The Perfect Storm
Most Canadians wrongly believe that it’s too difficult and risky to buy U.S. real estate. Most think that even if they did own U.S. foreclosures they wouldn’t be able to profit from them. This article will blow these myths out of the water like two Canadian geese heading south for the winter…
Emotion stops many from seeing the facts. No matter what you fear about U.S. real estate… three things that should be obvious:
1. YOU CAN buy perfectly good homes for 50% to 70% off.
2. YOU CAN buy foreclosures directly from the banks with clean title.
3. YOU CAN cash-flow from day one, covering your expenses, mortgage and putting money in your pocket
The entire U.S. market has not crashed. It’s economically impossible for an entire nation to experience a real estate crash. Real estate cycles are unique to each neighbourhood in each city. If you learn how to identify the signs of an emerging market you can buy foreclosed properties at a 50% discount of today’s market value and consistently resell them for a minimum of $30,000 profit. But much like the 1989-1992 real estate crash where smart investors made millions… this opportunity won’t last much longer.
Arizona, Florida, Georgia, California, Nevada etc. are sometimes considered as “Sun Belt” continues to be a red-hot market to invest in based on three main factors: baby boomer statistics, job growth and population growth. There are 78 million U.S. baby boomers, 9.6 million Canadian baby boomers and one billion worldwide (30 per cent of the population)
When surveyed, 51 per cent of North American baby boomers would like to move to a better climate. Of those 44,675,000, 41 per cent (18,763,500) want to move to the south Atlantic region, and 32 per cent (14,296,000) want to move to the western part of the U.S. (Arizona, Nevada and California). And all told, 58 per cent of the boomers want to move to a one level, smaller home (50,808,000).
Conclusion: Close to 5,000,000 people are looking to move into a bungalow/condo in Arizona over the next 10 years, and 18 million people looking to move to Florida over the next 10 years.
Florida, Arizona and the entire U.S. are going through a housing shortage. Lawrence Yun, chief economist of the National Association of Realtors said "Home builders must add 1.6 million to 1.7 million housing units each year to accommodate typical U.S. population increases and replace demolished homes. According to the USA census data in 2009 and 2010 were just over 650 thousand new housing units completed in the USA.
Florida is one of the states with the largest number of foreclosures in the country. As a result of the “sub-prime mortgage meltdown” banks are becoming more stringent with lending practices making it more difficult, even for people with good credit to get a home loan. More people with foreclosures on their record means, even less people qualifying for loans, which results in more people looking for homes to rent. The rental occupancy rate in Tampa Bay is averaged at around 92% Combine these factors together and we have ourselves a “Perfect Storm” for investing in cash flow rental properties.
We know the full recovery will take some time "Economists predict 2014. But this is irrelevant. What is important is to buy right. You must determine your exit strategy, whether it's quick flip or a long-term rental hold, it's important to leave equity in the deal at today's market value, not subprime market value.
Investors to in today’s markets have the room to leave 65 per cent equity after all costs (including rehab) and acquisition costs. It is quite possible to buy a $100,000 home, and ensure be all in for no more than $65,000. This enables investors to rent, cash flow, and take a huge appreciation ride when the markets recover.
It's the perfect storm
1. Loonies’ Up and Interest rates are down:
As I write this, one Canadian dollar will get you 96 cents American. The Canadian dollar has increased 69% in value since 2002. Interest rates are at an all-time low making the cost of borrowing the most affordable we have ever seen.
2. Real estate is 50% to 70% Off:
Right now U.S. banks are selling tens of thousands of foreclosed properties per day. You can buy a $66,000 home and sell it for $220,000 after rehab.
3. Only in the U.S.:
Only in the States can you buy repossessed homes in good condition at a discount. (Our Canadian courts prevent banks from selling foreclosures at a discount.)
4. Rents continue to stay high:
Rents have not been affected by this downturn. The average rent in the USA is $1350 per month for a 3 bedroom single family home.
The U.S. favors the investor. Canada regulations serve the consumer. Practices which are perfectly acceptable in the U.S. become borderline illegal in Canada. Properties under $100,000 are cash cows during the time we sit and wait for the market to go back up, and cash in on hundreds of thousands of profit per property in 10 to 20 years from now.
When it comes to U.S. Real Estate, Florida has various "Winter Getaways, at affordable prices for any Canadian wishing to invest
As a Canadian, you can cash in on the properties available in Florida due to the previous economic recession. The housing market in Florida is still recuperating, which is why Canadians will find great investment opportunities for the perfect winter getaway.
Florida developers and banks are offering great pricing for U.S. real estate and with the stronger than ever Canadian dollar, there are beautiful properties available for discount pricing.
Canadians are now, more than ever taking advantage of what Florida has to offer!
The economic recession has affected the Florida real estate market. Banks and builders are offering tremendous opportunities for Canadians who seek to purchase winter getaways or to relocate to a state that is always sunny while avoiding the harsh inclement weather of Canada.
Canadians have weathered the recession like the true Canucks we are, which is why we take advantage of the recession in the form of investing in U.S. real estate. The opportunities are endless, and there is information that Canadians should understand before indulging into U.S. real estate investment opportunities in Florida.
Owning U.S. Real Estate in Florida is different in comparison to owning real estate in Canada.
There are numerous factors that must be considered; such as taxes, legalities, immigration laws and most importantly, seeking out the financing for property investments.
Florida’s tax laws can appear confusing for anyone. Canadians should always calculate the property tax before jumping into real estate investments in Florida, however note that the property taxes in Florida are not allowed to increase more than ten percent in one fiscal year.
If you invest into Florida real estate, the US government will bill you annually for property taxes on January 1 of that particular year. These US property taxes can prove confusing, but keep in mind you should remain flexible. Sometimes rates change due to political legislation and sometimes, homeowners and business owners benefit, or suffer, due to this action.
As confusing as property taxes can be for Canadians, Florida real estate is worth every dollar for investment. Florida has beautiful weather all year round with numerous retirement communities advertising with discount pricing. With the Canadian dollar performing so strong against the American dollar, the best it’s been thus far, investing into Florida properties makes perfect sense for Canadians. Another key point to note is that property taxes and insurance are high in Florida and where this may be so, most of the costs associated with taxes and savings on the purchase price of your investment can offset your insurance.
Keep in mind that if you rent out your real estate investment, it can be arranged so that your expenses, including interest, are deducted from your income, which is a benefit not offered in Canada. Remember that lower, net income is not taxed by Florida, but by the U.S. real estate, which still proves lower than in Canada.
Sam Kakembo - U.S. Real Estate
Residency and Taxation
If you are planning to spend the winter season in the United States, then you should be ensured to have all your documents-passport and other travel papers, as well as your bags packed.
Being snowbirds you need to realize that you have potential liability to pay taxes based on your permanent residency. U.S. citizens along with green card holders pay taxes on their income regardless of the place of their residence.
Although snowbirds only visit the United States for the winter season, they can be referred to as U.S. residents due to income tax purposes. In some situations they can be required to pay taxes on their worldwide income.
Counting the Days of your Stay
If you are neither a U.S. citizen nor a green card holder, you can still be expected to pay taxes, thus, making you a U.S. resident. A calculation table called Substantial Presence Test is a medium in computing your number of stay in the U.S., and the basis of the equivalent tax to pay. If the total calculation exceeds 182 days, you may be subjected to income tax. To keep track of your number of stay, you must keep a written record to avoid issues. (general rule of thumb, stay less than 4 months per year, if you plan on staying every year)
On the other side, if you accumulated less than 183 days from the calculation, then you are subjected to Closer Connection Exception. In this case, you are not considered as a U.S. resident. Several factors may help in determining a closer connection, these are:
> Permanent residence
> Family’s residence
> Location of personal resources
> Country of issuance of driver’s license
> Residence issued on documents
> Country where you obtain the majority of your income
These factors are also contained in the Canada-US Treaty. If you belong to this bracket, then you must be able to present papers and documents to receive its benefits.
It is true that requirements for tax filing and residency determination can be complicated, it is essential that you consult with an expert- professional advisor, skilled in cross-border taxation to certify that you are meeting the terms of all your tax obligations.
Remember to pay respect to the mandated law in the United States as you are doing in your home country. It is a great way of returning the good experience you had or will have in the future. Avoid problems as early as you can rather than piled up with all the different issues, making your vacation miserable and chaotic instead of quiet and fun. In this case, you can always call your second home your dream abode or “your home away from home”.
Sam Kakembo - Auxo Homes
Sam Kakembo, an Entrepeneur & Investor, plays a key role in management of the company portfolio of emerging markets. The majority of his investments are made in single family rental properties. He is responsible for property evaluation, marketing, acquisitions and in addition, asset managment of the Company’s property portfolio. Mr. Kakembo possesses 10 years’ experience in Canadian real estate, and currently manages a private real estate portfolio, Richland Investments and Property Management