With the weather once again turning cold and another long winter ahead of us, many Canadians are beginning to dream of warmer horizons. When it comes to sunny getaways the most popular choices are the warm states of the U.S. such as Florida, Arizona, Texas, and California. Many Canadians are even opting to purchase property down south both for investment and pleasure. Could this option be right for you?
You may be surprised to learn that many of the ideas that Canadians have about buying cross-border are in fact mere myths, while others are real but can be worked around if you have the right know-how. The bottom line is that these days, buying U.S. properties is within reach of many Canadians if they know what they are doing and have the right help.
To explore more about these common myths and realities, we spoke to Alain Forget, Head of Sales & Business Development at RBC Bank, the U.S. division of the Canadian bank and a U.S. national residential lender specializing in Canadian clients. Forget has years of experience working with fellow Canadians to achieve their goals of U.S. property ownership and a wealth of knowledge on the differences over the border.
1. Is warm weather the only reason to buy in the U.S.?
Not even close! When most people think about heading down to the U.S., they commonly think about the warmer weather. And they aren’t wrong: especially in the winter months, areas in the southern U.S. such as Florida, Arizona, and Texas have much more comfortable weather than in Canada and draw many Canadians for that reason. However, especially as someone looking to invest, you should know this is far from the only reason to consider the States.
For one, the weather is not the only thing that dictates your potential lifestyle. For example, you should look at what sort of amenities and nearby activities you want to have access to from your U.S. home. You should also carefully consider the location and property type because this can affect your lifestyle and price greatly. If you buy solely for the weather alone, you risk making a bad decision or being unhappy with your property.
There are also numerous financial benefits to owning in the U.S. such as more affordable properties, U.S. home equity, cash flow from rentals and more. We will cover these more in-depth later on, and in future articles.
2. Is buying a property in the U.S. the same as in Canada?
In some ways, buying in the U.S. is similar to Canada, and in other ways, it’s not.
For one, the U.S. and Canada are currently experiencing similar market conditions. This means that supply is limited and multiple offers are common. What this means for Canadians is that when you budget for your home in the U.S., you need to be prepared to spend a little more than you think.
“In this competitive market, a property listed at let's say $400,000 right now, may end up selling for $425,000 at the end of a bidding war,” said Forget. “So what I tell Canadian buyers right now is: set your budget, get a preapproval letter from us. Then, you know exactly how much financing you're going to get, and how much down payment you will need. Then start looking for properties lower in your price point”
Some things that differ include taxes and insurance. While you will generally pay lower taxes in the U.S. than in Canada, you may also need to consider different insurance to protect your investment. In places like Florida for example, flooding and storm damage are much more common threats than in other areas, and you should always make sure you have the appropriate insurance.
3. Will the exchange rate limit my purchasing power?
Yes and no. Currently, as the Canadian dollar is weaker than the U.S. dollar, you will naturally have to account for some level of a currency exchange when buying a property cross-border. However, there are factors that can make the currency exchange less impactful than you may think.
For one, U.S. homes tend to be more affordable, so your weaker dollar could actually go farther in the U.S. than in Canada even after exchange.
Further, if you choose to finance your home with a U.S. mortgage, you will only need to pay exchange rates on the down payment at first. “What I've seen is a lot of Canadians coming down with a budget of say, $500,000. I say, here's the thing: If you pay cash it will cost you $650,000 Canadian,” said Forget. “If you get financing for a second home with 20% down, you can mitigate the impact of the currency exchange which is currently around 1.30. You can save right off the bat, around $100,000 Canadian at purchase.”
In addition, exchange rates are always changing and U.S. mortgages, as opposed to their Canadian counterparts, are always open. This means that you can repay your mortgage at any time without penalty and it allows you to take advantage when the Canadian dollar is stronger.
According to Forget, “This can help reduce the impact of currency exchange, and also help you to potentially consider a property that is a little bit higher priced than your initial budget.”
4. Isn’t renting cheaper than buying?
Renting is cheaper than buying at first, but over time, you will find greater benefits from investing in a real estate purchase. That being said, Forget says that renting does have some utility for potential buyers.
“I always recommend before buying, that people rent or go to a hotel, or an Airbnb, whatever, to get a feel of the environment,” said Forget. “See how they feel there, and if they like it or not, because of course buying is a big commitment.”
“But if you start renting a property for three or four months, every year in the midst of the busy season, after a few years that could have been a down payment. Furthermore, opting to buy offers you even more benefits than renting. For one, you will never have to worry about missing out on a vacation due to a lack of rental options. Property owners have the luxury of property available whenever they want to use it. In the popular states, there's a shortage of rental inventory right now. It’s an especially busy season for the next few months and it's going to be difficult to find a rental right now for someone who did not book in advance, say six or even nine months ago,” said Forget.
Depending on where your property is and how long you stay there every year, you can potentially even generate cash flow through rentals. For people who are able to rent in the busier months, this income can be significant and can help cover some of the costs of ownership.
“Right now in South Florida, for example, if you rent for a few months, this is usually enough to cover all your property expenses for the year, such as homeowner association fees, your insurance, your property taxes and things like that.”
5. Is cross-border buying too complicated?
Maybe after all this, you feel that the dream of owning a U.S .property is just too complicated. Forget says, “That is a myth.”
RBC Bank has 17 years of experience helping Canadians buy homes in the U.S., and has developed a network of trusted associates to help you go from dreaming to the doorstep in the easiest way possible.
“We are a U.S. national residential lender for Canadians, but we have gone above and beyond that role to develop a network of trusted resources for Canadians such as homeowner insurance companies, cross border tax experts, real estate professionals and more that are qualified and trained to work with Canadians. With RBC U.S. HomePlusTM Advantage we have basically made a one-stop-shop for all the different issues you could come across.”
Be it finding the right location and property for your needs, getting financing for your U.S. home, dealing with exchange rates and taxes, or any other questions you may have, RBC Bank can help you along the way with their full-service support. Visit their website for more information on how they can help you with your cross-border real estate needs.