The Process of Buying a Home in Florida
This article will give you a brief overview of how it all works when Canadians buy property in Florida.
When you find a property in Florida, the first thing you will need to do is decide how long you want to occupy it during each year. There is a big difference between staying less than six months and staying more than six months, which requires all kinds of permissions from the US and which has lots of very negative tax and health care results in Canada. Unless you have decided to actually become a resident in the US, plan to go back before six months.
Once you know how long you want to stay, and you have picked out a property, don’t just hand the seller some the deposit or the purchase price. Give your money to an escrow agent, usually a lawyer or the realtor, who has a solemn duty to hold it until one of two things happens: 1) The seller has handed you a deed conveying title and a “guarantee” that they really own the property, or 2) The deal falls through, in which case the money goes back to you. If the lawyer determines that you are going to get what you are supposed to get, then there is a closing where the money is exchanged for the title.
A few words about the “guarantee” I just spoke about. Here in Florida, the custom is to buy a Title Insurance policy issued by big, well-known, insurance companies that have been in business for decades and who are very solvent. Lawyers are agents for the Title Insurance Companies who research the property to make sure the seller really owns it and to make sure no one else is claiming that they have a lien on it. If the title is “clear”, we issue you an insurance policy. This policy states that the insurance company will pay you the price you paid for the property in the extremely rare situation that, despite our research, the seller did not really own the property. (If the seller really did own it, but there is a lien, the insurance company will pay off the lien). It’s a good system and it works very well.
What are the costs of owning property here? You may have heard that property taxes and property insurance are high in Florida. Guess what? You’re right. They are higher than in states that have income taxes and death taxes. However, there are two things to consider: 1) Certain measures can significantly lower these costs and 2) These costs should be more than offset by the substantial savings on the purchase price, the lack of other taxes, and the lower brackets on taxes we do have. (Each person should do the math for themselves and see if this is true for them.)
How do you lower the property insurance cost if it seems prohibitive? Buy something that was built after 1992 that is not right on or next to the beach. Property insurance is much more reasonable for those properties. The insurers charge less if you are not in a “flood zone” right on or right next to the beaches. Also, after 1992, the building codes were changed. Properties built after that time perform very well in high winds and cost less to insure.
What about property taxes? Currently they will be about $1600/year for each $100,000 of property value (usually the sales price initially). However, there are two things to remember. If you rent the property, by proper titling, we can arrange it so that your expenses, including interest, are deducted from your income, unlike in Canada. Also, remember that lower, net figure will not be taxed by Florida, only by the US at rates much lower than in Canada.
David Finkelstein is a Lawyer, a CPA and a Realtor who has practiced for 30 years, 22 of those on the West Coast of Florida.
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