Is it a Mistake to by US Real Estate?

Top 10 Reasons Why I am Cautious to Buy Real Estate in the USA:

Canada USAEveryone has an idea of value and it is different and unique to each person. As an average Canadian investor, I personally would not buy a one off (single) property of American real estate. I do not fundamentally see the benefit to buying any real estate in the USA unless one is at the point to be able to buy “several doors/properties” to leverage the higher overhead involved in buying in another country like the USA. The scale of work required will have to justify the benefit. If you have significant dollars to spend, the American real estate market may make sense for you. However, if you are just a regular person it may not make financial sense. Be careful not to let the potential of significant profit from an American investment leak away due to all of the extra costs and overhead that are involved in the process.

Reasons against Buying in the USA

 

1) Economic Fundamentals – Go where the jobs are going. If you are looking for property values to appreciate and they are not based on speculative growth, then look for job creation. Increased employment is where the property values will fundamentally rise. How long do you forecast it will take for the USA and more specifically the local economy to improve? (Could it still be a while?)

 

2) Income Tax and Capital Gains (on different levels Federal, State and sometimes Municipal) – If you are looking to own out of country properties this translates into accounting fees and being aware of all of the levels of government that will be taxing your investment.(The tax rates vary from state to state and city to city!)

 

3) Distance – or read Travel costs (A. – Always physically go to see (inspect) what you are buying; and B. – Ensure over time that the property is being well maintained and conduct an interior and exterior check-up on the property. How easily can you get there if there is a hurricane, flood, or wild fire???

4) Death Taxes – In the USA there are taxes to be paid upon your death (including on real estate holdings!) – So consider buying real estate in a USA incorporated company. There are more legal fees and accounting fees but at least a corporation can’t die!

 

5) Maintenance and upkeep – Canadian’s are not allowed to work in the USA without a work permit so be cognisant of the fact that even if you are a handy-man type…you will probably have to hire local workers to renovate your properties. It may seem crazy but Home Land Security has broad and far-reaching interpretations and they are protecting American job opportunities so foreigners (including Canadians) do not take away any work from Americans. Also, if a number of units in the same condo complex have already been foreclosed, then consider the health of the property and the likelihood of the complex being behind in their budgeted revenues, due to unpaid condo fees …one more consideration.

6) Everyone else is doing it…there is a lot of hype around Canadians’ buying in the USA. You hear discussions from radio talk shows or from related short course seminars; people are talking about it all over. Just because others are doing it doesn’t mean it is going to be a good choice for you. Yes, educate yourself, but beware of the snake oil sales people that are looking to get their hands on your money. Work with good people, experienced with international buyers, providing good advice and good after sales service follow up.

7) Restrictions on Time – As a Canadian you are only allowed to spend so many days per year in the USA as a guest/visitor. The IRS is not as friendly as the Canada Revenue Agency (I know that sounds funny but its true) and they will come after you if you go off side on your time for income taxes!

8) Medical Insurance Make sure you qualify for and stay up to date with the rules of your medical and travel insurance. The American medical system is not at all the same as our different provincial systems and you don’t want to learn that lesson the hard way. Also consider, if your personal health were to change would you still be interested or able to travel and still have insurance coverage?

9) Holiday homes getting away on vacation and charging your batteries is a very good and important mental health thing to do, especially travelling with family. Ask this question: Do you want to spend the bulk of your holidays time after time at the same location? If Yes – then great! If No than think long and hard about how often you want to go to your American property destination. If it is to be your destination for say only one week a year, then would a holiday rental be more effective?

 

10) Inexpensive prices – Cheap is different from inexpensive! Never buy something cheap, as the goal instead is “good value.” Houses in tough neighbourhoods may be cheap but that is because no one wants to live there! Know where and what you are buying! You don’t want to get caught in the mouse trap that was easy to get into but impossible to get out!

There are many reasons to buy USA real estate: spending time away or perhaps with your family on a holiday, or maybe just looking for a great investment. If you are just looking at purchasing one property, then weigh out all of the risks to your capital before putting your hard earned money on the line. If you are looking at purchasing multiple units in the USA, then build a solid team with good property managers, lawyers, accountants, realtors, inspectors, bankers and so on. Before you do any of this, however, I suggest considering if you could make the same or similar move in Canada, except without all of the extra overhead, taxes and expense that is required to safely navigate through any foreign system, even in the USA! Is it true the grass looks greener on the other side? Well, there are actually deals right in your own back yard that will give you what you are looking for without as much hassle!

If you would like to have a conversation on this topic I am always here to help.

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