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.)
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.
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.