Buying Real Estate in the US as a Canadian

by Julie Broad

I can’t tell you the number of times Dave has come home from shopping with something he didn’t really need, or something that didn’t quite fit but he bought it anyway just because it was on sale!!He’ll buy a pair of pants that are a little too short or a little too tight just because they are 50% off. Or he will buy a jacket with a collar that has one side sticking up and one side laying flat just because it’s a clearance item.

Then he gets them home and tries to actually wear them and complains the whole time that it doesn’t fit or the collar gets on his nerves.

In other words … the only reason he bought the items was because they were on sale not because they really fit his needs.

And that is what some Canadians seem to be doing these days as they rush down the the US and buy property. With the Canadian dollar so strong, our economy holding steady, and the house prices in the US so much lower than they’ve been in years, many Canadians think their favourite destinations like Palm Springs, Phoenix, and various places in Florida are experiencing the biggest Boxing Day like sale EVER. And they rush down in a frenzy to buy a place …. or in some cases they don’t even rush down they buy without ever seeing what they are picking up!!

If you are even remotely considering US property as an option in the next few years then you absolutely must pick up the new book by Philip McKernan called South of 49.

It’s an enjoyable read told through the story of a fictional character named Ted who decides he wants to buy in the US. And he nearly does just what I am describing above … rushing down to join in on the big US property sale that is happening.

Dave on the beach in Delray Beach, Florida

Through the coaching of a good friend of Ted’s, named Sid, and the level headed nature of his wife Nancy you are taken through the steps of what is involved in buying US property as a Canadian. Through the story of Ted and Nancy it becomes very apparent early on that it’s even more important to start with a plan and a clear understanding of WHY you want to buy property in the US.

The biggest issues to get a handle on before you buy a property in the US are:

  • Will this be an investment or a lifestyle property? The answer to this will make a big difference in where you buy as well as potentially how you hold the property. You’ll also want to make sure you get tax planning advice because you could be subject to taxation in 2 countries if you haven’t set everything up right for an investment property.
  • Where do you want to hold the property? Be sure to consider the ease of access from your Canadian home as well as the other things you’re looking for.
  • How the property will be held.
  • Financing options (most people get financing in Canada to pay cash for their property in the US but there are financing programs available to Canadians in the US if you put a large amount of money down on the property).
  • How much time you plan to spend in the US. This is similar to whether it’s going to be a lifestyle property or an investment property but when you read about Nancy and Ted you’ll realize just how important it is to talk about this and think about this. Does owning a place in the US mean you will only vacation in the US? If you have big dreams of an African Safari or Paris in the springtime then you have to consider that.

Ultimately, I think you should treat this purchase like you would any other real estate investment. Start with your goals. Complete good market research to identify where you want to buy. Begin building the team you’ll need to buy in that area as you search for properties, and then buy your property. To do this properly, I believe, you will have to visit the area you choose to buy in several times and see a lot of properties in those visits.

Then… besides following that process and devoting time and effort to the market research, I believe the next biggest thing you need to take care of is understanding the tax implications of what you buy. And you’ll want to set yourself up in a way that allows you to minimize the tax burden.

Here’s a few things I didn’t know:

  • The rent you earn on a US investment property is charged a 30% withholding tax. This is on the gross rent! Your property management agent is required to deduct this. This is no matter where the transaction takes place or whether the tenants are Canadian or American.
  • To avoid this you may choose to treat your rental income as income connected with a US business instead. This allows you to pay your taxes on the net revenue (after the expenses are paid). Doing this requires you to file an annual return in a timely and accurate manner each year until you get an approval to revoke this. If you fail to file on time you can be required to pay 30% on the gross amount for that year.
  • When you sell your US real estate a withholding tax of 10% of the sale price is payable under the Foreign Investment in Real Estate Property Tax Act of 1980. There are exceptions to this, however, that you will want to understand.

There is a lot to consider when buying an investment property …. especially when you’re looking to do it in another country. If you are a Canadian looking to buy in the US then you should definitely pick up a copy of Philip’s book. And all of the proceeds from the book sales are being donated to helping children in Sri Lanka.

By the way – I’m working on getting Philip and a couple of other experts on the phone in the coming months to talk about this subject. If you’re interested make sure you subscribe to our Rev N You with Real Estate newsletter so you get the invitation to join those calls!!!

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18 Comments

Filed under Books, Buying Real Estate in the US

18 responses to “Buying Real Estate in the US as a Canadian

  1. LindaJ

    I have been looking for a good resource to help us as we look at places in Palm Springs. We’ve been down there twice and it just doesn’t seem like the places we’d want to buy are actually good prices. I know everyone thinks there are all these great deals but the ones that are cheap are total disasters and we were told that we can’t work on our property without penalty. So that means we’d have to pay a fortune to get the property looking the way we want it to look.

    What I am saying is there is definitely more to buying in the US and I am going to go to Chapters to buy this book today. Thank you.

  2. LindaJ,

    Another thing you might consider doing is speaking to people in Florida, who are Canadian who currently own property there.

    This can serve as a great way to learn, as these people travel down there regularly and have become accustomed to life down there.

    What is also important, is their ability to answer your questions that you may have on particular regions of Florida.

    I took this advice recently and I spoke to my friend’s dad who owns in Naples. He had been traveling down to Florida for years, and knew so much about the different cities. He was able to give me great insight into about 8 different cities and their real estate markets.

    If you are able to get in touch with someone that you know who is down there, it helps to chat with them.

    Onwards and Upwards,
    Neil.

    • Neil – that is really great advice. There aren’t as many folks here on the West Coast that own in Florida but I am not sure where Linda lives. As she is considering Palm Springs I suspect she is an Albertan or BC’ian.

      Anyway – it’s still great advice because there are tons of folks that spend part of the year in the US… and I am sure they would be happy to talk about the ins and outs!!

      Thanks!!! And thanks for your comment LindaJ.

      • Hi Julie,

        Good point!

        As you know, in Ontario, there are quite a large number of people who own in Florida, or at least travel down there regularly.

        I was surprised to learn recently that Port Charlotte is a major Canadian hub!

        A lot of the Ontarians retire in Florida. Where do the West Coasters retire?

      • Well if you lived somewhere as glorious as the West Coast you don’t need to go South to retire… ๐Ÿ™‚

        Just kidding… lots of folks have places in Arizona (places like Mesa, Phoenix and surrounding Phoenix) as well as Palm Springs, CA. Those are really the popular spots for the Western Folks.

  3. Julie,

    I also wanted to comment that you hit the nail right on the head in your first few paragraphs.

    I have witnessed fellow Canadians willing to buy in Florida just because it is so cheap now.

    Yesterday actually I was talking with a fellow real estate investor/speculator. He is pretty old school and has been investing in real estate for many years.

    He was joking around and saying that he might buy a condo in Florida that he saw for $45,000USD just because it was so cheap.

    He also said that he didn’t care if he only went there once a year to stay in the condo.

    He is a good guy. I am supposed to keep my eyes open for him for Florida deals! ๐Ÿ™‚

    • WOW!! What if it’s a total dive?! He probably wouldn’t want to even spend a night there!!!

      It’s funny to hear the different stories. My Aunt and Uncle have been down to a few different places 6 times and they still haven’t found a property they are happy with. They keep saying the good ones aren’t cheap. I guess that is sort of like what LindaJ was saying …

      Thanks for your thoughtful comments!! I do appreciate them!

  4. I concur with you Julie. Philips book was great not just from investing in the US for Canadians but I think all real estate investors should read it as it sets out the basics which after so many deals we tend to sometimes forget about doing some of the little things.

    • Thanks for stopping by Mark!!
      It was a great review of general real estate investing principles wasn’t it?! And it was so easy to read. I finished it really quickly because it was more like reading fiction than non-fiction!!
      Great to see you around here!
      – Julie

  5. Joanne

    Have a question for anyone who wants to answer..I’m looking to buy a home in San Antonio, Texas, not for investment purposes, but as a primary resident, is there anything I should know as a Canadian as far as what is required..etc.?

  6. LindaJ

    Hi Joanne,
    I have been looking for a vacation home for awhile. The best thing you can do is talk to an accountant that specializes in US/Canada tax stuff. There are a lot of considerations and if it’s going to be your permanent residence there will be different considerations … especially if you will still have assets in Canada.

    Also, I would highly recommend you pick up the book mentioned by Julie. I just started reading it but it’s already giving me some really important things to think about.

  7. Philip McKernan

    Hi Julie,
    Thank you for the support on the book. I am so looking forward to catching up on the phone soon with you and your clients.

    Philip.

    • Thanks Philip! We’re looking forward to having you on the call.

      For everyone checking this out – make sure you’re a Rev N You with Real Estate Newsletter subscriber (http://www.revnyou.com) … we’re going to be chatting with Philip on May 5th.

      Rev N You readers will be invited at no charge!

  8. Rick

    I just finished this book. I just wanted to say that it was a good read. Thanks for sharing it. I hadn’t heard of it until I read about it here. I’ve been thinking of getting a condo in Las Vegas. The prices don’t seem that low on the places I’ve been looking at and the US dollar worries me. This book didn’t really help me figure that out but it was a really good read. I like the tips about finding an accountant that is familiar with US purchases to help you set things up properly.

  9. Beth

    I just signed up for your newsletter. I would love to hear Philip speak about buying in the US. I live in the US (Texas) but I think it’s useful to learn how someone that doesn’t live in the US would approach buying here. Often someone not from an area can bring insights that the locals miss because their heads are buried in the sand.

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  11. Hi Linda,

    Another consideration is exchange rate and US financing. Where the US dollar compares to the Canadian dollar just 5 years ago, in addition to the historically low interest rates the US is still seeing, and the drop in value in US property …there are some great deals to be had, especially in cities like San Diego and Palm Springs. Financing is available for vacation home buyers, I’ve included a link with details on the program: http://thehomemap.com/2010/05/21/canadian-foreign-national-us-2nd-home-financing-information/ . Best of luck with your search for a Vacation home in the US!

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