U.S Residential Real Estate – A Series: Part 2 (Buyer Behaviour)

According to the National Association of Realtors, foreign purchasers acquired $68.2 billion of residential properties from April 1, 2012 to March 31, 2013 and $92.2 billion from April 1, 2013 to March 31, 2014, an increase of over 35%. The number-one state for foreign purchasers in 2012-2013 was Florida at 23%, followed by California at 17%. The number-one state for foreign purchasers in 2013-2014 was Florida once again at 23%, followed by California again at 14%.

Canadian Foreign Purchasing Behavior

Canadians purchased 17% of the total in 2012-2013, investing $11.8 billion, and 15% of the total in 2013-2014, investing $13.8 billion, an increase of 16.9%.

The majority of Canadians purchases were allocated 39% to Florida, 24% to Arizona 8% to California, 6% to Hawaii, 6% to Texas and the balance of 18% to other states. Eighty-six percent of Canadian purchases were made in cash and the median price was $183,000. The majority of Canadians purchases in 2013-2014 were allocated 40% to Florida, 23% to Arizona, 10% to California, 3% to Texas, 3% to Washington and the balance of 20% to other states. Eighty-six percent of Canadian purchases were made in cash and the median purchase price was $212,500, an increase of 16.1%.

Canadians, per capita, are one of the largest cohorts of buyers of US property, primarily as second or recreational properties, and as an investment. The Sunbelt has long been an attractive place for Canadian investment.

While housing values have begun to recover from the effects of the recession, in many areas values have not reached pre-recession levels. Many former homeowners continue to represent a renters pool, and a surge in job growth is helping create stability in local and regional economies. Prime real estate will grow faster in demand than other markets, but as long as the fundamentals are applied and followed, including the application of the real estate cycle drivers, investors can proceed with their due diligence in those areas where the numbers and conditions suggest that opportunity exists.

Canadian Considerations

Since Canadians cannot work in the US without a visa, the acquisition process either involves an American as a joint venture partner who will acquire, repair, rent and have property management, or purchasing a property that has been purchased, repaired, rented and managed, known as a turnkey purchase. That is good news, because professionals are on the ground and willing and able to help the investor.

Canadians should also be aware of the unique rules of the American housing market, such as the enforcement of Homeowners Associations, or HOAs, which dictate certain rules such as how homes are maintained and used. It is possible for foreign homeowners or and investors to be elected to HOA positions and make decisions though it depends on the area. HOA voting rules in California for example are tightly regulated and are important to understand before any venture is made.

While speaking of legal obligations, Canadians must file tax returns in the US for income earned there and receive a tax credit in Canada for US taxes paid. A Canadian accountant who does US tax returns can file for the investor. Canadians should not own the property by way of an US limited liability company, (LLC) to limit their personal liability, as the taxes paid in the US are not credited for Canadian tax purposes.

In Part 3 of this series I will profile Tampa, a favorite destination of Snowbirds, and a preferred investing location for Canadians. The Tampa MSA has a diversified economy and is the second-most favorite choice for American baby boomers to retire to in the US.

David Franklin, B.Comm, JD, has been practicing law in Ontario for over three decades, specializing in securities, mortgages, tax and real estate, and overseeing and transacting millions of dollars of transactions. Contact David at mailto:david@reincanada.com.

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