A recent survey conducted by the Bank of Montreal states 1 in 5 Canadians are interested in buying real estate in the United States. The National Association of Realtors reports that last year 23% of international buyers from Canada represented the largest portion of international buyers and have so for the past three years. Canadians are obviously taking advantage of the falling prices. Many of these buyers are "snowbirds" , trying to escape the harsh winters for the warm, sunny days of the southern states. Before YOU decide to take advantage, here are a few aspects to consider:
1. DETERMINE YOUR WANTS AND NEEDS
The first thing you need to ask yourself is “why do you want to buy a property in the U.S.?” Then, “Will the home be a vacation home, or do you plan on renting the property out?” Next, think about where you want to live. This is especially important if you intend to use this property as a vacation home. Think about the kinds of activities you and your family want to have: surf, ski, camping, etc. Do you want to live in a city, within a certain distance of the city, or do you want to be out in the country? What amenities does the property have to have? Think about everything you can possibly think of and determine what needs you’d like, but can live without.
2. LOCATION
Once you’ve determined your needs, it’s time to narrow down your search to a city and state. Ever hear that old real estate adage, "Location, location, location."? Aside from price, location is the most determining factor when purchasing a property. Every state looks completely different than each other so this is where the activities you decided you wanted will help narrow it down. More often than not if you are a "snowbird" you're probably wanting to be in warmer locals... try any of the southern states: Florida, Arizona, Nevada and California are the current Canadian favorites. When you've determined which states you are interested in go to sites like the city's chamber of commerce and contact a local real estate agent (like myself here in Las Vegas). The Chamber of Commerce site will have descriptions of all the city has to offer: schools, neighborhoods, amenities, etc. and in most cases will send you a booklet of their city for FREE. For more information about Las Vegas, Click on the Link on this blog located to the right of your screen under “Useful Links”.
3. SEE THE PROPERTIES
Be prepared to visit the city you are interested in and get to know the area first hand. Don't buy a property without visiting it in person, even if you don't intend to live in the property. It's important that you determine if the property is worth your investment. Find out if any repairs are needed, appliances need to be purchased, and make sure it's in an ideal location (i.e. no dogs barking, planes flying over head, not located near an airport, etc.). Drive around the area during both day and night. Check with your real estate agent to see if resale values are on the decline and look at local crime rates. Other questions to consider are "Do other investors report higher maintenance costs and repair bills than other neighborhoods? Is there a high rate of tenant turnover and a high vacancy rate? Are there any litigations going on within a development? Etc." Frankly your agent should be your main source of information. Either giving you this information, or directing you where it can be found. They should also give you an idea on the market as a whole, explaining what type of transactions you may encounter like Foreclosures, Short Sales, etc. This will help determine where to focus your efforts and keep you from wasting time and money.
4. TAXES- HIRE A LOCAL PROFESSIONAL
If you're a Canadian resident and spend less than 121 days in the U.S. in a given tax year, you are not considered a U.S. resident and do not have to file an income tax return. However, if you do stay longer and don't properly do some tax planning you risk having to pay tax in both countries. Property taxes may also vary as some states charge more if the purchaser resides outside of the U.S. The Bank of Montreal says its important to be aware of mortgage costs as interest rates also vary within the two countries. I suggest seeking professional help from an accountant within the state you are interested in buying property to answer any tax-related questions as tax laws vary both nationally and locally. Also, make sure to ask them how you’ll be affected if you decided to sell the property.
5. HIRE A PROPERTY MANAGER
If you plan to live in the property for part of the year, but plan to leave the property vacant or choose to rent out the property while you are gone, hire a property manager. This person will make sure the property is maintained, will make sure it doesn't get burglarized or vandalized, and will collect the rent from the tenant.
*If you're planning to rent the property out for all of the year, the U.S. IRS will consider you a "non-resident alien" and will require you to pay income tax on the rent that you collect. There is a 30% withholding tax on the rent you collect, and must be deducted by you or the property management firm you hire. In my experience, the property manager usually takes this out before sending you your check, but make sure you decide what you want to do before you hire the management company. This may help you determine the company you use.
6. FINANCING
For financing options, the Bank of Montreal suggests using a U.S. financial institution that has ties to a Canadian bank. "Staying within the family can save a lot of time and headache," says Laura Parsons, BMO mortgage specialist. "Alternatively, seek out Canadian banks that are already established in the U.S. and the area you are looking to purchase in." If you intend to pay for the property in cash you may need to open a U.S bank account. Ask the local real estate agent, or financial institution to advise if this is necessary.
7. INSURANCE
Insurance is another major consideration. Most Canadians may know that when traveling to the U.S. medical insurance is required but, may over look the need for home insurance. When insuring the property, be aware that some areas that often have hurricanes, flooding, or earthquakes often will have higher insurance costs. You'll also want to make your sure have adequate liability insurance. If you'll be hiring trades people to work on your property, make sure they are covered with workers compensation. Again, your real estate agent can help suggest insurance agents.
In summary, do a lot of research, ask a lot of questions, and when push comes to shove speak to local experts who can guide you step to step. Follow these steps, and you too can take advantage of these record lows and make a good investment.
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