Florida and Arizona - Feedback appreciated

[tylerpearson]

Hello All,



I have a couple J.V. partners who would like me to begin exploring investment opportunities for them in both Florida and the Arizona marketplace. With that said, I am in the process of beginning my due diligence and I was hoping to speak with anyone who is currently active in these markets. I'll be planning a couple trips in the very near future and would appreciate any referrals for agents, brokers and management companies.



Look forward to hearing from you and please feel free to PM me.



Thanks in advance,

 

[Thomas Beyer]

Florida: higher property taxes, much higher for non-residents, very high vacancies in some complexes, saltier air, high insurance cost due to hurricane premium, crappy economy, many tie to latin America (cuba, Argentina, Brazil, ..)



AZ: much lower tax and insurance situation compared to FL, alternate state for CA residents and businesses, dry air



On average, AZ is better than FL .. but of course the devil is in the detail !! People have drowned in rivers one foot deep on average !



It is a MYTH that you find much better [after tax ROI] deals in the US than in Canada. Higher capital gains taxes for Canadians AND exchange rate risk .. thus gross ROI (i.e. before tax) has to be roughly twice as high as a Canadian property.



The US has huge debt problems and likely currency erosion for years .. thus the current stock market rise from mid-2009 to end of 2010 should not be taken s a sign that "all lights are green" .. just that everything priced in US $s, for example US stocks or US real estate, rises, as the currency falls further ! This (artificial) rise is taxed at almost 50%, and then has to be converted back to Can $s !! Do not underestimate this issue .. despite that fact that some houses can be had for $65,000 and rented for $1000 !



Proceed with caution. Not all that glitters in the ample sun is (real estate) gold !!

 

[jeffjas]

Thomas, can you share where you get this 50% U.S. tax rate from ? Or how Canadians are taxed higher for capital gains in the U.S. ?



The U.S. has a 15% flat tax on cap gains and no tax on 1040 exchanges regardless if you are Canadian or other non-resident. If you earn taxable income in the U.S. you pay federal taxes based on U.S. tax rates. In fact the Canadian tax system is much more punitive on real estate capital gains compared to the U.S.



In addition the tax treaty between the U.S. and Canada ensures no double taxation on individuals if structured properly. You pay tax only on the difference.

 

[Thomas Beyer]

[quote user=jeffjas] 50% U.S. tax rate from ?


This rate assume a US corporation, held by a Canadian LP or corporation. Gains are then dividended to Canada and taxed again. Hence almost 50% in total.



The tax rate is indeed lower if you own the US real estate personally. But then you have to file with the IRS and possible co-mingle and report your entire worldwide networth / income to them.



I am NOT a US tax expert .. but know from our co-investors that reporting to the IRS is not an option for most, hence we used the aforementioned holding structure, with those higher total taxes.

 

[Rickson9]

Assuming that a $500M property was purchased and later sold for $1M.



"If you own your U.S. property in a Canadian corporation, or even in a Florida corporation, the IRS will tax the gain at approximately 35%. Additionally, there may be State tax as well. In Florida, the Department of Revenue will tax the gain at approximately 5.5%. That totals roughly 40% tax rate on the gain, or $200,000 of tax."



"However, if you have the property in the Cross-Border Trust or in your individual name for more than 12 months, you benefit from the IRS capital gain tax rate of approximately 15% on the net gain. In that case, there is no Florida Department of Revenue tax on trusts or individuals."



David A. Altro, Esq.

B.A., LL.L., J.D., D.D.N., Fin. Pl., TEP

U.S. Attorney and Canadian Legal Counsel & Notary.

www.altrolaw.com



David then goes on to explain how to reduce capital gains, recover or avoid withholding, reduce capital gains tax by differences in CAD:USD exchange rate, and defer capital gains taxes.



I would be interested in the source of information that says that the gain is sent to Canada and allegedly taxed at 50%.



Best regards.

 

[tylerpearson]

Could the capital gains not be deferred if you were to reinvest the proceeds into another property?

 

[Thomas Beyer]

[quote user=Rickson9]"If you own your U.S. property in a Canadian corporation, or even in a Florida corporation, the IRS will tax the gain at approximately 35%. Additionally, there may be State tax as well. In Florida, the Department of Revenue will tax the gain at approximately 5.5%. That totals roughly 40% tax rate on the gain, or $200,000 of tax."



"However, if you have the property in the Cross-Border Trust or in your individual name for more than 12 months, you benefit from the IRS capital gain tax rate of approximately 15% on the net gain. In that case, there is no Florida Department of Revenue tax on trusts or individuals."


As stated, you pay roughly 35% to 40% in the US on a gain of a property held in a corporation.. and if you then dividend the gain into Canada a further dividend tax is paid in Canada .. thus around 50% or more !



Indeed VERY DIFFERENT if you own the property owned personally, with personal IRS filings .. i.e. a FAR LOWER taxation.



If anyone knows of a structure, perhaps based on TRUSTS, without IRS filing by the Canadian owners of a structure (say 200+ investors) .. I'd surely would love to know !



Of course, on top of that taxation is the potential, or shall I say likely, exchange rate loss in a high oil price environment with a lose US (QEx) printing press .. so a Can $ at $1.30 US in 2015 or 2017 is not at all unrealistic .. a further 20-30% loss on currency alone !



Therefore, any US investment must BY A WIDE PRE-TAX MARGIN EXCEED a Canadian one .. !!



A US investment promising or actually delivering a 100% ROI in say 6 years PRE-TAX in US dollars might only be 25-30% in Canadian $s after all taxes are paid and the US $s are converted back into Canadian $s !!

 

[dplummer]

Thomas, the book Jim is referring to "Owning U.S Property The Canadian Way by David A Altro is free. (Thanks Jim for turning me on to it) it's a good read. Talks about cross-border trusts & other strategies.



Doug

 

[Rickson9]

That reply was pretty bad. Almost as bad as making false claims about another RE investment group. Alas I hope reading makes a comeback. Nothing more to add really.

Best regards.

 

[Thomas Beyer]

[quote user=Rickson9]That reply was pretty bad. Almost as bad as making false claims about another RE investment group. Alas I hope reading makes a comeback.


was this directed at me ? I have never made false claims against anyone.



It state facts .. or opinions on issues.

 

[housingrental]

Rickson - It's not clear why you think either:



a) The reply was bad



b) Who you think he has bashed



Perhaps you can elaborate on what you view as a "good" reply and what issues you have with his post?



I'm guessing most reads will be like me - missing what your concern is - ....





[quote user=Rickson9]That reply was pretty bad. Almost as bad as making false claims about another RE investment group. Alas I hope reading makes a comeback. Nothing more to add really.
Best regards.

 

[housingrental]

Rickson's attack on you seems bizarre - In this context a reasonable person could also ask Rickson - What have you contributed to other benefit compared to what Thomas Beyer has?



[quote user=ThomasBeyer][quote user=Rickson9]That reply was pretty bad. Almost as bad as making false claims about another RE investment group. Alas I hope reading makes a comeback.


was this directed at me ? I have never made false claims against anyone.



It state facts .. or opinions on issues.

 

[KevinSolomon]

[quote user=ThomasBeyer]Of course, on top of that taxation is the potential, or shall I say likely, exchange rate loss in a high oil price environment with a lose US (QEx) printing press .. so a Can $ at $1.30 US in 2015 or 2017 is not at all unrealistic .. a further 20-30% loss on currency alone !


Well 2015 (or 2017 if you prefer) is coming up. Let's see how "not at all unrealistic" this becomes...



[quote user=ThomasBeyer]
A US investment promising or actually delivering a 100% ROI in say 6 years PRE-TAX in US dollars might only be 25-30% in Canadian $s after all taxes are paid and the US $s are converted back into Canadian $s !!





Well, it's been 4 years and apparently my 'prediction' is doing better than this one...