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- Dec 17, 2007
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I would like to get some feedback on the recent surge in Canadians investing in US real estate. Pros/Cons?
Canadians Investing in US Real Estate
- Thread starter bstallings
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- Sep 3, 2007
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I don`t have all of the answers but I am aware of a few things.
You`ll want to be aware of some of the following (and more):
- Taxation will be an issue. I`m not an accountant but I understand that whatever income you make in the USA is subject to US tax. And depending on how you are structured (or not) in the US, you could be subject to double taxation or you could get credit in Canada for what you pay to the IRS. My understanding is that you are best to be an LLC or something similar so that the income flows through to you as an individual and then you can benefit by getting the Canadian tax credit on what you pay to the IRS. (But you`ll need to talk with your CPA or accountant to verify.) I also understand that if you are a corporation in the USA, you will pay US tax but not get the benefit applied to your Canadian tax and have the pleasure of paying full tax in both countries. Again, I`m no expert but be VERY CAREFUL!
- You could also face the same issues as it relates to Capital Gains Tax. It is possible to be viewed as Capital Gains in the USA and Income in Canada or vice versa. In either case, you will pay double tax
.
- Also keep in mind that Canadians (I think I have this right) are taxed on residency while Americans are taxed on nationality. So if you are an American living in Canada, you will pay US tax and Canadian tax. If I am right (check it out), as a Canadian living in the US, you will only pay US tax. DID I SAY CHECK WITH AN ACCOUNTANT?
- Other issues include the US/Canada exchange rate on the dollar. It could work in your favour but the opposite is also possible. Just one more risk that you have no control over.
- When applying for loans, some banks will look at you differently. I don`t have a list of those that like Canadians but, like here in Canada, they want security. Some will not want to do business with a Canadian living in Canada because they can`t get easy access to you if there is a problem.
- The language in real estate is often different. In multi-family, you`ll hear terms like A, B, C, and D class properties in A, B, C, and D neighbourhoods. We don`t use the same lingo here. Escrow is another term you`ll hear lots of in the US. Bill Backs, RUBS are just a couple of other terms.
- In the US, you can buy lists of just about anything such as names, addresses, and any other set of parameters you want (of owners of buildings meeting any number of certain criteria, etc.).
- It is usual in many markets in the US to face up to 10% vacancy rates. This is normal and they often expect at least a 5% vacancy in their properties. I am aware of one situation where there wasn`t even an effort to advertise if there was only a 5% vacancy.
- Like in Canada, property management is an issue. There are lists of property managers nation-wide in the US that can be found on-line But they tend to specialize in only multi-family. And like in Canada, they can make you or break you.
Just some thoughts. Good luck!
You`ll want to be aware of some of the following (and more):
- Taxation will be an issue. I`m not an accountant but I understand that whatever income you make in the USA is subject to US tax. And depending on how you are structured (or not) in the US, you could be subject to double taxation or you could get credit in Canada for what you pay to the IRS. My understanding is that you are best to be an LLC or something similar so that the income flows through to you as an individual and then you can benefit by getting the Canadian tax credit on what you pay to the IRS. (But you`ll need to talk with your CPA or accountant to verify.) I also understand that if you are a corporation in the USA, you will pay US tax but not get the benefit applied to your Canadian tax and have the pleasure of paying full tax in both countries. Again, I`m no expert but be VERY CAREFUL!
- You could also face the same issues as it relates to Capital Gains Tax. It is possible to be viewed as Capital Gains in the USA and Income in Canada or vice versa. In either case, you will pay double tax
- Also keep in mind that Canadians (I think I have this right) are taxed on residency while Americans are taxed on nationality. So if you are an American living in Canada, you will pay US tax and Canadian tax. If I am right (check it out), as a Canadian living in the US, you will only pay US tax. DID I SAY CHECK WITH AN ACCOUNTANT?
- Other issues include the US/Canada exchange rate on the dollar. It could work in your favour but the opposite is also possible. Just one more risk that you have no control over.
- When applying for loans, some banks will look at you differently. I don`t have a list of those that like Canadians but, like here in Canada, they want security. Some will not want to do business with a Canadian living in Canada because they can`t get easy access to you if there is a problem.
- The language in real estate is often different. In multi-family, you`ll hear terms like A, B, C, and D class properties in A, B, C, and D neighbourhoods. We don`t use the same lingo here. Escrow is another term you`ll hear lots of in the US. Bill Backs, RUBS are just a couple of other terms.
- In the US, you can buy lists of just about anything such as names, addresses, and any other set of parameters you want (of owners of buildings meeting any number of certain criteria, etc.).
- It is usual in many markets in the US to face up to 10% vacancy rates. This is normal and they often expect at least a 5% vacancy in their properties. I am aware of one situation where there wasn`t even an effort to advertise if there was only a 5% vacancy.
- Like in Canada, property management is an issue. There are lists of property managers nation-wide in the US that can be found on-line But they tend to specialize in only multi-family. And like in Canada, they can make you or break you.
Just some thoughts. Good luck!
- Joined
- Aug 30, 2007
- Messages
- 13,881
We just bought 2 US multi-family properties, one 44 and one 308 units. Yes, many new terms, new laws, new rules but nothing unusual so far. Decent CAP rates. Decent prices. Decent leverage. Yes, higher vacancies and yes, slightly lower rents and yes, higher taxes and expense to operate. In W-Canada we now face: low CAP rates, lower leverage (i.e. more cash required, lower cash-on-cash ROI), much higher prices, usually over $100,000/door !
We see more equity upside in apartment buildings in certain US states (those with a decent economy and in-migration) - with better cash-flow despite higher leverage, as the inflation is creeping up, the in-migration / population growth is very strong in selected markets and the propensity to rent is going up due to tighter US mortgage rules and less house speculation. It is more conceivable that an asset @ 40/door goes to 60/door in about 5 years, (assuming 10K/door cash) ... a 200% ROI cash-on-cash than one here in W-Canada at 120/door going to 200/door (assuming 40/door cash or 66.66% LTV mortgage, i.e. 200% ROI).
I.e. why buy a house or condo @ $250,000 that may go down to $200,000 if you can rent one for $1000/month. Some can`t buy if the bank actually checks your income or net worth. Less NINJA mortgages .. more renting ! (NINJA: No Income, No Jobs or Assets)
Renting: the economic choice of many. More reasons on our website ..
I`d love to buy more in W-Canada if I could make sense of the prices / CAP rates ..
We see more equity upside in apartment buildings in certain US states (those with a decent economy and in-migration) - with better cash-flow despite higher leverage, as the inflation is creeping up, the in-migration / population growth is very strong in selected markets and the propensity to rent is going up due to tighter US mortgage rules and less house speculation. It is more conceivable that an asset @ 40/door goes to 60/door in about 5 years, (assuming 10K/door cash) ... a 200% ROI cash-on-cash than one here in W-Canada at 120/door going to 200/door (assuming 40/door cash or 66.66% LTV mortgage, i.e. 200% ROI).
I.e. why buy a house or condo @ $250,000 that may go down to $200,000 if you can rent one for $1000/month. Some can`t buy if the bank actually checks your income or net worth. Less NINJA mortgages .. more renting ! (NINJA: No Income, No Jobs or Assets)
Renting: the economic choice of many. More reasons on our website ..
I`d love to buy more in W-Canada if I could make sense of the prices / CAP rates ..
- Joined
- Dec 17, 2007
- Messages
- 1
I am curious where in the US your purchased, also did you get your financing in the US as a Canadian resident and citizen? I am a Canadain citizen currently living in the US and it is very clear Canadian credit rating is nontransferrable to the US.
As a Canadian if my primary resident was the Canada I would pay both Canadian and US taxes, but since my primary residence is the US and I am a US resident ... this tax law does not apply.
As a Canadian if my primary resident was the Canada I would pay both Canadian and US taxes, but since my primary residence is the US and I am a US resident ... this tax law does not apply.
- Joined
- Aug 30, 2007
- Messages
- 13,881
QUOTE (BBW @ Dec 18 2007, 09:40 PM) I am a Canadain citizen currently living in the US and it is very clear Canadian credit rating is nontransferrable to the US.
..
Get a US tax ID .. and get some US credit .. say: get a car loan or a credit card loan, pay it back fast .. then you have "good credit" .. the credit score is an asset .. get one .. work on it .. improve it ..
..
Get a US tax ID .. and get some US credit .. say: get a car loan or a credit card loan, pay it back fast .. then you have "good credit" .. the credit score is an asset .. get one .. work on it .. improve it ..
- Joined
- Aug 29, 2007
- Messages
- 173
My wife and I bought a property last week in Arizona. It will become the "6 months in Canada, 6 months south" part of our Belize.
Before we left for the U.S. I went onto amazon.ca and bought a book titled: "The Canadian Snowbird in America" by Terry F. Ricthie.
It provides superb explanations of tax issues, real estate buy/sell issues, estate planning, etc etc etc.
I highly recommend it as a source of current info on U.S. investing.
Another useful book is called "The Border Guide: A Canadian`s Guide to Living, Working and Investing in the Unted States".
In case anyone is interested in getting more info on Arizona investing, write me an e-mail ( [email protected] ) or have a look at the Dec 17th posting on my blog: ( http://lease2ownbob.blogspot.com/ )
Before we left for the U.S. I went onto amazon.ca and bought a book titled: "The Canadian Snowbird in America" by Terry F. Ricthie.
It provides superb explanations of tax issues, real estate buy/sell issues, estate planning, etc etc etc.
I highly recommend it as a source of current info on U.S. investing.
Another useful book is called "The Border Guide: A Canadian`s Guide to Living, Working and Investing in the Unted States".
In case anyone is interested in getting more info on Arizona investing, write me an e-mail ( [email protected] ) or have a look at the Dec 17th posting on my blog: ( http://lease2ownbob.blogspot.com/ )
- Joined
- Sep 3, 2007
- Messages
- 39
Hi Bob (et. al.)
You might want to dig a little deeper into the "6 months in Canada and 6 months south" idea. I have heard from sources that I trust that it is an incorrect assumption that we are okay to be 6 months in and 6 months out of the USA. Maybe it`s okay from an non-income point of view but, for tax purposes, it may be an entirely different matter.
My source said that according the IRS (and an IRS agent who spoke in Canada recently), if a Canadian is in the US for more than 183 days in a year (and they don`t have to be consecutive days), they are considered a US citizen for tax purposes.
Again, I`m not the financial and tax expert but I got this from someone who is.
Cheers! Ken
You might want to dig a little deeper into the "6 months in Canada and 6 months south" idea. I have heard from sources that I trust that it is an incorrect assumption that we are okay to be 6 months in and 6 months out of the USA. Maybe it`s okay from an non-income point of view but, for tax purposes, it may be an entirely different matter.
My source said that according the IRS (and an IRS agent who spoke in Canada recently), if a Canadian is in the US for more than 183 days in a year (and they don`t have to be consecutive days), they are considered a US citizen for tax purposes.
Again, I`m not the financial and tax expert but I got this from someone who is.
Cheers! Ken
- Joined
- Aug 29, 2007
- Messages
- 173
QUOTE (KenReynolds @ Dec 20 2007, 10:54 AM) Hi Bob (et. al.)
You might want to dig a little deeper into the "6 months in Canada and 6 months south" idea. I have heard from sources that I trust that it is an incorrect assumption that we are okay to be 6 months in and 6 months out of the USA. Maybe it`s okay from an non-income point of view but, for tax purposes, it may be an entirely different matter.
My source said that according the IRS (and an IRS agent who spoke in Canada recently), if a Canadian is in the US for more than 183 days in a year (and they don`t have to be consecutive days), they are considered a US citizen for tax purposes.
Again, I`m not the financial and tax expert but I got this from someone who is.
Cheers! Ken
Agreed. It is technically 6 months less a day in the States and that is not contiguous. It is cumulative.
It is very important to keep track of all U.S. visits and count the days.
But with under 6 months, we get to keep our OHIP benefits and deal with CRA. Again the book I mentioned on Snowbirds in the U.S. has excellent chapters on tax planning, estate planning, and real estate ownership.
I will read it a few more times before we take the plunge!
You might want to dig a little deeper into the "6 months in Canada and 6 months south" idea. I have heard from sources that I trust that it is an incorrect assumption that we are okay to be 6 months in and 6 months out of the USA. Maybe it`s okay from an non-income point of view but, for tax purposes, it may be an entirely different matter.
My source said that according the IRS (and an IRS agent who spoke in Canada recently), if a Canadian is in the US for more than 183 days in a year (and they don`t have to be consecutive days), they are considered a US citizen for tax purposes.
Again, I`m not the financial and tax expert but I got this from someone who is.
Cheers! Ken
Agreed. It is technically 6 months less a day in the States and that is not contiguous. It is cumulative.
It is very important to keep track of all U.S. visits and count the days.
But with under 6 months, we get to keep our OHIP benefits and deal with CRA. Again the book I mentioned on Snowbirds in the U.S. has excellent chapters on tax planning, estate planning, and real estate ownership.
I will read it a few more times before we take the plunge!
QUOTE (KenReynolds @ Dec 18 2007, 12:05 AM) - Other issues include the US/Canada exchange rate on the dollar. It could work in your favour but the opposite is also possible. Just one more risk that you have no control over. Merryl Lynch is forecasting $1.12 US / CDN in 2009.
QUOTE (KenReynolds @ Dec 18 2007, 12:05 AM) - Also keep in mind that Canadians (I think I have this right) are taxed on residency while Americans are taxed on nationality. So if you are an American living in Canada, you will pay US tax and Canadian tax. If I am right (check it out), as a Canadian living in the US, you will only pay US tax. There`s a reciprocity agreement between Canada and the US so citizens of one country get credit for taxes paid in the other country. As an American living in Canada, I`ve only been hit with a US income tax once, and that was because of a "alternative minimum tax" which I expect to get back.
QUOTE (KenReynolds @ Dec 18 2007, 12:05 AM) DID I SAY CHECK WITH AN ACCOUNTANT? Accountants are a big help in situations like this.
QUOTE (KenReynolds @ Dec 18 2007, 12:05 AM) DID I SAY CHECK WITH AN ACCOUNTANT? Accountants are a big help in situations like this.