same privileges and rights overall as U.S. citizens and residents when buying properties in the U.S. However the structure of the purchases, the way funds are taxed and distributed do tend do differ from the way a U.S. Citizen or resident would handle buying property. The following are just some of the common misconceptions that many foreign buyers have about purchasing property in Miami:

Foreign Buyers Don’t Necessarily Need Cash to Buy Properties in the U.S. as a Foreign Buyer

It’s one of the most common ideas everyone has about foreign buyers- the idea that they can only buy properties in the U.S. buy having the full purchase price available in cash. First of all, it’s important to note that cash transactions for real estate above $1M in Miami-Dade County and above $3M in Manhattan, New York are required to be reported to the federal government as a means to prevent money laundering. Above these amounts, the transactions lose the privilege of confidentiality.

While buying with cash is one way to purchase property for foreign buyers, it isn’t the only way. The truth is, foreign buyers are eligible, just like U.S. citizens and residents, to obtain mortgage financing on both residential and commercial properties in the U.S.

The minimum you can put down on a property is 3.5% with an FHA loan- however having 20%-30% is recommended. Foreign buyers typically are asked to come up with higher down payments; around 40% or more. Still, financing can have its benefits, allowing international buyers to free up their investment capital, keeping it liquid and moving while securing a valuable asset at the same time.

It’s Best to Buy Property in the U.S. as a Corporation, not as an Individual

As mentioned earlier, foreign buyers are welcome to obtain financing for their properties – they are not required to pay it all in cash. However the trick to obtaining financing for a foreign buyer lies in the structure of the transaction. Buying property as an individual is possible but comes with hefty taxes from the U.S. government when it comes time to selling the property – about 45% of an individual’s gross estate located in the U.S. that exceeds $60,000. The structure with which a buyer purchases property affects the taxes they are subject to in a big way. Most experts advise foreign buyers not to buy as individuals to limit the liability, minimize taxes and to keep confidentiality. With careful planning, a foreigner can purchase U.S. property through a domestic L.L.C., corporation or different corporate entities – that are owned by a foreign corporation or trust – this method of buying can render the buyer exempt from the U.S. estate tax and certain risks for the family.

It’s important to remember that foreign nationals are subject to FIRPTA- Foreign Investors Real Property  Tax Act. This law says that the sale, transfer, gift or exchange of U.S. property by a foreign national will be subject to a 10% withholding tax on the gross purchase price of the property at closing. It was enacted to ensure that capital gains taxes are paid by international buyers. There are some exemptions available that a buyer’s legal team or financing team can help them use (if they qualify) to avoid the tax. Mortgage lenders and financing companies for foreign buyers seeking properties in Miami, New York or the rest of the U.S. can help an international buyers navigate the right deal. 

The Seller Actually Pays the Real Estate Agent, NOT the Buyer

In the U.S., the seller of a property is normally under contract with their listing agent or selling agent to pay them a commission of the sale. If a buyer comes to them with their realtor and the sale is made, the listing agent then shares their commission with the buyer’s realtor – the amount is up to their negotiations. In some instances, the buyer’s agent may require payment or reimbursement for services rendered, rarely exceeding the amount of $300. Closing costs, however, are to be paid by the buyer.

The Buyer Doesn’t Necessarily need to be Present at Closing

Years ago, a closing meant everyone was required to be in the room together, signing documents and executing the transfer of title and ownership documents from the seller to the buyer. Nowadays, however, power of attorney allows representatives, typically agents, from both parties to perform the closing procedures remotely, without either party needing to be present; that’s neither the buyer nor the seller. If a mortgage loan is involved in the purchase of the property, the closing can be executed from the buyer’s country of origin if he or she is not present in the U.S. at the time.

Buying property in Miami, New York or many other areas in the U.S. can be a big win for foreign buyers when done correctly. It’s important for foreign buyers to become educated on the best ways to do so and to enlist the services of a professional realtor and a qualified, experienced tax and/or real estate attorney to help them navigate the procedures. It’s also important for the buyer to find a mortgage financing company in Miami or in the city they’re looking to buy in that has experience working with international clients so they can really help guide the buyer through the smoothest property buying process possible with the most advantageous terms.