Time to buy a southern US residence?
Wednesday, February 16th, 2011This post is summarized from a recent article in the Globe and Mail (Feb 14, 2011, Special Report)
The resurgence of the loonie and continued degradation of
But while this might appear an opportune time to snatch up a retirement home or dream vacation property, experts warn that jumping into these major purchases without doing extensive research is a recipe for disaster.
The list of things to consider before buying in the
“There are lots of things that most people don’t think about,” says Laura Parsons, a mortgage expert with Bank of Montreal. “I know quite a few people who went into the market in the
First and foremost, experts caution that speculative investments in
“If you are buying a recreational property for personal use, [the situation now is] probably about as good as it gets,” says Bob Gorman, chief portfolio strategist at TD Waterhouse, noting that the dollar is high, prices are low, and interest rates are low for those who need financing. “I draw a distinction, though, for those people who ask me about buying for investment purposes, who are not going to use it themselves.”
A key reason is real estate prices. As low as they’ve sunk, it’s still possible they could sink lower. And even if they don’t, no one expects them to bounce back quickly.
As a result, speculators who might be thinking of investing in a place to rent or flip might be wise to hold off. “We’re not quite sure it’s the bottom, and there’s no rush because once it does hit bottom it’s going to stay pretty flat for an extended period of time,” says Sam Sivarajan, head of private wealth management in
High levels of unsold homes are overhanging the market, Mr. Gorman said. Historically, the number of homes for sale at any given time in the
But that hasn’t been scaring away investors, who accounted for 19 per cent of purchases in November of 2010, up from 12 per cent one year earlier.
Jamie Golombek, managing director of tax and estate planning at Canadian Imperial Bank of Commerce, agrees that speculators need to be more cautious. “If you’re using it for personal use, then I think the resale potential is not as important,” he says. “No one wants to lose money, but if you’re really buying it because you’re going to enjoy it with your family – then if you find something you like and it’s a reasonable price range, and interest rates are low if you need to borrow money, and the dollar’s relatively high – then you may want to consider it.”
In other words, favourable conditions or not, it’s still a gamble, but one that might be worth it for a property you will enjoy and would love to own.
For those thinking of taking the chance, one of the first considerations should be taxes. Be aware that in some jurisdictions property taxes for foreigners are higher than for local residents. If you rent the property out, the rental income could be subject to withholding tax. A key consideration for wealthier individuals will be estate taxes.
Brand new tax rules increase the exemption on U.S. estate taxes to $5-million, which essentially means that Canadians who are not U.S. citizens and who have a worldwide estate that’s worth less than $5-million don’t have to worry, says Mr. Golombek.
“It’s really important to get advice before you buy,” Mr. Golombek says. “I would approach a
Another thing to think about is the amount of your total assets that you want to allocate to real estate. A recent survey by the Royal Bank of
Insurance is another item for the pre-purchase checklist, especially in hurricane-prone areas, Mr. Gorman says.
Sherry Cooper, Bank of Montreal’s chief economist, has another tip if the property is to be a vacation home: check the price, availability and frequency of flights from
Ms. Cooper knows first hand that property is not always a liquid investment: she bought a small condo in
But, she adds, prospective buyers can take heart in the fact that she has found a steady supply of renters. “I listed it on Craigslist and two sites for vacation property rentals and I was overwhelmed with requests. And on Craigslist I got someone who rents it 12 months a year.”
For those like Ms. Cooper who do make the splash, Mr. Golombek suggests considering a separate will dealing just with that
And, no matter how much preparation you do and professional advice you seek, be prepared for the unexpected.
As one of Ms. Parsons’ acquaintances discovered, a new climate can lead to surprises. “I would never have thought that you have to put Saran Wrap on your toilets to keep the water from evaporating,” Ms. Cooper says. “They actually have to have neighbours come in and flush the toilets, because it can affect the pipes.”