Foreign Buyer’s Guide to California Real Estate
“The combination of drastically reduced home prices in the US, and low interest rates financing options seems to have created the perfect storm. And this particular storm offers warm sunny days year round here in the greater Palm Springs area”.
Here’s What Numerous Foreign Buyers Are Taking Advantage of:
- Low Real Estate Prices
- Easy and Straightforward Purchase Process
- Reasonable Property Taxes
- Variety of Ways to Structure Ownership For Tax Planning
- No Realtor Fee When You Buy Palm Springs Area Properties
- International Loan Program
Here is all you need to know about buying real estate in the greater Palm Springs area, CA. Whether you are a foreign investor, a snowbird or a new immigrant, purchasing real estate in a different country can be daunting. While this guide will help you get started, it is no substitute for the expertise of experienced real estate agents, attorneys, mortgage brokers and accountants you will want to consult along the way.
HOW TO PURCHASE A HOME IN Palm Springs Area?
1. Determine How the Property will be used, before you start your property search, it’s important to think ahead to how you’ll use the home once the deal is done.
- Will this be a vacation home?
- A home to stay in while doing business in the United States?
- A home for your children while they attend college in the States?
- An investment?
- An eventual long-term residence?
By determining the primary use for your property and how long you plan to own it, you’ll be able to provide information to your real estate agent that will help guide the search and sale.
Note that simply buying real estate in the greater Palm Springs-La Quinta area, CA does not give foreign owners any rights or privileges regarding legal stay or status.
2. Learn How the U.S. Real Estate Market Works
The way real estate transactions are carried out in Southern California may differ from your home country. Each American State has its own set of rules regarding the purchase of real estate, including the type of purchase contract used, the method of closing the sale and even the duties and titles of the individuals involved.
Several important U.S. real estate practices worth noting:
In California, real estate listing information is shared by agents using multiple listing services (MLS). Consumers can access that same information using real estate sites such as Realtor.com, Zillow and Trulia. Remember, that agents use a private MLS system that is fully up-to-date, whereas consumer websites are sometimes delayed in providing information.
The commissions to both buyers and seller’s agents are generally paid for by the seller.
Buyers normally don’t pay anything to have an agent work on their behalf, unless this is agreed upon in the buyer-broker agreement.
Your agent might require that you sign a buyer broker agreement. This is an exclusive representation agreement that establishes a professional working relationship between the buyer and the real estate agent.
Not all Palm Springs area Real Estate Agents are Realtors. When looking to buy a Real Estate, search for an agent with the Realtor qualification. This means that the real estate agent is held to higher standards of ethical and professional behavior.
In California, real estate agents need licenses to operate. The licensing system was designed to ensure real estate agents are qualified to guide consumers through the maze of finding, evaluating and financing real estate.
3. Work with A Local Real Estate Professional
Foreign buyers, in particular, should take the time to find a qualified professional to walk you through the Palm Springs real estate purchasing process. If you are not fluent in English, or prefer speaking in your native language, choose agents who are conversant in your native language. While it may be possible to get translated copies of standard real estate documents, it’s likely that you will have to sign the English versions when it comes time to close the deal.
For your convenience, Petra Jacobs speaks English and German fluently, her coworkers are fluent in :Spanish, French and Italian.
4. Your Financing
Qualified foreign buyers with a 30% to 40% down payment can often obtain financing for their Real Estate purchases. Many banks require foreign buyers to have a specific amount ($100,000 or more) on deposit with the bank while others set loan limits of $1 million to $2 million. You may also be required to present a minimum of three months of bank statements.
When the time comes to apply for a mortgage, consider major banks with global operations. These lenders will have the experience necessary to verify credit established in other countries and to guide you through the U.S. home-buying process.
QUESTIONS & ANSWERS
Do I need to become a citizen to buy a home in Palm Springs area?
No, you won’t need your citizenship or a green card, but you will need an Individual Taxpayer Identification Number (ITIN). That’s a tax-processing number assigned to foreign nationals who are required to have a U.S. taxpayer identification number, but do not have one and are ineligible for Social Security numbers. An ITIN can be issued by the Internal Revenue Service or by a Certified Professional Accountant approved by the IRS. You will have to fill out a Form W-7 in order to request your ITIN.
Depending on your nationality, you may also need a valid foreign passport, visa and two or more current photo identifications, such as a driver’s license.
What should I expect from my first meeting with my real estate agent?
During your first meeting, your agent will want to learn more about you personally and discuss what you are looking for in a home or investment property. This is the perfect time for you to tell your agent exactly what you’re looking for in a property and what your budget is. It might also be a good idea explain to your agent how the home-buying process works in your native country, and ask about any differences in the U.S. market.
Will I need to hire a real estate lawyer?
Although not mandated, you may want to seek the services of a real estate attorney to help with any legal issues or questions you may encounter along the way. A real estate lawyer can review the sales contract for you, check the title and other documents relating to your purchase, and advise on legal and tax issues concerning your property.
Is there a type of property I can’t purchase in the United States?
Foreign buyers are eligible to buy single-family homes, condominiums, duplexes, triplexes, quadruplex and townhomes.
Housing cooperatives or co-ops often have rules prohibiting foreign ownership. That’s because co-ops generally require that a buyer’s source of income be from the United States and that most of the majority of the buyer’s assets be kept in the U.S.
Should I purchase Real Estate in my name?
Foreign investors can purchase property directly -in their own names- or through some sort of business entity, such as a domestic corporation, foreign corporation or limited partnership.
How the property will be used should play into your decision. Additionally, the structure through which you purchase your property can have dramatic tax consequences. Your real estate attorney and accountant should be able to provide counsel concerning your options.
Can I pay for my property in cash?
Yes, all-cash purchases are permitted, but U.S. law mandates that cash transactions over $10,000 be reported to the federal government. The requirement for reporting involves everyone connected to the transaction (purchaser, real estate agents, attorneys and title companies). The government wants to know how you earned the money and that it was legally obtained.
Cash buyers can potentially save money on mortgage application fees, loan origination fees, appraisals and title insurance.
Are There Many Foreign Home Buyers In the greater Palm Springs area?
International buyers are attracted to Palm Springs for different reasons. Some want to be close to business interests or family, while many others are drawn to the weather and many golf courses or long term holding opportunities. We see foreign buyers look for properties in the greater Palm Springs area and the coast.
Do I have to travel to the U.S. for the closing?
While you may very well want to attend your real estate closing, it is not necessary. In the event that you cannot or choose not to attend your closing, you must execute a “Power of Attorney.” This is a written document authorizing another person to represent you and sign on your behalf. It can be helpful to work with an Escrow Company that has a lot of experience closing transactions with foreign buyers.
Are there additional fees I will need to pay at closing?
Yes, the buyer typically is responsible for paying for the title search and insurance, legal fees and recording fees, amounting to an additional 1% to 2.5% of the total cost of the transaction. On a $1,000,000 home, that amounts to another $10,000 to $12,500.
How will a U.S. real estate purchase affect my taxes?
A foreign property owners’ tax liability in his home country will vary depending upon where the purchaser is from and whether that country has a tax treaty with the United States. Consult a tax attorney familiar with your home country’s treaty to get answers to tax-related questions.
The United States government requires that foreign nationals pay U.S. income taxes on any net income received from rental property. If tax returns are not filed in a timely fashion, a tax of 30 percent of the gross rental income may be assessed. Even if you’re incurring losses in the early years of your investment and you don’t owe any taxes to the government, you still must file your tax returns in a timely manner or be subject to financial penalty.
What is FIRPTA?
FIRPTA refers to the Foreign Investment in Real Property Tax Act of 1980. This ruling authorizes the United States to withhold income tax when property is sold, exchanged, gifted, transferred or liquidated by a foreigner. The Internal Revenue Service takes 10 percent of the proceeds and the state government will also take a percentage.