The soaring loonie and a bargain-basement U.S. real estate market have sent many Canadians cross-border shopping for vacation or rental property. But not every \u201cdeal\u201d is a bargain, and financial advi-sors need to alert clients yearning to buy stateside of potential technical issues, ranging from insurance to estate taxes.
According to the U.S. National Association of Realtors, Canadians were the No. 1 foreign purchasers of property in the U.S. in 2009. One of them was Domenic Minervino. Last January, the resident of Richmond Hill, Ont., paid cash for a five-bedroom home on a large lot overlooking a valley on the outskirts of San Diego. \u201cI got it for about 45% or 50% of what its value would have been a few years ago,\u201d he says. The 55-year-old recently sold his software firm in Ontario, and now divides his time between his Canadian and U.S. homes.
Terry Ritchie, a certified planner and partner with Transition Financial Advisors Group<\/b> which has offices in Calgary and Phoenix, Ariz., says Canadians are overwhelmed by how much home they can get for their money in the U.S.
\u201cThe median price of homes in Phoenix is US$175,000; in Palm Springs, it\u2019s US$230,000; and US$165,000 in Orlando,\u201d he says. \u201cCompare that with a median price of $411,000 for a single-family home in Calgary.\u201d
And while there\u2019s no end in sight when it comes to availability, assessing the true value of properties can be difficult. \u201cThe banks are holding on to inventory,\u201d Ritchie says, \u201cbecause they don\u2019t want to flood the market.\u201d
With many homes selling well below what the owner paid during the real estate bubble, he adds, prices are \u201cwhatever a buyer and seller agree upon.\u201d
Some U.S. homeowners are looking to make \u201cshort sales\u201d \u2014 selling their homes, which are now worth less than what they owe on their mortgages, with the agreement of the lender not to pursue the seller for the shortfall. But Ritchie says these deals are riddled with red tape and delays; buying a foreclosed property is easier. \u201cMost Canadians are looking at bank-owned properties,\u201d he says.
Ritchie suggests checking out www.zillow.com<\/i>, an online real estate site, to get some idea of a property\u2019s value. Visitors to the site can type in an address and get a \u201czestimate.\u201d
Although good buys are out there, and can mean the fullfilment of lifelong dreams to own property in popular sun destinations such as Florida and Arizona, your clients need to do their homework so that they are clear about what they are getting into.
Some clients will need to finance their purchases, and most will discover that U.S. banks typically aren\u2019t the best option. \u201cMost U.S. banks won\u2019t look at you unless you\u2019ve established a U.S. credit history,\u201d says Chris Stephan, a Red Deer, Alta., lawyer who helps Canadian clients purchase U.S. property.
But two Canadian banks have U.S. subsidiaries that may be helpful. Harris Bank, Bank of Montreal\u2019<\/b>s U.S. arm, offers mortgages in all 50 states to Canadians who are existing BMO investment or depository clients with accounts of at least US$100,000. A 30% down payment is required.
RBC Bank USA, a subsidiary of Toronto-based Royal Bank of Canada<\/b>, offers mortgages in 46 states to existing Canadian RBC clients. A 25%-30% down payment is required for second residences. But Alain Forget, the bank\u2019s Raleigh, N.C.-based vice president of cross-border banking, says down payments on primary residences can be as low as10%-20%, depending on the state and the client\u2019s credit rating. RBC USA also offers non-recourse mortgages to high net-worth clients; under these loans, the lender has no recourse against the borrower if a property is foreclosed upon and sold with the proceeds of sale being less than the outstanding mortgage debt.
But it appears that most Canadians are shopping with cash. Stephan notes that many Canadian banks allow clients to borrow from their investments. \u201cAnd clients can pull equity out of their primary residences or their Canadian vacation homes,\u201d he points out.
Tannis Dawson, senior specialist in Investors Group Inc.\u2019 <\/b>s tax and estate planning department in Winnipeg, says paying cash or using Canadian debt to finance a U.S. property makes more sense than using U.S. debt, partly because it is easier to control decisions about currency fluctuations: \u201cClients need to consider where the loonie will go before taking out a U.S. mortgage.\u201d
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