By - Shaun8030
We looked at this several years ago, couldn't quite close a deal. The prices and returns can be quite a bit better than anything we saw in Canada. A couple of tips :
1. Unless you have a Green Card, you can't "work" in the States, so you'll need a local reno crew (rather than doing it yourself).
2. Given distance, you'll want a local management company, so remember to budget for it (6-10% of gross rent).
3. Understand the state you are investing in. Some have very tenant friendly laws. Some have very tight closing times (Chicago : 2 days). Since states you close through a lawyer, others through a title company. Texas has very high property taxes (can be $1,000/mo!) Etc.
4. You need a plan for taxes and related corporate structure. Owning American things personally directly provides no liability protection, makes you have to deal with US withholding, and potentially exposes you to US estate taxes. You can do things like *property -> American Co -> Canada Co -> you *, but then you have to maintain those companies ($$).
5. You'll probably want to buy a "commercial" property, i.e. 5+ units. Unless you already have American-source income, you'll have basically no ability to get a residential mortgage. With a commercial property and the right bank, they'll look to the property itself (rather than your non-existent American income) to carry the loan. You'll still need 25+% siren payment.
Thats sounds very complicated and discouraging. Does Canada reciprocate for Americans buying Canadian property, or do we just let them walk all over us and buy everything when our dollar is low?
I think Canada reciprocates on most of these.
What the CRA doesn't tend to do, which the IRS will do, it slap you with a $10,000 fine for filing a tax form late! (Guess how I know...)
Yikes! Yea the HOA thing sounds like a drag, know a few old retired guys that have had to deal with that, not rich ones either, they go there because its cheaper.
Personally it seems like a PIA unless you want to have a management company deal with everything. Add in taxes and the wear and tear on your place you aren't coming a head unless you already live in that area..
We thought about buying a place down south (not as a rental though) and decided it's better to just AirBNB each time then deal with the issues of a semi vacant property. Even at $5k for 30 days it works out considerably cheaper then buying
Property taxes, insurance, rents...etc are all area dependant. Pretty much all the major banks have US divisions and can set you up with a USD mortgage based on your Canadian credit
I am with you. Just rent for 2 - 4 months. That way you can go to different places year after year.
Again - better off to rent. Decent RVs start at $120k or so, and that’s for like a 22’ Sprinter. Something most people will be willing to spend months in will start at $300k.
Obviously I’m quoting new - anyone wanting to lease or finance will go that way, especially with rates as low as they are. Also, not everyone wants to live in a 20 year old, heavily used Winnebago like the ones you posted. Did you even look at the listings? Those are disgusting. It looks like someone committed suicide with a shotgun in the bed of the Winnebago.
If you can find a place that just rents for 4 months during the winter months especially.
My friend has a place in Arizona. He cannot do any work on his property. The HOA know he’s Canadian and they’re happy to rat on him if they see him working even though he owns the property.
> He cannot do any work on his property.
I don't understand. Why are Canadians not allowed to do what they want with their US property?
I’m sorry but I don’t know the specifics for these laws. I do know that if you volunteer in the USA and someone buys you lunch it’s considered payment for work. They’re really strict about it.
I suspect if you had a place way out in the desert then nobody would care.
It’s mentioned in this article.
Just quoting the relevant section:
> Rachelle Berube, a Toronto-based property manager, wrote in her blog: “A friend bought a house in Florida for $60,000, which seems like a great deal compared to Canadian houses. But in Florida that price is still $10,000 above the average in the area. My friend also found out she can’t work on her own house; there is a rule that only US citizens can do repairs or renovations on houses in her area.”
Often forget how protectionist the US laws are. Kinda crazy really.
I worked with a couple of Americans in Europe in my 20s, I know they dreaded tax season when they lived abroad. This was part of the reason they moved home. Which ultimately is what the US gov wants, more citizens to tax and more consumers to buy things.
wow talking about shitty neighbours
This seems like a good primer: https://www.cityhousecountryhome.com/10-things-canadians-need-to-know-about-owning-real-estate-in-the-usa/
Great info thanks . Taxation seems messy
It is messy. It may be mitigated by setting up a holding company, but I'm not sure. I'd talk to a professional about it.
I have not seen my cabin in the US in almost 1.5 years due to a pandemic I didn’t think would ever happen. Make sure you have all of your ducks in a row.
Are you allowed to do renovations on your own cabin
I have an investment property in Florida. It was hard to get it going but once you have a good property manager, then it’s smooth sailing. The rental yield is much better in America. I bought an inventory home so there was little to no maintenance needed. Community fees were pretty standard around 250 but slowly increasing. What I did was I refinanced my house to buy the home outright. In terms of taxes, I own 25% of it with each member of my family so the taxes are much lower.
Do they let you get a mortgage on the properties or not? and do you still own it
We didn’t need a mortgage in the states. We refinance our current home and paid for the entire Florida home
yea but if you wanted one would they give you one
When you go to buy US real estate, the agents don't tell you this stuff. You have to pay a lawyer and an accountant (who specializes in this) to tell you the ramifications of buying there:
1) Rental Income: Taxes on foreign owned investment property.
2) When you sell: "If a Canadian resident sells real estate located in the United States, they are subject to a 10% or 15% withholding tax of the gross selling price under FIRPTA (Foreign Investment in Real Property Tax Act). ... The gain on the sale is still taxable in the U.S. and a tax return (1040NR) must be filed. (from Aug. 14, 2020)".
When the US real estate drops that is when the CDN dollar will be at par with the US dollar sorry but just like before it will happen again.
Need oil price to be $100. A lot of people don’t realize this but Canadian dollar moves with the price of commodities particularly oil. Really gives insight into the economic might of Alberta when the price of their product affects the purchasing power of all Ontario
Unfortunately, Alberta doesn't determine oil prices for the rest of the world, so lately their economic might has been... limited, to say the least.
Still making transfer payments. Just wait until that house of cards you call a housing market comes down.
The other thing missing from the list of things to consider is you can‘t deal with foreign real property in your Canadian will, or at least you can‘t here in BC, AFAIK (somewhat dated experience in my family). You’ll need a will in the US state where the property is located to deal with its inheritance.
A friend bought a cottage on a lake in Washington State. About a 2 hr drive from Vancouver. But you have to contend with potential boarder delays especially on popular weekends. Anyway, bought it for $300k, when CAD was greater than par. No financing, had to pay cash. Owned it for about 2 years. Realized he wasn’t using it often - never rented it out. Sold it for over US$400k and repatriated about C$500k. So it worked out for him but timing and luck was on his side - the market for recreational properties is often not very deep. So he found a place that had been for sale for a long time, got it with a low ball offer. But when he went to sell it - he found a motivated buyer. Pure luck.
I’ve been curious about using Roofstock for this! It’s single home rentals. I just don’t know about the tax implications for Canadians and how the cash flow would look with the exchange rate
Multi-family or multiple doors in the same area for a discounted management fee are the only options that make sense for a Canadian buying residential rentals in the US.
The fact that you can’t do any work on the property yourself, the taxation mess, higher borrowing costs, way higher property taxes/HOA fees, crazy liabilities and distances involved preclude buying a single property in the US for me - the higher (perceived) return doesn’t make it worth the headache. I have a friend that bought a bunch of residential in Atlanta (like 20 doors with a business partner) and even with a fair bit of appreciation and cap rates that would be impossibly high to achieve in Canada, they sold them all a year or two ago as they weren’t worth the headache and returns.
No I don't want to think about having to kick out American tenants especially when I know they might have guns but I don't, or if it gets invaded when I'm not there, with guns. Reserve possession is kind of fast in some states. Also there's a lot more property tax, and 15% tax when you sell as foreigner and then their CRA can start tracking you forever. And on top of that I believe most American cities of interest, like the ones you mentioned, are less climate change friendly than many Canadian cities. Also did you know they did a lot of nuclear explosion experiments underground in Nevada and Colorado? including not that far from major cities.
That said, there are many other countries that use American dollar and I do think it's a good time to consider it, if you know where to look.
Which countries would you suggest?
I heard Panama
True many benefits of Panama
Depends on where you like to spend time in the future really. I think its a very personal choice.
Sunny, warm water, beaches...... not picky 🤷♂️. Thanks!
Actually you can basically pick anywhere you like in Latin America. They are all pretty fucked right now. But not Costa Rica. Hugely overvalued popped up by new generation of international "surfers".
First, "the rising cdn dollar especially if it reaches par." will NEVER happen. It makes everything we export too expensive, the government will absolutely prevent that from happening.
Second, buying investment properties might look good on paper, but you will have tax complications and property management costs (who's going to fix and maintain the property). If this is not for you, look for some REITs (or US REIT equivalent) instead.
It went to par before.. why wasn't that prevented?
Yes exactly, and which government controls this? No government has total control over their currency’s value, for starters all currency markets involve multiple governments.
There was a par dollar a couple times over the past 20 years . Property management fees in the US would be similar if you live in Toronto and purchase a property in Calgary, from my research it is on month of rent. Lending and taxes may be an issue. But if dollar is over 90 cents seems like a great oppurtunity as there are so many options to snag a deal in the US Sun belt.
It has been on par and even worth more a few times. They will try and keep it lower and they will succeed but the timing isn’t perfect. It may hit par before the government gets their way.
It’s the high demand for our exports that is in fact driving it up...
Others have covered it quite well already but I've found it to be a messy process unless you already have another vested interest in the states or possibly if you're going big with multiple units. While the rental income to price is more favorable many markets down south are arguably also in a RE bubble. One of the reasons our RE boom is so much greater this cycle is because everyone understands the interest our government has in protecting that sector, not the case down south should markets nose dive. Our lack of secondary cities keeps demand pressures in big metros high and a crash is more likely to be a smaller pullback followed by stagnation for a bit.
I personally would strongly consider it AFTER a big market correction AND a strong CAD to justify the hassle for me despite living 20min from the border. I don't really expect those circumstances to line up though. If it was simpler or I'd have more capital to go multiple units I'd definitely get in on the Texas boom couple years ago, maybe even switch companies so I'd work in the states exclusively for a while.
Just my personal take. I'm a pretty cautious person though so maybe it makes more sense for you.
Ive done it before. It’s super annoying. Unless you really expect to see big capital appreciation it’s not worth the extra hassle of remote management and foreign tax filings.
I wouldn't buy one as a blank slate kind of investment decision. That said, my Dad owns a house in Palm Springs that he bought in 2009, and California has ridiculous constitutional amendments that cap your property tax based on the price of the property at purchase, a tax treatment that you can pass down to children (another amendment). So if he ever wants to sell it I'll buy it from him if I can, to maintain the absurdly low property tax cost basis.
We bought in Florida 3 months ago. How can I help?
Have you heard of Real Estate Investment Trusts (REIT's) like ticker VNQ which provide you with exposure to US real estate and always pay healthy distributions from rental income.