Buying into America's dream

Magrath · 发表于 2007-8-28 06:05

Buying into America's dream
Canadians take advantage of dropping house prices in the U.S.

Derrick Penner
Vancouver Sun; CanWest News Service

Tuesday, August 28, 2007

VANCOUVER - Phil and Casie Laird wanted a vacation home for their family. But after the Langley, B.C., couple looked around B.C., they instead decided their best option was to try for a cross-border bargain.

They liquidated an Abbotsford investment property they owned and took out lines of credit to snap up a four-bedroom, two-and-half-bath rancher on a lot that backs onto a golf course and is a half-block from the beach in Washington's quaint Birch Bay Village for $266,000.

"If we were to look at something like that in the Okanagan, we'd be paying twice as much," Phil Laird said.

The house needed some work -- new appliances, paint and a lot of landscaping. Still, Laird, whose day job is as an administrator at Trinity Western University, estimated "now is a good time to get in (to the U.S. market) because of the way the dollar is and the fact that the U.S. market right now hasn't grown, in terms of price, in the same way as north of the border."

And with U.S. markets on a downturn following the subprime mortgage meltdown, the bargains for Canadians are becoming more plentiful.

The Lairds, who bought the home with Phil's brother and sister-in-law, plan to use the Birch Bay house as an income property for five years, renting it out until their children are a little older. Mike Kent, the Lairds' realtor in nearby Blaine, said his local market -- Whatcom County -- is faring better than other markets, with little of the subprime effect so far.

Average prices this year are up almost three per cent in the county, hitting $331,499. "Most people who bought here bought properties to use, as opposed to buying condos in Miami Beach that they intend to flip," he added.

Still, Kent said fewer buyers from California --where markets have been harder hit by the mortgage meltdown -- are venturing north to Birch Bay. Canadians are a bigger presence, accounting for about seven of every 10 sales for his office."If it weren't for Canadians coming back, (our sales) would definitely be off," he added.

Kent said the big equity gains Canadians have earned are still the biggest driving factor, and their greatest influence is on markets closest to the border.

PRICE WAS RIGHT

Laird said proximity was another attraction of the Birch Bay property. Not only was it the right price point, but depending on the border lineup, it can be as little as 25 minutes from his family's home in Langley.

Kent said he is "seeing a lot of Canadians inquiring and cruising around, trying to learn more about this market. And we hear the same thing over and over again. Prices continue to remain high, particularly in the Lower Mainland."

In the meantime, Kent said condominiums can be had for as low as $110,000 to $120,000 US. For houses, people can find near-new 1,500- to 1,800-square-foot detached ranchers for $250,000 to $275,000 US.

Kent has also heard interested Canadians complain that Vancouver Island seems harder to get to due to ferry lineups. And he guesses that Canadians must be starting to reconsider whether it is the right time to buy winter vacation getaways in Palm Springs, Phoenix or other sunbelt locations.

Patrick Jerns, a realtor in Surprise Valley, near Phoenix, said Canadians are a noticeable presence in that state's markets, but are far from being the biggest out-of-town buyers. And Jerns hasn't noticed whether Canadians are starting to buy in bigger numbers.

BUYER MUSCLE

However, Jerns said Arizona markets peaked in 2006, and have since begun to deflate. Prices in his own community of Sun City West are down six per cent from a year ago, he added, and anyone buying now "is in the catbird seat."

Robert Keats, a Phoenix-based financial planner with the firm Keats, Connelly and Associates Inc. who specializes in advising both Canadians and Americans on moving or investing across the border, said there is definitely heightened interest in U.S. real estate among Canadians.

"The smart money is starting to look," Keats said. "I remember the last time we had these situations," he added.

"It was the early '90s, during the savings-and-loan scandal." A downturn in real estate followed that debacle, and Keats said the Canadians who stepped in to pick up bargain-priced property reaped big gains once markets recovered -- sometimes doubling or tripling their investments.

IT'S LIKE CANADA, ONLY DIFFERENT

Big Canadian real-estate gains and a favourable exchange rate against the U.S. currency may make prices in American markets attractive, but there are pitfalls that potential buyers need to be aware of once they cross the border:

SIMILARITIES, DIFFERENCES

Whatcom County realtor Mike Kent said finding a house and making an offer works the same way in the U.S. as it does in Canada.

The buyer and seller draw up a simple sales contract that is used to guide the transaction.

However, instead of using lawyers to handle transactions, Kent noted that Americans use the services of land-title companies and escrow firms to convey properties.

Phil Laird, a Langley resident who recently bought property in Birch Bay, said the costs and fees involved in the transaction are different as well.

FINANCING

Kent said Canadians can't get mortgage financing from Canadian banks on U.S. properties, because the bank wouldn't be able to foreclose on the property if a buyer defaulted on the loan.

Instead, Canadian buyers that Kent has worked with take out home-equity loans against Canadian property that they own. Or, if they can put a minimum of 25 per cent down, Kent said obtaining a mortgage from a U.S. bank usually isn't a problem, and people can still get 6.5-per-cent interest rates on 30-year fixed mortgages.

However, Cathy Digby, a mortgage broker with U.S. Bank Corp. in Blaine, Wash., warned that Canadians, as foreign buyers, wouldn't qualify for the full range of mortgage options that Americans do.

Laird said buyers also need to shop around for the most favourable exchange rate.

He used a currency-exchange broker rather than a bank, which saved him about $3,000.

If you are buying with cash, or taking out a home-equity loan in Canada, you can't simply drive across the border carrying a $266,000 bank draft. You have to wire the money between accounts in Canada and the U.S., and all foreign wire transfers have to go through New York.

TAXES

Different tax laws offer the biggest pitfalls where Canadians can get themselves into trouble with their American real estate purchases, according to Robert Keats, a cross-border financial planner with the firm Keats, Connelly and Associates in Phoenix.

For instance, adding a spouse to the title of a property is an ordinary transaction in Canada that doesn't have immediate implications. In the U.S., however, that triggers gift taxes.

On a property worth $500,000, tax laws deem that the property-owning spouse has given the other spouse $250,000, which can result in a charge as high as $50,000, Keats said.

It's the same with adding children to the title.

If a Canadian property owner wants to rent out the U.S. property when not using it, the owner would have to obtain an American social security number and file a U.S. income tax return.

Keats outlines all the issues in detail in a book titled The Border Guide: A guide to living, working and investing across the border.
© The Edmonton Journal 2007

flagship · 发表于 2007-8-28 09:45

Winter is looming, let's fly south for winter.

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