Why Americans don`t buy US properties

JesseLee

New Forum Member
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I'm seriously thinking about investing in Florida properties. The more I investigate, the more motivated I become to:



The price has been down for 50% or even 60%. You can not ignore this.

Comfortable cash flow, even after factoring in high taxes, insurance, and condo fees etc.

Price/Rental ratio is below 10...in Canada, this kind of property only exists in one's dream.



Everything looks like so promising but I just couldn't figure out: If U.S. property market is so attractive, then why these local Americans are not buying?



What could be the reason that prevent them from spotting this 'life time' opportunities? Are they kind and generous enough to only leave this fact profit to foreign people, like Canadians, to fetch up? Are all Americans so poor even can not afford a 50K condo?



I'm not biased against/towards either side. I just want to do a complete due diligence.



Any comments welcomed - encouraging, discouraging...
 

2ndstory

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It's economics. Many of the people owning those houses could not have qualified for them if they hadn't gone with subprime mortgages. They lost their homes and in many cases their jobs. They cannot qualify for financing with the bank now, so they need to rent. There are Americans buying foreclosed properties as well. It's in part, the sheer number of properties available that makes it more than enough to go around and has given opportunity for Canadians to dive in.



Nik
 

REINteam

New Forum Member
Registered
Hi Jesse,



Many Americans are, lots and lots of first time home buyers getting into the market, plenty of investors buying bulk REO's, foreclosures, etc, but the inventory is quite substantial and the general public isn't looking to scoop up investment properties b/c RE has such a stigma right now...so the get rich quick flavor has been lost.



Then Canadians...when someone from Vancouver (or anywhere really) spots a property in the sun belt for $50K they A. can't believe it (we pay more in transfer tax and realtor fees!!) and B. assume it can only go up...what is the risk with something so cheap "I'll just live in it as a vacation house if I have to".



With the trend in Canada being more household debt and many people looking at the US housing market with rose colored glasses I can tell you that many will be burned - so don't get caught up in the frenzy! Even at a 50% drop in price (from downright silly 2006 levels) it doesn't mean it's a good deal.



If you are going to buy in Florida do the same research you would for up here and then some. Know your accounting obligations, the tenant/landlord laws, build a team you can trust, have back up help in place, study the area and have a fund in place to cover cash calls (condo fees, taxes, etc).



There are deals, I'm sure you can make it work, but know the pro's, con's and laws before you jump in.



Best of luck!
 

wgraham

New Forum Member
REIN Member
I was in Florida a couple of weeks ago on a family vacation and met up with some local investor friends of mine. Check out http://usforeclosuretv.com/ Investing in Florida sounds good on paper but the reality is a stark contrast to the paper!!



You need contacts, cash (no financing), feet on the street, local knowledge, tax knowledge and mostly experience. And as a bonus you have currency exposure which you can do NOTHING about (unless you have funds that origonated in USD).



I would like to think of myself as a seasoned investor and I don't think I could pull this off without some serious brain damage. For new investors this is an absolute disaster waiting to happen.



Take a flight down. Stay for a while. Talk with some locals who really know the scene and don't have anything behind the curtain. Then see what you think.



I will admit it all sounds good but the reality is quite different.
 

bizaro86

Frequent Forum Member
Registered
[quote user=wgraham]And as a bonus you have currency exposure which you can do NOTHING about (unless you have funds that origonated in USD).




You can hedge USD currency exposure into the future through any reputable currency broker. I know for a fact Calforex can do this for you.



http://www.calforex.com/



Regards,



Michael
 

Rickson9

Senior Forum Member
Registered
[quote user=JesseLee]Everything looks like so promising but I just couldn't figure out: If U.S. property market is so attractive, then why these local Americans are not buying? What could be the reason that prevent them from spotting this 'life time' opportunities? Are they kind and generous enough to only leave this fact profit to foreign people, like Canadians, to fetch up? Are all Americans so poor even can not afford a 50K condo?


I'm not sure why American's aren't buying real estate. Why didn't investors buy a ton of stock in 2008 when the market was virtually giving away businesses on the cheap? Fear? Good question either way!



I bought several 2 bed 2 bath condos in Phoenix, AZ, some at a 75% discount, and I don't see what all the fuss is about. They're all rented and doing well. Cap rates of 10% even after assuming 50% in expenses is common (which would only be a dream in Canada). I also bought stock during the 2008 crash. Both are as close to free money as I'll likely experience in my lifetime.



Pervasive fear has been financially generous to me in my short investing career; like shooting fish in a barrel after the water has run out.



Best regards.
 

wgraham

New Forum Member
REIN Member
[quote user=bizaro86][quote user=wgraham]And as a bonus you have currency exposure which you can do NOTHING about (unless you have funds that origonated in USD).




You can hedge USD currency exposure into the future through any reputable currency broker. I know for a fact Calforex can do this for you.



http://www.calforex.com/



Regards,



Michael




Not if the money is tied up in Real Estate you can't. It's either in the hedge fund or in RE.
 

bizaro86

Frequent Forum Member
Registered
[quote user=wgraham]Not if the money is tied up in Real Estate you can't. It's either in the hedge fund or in RE.


Sorry, but you can hedge your currency exposure by entering into a contract with a currency broker to buy Canadian dollars at a fixed rate in the future. For example, if you are expecting to receive 12,000 of USD rent next year, which you need to pay the LOC in Canada you used to buy the property, you could enter into a contract to sell 12,000 USD in one year at a fixed price.



You haven't put up any money yet, (or maybe just a small deposit) but instead you've locked in a price into the future. It's like fixing the interest rate on a mortgage. It probably will cost you a little bit more than exchanging at spot rates as you go along, but it reduces the risk of not knowing what rates will be. It can be done with any major currency broker, if you ask for a forward contract. From the Calforex website



FORWARD CONTRACTS



Forward contracts are the oldest and the best known hedging tools, they are used to fix a rate today for a transaction to be settled at some fixed or open date in the future.



A forward contract enables our clients to lock in profit today for a transaction that will be settled in the future without worrying about the risk of fluctuating rates.


Regards,



Michael
 

DaveL

Inspired Forum Member
REIN Member
It's not quite that simple Michael. Most FX brokers will not deal with less then 50-100K. Also when you contract expires you have to fill your order. What if you had a run of bad luck and your property sat vacant? You still have to pay when your contract is due.
 

2ndstory

New Forum Member
Registered
It's interesting, REIN members and REIN in general are all fearful of investing outside Canada. You'll get a list of reasons if you post asking for cons. Sure there are risks, but there is also potential for great reward. I haven't done it yet, but that doesn't mean I won't. Most of my capital is tied up in Winnipeg projects right now, but once they are done, I will start looking again. Just make sure you do your homework. Read Philip McKernan's books as a place to start. http://www.realestate49.com/



Nik
 

bizaro86

Frequent Forum Member
Registered
[quote user=DaveL]What if you had a run of bad luck and your property sat vacant? You still have to pay when your contract is due.


If your property is sitting vacant, that isn't a problem with your currency exposure, that's a problem with your property/management. Currency exposure is a risk to owning foreign property, although it can be partially mitigated depending on the circumstances, as with most other types of risk. Another potential way to mitigate USD risk would be to do your borrowing in a USD margin account from your Canadian discount broker. That way you have USD income (rent) and USD expenses (margin loan interest).



Vacancy is another risk to owning property, but one risk doesn't make the other risk worse. If you've borrowed a bunch of money to buy a property that's sitting vacant, what currency your rent and borrowings are in is not your biggest problem.



Regards,



Michael
 

REINteam

New Forum Member
Registered
Not fearful Nik, cautious!



I would say IF you have successfully purchased investment real estate in Canada, have held it for a few years, have a system, built a team, know the game and have seen the REAL numbers and it works for you THEN investing across the border will have a better chance of success.



You see, many many people read these posts, lots of 'guests' who aren't registered, have probably never invested and if they run South right now, throw money at a US property without knowing what they're getting into other than "it's cheap, the rent covers the mortgage...I'm good"... they are going to be in trouble.



Can you do it successfully? Of course, we have members who buy in the US right now. BUT, they know what they are doing, the didn't buy in an area just b/c every other Canadian is or b/c the property is dirt cheap, the numbers work and they are managing their risk proactively.



The US is a BIG place, tons of places to potentially invest in...so do some homework, pick a place, learn everything you can, talk with investors there and see if it works for you.



Best of Luck!
 

bizaro86

Frequent Forum Member
Registered
[quote user=2ndstory]It's interesting, REIN members and REIN in general are all fearful of investing outside Canada. You'll get a list of reasons if you post asking for cons. Sure there are risks, but there is also potential for great reward. I haven't done it yet, but that doesn't mean I won't. Most of my capital is tied up in Winnipeg projects right now, but once they are done, I will start looking again. Just make sure you do your homework. Read Philip McKernan's books as a place to start. http://www.realestate49.com/




In fairness, this is a Canadian real estate forum. Sure, there are discussions about US RE investments, and stock market investments, which are tangentially related, but it's fair to expect a difference of opinion regarding them. It is ultimately a self-selected group of people who are interested in Canadian RE, so people's opinion's on other things won't mesh as closely as they do on Canadian topics.



Example: If you went on a skydiving forum, probably most people think skydiving is great, or they wouldn't be there. On a cooking forum, if you ask about skydiving, you'll get a wide range of answers, since there is no pre-disposition towards the topic.



The pre-disposition here is towards Canadian RE, so that's what most people are comfortable with. That doesn't make US real estate a bad idea (in fact, if people are uncomfortable with something for reasons that aren't cogent and well-researched, that's probably a good sign for that investment class).



Regards,



Michael
 

JesseLee

New Forum Member
Registered
thank you for your inputs.



I will proceed, but with cautions. In the world of investment, there is no such thing that comes with high reward but with no risk. The key thing is to make the risk manageable.



All the opinions been brought up in this forum are helpful. I think at the end of day, one has to make the ultimate decision for himself/herself.
 

invst4profit

New Forum Member
Registered
You may also want to do some due diligence in the area of resale costs associated with Canadians selling Florida properties.

When my father in law sold a home he owned in Florida he ended up losing about 30% off the top in fees and taxes.

Just something else to keep in mind when ever you invest outside of country. Some states penalize foreigners.
 

wealthyboomer

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Canadian and northern United States snowbirds have expressed overwhelming concern with respect to the impact of disproportionate increases in property taxes.



In essence, many members of our association are indicating that the disproportionate shifting of the property tax burden onto the shoulders of winter Floridians is causing them to seriously consider selling their homes in Florida and relocate their winter residences to other sunbelt states. Many have already done so.



We must respectfully submit that winter Floridians are in fact only utilizing those services that are paid through the property tax rates on a `part-time` basis for a few winter months compared to other residents who are deriving a full year-round benefit at a substantially lesser property tax cost. With such a disproportionate shift of the total costs being shouldered by a smaller seasonal group, Florida is quickly becoming both less desirable as well as less affordable as a winter destination.



States such as Arizona, Texas, California and South Carolina are aware of the deteriorating property tax situation in Florida and are aggressively targeting our members. A $400,000 home in Hilton Head, S.C. comes with a property tax bill of approx. $1,400 compared with a bill of approx. $6,000 in Sarasota for seasonal residents.

The University of Florida estimates that approximately 920,000 temporary winter residents resided in Florida in 2004 (down from 970,000 in 1997). The economic impact this represents to the state of Florida is huge and is measured in the billions of dollars.



As more and more people are retiring before the traditional age of sixty-five, and as part of their increased leisure years consider establishing a winter home outside Canada and the northern United States, Florida may not be a first choice under the present conditions.



Source: Canadian Snowbird Association
 

REINteam

New Forum Member
Registered
Interesting article Wealthyboomer.



I have some wealthy friends, from the US, who own a vacation property in Florida (Captiva Island) and after going there for 20 plus years they sold their newest build b/c the operating costs were just too much. I know they complained consistently about the taxes and the insurance...granted most people are not investing there, but two expenses to look into carefully when investigating Florida...especially as a Canadian.
 

Rickson9

Senior Forum Member
Registered
I wonder what my U.S. properties will be worth in 20 years...



Gives me the warm and fuzzies...
 
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