2009 October | LifePast50.ca

Archive for October, 2009

Tips for U.S. Real Estate Ownership

Saturday, October 24th, 2009

A recent post highlighted an article in the Globe and Mail focused on financing warm weather vacation properties. This post is a companio to that article written by Roma Luciw. Check out the LifePast50 "where to live" post category for more. And, LifePast50 would sure appreciate responses from Canadians with actual southern buying experience – let us all share the benefits of your experience.

Renting out a U.S. property

If you collect rental income from a U.S. property, you need to file a U.S. tax return. If you purchase a property with the intention of renting it out for all or part of the year, make sure it is in a good location with desirable amenities nearby: beaches, golf, ocean, restaurants, hospitals.

Buying a U.S. property

Know how to title your property and the implications of each type of ownership: fee simple, joint with its survivorship, joint as tenants in common, etc. Simply buying a place in the U.S. does not mean you need to file for U.S. taxes, only if you rent or sell.

Financing a U.S. property

If possible, secure financing with a U.S. financial institution. They will have better knowledge of U.S. mortgages and provide more options in terms of how long you can lock in for. (Royal Bank of Canada has U.S. operations in the snowbird hot spots of Florida and the Carolinas.)

Tax rules on a U.S. property

Recent changes to the Canada-U.S. Tax treaty prevent foreign owners from paying taxes twice. The tax treaty, one of the most important documents for the protection of Canadian financial assets in the U.S., overrides domestic Canadian and U.S. rules and can lower your overall tax bill.

Options for retirees

For Canadian who have retired, the U.S. has portfolio opportunities to earn as much interest income tax-free as possible. Also, the costs of living in many U.S. retirement areas are substantially lower than equivalent Canadian areas.

Exchanging currency

Exchange large sums at one time and ask for the spot rate rather than accepting the posted rate. Avoid using cash for the exchange. Shop around to at least three different institutions and when possible, use reputable currency brokers rather than banks.

Immigration, custom rules

Know how long you can legally stay in the U.S. as a visitor. If you wish to work in the U.S. or to stay more than six months, get a proper visa. If you stay longer than six months, you will be required to file a U.S. tax return.

snowbird Medical coverage

Whether you are going to the U.S. for a two-week holiday or a six-month stint, make sure to get good travel insurance. When possible, take high-deductible plans. Prices rise substantially if you stay more than three months. Also, try to fill any prescriptions before you leave Canada.

Roma Luciw

Posted in Where to live | 3 Comments »

Canadians Buying Warm Vacation Properties

Saturday, October 24th, 2009

Globe and Mail Update Published on Monday, Oct. 05, 2009 5:20PM EDTLast updated on Tuesday, Oct. 06, 2009 10:05AM EDT

Canadians are still heading south of the border to snap up warm-weather vacation homes, but, unlike other foreign buyers, many snowbirds are now skipping the mortgage process entirely and paying cash for their home away from home.

A distressed U.S. housing market and a strong loonie are luring winter-weary Canadians looking for a place to plant their money. “Cottages have become prohibitively expensive in Canada – a Florida condo is far more affordable,” says Caroline Nalbantoglu, a financial planner with PWL Advisors Inc. in Montreal.

And while securing financing from American banks has become tougher, many Canadians are avoiding that process by dipping into their savings. “Most of my clients have bought without a mortgage, they paid with cash,” Ms. Nalbantoglu says. “ Cottages have become prohibitively expensive in Canada – a Florida condo is far more affordable. Most of my clients have bought without a mortgage, they paid with cash. ”— Financial planner Caroline Nalbantoglu

According to the U.S. National Association of Realtors (NAR), the number of Canadian buyers who used cash to pay for U.S. properties jumped to 81 per cent in 2009 from 47 per cent in 2007. Canadians were also twice as likely as any other foreign buyers to pay in cash. A recent report found that risk-averse Canadian households are sitting on up to $1-trillion in cash and near-cash holdings.

“Canadians are clearly good savers,” says Robert Keats, author of The Border Guide: A Guide to Living, Working and Investing across the Border, a financial tool for aspiring and existing snowbirds that has just come out in its 10th edition.

Mr. Keats believes that there has never been a better time for Canadians to buy south of the border. “These are the best buying prices I have ever seen,” he says. Other expenses, like golf or an evening out, are also getting cheaper, thanks to the stronger Canadian dollar. “Canadians are able to buy one-third more than they could have a few years ago,” he says. “Everything from gas to food is cheaper.”

Recent changes to the Canada-U.S. Tax Treaty also add up to another big plus for snowbirds, Mr. Keats said. The treaty, which he describes as one of the most important documents for the protection of Canadian financial assets in the U.S., helps prevent the double-taxation of Canadians.

The number of Canadian buyers eased to around 27,000 this year from 40,000 in the NAR’s 2008 study, but remains well above 2007 levels, when exchange rates and housing costs were not as favourable. Canadians were the biggest international buyers of U.S. real estate in 2008 and 2009, ahead of the United Kingdom, Mexico, India and China.

So where and why are Canadian snowbirds buying? Balmy weather is clearly a driving factor, the NAR found, with Canadians most likely to nab properties in Florida and Arizona, followed by California and Texas. The majority – 60 per cent – plan to use the property as a vacation spot for family and friends while another 12 per cent termed it a residential rental property they see as an investment.

Richard Bazinet, an Arizona realtor who works in the Phoenix valley, estimates that 80 per cent of his buyers will hail from Canada between November and March, as has been the case for the past few years.

“Canadians are seen as more conservative and are better at managing their money,” he said, but that isn’t the only reason so many of them are making cash offers.

The financial crisis has led some American banks to change their mortgage guidelines. “Some banks … will no longer lend money to foreigners,” Mr. Bazinet said. “ Canadians are seen as more conservative and are better at managing their money. ”— U.S. realtor Richard Bazinet

Because Canadian banks will, in general, not provide mortgages on U.S. properties, Canadians who choose to get financing north of the border need to apply for a line of credit or raise the mortgage on their property in Canada. Consulting an expert with knowledge of both U.S. and Canadian tax, mortgage and estate planning laws is a good idea for those wanting to take the plunge.

A more arduous mortgage process is not dissuading clients of tax and financial planning expert Tannis Dawson, who works for Investors Group in Winnipeg. She is seeing increased interest in U.S. real estate from people ranging in age from their 30s to their 60s. “People feel prices in the U.S. cannot go any lower so this is a good rate of return on their money.”

One couple she works with just scooped up an ocean-front condo with a shared pool in Naples, Fla., for $90,000 (U.S.). Two years ago, it was selling for $234,000. “People can either renovate their house here or buy a place down there at a real bargain,” Ms. Dawson said. “Some people might not use it all winter but they know that their family will, so that will help cover their costs.”

Ms. Nalbantoglu says most Canadians are not interesting in flipping the property and instead have long-term plans for their U.S. purchases. “My clients are buying there because they think this is the right time and they plan to use it down the road when they retire.”

While a U.S. vacation property “could possibly” turn out to be a good investment, Ms. Nalbantoglu warns clients that it can also be complex undertaking. “There are complications with buying in the U.S., so people need to be aware of things when it comes to owning and or renting a U.S. property. You have to really want to be warm to do this.”

Posted in Where to live | 1 Comment »

Arizona Vacation Home – Buy Now?

Tuesday, October 20th, 2009

We haven’t looked at the Tucson Arizona housing market in quite a while. Most recent statistics (as of September 2009) shows active inventory was 6114, a 23% decrease from September 2008. There were 927 closings in September 2009, a 1% increase from September 2008. Months of Inventory were 6.6, down from 8.6 in September 2008. Median price of sold homes was $164,900 for the month of September 2009, down 8% from September 2008. Tucson is experiencing a significant increase in buyer activity, with new properties under contract up 74% from September 2008.

What do all these statistics mean? From the charts, it is clear that more houses are selling but selling at lower prices. LifePast50.ca recently posted overall USA house price trends from the Standard & Poors Case Shiller report that shows prices across the country are starting to flatten on a month to month basis versus year- to- year comparisons where prices are still declining. As well, the charts indicate that in Tucson, inventory (houses for sale) have increased slightly in August and September.

So is now the time to buy? Consider the following:

1) Clearly US prices are flattening and although they may continue to fall, they’re not going down much further, if at all.

2) Mortgage rates are likely at the bottom. In Canada, the Central Bank has held rates steady yet the charter banks that loan out mortgage $ have actually increased their mortgage rates slightly. Mortgage rates have nowhere to go but up.

3) Although foreclosure rates (in the USA) remain stubbornly high, foreclosures don’t seem to have the negative impact on prices they did one or two years ago.

4) The talking financial heads are telling us the economy is on its way back. If that is true, housing prices will start to climb again.

5) New home construction starts are at a fraction of the rates earlier this decade thereby lowering the supply of new homes.

6) Looking ahead a few more years, the demographics point to more people retiring and increasing demand for “a place in the sun”.

Form your own conclusions to answer the question “is now the time to buy” considering that demand may soon outweigh supply and borrowing costs won’t get any cheaper

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Is Your Corporate Pension Safe?

Saturday, October 17th, 2009

Many of us are relying on our company pensions to finance retirement – in many cases to substantially fund that retirement. Don’t count on it! We are now witnessing an unprecedented pension crisis as companies go bankrupt and others struggle to survive. And, its going to get worse!

The Globe and Mail is running a series of articles beginning with the Saturday October 17, 2009 edition looking at Canada’s pension crisis. Those Canadians relying on pension income from our current or past employers should be paying attention. Many examples are presented of companies in bankruptcy whose pensions have been slashed 30% or more. Recent auto company (GM and Chrysler) failures together with other high profile organizations such as Air Canada and Nortel highlight the problem. Those corporate plans left standing face unprecedented stresses. Markets in which pension funds are invested are in turmoil and have left a $50 billion hole in Canada’s corporate pension funds.

If you’re a retired or still an active public servant, you’re fairly safe. Most public service pension plans are gold-plated, designed to guarantee a fixed income. And, of course, the taxpayers of Canada are on the hook for those pensions including those taxpayers whose corporate pension plans have melted down.

The solutions are varied but don’t even think about getting help from Government who don’t seem to be able to fix the flaws in provincial pension regimes. Governments appear to be sitting on the sidelines – watching as the fate of retired workers is decided in bankruptcy courts. I’m thinking the only people that are going to come out ahead are the lawyers.

So what are our options? If you’re not yet retired, plan on increasing your retirement savings or simply plan to work longer. Yikes! Some solution eh! If already retired, some are either going back to work or turning their hobbies into income generators. No, your small marijuana gro-op doesn’t count as it’s probably illegal. And finally, plan on simply spending less or selling some possesions such as cottages or homes to pay the bills.

Tony Almonte, Oct 17, 2009

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