Investing in the Sunshine State

As featured in the November/December issue of Your Mortgage magazine

Seen as the land of opportunity, there are plenty of British investors buying into the American dream and catching the market on the upswing, says Clare Nessling

Everything about the USA is big and bold. Flanked by two oceans, the fifty states symbolised on the Star Spangled Banner occupy a vast and incredibly varied terrain. Home to more than 300 million people from every corner of the globe, this great nation is a fascinating melting pot of cultures and customs.

With so much diversity, the hardest part could be choosing where to live the American dream, but there’s one state which stands out from the rest and appears to ticks all the right boxes for British investors, and that state is Florida.

Home to some of the world’s most popular theme parks, Florida doesn’t just offer fantastic weather, great entertainment and regular flights from the UK; property there still costs a lot less than it did prior to the financial crisis. So even though it has long attracted leading celebrities to its shores, including David Beckham, who has reportedly bought a luxury family mansion in Miami, the city where he is hoping to set up a football club, you certainly don’t need a celebrity bank balance when it comes to snapping up a home in the Sunshine State.

Hot spots
Most British buyers are drawn to Orlando, where they can buy a property within a short driving distance of the local airport and enjoy family holidays in the sun. And if the property is within easy travelling distance of the famous theme parks, year-round rental opportunities are good too.

The Gulf coast is also popular, with locations such as Sarasota, St Petersburg, Bradenton and Naples featuring on many a British buyer’s wish list. This beautiful coastline has some of the country’s finest beaches and is hugged by a number of barrier islands that have become resort destinations in their own right.

The Atlantic coast also offers great investment opportunities, with plenty of gated communities to choose from and bargain prices to take advantage of.

Good time to invest
There have been worries over recent years about the stability of the US housing market, with the housing crash of 2007 being the worst in the country’s history. Fast forward to 2014, however, and things are looking much rosier. Rising house prices, low mortgage rates and a slowly improving economy have been drawing buyers back to the market, although some moderating influences, such as rising mortgage rates, are expected to lead to a slowdown in home value appreciation, these will also contribute to a more balanced market.

And it’s a really good time to invest. It was the sub-prime mortgage market in the USA that caused the credit crunch to begin with, and as a result, there are plenty of bank-owned properties available at very good prices and this is especially the case in Florida, where there is a higher number of repossessions. At the moment, you can snap up a three-bed villa in Orlando from the low $100,000s or a two-bed condominium in Miami from the low $200,000s.

The recent strength of the pound has been giving British buyers more bang for their buck, although at the time of writing, the US dollar is widely expected to be one of the best performers in global FX through the latter half of the year, so this should be factored into any investment plans.

According to Zillow, the online real estate marketplace, Florida home values have gone up by 11.1 per cent over the last year and it predicts 3.4 per cent growth in the next year. Orlando has seen prices rise by 10.8 over the same period, with a 4.9 per cent increase predicted over the next year. Prices in this area in particular are still way below their median peak of $264,000 in 2007, so it’s perhaps no surprise that investors are excited about how much further prices may be expected to rise.

Another key factor driving many prospective investors to the USA is the common language. According to RealtyTrac, a leading supplier of US real estate data, English-speaking countries accounted for 68 per cent of international residents looking for homes in the USA between 2009 and 2013, with the British accounting for 12.1 per cent, the second highest after Canada.

Financing the dream
If you’re not lucky enough to be a cash buyer, finance is still a good option. Mortgages are generally available in Florida for purchases up to 65 per cent of the property’s value, the maximum term is 30 years, and interest rates and loan terms tend to vary depending on the property type and exact location. The minimum loan size is $85,000 in Florida (less than anywhere else in the USA) and rates currently start from just three per cent. Many deals have no Early Redemption Charges so lump sums may be paid off the balance at any time without incurring a penalty.

We always recommend that a prospective buyer obtains an ‘approval in principle’ before committing to a property purchase. This costs nothing, but will tell you up front about how much you can borrow, and will prove to vendors that you’re serious about buying.

If the property is to be rented out, bear in mind that the rental income is most likely to be in dollars, so it may make most sense for to take out a dollar-denominated mortgage, so that you’re not subject to any currency fluctuations. Renting out your property could also come with some tax-efficient benefits, as it’s possible to offset mortgage interest payments, as well as other expenses, against any rental income.

Last word
The USA’s increasing stability and rise in confidence levels are drawing buyers back to the market, and of all the investment opportunities available across the pond, it would appear that no asset class is attracting more attention from overseas investors than property.

As always, however, it’s imperative to take professional advice before committing to anything. You should always go through the same process that you would follow if you were buying a property in the UK, and this includes consulting a good independent lawyer, and ensuring that an independent valuation of the property takes place, even if it’s a cash purchase. There’s nothing to be gained, and everything to lose, by cutting corners and taking unnecessary risks.

Mortgage top tips

Consider fluctuations in the exchange rate
It’s generally advisable for an overseas mortgage and the income used to service the mortgage repayments to be in the same currency, to avoid any exchange rate issues.

Factor in additional costs
Lawyer’s fees, local and national taxes, insurance, and so on can often add at least a further 10 per cent to your price of purchase.

Seek professional advice
Take independent advice from an English-speaking lawyer who is not connected to your seller, estate agent or property developer.

Obtain a mortgage ‘approval in principle’
This will confirm how much you can afford to borrow and will prove that you’re a serious buyer.

Consider a flexible mortgage deal
If you want the flexibility of being able to pay lump sums off the balance at any time during the mortgage term, check that there are no Early Redemption Charges attached to the mortgage deal.

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