Why are Canadian Investors Buying USA & Not Candian?

20 Replies

Canadian investors make up nearly 30% of the foreign buyers market in the U.S. and I highly doubt they will be influenced by a visa offer. Why do so many Canadian investors purchase int he states?

Why do they buy in mostly appreciation markets (what we would consider appreciation markets)?

Why are they not buying Canadian real estate?

Chris

I think it is a combination. In many parts of Canada the real estate market is way overpriced. Plus like George said the Canadian dollar is strong.

Many of the Canadians I know are buying vacation homes (Palm Springs, Phoenix, Florida).

I grew up in Canada (near Vancouver) and there entry level sfh is 350k+. Rent is probably $1,500ish. Mortgages rates are variable and really cheap and interest is not tax deductible. Quite a different market.

Steve -

Thanks so much for the reply. Im speaking in Vancouver this weekend and was sent a few advance questions about why investors should buy US instead of Canadian. The usually answers pop in my head, but there has to be more to it.

Can an investor deduct anything with an investment property? I know Australian investors cannot deduct personal home mortgage interest, but can deduct interest on an investment mortgage if it was purchased with a Heloc. Plus they can deduct the heloc interest rate, so it creates a scenario for people to invest. Wasn't sure if something like that existed in Canada too.

Not very creative but It is how I and some of my friends (in Shanghai) with Canadian citizenship think.

Canada like China the RE prices are too high hence prefer to buy somewhere else.

Chris / We live in Canada, (North of Toronto), 10-months of the year....invest there too. Riverview is our principle Florida residence. The appreciation market in Canada has been going strong and consistant for the last 15-years with most major markets surpassing $500k today, (>$1mm in Vancouver). At par with the U.S. dollar, it is not the exchange rate that drives investors South.

I can only speak for my own motivation so here it is:
- CDN dollar at par or better by 5%, (depends on the day of the week lately and what happens in Europe)
- Money is still very cheap in Canada @ 2.25% if you want to buy some. Banks are still very interested to lend and are investor friendly. They toughened up a bit since 2008 but still ok.
- Inventory in FL & AZ is abundant and at releatively cheap rates. I can buy one SFH in Toronto in a working class neighborhood for $500k-$700k and rent for $3,500/month or 8 similar properties in Riverview, FL., and rent for $1,000/month each, (simple economies of scale).
- The markets in Toronto & Vancouver are extremely over-heated. Once interest rates point higher, there will be a significant correction. This makes for very nervous investing if you want to jump in now.
- A lot of folks come South to buy a vacation home but investing is bit more like work. All things equal, buying properties in the U.S. is very similar to that in Canada.
- Since we are long-term buy/hold investors, (20-years), it is the future bet on the U.S. I don't know where the economy will be in 2-years, but in 20-years it will have fully recovered and be well on the way through the next growth cycle. At that time, the Canadian dollar will be worth $0.70 again I hope. My profits will be in the appreciation in price and the exchange rate!!

As for tax motivation: In Canada, for investment properties, it's all deductible....interest, and all property associated costs and depreciation. Tax treaties with the U.S give the same benifits if you buy here as well.

Mike P.

Mike -

Thank you so much for your thorough answer. Just trying to get in the mind of the Canadian investor before I speak this weekend. Many of the questions I have been asked to address are the differences between the two markets and that list could go in many different directions, so your insights will absolutely help me zero in on the points I need to address.

Thanks again and don;t hesitate to ask if there is ever anything I can do for you.

Chris

Hi Chris, my reply seems to be a bit late but I thought I would chime in anyways. As Mike pointed out our Canadian dollar has been quite strong compared to the USD, making it an ideal time for us to get into the US market. Home prices in Canada are typically still very high when compared to many places south of our border. We also have to take into consideration that the amount of deliquent properties in the States is comparable to a large percentage of TOTAL households in Canada. As the States has roughly ten times our population, the prices and deals found there simply aren't available in Canada.

We have a large amount of "Snowbirds", people looking to escape our miserable winters in a much more tolerable climate (think Florida,Arizona etc) and when I tell these people that they can stay in a beautiful condo for literally a quarter of the price they would pay in many of our cities they jump on the opportunity. Needless to say the combination of our weather and the low prices can be a match made in heaven for the savvy investor :D

As many Floridians can attest to I'm sure, there is a huge influx of well to do Canadians during the winter months. Of course this is just one of the ways the Canadian investor can benefit from the current market, but one that certainly plays a role in our interests in America.

David -

Thank you so much for your reply. I am not sure if you have heard of Don Campbell of Canada REIN, but he and I debated and spoke together two weeks ago in Vancouver at the Canadian Real Estate Magazine Investor Forum. It was a great time and I enjoyed visiting Canada and meeting some fantastic people.

I learned a lot about the mindset, the driving force and even some of the misconceptions that some Canadian investors have about investing in the states. It was definitely a great experience for me and I really look forward to working with more Canadian investors.

The reasons Canadians are buying in the US are many; the dollar being around par, attractive prices in the US, many Canadians want a winter place in the US anyway, realtively high real estate prices in Canada, leading to substantial equity in their homes, a biggeer market (more to choose from), and low interest rates.

I just spoke to 600 Canadian investors looking to buy real estate in the US. A major Canadian newspaper recently reported that 52% of all Canadians want to buy real estate in the US.

Chris,
A one word answer to your question.......................winter!
After about 9 months of it you get a little sick. You can only hybernate so long.
Love Canada in the summer! Green and lush. The winter? Not so much.
Collen

In sunshine states like Arizona(Phoenix especially) and Florida you can get properties for 40% of their per-recession price and these prices will onnly go up as the market rebounds so people are looking at it like they can double their money in a short period of time and get some enjoyment out of it by vacationing there.

It's exactly what everyone is saying it's a combination

Also the media is a big influence on Canadians. When Canadians start to hear that you can buy houses for 50 cents on the dollar and properties for as low as $50,000 usd, this will get anyone motivated. Since $50 k anywhere in Canada will most likely get you in some small town in the middle of no where, if that. When in some areas in the US, it will get you a whole house or a not bad condo near a local beach.

In Canada, isn't it difficult to evict tenants who do not pay? I seem to remember some legality/liability issues with buying rentals in Canada. Does anyone know about legality/liability with regards to rentals in Canada?

Each province is different but I know in Alberta it's 14 day period written notice. Or the landlord can go to a court to end the tenancy sooner. On damages/assault things like that, 24 hour notice only.

@McKellar Newsom : With our Canadian rentals in Ontario, evictions were an arduous exercise. From experience, the Rental Tribunal in place made for evicting a 6-month exercise, (very much in favor of the tennant). Notices must be handed personally to the tennant, (it takes 2 notices, 2-weeks apart starting 2-weeks after the rent is due). Professional tennants become very scarce during this phase. Then comes the tribunal request, (quasi-judicial process), with months waiting for a date. The authority to engage the Sheriff comes after another 2-months and they won't evict in the winter. If you are lucky, the tennant lives rent free the whole time without damaging the house.

Failure to pay rent, or the owner wishing to occupy, are the only avenues to pursue an eviction and both take the same amount of time. Criminal activity must be shown first, (conviction), before an eviction can proceed for that reason. In 2010 the laws changed to favor the tennant even further.

The Tennancy Act regulates annual rent increases to the cost of living rise. All this risk is balanced by 6%-8% p.a. growth in housing prices, (much higher in some markets). Although that dance comes to an end as soon as interest rates point Northward.

As anywhere, screen your tennants well and avoid the whole issue.

That's also why the market in the US looks so much more appealing at the moment. That risk can be spread so much thinner, (or thicker), by leveraging many more properties.

Mike P.

Thanks Michael! I thought I had heard that the red tape with evictions is tough in Canada. My husband's family lives in B.C. and it would have been nice to invest close to them. mck