Should Canadians Be Buying US Real Estate in 2011?

Canada and US

As a Canadian it is hard not to hear the buzz about buying real estate below  the 49th. Media is constantly reminding us about our strong Canadian economy compared to the shaky and fragile economy in the United States. Perhaps you have heard about get-rich-quick schemes, or bus tours going though Las Vegas, Phoenix or Miami, that will teach you all you need to know. All these could be educational and helpful but at the end of the day, you should check out how the people involved get paid and what their vested interest is.

So why haven’t you jumped into the US market??? Likely it’s because of the potential unknowns, and there are many!

First I suggest you consider why you want to buy in the US. Yes, there could be lots of great deals, but what is your end game and what will make it a good deal for you?

· Are you a cash flow investor looking for monthly income?

· Are you looking for a vacation home, maybe somewhere on a golf course?

· Are you a speculator looking to buy low now and sell high later?

Or, do you want all of the above?

No matter which one of these categories you fall into one thing is for sure; you need to DO YOUR HOME WORK! Then, once you know why you want to buy real estate in the US, you will need to pick a geographic area and evaluate the key investment factors, such as tax implications for foreign owners, vacancy rates, GDP and economic growth, what types of industry and infrastructure are in place, and what capital projects are developing. Things that do not matter are: what the home used to be worth, types of businesses that used to employ people but have now gone bankrupt, or how inexpensive a property is (if no one lives in a ghost town you can be sure it’s not worth buying there!)

As well, the US can be a very different place with very different laws (that change state to state). Look into whether it is best to hold real estate personally or in a corporate structure. Talk to accountants and lawyers familiar with American law and property ownership to assess what will work best for you. This will cost you money up front, but setting things up right will save you bigger dollars down the road. (Be sure to weigh your upfront costs against your predicted payout, to make sure the investment is worthwhile.)

Example:

Tax implications are one case where Canada is different than the US. If you personally own real estate in the US, upon your demise Uncle Sam will be interested in collecting some inheritance tax. A corporation is a legal entity that cannot die, but there are more costs associated with this particular avenue. Incorporation could be a good solution if you are a serious investor looking at buying multiple properties, but it may not make sense for a single purchase. Another issue to keep in mind is paperwork around withholding taxes. The profits that you expect to make on rental income (and which you may need to pay down your credit line) could get tied up if you, or your accountant, do not fill out the proper paperwork!

THINGS TO BE AWARE OF

Fix and flip TV shows, where the buyer purchases a home for next to nothing and flips it for big bucks, used to be very popular. You can try to do this in the US, but be aware: as a Canadian you are not allowed to do any renovations yourself in the US unless you have a Green Card! You can be charged under the Homeland Security Act, and in the worst case, put in jail for up to 2 years!

Real Estate is a locally based commodity with local rules and regulations. The way you purchase real estate where you live will not likely be the way they do things south of the Border. You may have to wait anywhere from 3 to 6 months just to hear whether you have an accepted offer (in the case of a short sale).

KEY POINTS TO CONSIDER BEFORE YOU JUMP IN

· How many foreclosed properties are still on the banks’ books and how long it is going to take to sell them? (Foreclosures are currently holding certain market prices down and will continue to do so indefinitely.)

· How long do you plan to own your US real estate? (We have no real way of knowing how long it will take the US economy to turn around…it could be a few years or it could take a decade. Are you okay with that?)

· Do you have a plan for long distance management of the property? How often will you be visiting it? If you are considering buying a vacation home, are you sure you want to go to the same place a couple of times a year for the next several years? Will you get the value you hope for out of the property?

· A property that provides cash flow is generally a good investment. Consider also whether you could find a property elsewhere that will have lower upfront costs and less hassle, but still pay you the same returns. Boring and predictable are not bad things when it comes to investing.

CONCLUSIONS

There are certainly deals out there, but you should physically go and see for yourself whatever property you are considering buying. Many homes are selling for below replacement cost, which means that eventually the market prices will have to go up. Builders will not get back to building until they can be profitable. And finally, the largest economy in the world will grow again at some point!

US real estate is not an easy purchase to make just because someone tells you it is. Do your Home Work and make smart, informed choices for yourself before you buy.

12 thoughts on “Should Canadians Be Buying US Real Estate in 2011?

  1. Thanks for the great tips! I am currently looking into investing in US real estate and sites like this are very useful. I recently attended a seminars on how to buy U.S. real estate as a Canadian. The information I got there was quite relevant and he goes over all the risks, and taxation issues that can be encountered when dealing with US real estate.

    Thanks again!

  2. Greg,

    This is all very good information. As a Canadian Lending Specialist for RBC Bank (USA) I often speak with Canadian clients who seem really interested in purchasing a U.S. property, but honestly have not done enough research into the important issues. IE. Income taxes, estate taxes, ownership, finance, etc…….It is good you are getting this information out there.

    Chris

    Christopher Wyatt | Mortgage Consultant | RBC Bank (USA) | NMLS# 737603 | T. 407-244-6002 | F. 775-429-7554 | C. 407-739-2265

    1. I am an RBC client in Toronto. Can you make something happen for us in California? Can we use my Canadian credit report? Will loan be from Canadian Bank to buy a US house, or a US Bank? I am very close to buying, and would like to speak with a specialist. I have done a lot of research, and woulod like to know excatly what my options are in terms of loan, deposit, reserves, and mortgage rate…fixed possible longterm or only adjustable?

      1. I know that Canadian banks are very hesatent to get invloved with US property. Most people I know investing in the US are doing so using a Canadian Line of Credit and paying Cash for properties. I know of a mortgage expert Kyle Green with Mortgage Alliance based Vancouver that may have some answers for you so I have made a call to him and I will let you know what I find out. If you are going to work with a bank to purchase it will likely have to be a US bank and their rules are all different state to state…I know RBC does have branches around the States but I am not sure about California. Try talking Christopher Wyatt chris.wyatt@rbc.com 407-739-2265 to see if he has a contact for you in California…

        1. Hi Christopher, talking with Kyle Green of Mortgage Alliance, he indicated that your two main options for financing would be either a line of Credit in Canada or a loan with a US bank. Working with a US lender will likely require you to put 30% down and likely can only do that once as a “second home.” For Canadian financing you would have to look at the line of credit option which would give you good results as essentially a “Cash Buyer” as most sellers do not want to look at deals with financing anyways. Kyle suggested talking to your banking partners hear to refer you to someone in the states as every state has different rules and you will need someone specific for your area of interest.

  3. Greg,

    Very useful information you have presented in your post! I would be happy to assist any Canadian investors/buyers who are looking for a Real Estate Agent in the Scottsdale/North Scottsdale, AZ area. I am also an Estate Attorney with an LLM in Taxation. Feel free to contact me with any questions you might have.

    Donald Coats,

    480-677-9523

  4. Hi, we are interested in buying a gold mining property in Montana,do you have any info on operating a small business in this state? We are from Canada.

    Thanks,Dale

  5. Anyone know of a specialist mortgage broker or lender in US/California/ San Diego. I live in Toronto and want to buy in San Diego. I have done a lot of homework, and would like to discuss options and check loan offers, but not with just anyone. I would like to work with someone who does this all the time for Canadians. Do they have to be in San Diego or California if that’s where house is, or can they be anywhere in US? Thanks

Leave a Reply

Your email address will not be published. Required fields are marked *