Canadians investing in U.S. real estate might have the right idea, but they’re prone to errors, says a Florida-based expert.
Lauren Cohen, international legal and real estate expert of E-Council Global, noted that many of her company’s deals fell apart at the beginning of the pandemic as few knew how deleterious and disruptive COVID-19 would be, but the pendulum swung the other way during American Thanksgiving. Since then, Canadians have been enthusiastic about investing in real estate south of the border—although their overtures are often mistake-laden.
“What they usually get wrong begins with professional guidance, like getting an LLC without the help of a cross-border expert, and the consequence is often that they pay a price later, like being penalized with double taxation,” Cohen said. “The second thing is people invest in the United States without regard for how that will impact them in Canada—if you invest in the U.S. and take money to Canada, there’s potential double taxation, so you have to make sure your structure is set up properly. People try to cut corners but it never works because they’re looking for the cheapest options, and if it seems too good to be true, it is too good to be true. If you do that, you create a path that’s fraught with obstacles.”
Establishing cogent short- and long-term strategies, Cohen says, paves a path that enables investors to run their U.S.-based real estate investment as a business, but that usually requires securing various visas or green cards. If the Canadian investor’s relationship to the United States will be “casual,” a different structure is required, especially if the investor intends on moving to the country at any point.
“The No. 1 problem is lack of strategy; they do things haphazardly,” Cohen said. “There’s no one-size-fits-all. For example, do you have children, are they in school, and what are your ultimate plans—do you want to go back and forth? Some clients want to come here to the U.S. and never go back, in which case they should look for an Adjustment of Status Visa. They would do that internally in the U.S. but when they leave, they lose that designation because it’s not intended for somebody who goes back and forth across the border.”
Cohen added that most clients want flexibility now because of the pandemic and unpredictable lockdown measures that differ from city to city, even country to country. That isn’t the only factor they fail to consider, though.
“You need a social security number in the U.S. to build credit because that helps you get financing,” Cohen said. “People don’t realize they can run out of money, so they need to figure out how to get financing, which could even be pooling other people’s money as investment funds.”
South Florida is a hot real estate market and Canadians comprise a notable share of purchasers, but as many are finding out the hard way, approaching American real estate is vastly different than it is in Canada. Setting up the correct legal structure is the first thing to do, Cohen advises, followed by crunching the numbers and ensuring the investment is neither undercapitalized nor over-invested with personal funds.
“Get your financing in place before you make an offer,” she said. “Cross-border investing is much more accessible and now is the perfect time. But remember that having a visa in your pocket is like an insurance policy; it doesn’t mean you have to move or be in a certain place at a certain time, but it gives you the option to go back and forth and to have the opportunity to run a business or real estate investment across borders. It also allows you to look for new opportunities.”
When you flip houses, you are not usually intending to live in the house; rather the strategy is to sell the property as fast as you can so as to avoid paying taxes and other expenses on the property. While there will obviously be initial costs that you will need to budget for, house flipping can be done with few resources and little experience.
For Real Estate News and Market Updates & VIP Access to Exclusive Real Estate Investment Opportunities
If you’re a newer house flipper, you have probably heard about the 70 percent rule. Here’s your guide to the investing rule that can prevent you from spending too much money on an investment.
“Sign up for our daily newsletter to get the latest news, updates and offers delivered directly to your inbox.”
Designed to offer readers accurate, cutting-edge information to guide their investment decisions, each issue of Canadian Real Estate is filled with informative articles on a broad range of topics.
© 2021 Canadian Estate Wealth. All Rights Reserved by Merged Media