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Thinking about U.S. Real Estate? BUYER BEWARE!

4/11/2011

16 Comments

 
With the Canadian dollar on a tear this week, popping above $US1.04 to buy one loonie, it’s not surprising that many canucks feel the urge to look at investing in some US assets. This is particularly true during the winter of 2010-11 which has seemed endless in Alberta. The idea of a home in Arizona, Nevada or anywhere sunny and warm is appealing. Golfing in January aside, there are several things to keep in mind about buying real estate south of the border.
First of all, for anyone looking to invest their money, it’s important that they seek out professional investment advice. Smart investment decisions are unique to the individual making the purchase, so there is never a “one-size-fits-all” investment strategy. And in some cases, buying a home in the US may make sense.

But there are several cautions to keep in mind.

Arizona dreamin’…. Just watch out for the squirrels!

It’s natural that potential buyers look at the price of a home in comparison with that property’s former price tag, but this is meaningless. Every one of us has heard the story… “A home in Arizona sold for $600,000 a couple of years back, and now it’s on the market for $150,000.” The only thing this tells us is that someone really got ripped off a few years ago! The only thing that matters now is today’s price.

Secondly, consider what your goal is for purchasing property in the US. Is it to “flip” the property in a year or two and make some money? Or is it to find the perfect retirement or recreational vacation home? If it’s the former, watch out! The US housing market is still in such terrible shape that it could be many more years before it really picks up. The inventory of unsold homes on the market is high, as is the unemployment rate. Borrowing costs are set to rise (gradually) within the next year or two. All of that points towards a very sluggish market for a long time.

If your goal is to find a vacation get-away for your family, consider the location. Are you sure you want to return to the same spot every year? Most of us have limited vacation time each year, which means to get your money’s worth out of the home, you are committing to that location for every holiday—and probably forgoing other great vacation destinations.

And even if you love the spot, consider the neighbourhood. There’s probably a reason why the house is on the market for such a low price. The other homes on the street are probably not selling either, which means they could be sitting empty. That spells trouble for the whole community. Some of those homes may eventually have to be torn down—or worse, become occupied by squirrels and raccoons!

There are other reasons for caution, too. The American banking system is not regulated in the same way as in Canada, so we can’t take for granted that consumers are as well protected. In certain states, some banks have been foreclosing on properties that have had no repayment issues (or in some cases even had a mortgage with the bank) in order to quickly put cash back into their own pockets.  Many such sales are in litigation, and the buyer could well end up on the hook if the court rules against them.

Also, certain states have rules around what sorts of capital improvements can be done by non-residents. For example, construction upgrades to the home can only be done by local, in-state contractors, not a foreign owner. So if the home is a fixer-upper, you may be unable to do the fixing yourself!

In addition, property tax laws vary from state to state, and in certain areas property taxes are much higher if the owner is not a permanent resident.

During our cold Canadian winters, it’s nice to dream about a home in the sunny, warm US south. And with the strong Canadian dollar—and low housing prices in many of the warmest states—it is unsurprising that so many Canadians are snapping up homes south of the border.

It may well make sense to do so, but there are many other considerations to bear in mind other than just the low price tag. Do your homework. Don’t be tempted too quickly just because it has a pool!

As with every purchase, for those considering buying American residential property, it’s buyer beware!
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