Canadians Be Careful When Buying US Houses

July 4th Celebration in Fort Collins Colorado by Melvin Schlubman
July 4th Celebration in Fort Collins Colorado
by Melvin Schlubman

Canadians are  the largest non-American buyers of US real estate today. Low prices make US property very attractive, but Canadians should be aware of all the complications resulting from purchasing foreign property before buying. Tax and estate planning is always best done beforehand, and carefully, to avoid unpleasant surprises.

“These are the best buying prices I have ever seen for US houses,” said Bob Keats, a financial planner since 1981 and author of The Border Guide: A Canadian’s Guide to Living, Working and Investing in the United States. "Canadians are able to buy one-third more than they could have a few years ago.”

Low Prices, High Affordability

The National Association of Realtors (NAR) calculating the housing affordability index in the US shows that an average family now has 175 per cent of the income necessary to qualify for a conventional loan covering 80 percent of a median-priced existing single-family home. In 2008, it was only 137.4 per cent.

The US real estate market isn’t healthy. The prices are still falling and US residents are waiting for them to bottom out, so they prefer renting to owning. That’s the reason house prices haven’t had any bigger run-ups since the collapse in 2008.

The strong loonie has also made the US housing market attractive. Buying a house in the US seems to be a great deal.

US Laws And Canadian Laws

Housing Affordability
Housing affordability is now
much lower (160-190) than in 2008
when the index was only 137,8.

“There’s a presumption among people that the laws must be the same in the US and Canada. A lot find out otherwise only after they buy,” said David Altro, a Montreal-based specialist in cross-border tax, property, and estate-planning issues.

Although Canada and the US have a lot in common, their laws are different in several ways including estate laws. There are many variables that could change the great deal to unpleasant complications due to details specific to the location and cultural differences.

Rachelle Berube, a Toronto-based property manager, wrote in her blog: “A friend bought a house in Florida for $60,000, which seems like a great deal compared to Canadian houses. But in Florida that price is still $10,000 above the average in the area. My friend also found out she can’t work on her own house; there is a rule that only US citizens can do repairs or renovations on houses in her area.”

Other problems could cause high vacancy rates, high crime rates, or a bad local economy with high unemployment or low income where tenants can’t pay rent.

In 2013, new and significant changes will be introduced in US estate tax. According to David Altro, these changes will be expensive and onerous to many Canadians if they don’t do their homework and/or get advice. The exemption level on estate tax for owners of US property will fall to $1 million in worldwide assets from $5 million, and the maximum tax rate on US property will grow to 55 per cent from 35 per cent.

“Although the threshold may still seem high, Canadians must include in the calculation the value of their RRSPs and life insurance payable at death, which pushes a lot more people into the tax zone,“ wrote Paul Delean for Postmedia News.

What To Do Before Buying

  1. Decide About the Purpose – “People need to determine if they’re going to own the property as their second home or if they’re going to buy it to fix up and sell,” says Dale Walters, an American tax accountant from Keats, Connelly & Associates, LLC, with expertise in US and Canadian tax and financial planning.

    The US taxes vary with how the home is used. If you’re renting out the property, there’s a 30 per cent tax on the gross rent income. Or you can choose to file a US tax return claiming expenses against rental income, which may result in a lower tax than the withheld amount.

    “If it’s a second home for leisure, there are no taxes aside from the regular property taxes. But when you sell it, you will have to pay capital gains tax, and the default tax on that is 10% of the gross sale price,“ Walters explains.

    Taxes are very high for corporations holding US property, so it‘s usually disadvantageous.
  2. Information Needed – Get as much information as you can about the state in which you’re going to buy your new home. You can ask for advice specialists or do your own research.
  3. Choose Your Bank – If you need a mortgage, you have to choose the bank carefully. “Canadians work with a Canadian bank in the US to obtain a mortgage. Other institutions may lend to you, but it may be more complicated,” recommends Walters.

Buying a house is a big investment, so purchasers have to be careful and aware of all the risks, otherwise losses can be unexpectedly high!

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27 Responses to Canadians Be Careful When Buying US Houses

  1. Property for sale in Monaco says:

    Real estate is the business which involves a huge amount of risk. If one wants to invest in this market he should have a deep knowledge about the place and also the policies issued by the government. Investing in real estate can really make a huge amount of money if it is done properly or else it can create the opposite also.

  2. Be sure to hire an experienced cross border tax advisor. There are many potential pitfalls when it comes to investing in the US, but they can be easly overcome with good advice.

    I suggest reading “Buying Real Estate in the US – The Concise Guide for Canadians.”

  3. This article is great and of great use but the way it is brought is “scaring” potential buyers away.
    As a Realtor in Palm Springs California (sunny and warm during the winters) , a snow birds destination, I have sold tens of properties to Canadians since the turn of the economy.
    Everything I am reading in this article bring nothing new to my table, I always recommend to my clients to consult a cross border accountant before they buy.
    But this is not meant “against Canadians” as it appears to be in everything I have read lately in the Canadian media. This is the way real estate is taxed and legislated in the US for US residents and citizens as well.
    This why the buyers should carefully chose a Realtor who is not just a “door opener” for them but a knowledgeable professional who will walk them through and guide them.
    Buying real estate in Palm Springs today (because it is a resort area) still remains an excellent investment for now as well as the years to come as long as you do it the “right way”.

    • BusanBrew says:

      Realtors are the last to trust.
      Do your own research, test the realtor with hard questions.
      If they cant answer, walk away.

      To be honest people should be scared of buying a house.
      If you feel all excited and good and the realtor is excited with you, walk away.
      All they really want is the commission.
      No better than car salesmen, and in many cases worse.

  4. Alex Cortez says:

    Informative post. It pays to be diligent and thorough during the purchase process to avoid pitfalls later on that would have been known prior. Have you seen many Canadian lenders financing U.S.-based real estate? For us, the large bulk of Canadian buyers are cash and there are a few local options, but I haven’t encountered a case in which a Canadian bank did the lending (one of my clients tried, but it didn’t go through).

  5. Annie says:

    I’m a Canadian citizen working abroad (in Dubai) and would like to buy in Florida. I am wondering what is the percentage of the price usually required as cashdown when buying a condo?
    I have heard about 30% of the sale price, is that correct? Also, if I decide to rent it out, will I get taxed in Canada as well as in the US?

    • David Tsegai says:

      Most lenders require minimum of 30% down payment from foreign investors. Some even ask upto 50% down payment. Rental income is taxable in both US and Canada depending on your tax status in Canada.

  6. Mike says:

    Rachelle Berube, a Toronto-based property manager, wrote in her blog: “A friend bought a house in Florida for $60,000, which seems like a great deal compared to Canadian houses. But in Florida that price is still $10,000 above the average in the area. My friend also found out she can’t work on her own house; there is a rule that only US citizens can do repairs or renovations on houses in her area.”

    I live in Florida. I have owned/ presently own 3 homes. I have never heard about this rule.

    If true its the exception not the norm. It likely a homeowners association restriction.

    In any case its easy to get around. Hire a handyman who is a US citizen.

  7. Brian Hanson says:

    Thinking of buying realestate in Arizona (possibly a fixer upper). Any laws in this state as to who has to do repairs to a place(canadian versus a US citizen) I believe this is Florida state law which says must be American doing repairs. Also any other quirky things to know about Arizona laws.

  8. Wayne Betker says:

    We are considering buying a home for our personal use in Phoenix AZ but have not as yet set up a cross border trust for that purpose. Can I make an offer on that home under my wife & my names, and then prior to the closing, make the purchase under the trust without any tax complications?

  9. jK says:

    Can I get contact details for a good cross border tax guy?

  10. Jennifer says:

    Hi there,
    My husband and I both, Canadian Citizen, are looking at buying in the Houston Area, as we are moving there for work, currently we live abroad. How much would we need for a down payment, as well as taxes on the house when we sell? Would we be able to get a mortgage even though we do not live in Canada? Any other information would be helpful regarding buying a home in the Houston area.

  11. Alex Cortez says:

    I can’t answer your question in regards to Arizona, but here in Hawaii there is no restriction in regards to the nationality of the person doing the work. If it requires building permits, then the work must be a licensed professional, which then has a different set of criteria (but I’m not aware of any limitations based on nationality).

    • aaron says:

      So, as a Canadian owning a condo in Hawaii, I can do minor jobs such as dry walling or painting on my own condo? Is there a site that states these laws?

  12. kate says:

    i am a canadian citizen,.and am looking at buying a home in oklahoma or texas to spend a few months a year in and go to horse shows and just have fun while im there,..i am lookking at homes in the 15k to 30k range nothing fancy, long can i stay down there once i own a home htere?,..and would that help in getting a work visa for the time i spend there,..[working wiht horses] ???
    please help..hard to get info on this,..thanks to anyone who can give me help!

  13. Anthony B says:

    Very good information, should not scare u off should encourage u to invest better. My question is ” what information can u give me about investing in Nevada specifically Las Vegas and the surrounding areas”? I’m interested in NV as well Arizona and Florida!
    Any help is appreciated. I have researching the market there for 1 yr now and I want to obtain the other information (tax planning, estate capt gains expenses , repairs, rental etc) I’m hoping to hear from u real soon.
    Thx Anthony!:)

  14. Joe says:

    I’m canadian citizen and thinking to buy in Amherst buffalo. It is for investment to rent it out.

    Any laws in this state I should aware of? How should I file the rental income tax without any complications?

    Any common frauds I should aware of?

  15. bet says:

    Here is a question from me: I am a Canadian .I have a minor (7 yr old ) son who is dual (US-born and canadian) citizen. If we want to buy a house in US for rental investment, is there anything we can do such as buying the house in his name or trust to avoid foreign ownership taxes?

  16. tara says:

    I am a Canadian citizen and would like to buy a condo in Atlanta, GA. My purpose is investment and rent the condo to pay off its own mortgage. Any information regarding taxes and mortgage is appreciated it.


  17. Juliet, CPA says:

    If you have a rental property, whether U.S. person or not, you must file annual form 1099-MISC to the IRS if you paid over $600 to anyone person during the year. In addition to filing U.S. income tax return for the rental activities in U.S.

  18. Canadians Buying US Real Estate says:

    There is some good advice in here. Especially about being aware that Canadians cannot work on the house. As a landlord, Canadians must have a rental manager. These are little things but they must be dealt with. So it is best to deal with someone knowing the law before signing any papers.

  19. John G. says:

    My understanding is that you can not work on your house if you are renting and profiting from income..but you can work on your house if you reside in it and not rent it out.

  20. Matthew says:

    We are Canadians that have been buying US Real Estate for over 2 years and it’s going Fantastic! Still huge opportunity in the US housing market.

  21. patrick durieux says:

    We deal mostly in foreclosures in the Cape Coral and Fort Myers area…the single family home inventory is shrinking but they are still good opportunities in the condo market although the prices of 2009 to 2011 are long time gone. Big edge funds have been buying down here and put upward pressure on prices.

  22. Elichi says:

    The financial experts as well as the residence professionals all believe the fact that Canada provides one of the best residing opportunities in the world. Actually, it has become the most preferred location for the investors. Moreover, Canada real estate investing is vast and affordable as well as has excellent admiration amount. Another major factor that drawn the foreign traders is its straight forward judicial system. Actually, if you do a comparative study of property market in US, you can quickly realize that investment in Canada is quite affordable. Actually, despite the high quality of life in Canada, residing costs here is much reduced than most of the other nations.


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