Do you know about - What a Canadian Should Know Before Buying U.S. Real Estate
Mortgage Rates Forecast! Again, for I know. Ready to share new things that are useful. You and your friends.Many Canadians are dreaming of heading south for the winter, but not just to beat the cold. They have real estate investing on their minds. Our strong dollar combined with a collapsing housing market in the U.S. Spells opportunity for many. But Canada and the U.S.A are not the same country, and as much as we have in tasteless we have differences. Any Canadian investor inspecting putting money in the U.S. Should have a basic comprehension of some key differences in the middle of buying real estate in Canada versus buying real estate in the U.S. So, before you start putting your loonies in Florida or Texas, read on.
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Tax Systems:
Talk to an accountant that is experienced with American real estate speculation as the countries differ considerably in terms of taxation of speculation properties.
In the U.S.
1031 Exchanges allow the capital gains from the sale of an speculation asset to be deferred and rolled into a buy of a similar type of asset if it's bought within 180 days. This can be done many times allowing capital gains to be deferred until the end asset is finally disposed of and not replaced; If capital gains are realized (property is sold and cash is received), the distributor is taxed at 15% of the total net gain (as long as the asset was owned for more than 1 year, if less than, the rate is much higher); asset taxes tend to be similar to those in Canada, however, if you are a Canadian and own a asset in a Southern state like Florida or California, you may have much higher "non-resident" asset taxes than whether the locals or if you spend in other U.S. States; Similar to Canadian tax laws, you will not be taxed on your primary residence, however, in the U.S., you can write-off the interest expensed on your home.
Compare this to Canada
Sell your speculation asset in Canada and you'll pay capital gains tax on 50% of the net gain. Canada does not yet have the choice of deferring the gain straight through an exchange. The "gain" or "loss" gets added to your wage and your are taxed at the applicable rate (which could be much higher than the suitable 15% rate in the U.S.); Similar to in the U.S., expenses connected with holding an speculation asset can be written off against your dutible income. See two old articles for tax time tips: Part 1 and Part 2.
Before you send your loonie south this winter:
determine if there are "non-resident" asset taxes applicable in the city/state you are considering;
If you already own in the States and sell the asset (and don't buy other there to use the 1031 replacement strategy) you'll be required to pay U.S. Taxes on the sale. You pay the U.S. First, but still have to file the tax return in Canada (showing the taxes paid in the States). Thus, you'll only pay once (you get a tax prestige applied to your Canada taxes), but you have to file 2 returns (February/March 2008 Money Sense has a great article on this issue);
Rental wage requires two filings for taxes as well. You must claim the wage (and expenses) in both countries, pay the applicable taxes, and get a prestige for your Canadian taxes.
Lending differences in the middle of Canada and the U.S.:
The "credit crunch" or "subprime market meltdown" has had a dramatic impact on the U.S. Lending environment, and has trickled over the border to Canada. Because of the economic crisis, lender guidelines and policies have changed dramatically in both countries. In the U.S., there were many mortgages given to just about any candidate. The phrase "ninja" loan was coined in the U.S. The acronym standing for "no income, no job, no assets". Many individuals were given mortgages beyond their means. When the first large phase of Arm (adjustable rate mortgages) began to raise their rates, foreclosures began popping up all across the nation. Canadians need not fear the same crash here thanks to very separate lending environments.
In the U.S.
Hundreds of banks across the country with hundreds of differences in lending policies and guidelines; Licensing varies across each state for who can be a mortgage broker. In some states no testing or licensing is required at all! Bank regulation is controlled at the state and federal level, again perhaps foremost to less literal, lending criteria from one bank or lender to another.
And in Canada
One federally-regulated Bank Act that controls what banks can and cannot do across Canada;
Only 5 major banks in Canada that control a large majority of all banking divisions;
All of the Big 5 Banks in Canada are able to lend funds for mortgages, but they have also acquired (and oversee) many of the licensed trust and brokerage fellowships (which lend money as well);
Mortgage brokers are provincially regulated in Canada, but the majority of provinces need whole training, and the thriving completion of a licensing test.
Economic Conditions in Canada and the U.S.:
The Canadian economy continues to enjoy good economic times with historically low unemployment rates, increased wages, and housing appreciation. At the same time, a recession has been lurking in the U.S. Many areas of the U.S. Are experiencing depreciating houses, high unemployment rates, and deteriorating consumer confidence.
There could be some real bargains to be found in the U.S. As foreclosures pile up, property/houses depreciate (well into double digits in some States - Florida, Michigan, California), and our Canadian dollar continues to sit around par with the greenback. But before you take the plunge, do your research. Most economists still believe we are in the midst of the subprime fiasco. They forecast continued depreciation across the nation (obviously much worse in some areas than others) for the good part of two years. So, unless you genuinely know an area is going to get good soon, I personally, would wait and see what the summer and early 2009 has to bring. The election, the war, federal policies to "bail-out" millions of credit-burdened borrowers, and the worst part of the subprime scenario which is unbelievable to hit in the fall of 2008, are all factors that will impact speculation in the coming year, and it's a gamble to buy without knowing what will happen. But, with the strong dollar, it's a good time to head south and start finding for that dream home in Florida, isn't it?
Some final thoughts (in this article anyways) on investing in the U.S. Real estate market. If you are intent on purchasing in the U.S. And are a Canadian population residing in Canada, the following three ways may help you get financing:
Take out a mortgage in the U.S. straight through a U.S. Based bank owned by a Canadian one such as Rbc Centura or Bank of Montreal's Harris Bank; buy using all cash so you don't have to deal with cross border financing issues (e.g., pull equity out of your home or other Canadian properties or ask your rich aunt for money!) to buy down south; and originate a corporation in the U.S. With assets (a holding business will not work as it needs to have equity or be generating revenue) which can get the mortgage from a U.S. Lender.
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