Why are Canadian Investors Buying USA & Not Candian?

Question

Canadian investors make up nearly 30% of the foreign buyers market in the U.S. and I highly doubt they will be influenced by a visa offer.  Why do so many Canadian investors purchase int he states?

Why do they buy in mostly appreciation markets (what we would consider appreciation markets)?

Why are they not buying Canadian real estate?

Chris

Michael Power · Answer

Chris / We live in Canada, (North of Toronto), 10-months of the year....invest there too.  Riverview is our principle Florida residence.  The appreciation market in Canada has been going strong and consistant for the last 15-years with most major markets surpassing $500k today, (>$1mm in Vancouver).  At par with the U.S. dollar, it is not the exchange rate that drives investors South.

I can only speak for my own motivation so here it is:
- CDN dollar at par or better by 5%, (depends on the day of the week lately and what happens in Europe)
- Money is still very cheap in Canada @ 2.25% if you want to buy some.  Banks are still very interested to lend and are investor friendly.  They toughened up a bit since 2008 but still ok.
- Inventory in FL & AZ is abundant and at releatively cheap rates.  I can buy one SFH in Toronto in a working class neighborhood for $500k-$700k and rent for $3,500/month or 8 similar properties in Riverview, FL., and rent for $1,000/month each, (simple economies of scale).
- The markets in Toronto & Vancouver are extremely over-heated.  Once interest rates point higher, there will be a significant correction.  This makes for very nervous investing if you want to jump in now.
- A lot of folks come South to buy a vacation home but investing is bit more like work.  All things equal, buying properties in the U.S. is very similar to that in Canada.
- Since we are long-term buy/hold investors, (20-years), it is the future bet on the U.S.  I don't know where the economy will be in 2-years, but in 20-years it will have fully recovered and be well on the way through the next growth cycle.  At that time, the Canadian dollar will be worth $0.70 again I hope. My profits will be in the appreciation in price and the exchange rate!!

As for tax motivation:  In Canada, for investment properties, it's all deductible....interest, and all property associated costs and depreciation.  Tax treaties with the U.S give the same benifits if you buy here as well.

Mike P.

Chris Clothier · Answer

Steve -

Thanks so much for the reply.  Im speaking in Vancouver this weekend and was sent a few advance questions about why investors should buy US instead of Canadian.  The usually answers pop in my head, but there has to be more to it.

Can an investor deduct anything with an investment property?  I know Australian investors cannot deduct personal home mortgage interest, but can deduct interest on an investment mortgage if it was purchased with a Heloc.  Plus they can deduct the heloc interest rate, so it creates a scenario for people to invest.  Wasn't sure if something like that existed in Canada too.

Chris Clothier · Answer

I was in Vancouver in the Fall to meet with Canadian investors interested in buying in the states and was amazed at the price points for single family homes and condos.  IT was crazy.

David Wedemire · Answer

In Vancouver to buy a simple basic house averages around ^650 Thousand

Scott Grace · Answer

In Nova Scotia it can take up to 3 months to get an eviction in some cases.

McKellar Newsom · Answer

Thanks Michael! I thought I had heard that the red tape with evictions is tough in Canada.  My husband's family lives in B.C. and it would have been nice to invest close to them.  mck

Michael Power · Answer

McKellar Newsom : With our Canadian rentals in Ontario, evictions were an arduous exercise.  From experience, the Rental Tribunal in place made for evicting a 6-month exercise, (very much in favor of the tennant).  Notices must be handed personally to the tennant, (it takes 2 notices, 2-weeks apart starting 2-weeks after the rent is due).  Professional tennants become very scarce during this phase. Then comes the tribunal request, (quasi-judicial process), with months waiting for a date.  The authority to engage the Sheriff comes after another 2-months and they won't evict in the winter.  If you are lucky, the tennant lives rent free the whole time without damaging the house.

Failure to pay rent, or the owner wishing to occupy, are the only avenues to pursue an eviction and both take the same amount of time.  Criminal activity must be shown first, (conviction), before an eviction can proceed for that reason.  In 2010 the laws changed to favor the tennant even further.

The Tennancy Act regulates annual rent increases to the cost of living rise.  All this risk is balanced by 6%-8% p.a. growth in housing prices, (much higher in some markets).  Although that dance comes to an end as soon as interest rates point Northward.

As anywhere, screen your tennants well and avoid the whole issue.

That's also why the market in the US looks so much more appealing at the moment.  That risk can be spread so much thinner, (or thicker), by leveraging many more properties.

Mike P.

Mike Jakobczak · Answer

Each province is different but I know in Alberta it's 14 day period written notice.  Or the landlord can go to a court to end the tenancy sooner. On damages/assault things like that, 24 hour notice only.

McKellar Newsom · Answer

In Canada, isn't it difficult to evict tenants who do not pay?  I seem to remember some legality/liability issues with buying rentals in Canada.  Does anyone know about legality/liability with regards to rentals in Canada?

Mike Jakobczak · Answer

It's exactly what everyone is saying it's a combination

Also the media is a big influence on Canadians.  When Canadians start to hear that you can buy houses for 50 cents on the dollar and properties for as low as $50,000 usd, this will get anyone motivated.  Since $50 k anywhere in Canada will most likely get you in some small town in the middle of no where, if that.  When in some areas in the US, it will get you a whole house or a not bad condo near a local beach.

Why are Canadian Investors Buying USA & Not Candian?

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