Canadians, probably in record numbers, are looking to buy a vacation home in the United States to escape our grinding winter and take advantage of market conditions that have rarely, if ever, been more favourable.
U.S. home prices are at rock bottom, or close to it. The Canadian dollar has recently traded at a higher value than its American counterpart. Now seems the perfect time to take the plunge for anyone thinking of buying a piece of American real estate.
But is it worth it? And what are the risks?
The short answer, as with any decision to buy real estate, is that it all depends.
– It depends, experts say, on whether you know what you are doing, and take necessary measures to minimize or avoid paying U.S. taxes when you rent or sell your American property, or when you die.
– It depends how much value you expect to get from your home-away-from-home. Will you spend months there each year, or will it stand empty most of the time? Could you charge rent that exceeds your ongoing ownership costs?
– It depends whether you get a good deal – not in comparison with Canadian home prices, but compared with prices of similar properties in the neighbourhood where you buy.
– It also depends, to some extent, whether the Canadian dollar is up or down when and if you sell your American home and bring your money back to Canada. You could make a windfall profit if the Canadian dollar is low when you convert proceeds from a sale back into Canadian currency.
In Ottawa, two giants of the financial world – HSBC bank and KPMG accounting firm – teamed up recently to stage a seminar for clients on the potential pitfalls for Canadians of investing in U.S. real estate.
Their essential message: Do your homework, and seek professional advice on what you can do to legally keep down taxes associated with real estate ownership in the United States.
Alan Tippett, a tax specialist with KPMG, said he’s noticing a lot of interest from Canadians in buying property in the United States, “especially with the Canadian dollar close to parity and U.S. home prices looking a lot lower than they were.”
Ottawa-area couple John Brown and Monique Goudreau bought a winter home in Florida almost two years ago. They’re now confirmed snowbirds, spending about half the year in the U.S. He’s retired from the Canadian military. She worked for non-profit groups providing aid in developing countries. In summer, they are landlords of vacation properties in the Ottawa area.
Mr. Brown and Ms. Goudreau say they love escaping the Canadian winter and the lifestyle in their 55-plus, gated community near Fort Lauderdale.
“We never worry about theft or personal security in Florida,” says Mr. Brown. “Our community contains 910 homes in many varying models from townhouses and villas to very, very beautiful single homes.”
The couple liked their Florida neighbourhood so much that they purchased a second, larger home there in April 2010. They recently put their first home up for sale after renovating it, and latest Florida acquisition.
The pair paid $78,000 (all figures in U.S. funds, unless otherwise noted) in April 2009 for their first Florida home, a townhouse with two bedrooms and two bathrooms in the community of Rainberry Bay at Delray Beach. They estimate they spent $8,600 on renovations, and also put in a brand-new kitchen, which they removed from their new Florida home because it wasn’t their style.
They’ve now put the first home on the market for $95,000. This might appear to give them a chance of making a profit, but it is not the case.
When the couple bought the home, the Canadian dollar was worth only about 80 cents in U.S. currency.
That meant it cost them about $100,000 in Canadian funds to buy a house priced at $78,000 in U.S. funds. Lately, the Canadian and U.S. dollars have been close to parity.
The couple paid $129,900 for their second Florida home, which is a large semi-detached house with a huge lawn and a lake view. The location is great but the house needs an awful lot of work, says Mr. Brown. He estimates renovations may cost more than $100,000.
“We’ve completely gutted the place,” he says. “Our living space is where we choose to spend our money, and we’re very happy doing that.”
And the annual cost of owning a vacation home in Florida?
Mr. Brown calculates the couple paid bills of $8,600 last year on their first Florida home, with the biggest expense being about $3,400 to the community association for all amenities.
Next came property taxes of $1,605 – about what they would $1,465.
Mr. Brown figures he and his wife get good value from their U.S. property, since they spend six months a year in Florida.
“Renting in our community would be about Cdn$2,000 to $4,000 a month. As real estate has very likely bottomed out now, ownership can be a good investment,” he says.
And Mr. Brown adds, almost defiantly: "We do realize that a lot of people will say that ‘we’ve lost it’ and that what we’re doing does not make good economic sense. We disagree that we’ve lost it, but we agree that it may not make good economic sense.
“However, we’ve saved and invested all our lives, and now is the time to start letting go a bit.”