With real estate values skyrocketing in Canada, many homeowners find themselves with more home equity than they could have ever imagined. While a lot of Canadians are house-rich, they’re struggling to earn a decent return in the low interest rate environment.
With safe investments like high-interest savings accounts, bonds and GICs barely keeping up with inflation, a lot of Canadians are considering investing in U.S. real estate. With U.S. home prices still depressed in some regions and a relatively strong Canadian dollar, investing in U.S. real estate remains an attract opportunity for Canadians – as long it’s done right.
Canadians Top Investors in U.S. Real Estate
When it comes to investing in U.S. real estate, Canadians are the top foreign investors in terms of volume. We represent 15% of total international sales and 19% of all transactions in the U.S., according to the National Association of Realtors (NAR). Between March 2013 and March 2014, we bought a whopping 13.8-billion worth of U.S. properties.
Where are Canadians buying U.S. real estate? We seem particularly fond of the south, which should come as no surprise based on our frigid winter weather. Seventy-three percent of U.S. properties were purchased real estate in Florida, Arizona, and California.
How costly are U.S. properties? The average price of U.S. properties was $314,718, slightly more affordable than the average home price in Canada, which was $398,618, in August 2014, according to the Canadian Real Estate Association. Nearly half (53%) of Canadians purchased single-family homes, while 31% bought condos.
Financing U.S. Properties
Financing the purchase of a U.S. property can be especially tricky, although that’s doesn’t seem to be a problem for a lot of Canadians. Eighty-five percent of Canadians purchased a U.S. home in cash, while only 18% obtained mortgage financing.
If you don’t have the funds to purchase in cash, your options for obtaining financing are limited. The Home Buyer’s Plan (HBP) allows you to withdraw up to $25,000 towards a down payment for a qualifying home. Unfortunately, a U.S. property doesn’t qualify, as the home must be located in Canada.
If you’ve built up substantial equity in your Canadian home, you could use a Home Equity Line of Credit (HELOC). A HELOC lets you unlock up to 80% of the value of your home at an attractive rate – often 1% above prime.
If you don’t have the equity in your home you can always use an unsecured line of credit, although the interest rate will be higher. Your last option is to negotiate with a U.S. bank, although you’ll probably end up paying a higher rate since your Canadian credit history most likely won’t be recognized.
Don’t Forget to Pay the Taxman
Canadians, just like Americans, have to pay their fair share of taxes when investing in U.S. real estate. Similar to Canada, you’ll have to pay property taxes. Property taxes differ between states – your property taxes could be as low as 0.5% in Arizona or as high as 2% in sunny Florida. Some states also slap Canadians with extra non-resident taxes. If your principal residence isn’t stateside, you can end up paying twice as much in property taxes.
We’ve only given you a glimpse into U.S. real estate. Despite the Loonie falling as of late, there are still deals to be had stateside. Just be sure to do your homework to avoid costly mistakes along the way.
About the Author: The Housing Block
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