I start about every third article like this, so why not another? Canada is, in this blogger’s somewhat unhumble opinion, experiencing a massive real estate bubble. I won’t even bother to link back to the many pieces I’ve already wrote about the subject, if you want to read more just click on the ‘real estate’ category over on the right sidebar. You’ll find them. Think of it like the lamest treasure hunt of all time with no prize at the end.
You probably remember the real estate bubble that happened in the United States. It almost brought down the whole financial system, indirectly. The last couple years have seen a recovery in house prices down south, after a really terrible 5 years. As is the case with any national market, losses were larger in certain areas, like Las Vegas, Phoenix, Miami, and New Texas, a state I just made up.
Many of the hardest hit areas are in areas where Canadians like to holiday, especially during the winter where EVERY DAY IS MINUS 30 AND THE SNOW CRUSHES MY SOUL. Naturally, many enterprising Canadian investors started checking out the market, and they’ve found places where prices are attractive enough that it might make sense to pick up a place, especially in a locale where they’d like to spend the cold months.
But is this a good idea? Let’s have a boo.
On the positive side of the coin, we have a market where prices are still down 50% in certain overbuilt areas. We also had a Canadian dollar which was, at least for a while, trading at right around par compared to the U.S. dollar. Price to rent ratios were attractive. And, assuming it’s a place where they’d go in the winter, a rental has the bonus of being used. It’s all good.
How about the negative side? Managing property is tough when it’s 30 miles away, let alone 3,000. Do you really think your property manager is really motivated to suck every dime of profit out of a property where they know the owner is away? Property managers aren’t motivated by profit, they’re more interested in getting a property in a nice state, cost be damned. In certain jurisdictions, foreign owners have much higher property tax rates as well. Owning a U.S. property isn’t all rainbows and puppies.
There are other issues, including financing the purchase – visit LendMe for more information on that – since you’ll probably have to arrange financing from a Canadian bank, using your existing Canadian property as collateral. If you collect rental income you’ll also have to file a U.S. tax return, which will set you back a couple hundred bucks to get an accountant to prepare for you.
I’m also not a huge fan of buying a place somewhere that you like to vacation. What if you get tired of going there? How about if one spouse kicks it suddenly, leaving the other one with a property they’ll have to sell. Don’t underestimate how hard this is for old folks, especially if there’s a lot of memories associated with the place. Remember, you should always rent your fun. It’ll end up cheaper in the end.
Now, if I was an American living in one of those markets, I’d probably be buying a place. Many places in the U.S. have gotten to the point where it’s cheaper to buy than to rent, and there’s lots of inventory and interest rates are still pretty low. I like U.S. real estate, I just don’t like Canadians buying it.
Not only that, but I am bearish on the Canadian dollar, at least in the short term. Assuming someone owns a U.S. property for years, the exchange rate could either be a huge plus or a huge minus. Still, the exchange rate is a risk that retired investors may not want to take.
I’m not a fan of Canadians buying U.S. houses. You might pay a little more to rent a place for your extended winter visit, but the headache avoidance is well worth it. Or just buy a nice RV and live in it. Just don’t go with the tiny house.