11 Costs to be Aware of Before Buying U.S. Real Estate

Costs of Buying US Real EstateThe number of Canadians jumping on the U.S. real estate bandwagon is growing and in true Canadian spirit, most prefer the DIY method. The trouble is, there are a lot of assumptions and many Canadians do not factor in all of the costs involved with buying U.S. real estate. To help you budget for these expenses, we’ve complied a list of our hard-earned wisdom that outlines the most common expenses when buying U.S. real estate.

1. Property Taxes

All property buyers need to pay what is called property taxes. This tax is levied by the government where the property is located. Property taxes could be meted out by a national governing authority, a federal state or a municipality. Real property taxes where most homebuyers belong to consist of a mix of land as well as improvements to that land via the construction of a house. The state would appraise the total value of the property and a corresponding tax is levied for that property.

2. HOA (condo) transfer fees

Homeowner’s association or HOA (condo) transfer fees are a type of payment that homeowners need to pay to the HOA that is in the jurisdiction of their unit. These fees vary from state to state and neither the seller, buyer nor the agents have any idea how much the association would charge for the transfer of the property. If you plan on buying a condo, or any property with HOA fees, be sure to watch our tips for buying condos video.

3. Insurance

If you are purchasing a property, you would be required by law to get insurance so that you can be able to receive financing for that home. There are actually three types of home insurance namely: HO-1, HO-2 and HO-3. These policies only cover the property but not the contents of that property. A lot of these policies carry many exclusions. Among the three types HO-3 seems to have the most coverage. An HO-3 policy is divided into property and liability protection. Property protection gives out coverage for the house itself as well as attached structures. Personal property is also covered. Some types will offer reimbursement of the value lost while others would also provide the actual amount regardless of depreciation. There are also other policies that provide specific coverage of items that are lost inside the property even if there is no catastrophic event. If your property is damaged and is deemed unlivable, the insurance will cover your living costs while it is being renovated. For more details on insurance, check out our video on real estate insurance.

4. Accounting Fees

The US Internal Revenue service describes real estate as a capital asset which means that it has a useful life of greater than one year. For accounting purposes, real estate property is recorded on the accounting general ledger provided by the rules of the IRS. As an alternative to expensing the entire cost of a capital asset when it is acquired, the cost should be apportioned over the number of years of the useful life of the asset or in this case the usefulness of the home. The IRS does not consider land as a depreciable asset and therefore its value is considered separate from that of the structures that are involved in the transaction.

5. Legal Fees

These are attorney’s fees that the buyer needs to shell out for the services rendered by legal counsel for acquiring the property. They vary based on the time and effort needed to complete the transaction. Other factors that contribute to the amount of legal fees charged by counsel are: whether special skill or service was provided, amount or value of the property, difficulty, results obtained, fees authorized by law as well as special circumstances like postponements, loss of retainer, uncertainty of reward as well as urgency of the transaction.

6. Title Agent Fees

This is a fee that must be paid to a settlement agent that prepared the documents, calculated the figures as well as supervised the proper execution of closing documents in a real estate transaction. This fee is usually split in between the seller as well as the buyer and can always be bargained or negotiated as part of the contract of sale. For more details on the services that title agents provde, check out our video on title insurance and owners policy.

7. Property Management

This is basically the operation and control normally at the behest of the owner of the property in question. Managing the property means taking physical care of it as well as maintenance for its usable life and condition. One essential role of property management is it acts as a liaison for the owner and the tenant. They provide a buffer for property owners that do not want to have any contact with their tenants. Their main duties include: screening or testing of the prospective tenant’s credit, rental and criminal history as well as ability to pay. Property management also does the lease contracting on behalf of the owner and mitigation and remediation of any issues that may arise like maintenance problems. For more details on property management, check out our video on property management.

8. Currency exchange

This is basically the value of the currency you own against the US dollar. If your native currency is strong then you gain some momentum in savings. However, if it is not performing properly then you may have to pay more.

9. Document Recording fees

When you purchase a home, it becomes public record. All the information regarding the property as well as any loan information you possess requires it to be filed at a county courthouse or a local government office. The recording fee is given to the government, which then enters an official record for the change of ownership.

10. Inspection

Home inspectors have different methods when quoting home buyers for the services they offer. Some usually charge a standard or flat rate while others charge depending on the living area by square foot, some charge depending on the overall value of the property while some on the amount of time they spent. If the inspection turns out little or nothing wrong with the house then you could say that its money well spent. It is also safe to say if the inspector is able to find some potential issues that can be resolved by early intervention then you could also save money in the long run.

11. ITIN application Fees

ITIN or individual tax identification number is usually issued to people that are not eligible to obtain a US social security number but need to request an IRS tax number in order to file a US tax return and or make tax payments are required in the Internal Revenue Code. Basically any individual can file an ITN application himself or herself or through a certifying acceptance agent which usually charge a fee for the service.

If you’re thinking of purchasing U.S. real estate and would like to know how we can help, feel free to contact us for more information.

Comments

  1. It is always important to choose a real estate solicitor that has good local knowledge and has experience in real estate law. It is always best to do your research and look for recommendations wherever possible.

  2. A great article outlining the many items that need to be factored into your budget of a purchase. Be sure to contact a local Realtor who can give you the best advice in the area you are interested in. Thanks for the post!

  3. I think that before buying the most important thing is to look for the hidden cost of a property. Sometimes we are not able to analyze it and get loss.

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