Are you a Canadian buying property in Florida? Here's how to do it the smart way. Read on.
Hundreds of thousands of Canadians own property in the US - a sunny retreat to get away from our tough winters, a retirement investment, or a base for work, study and travel.
If you’re planning on following in their footsteps, you’ll want to do your own research, and take legal advice to make sure your purchase goes smoothly. Here’s an overview to help you get started on your journey.
Getting a mortgage is an increasingly popular way for Canadians to buy a property in the US. Although there was a time when the vast majority of purchases were made outright, the comparative strength of the greenback, coupled with younger buyers, makes it preferable for many to take a loan.
Depending on your situation you may be able to take a mortgage with a US based bank. This could be a smart solution, but it helps to know that there are some key differences between US and Canadian typical mortgage products:¹
- US mortgages tend to take longer to arrange and need more paperwork
- US fees are usually higher, and a downpayment of at least 20% is required
- Interest calculation works differently compared to Canada - you may find that interest is compounded monthly instead of semi-annually
- US mortgage products tend to run longer than their equivalents in Canada
HSBC in the US, for example, offer loans for international buyers - but they come with different terms compared to local residents.² The documents required to open a mortgage in the US may also be pretty demanding, because of the different financial regulations south of the border. You can expect to need paperwork including:³
- Copy of your passport
- International credit report
- Up to 2 years of employment history, and proof of recent pay checks
- 2 year history of residency
- Tax submissions for up to 2 years
- Proof of down payment made, plus contract of sale and realtor details
One alternative option is to get a mortgage in Canada for your US property. You might do this with a cross border mortgage, offered by some major institutions like BMO⁴ or RBC⁵. The advantage of taking this route is that you can use your local credit history here in Canada to get the best possible terms on a loan, and will be working with agents who are skilled in helping Candaians set up cross border mortgage products.
Even with a Canadian cross border mortgage product, the chances are that you’ll be making some payments, such as your initial deposit, as an international transfer from Canada to the US. To make sure you don’t spend more than you have to on these large value transfers, it’s important to check out the options for low cost, reliable international payments. Although a simple option, your bank may not offer the best value, due to high fees and exchange rate markups.
Compare the rates, fees, and overall costs of transfers with your regular bank, against an alternative such as Wise. Wise works differently compared to a bank, and can cut the costs of your transfer significantly. There’s no markup on the mid-market exchange rate, and you’ll only ever pay a low transparent fee per transaction. See if you can save with Transferwise today.
While many who buy properties in the US are snowbirds looking to avoid the harsh winter, others choose US real estate as a good value investment to lean on in retirement. This could be a sound bet - but you’ll need to research thoroughly the potential rental yields in different areas, and by property type, as well as considering the impact of having such a large part of your portfolio wrapped up in an asset which can’t be quickly cashed.
A good starting point to assess your options, is to look at the house price and rental averages by city, which are available on sites such as Numbeo.com. Take a look at the samples set out below to start you off, and do take professional advice before you make any final decisions:
|US national average⁶
|San Francisco, California⁸
|Rent a 1 bed apartment
|City centre - $1,285.62 Outside city centre - $1,018.39
|City centre - $1,853.10 Outside city centre - $1,346.67
|City centre - $3,440.94 Outside city centre - $2,801.91
|City centre - $1,763.26 Outside city centre - $1,099.04
|Rent a 3 bed apartment
|City centre - $2,091.72 Outside city centre - $1,636.69
|City centre - $3,310.00 Outside city centre - $2,285.50
|City centre - $6,214.29 Outside city centre - $4,675.66
|City centre - $2,816.67 Outside city centre - $1,798.28
|Price to buy an apartment (per square meter)
|City centre - $2,586.87 Outside city centre - $1,868.64
|City centre - $4,072.98 Outside city centre - $2,419.21
|City centre - $12,536.23 Outside city centre - $9,480.90
|City centre - $4,283.59 Outside city centre - $2,145.15
*Prices correct at the time of research - 3rd September 2019. Numbeo provides dynamic real time data, based on local knowledge. These figures therefore change frequently. Check out the latest data, on the Numbeo website.
Buying a property is a relatively complex journey anywhere in the world. When considering an overseas purchase you also face the prospect of an unfamiliar system, with the potential for surprising laws, processes and requirements. Here are a few things you need to think about as part of your research into purchasing US real estate.
You don’t want to spend too much time dwelling on what might happen to your estate after death. However it helps to know that US probate laws can mean that your beneficiaries are faced with a large legal bill, and a lengthy wait while all assets are frozen, before they can inherit your US home.
There are steps you can take to help avoid this issue, such as buying the property and placing it into a Cross Border Trust (CBT). This makes it easier to pass the property on without being trapped in probate, and can cut costs and hassle. Take appropriate legal advice from a Canadian cross border tax specialist to see if this is right for you.
Under US rules, the costs of buying a property are split between buyer and seller. As a buyer you’ll pay in the region of 2.5% of the value of the property, to cover legal fees, title search, insurance and a recording fee. The costs incurred when selling a property are even higher. If you come to sell on the property, you’ll want to budget for fees around the 7.5%-8% mark.
A final note, if you plan on spending significant time in the US once your property purchase is complete. Make sure you understand the rules related to immigration and tax in the US. Particularly it is worth noting that you’ll be considered a US tax resident if you spend more than 183 days in a year there. You may even be considered a US tax resident if you spend less time than that in your new home, based on your past 3 years history, under what’s known as the ‘substantial presence test’. Make sure you do your homework on this if you are hoping to stay in the US for several months a year, to avoid tax complications.
If you’re planning on buying a US property to start a new life as a snowbird - or as an investment for the future - it’s an exciting time. Make sure you do your research into the legal and practical implications of your purchase, including finding the cheapest ways possible to manage your money during the purchase and beyond. Check out Wise, and the Wise multi-currency borderless account to see if you can save both time and money on your international payments.
All sources last checked 3 September 2019
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