# Another question about Investing in US RE



## Tonyromo (Jun 4, 2012)

Hi all, I've been lurking on this helpful forum for a while now and decided to join today. I have been considering buying a vacation home in Florida for over 2 years but haven't found anything we like in our price range. We had all but given up, but given the state of the financial markets, I'm beginning to think that investing some money into a decent property in the right area of florida may be a smart financial move. I am very hesitant about putting more money in to stocks and bonds at the moment and my rationale is that over the next 10-15 years, the property values in Florida will very likely increase materially, the Canadian $ will likely decrease to a more historical level vs. the US$ (thereby making an FX gain), and I can always rent this place out in the meantime and be at least break even and likely cash flow positive. This would be a cash purchase, so no mortgage. I understand the issues in being a long distance landlord and have a very good local property manager. 

Really, I'm posting this to solicit views on my notions of investing extra cash in Florida RE vs. in the capital markets given the current turmoil. Thoughts and comments appreciated. Thx.


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## iherald (Apr 18, 2009)

There are lots of assumptions in your post.

1) The Canadian dollar will decrease, or put another way the American dollar will increase. Why would you think that? 
2) Why will property values increase materially over the next 10-15 years? Because they did over the last years? Why will it increase more than the market? 

I can't say you're wrong about either assumption, if I could, I'd be rich. Personally I don't think the American dollar will increase significantly if at all based upon their budget issues, and I wouldn't be on the real estate market beating the stock market. Clearly you will break even on a rental if you have no mortgage, but you've lost the use of that money. 

I'm all for buying income properties in the US based upon cash flow, but I never assume I'll get a capital gain on it.


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## marina628 (Dec 14, 2010)

I don't think you have to rush to buy Florida Real Estate .We went in January with intention to buy ,we looked at many homes in Naples ,Riverview and even in the Orlando area.I bookmarked about 50 homes on my favorite list back then.To date very few have sold and most have dropped in price.One thing we found shocking is the homes we viewed in January look beautiful online but when you get there the electricity is turned off and in some cases dead animals inside because nobody is caring for the properties.Your cash is not costing you monthly expenses like the house will and IMO things will be bad there for at least few more years.
I am holding USD now for my future purchase but for me I need things to be more stable than they are today.


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## Tonyromo (Jun 4, 2012)

Iherald, I agree with you about nobody knowing what will really happen wrt the canadian dollar or the US housing market. However, in my opinion (and that's all it is) the US economy is too resilient not to bounce back - eventually, and I am putting my trust in history, which tells me that except for a few short lived blips, the Canadian dollar will be worth anywhere from 65 -80 cents US. God knows it really could be different this time, but I doubt it. On property values, they will come back, perhaps not to the absurd heights we saw in mid 2000's, but they will recover. Like Marina, I have been closely watching Sarasota and Naples RE for over two years and have made many trips to view places, and I can say unequivocally, that prices are now rising for nice places in the desirable areas. There are frequent multiple offer situations happening all the time know. It does seem like we have hit bottom and they are on the way up, but of course who really knows at the end of the day. Oh, and marina, I completely agree with you on how difficult it is to assess a place based on the lsiting or internet photos. You really do have to see each and every place you are considering. 

When all is said though, I agree that the investment should make sense on its current financials and not depend on capital appreciation. The one I'm looking at does. I have to say though, that the capital markets here are scaring the hell out of me and I am looking for an alternative place to park my $. And remeber, you can't spend the long, cold winters in your mutual fund or dividend stock!


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## marina628 (Dec 14, 2010)

We have a 9 year old so we are limited on how much time we can spend away so I have to consider the taxes,insurance and maintenance for next 8 years before we really can get use out of it.I am paid in USD so it would be wonderful for me to get 15%+ off the forex rate.We were initially looking to buy for investment but when we factor in the monthly fees and income tax plus any vacancy the ROI was too low.One of the numbers experts on this forum worked it out for us and the house we are currently looking at for $267,000 will cost us $124,600 over next 8 years for property taxes ,insurance , lawn and pool care plus 4% interest on a $140,000 mortgage.We are better to continue saving and even if the house cost us $390,000 in 2020 we will be better off financially.


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## kcowan (Jul 1, 2010)

When we first retired in 2002, we spent a month in Florida in 2 successive Novembers. We decided not to buy. The idea of capital appreciation is attractive. But we decided that being an absentee landlord was fraught with problems. First of all, as a resident alien, you are treated poorly from a tax perspective. This has changed for the better and worse during the 10 years passed but still leaves you at a disadvantage when compared to American or Florida residents. Secondly, finding a good property manager to look after your property is difficult. There are all sorts of horror stories about people not getting their rental revenues, being overcharged for repairs, etc. Thirdly, you can get in trouble with immigration if you perform any work on your condo that would normally be done by an American. This includes painting the place if you rent it out, or performing property management functions. You can get around this by becoming a good liar but you always run the risk of being reported by one of your neighbours. Fourthly, you need a good tax accountant to handle both your US and Canadian tax returns. They can also advise on any trust creation needed to circumvent the onerous impacts of estate taxes.

If you avoid renting the property out, you can bypass most of these issues. You will still need a property manager for when you are not there. But estate taxes still take some planning regardless.


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## chaudi (Sep 10, 2009)

One problem is that you can't even use the US house for more than 120-180 days a year, unless you want to start pay tax to uncle sam. No thanks.
Why not some nice US reits like NLY, Mortgage Capital ?


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## Tonyromo (Jun 4, 2012)

Not a problem, as we'd only use the property for a few months each winter. Besides, you can't sit on the back deck of your REIT in February and sip margaritas!


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## marina628 (Dec 14, 2010)

I go to the beach for my margatitas in February  And Nascar ,don't forget Nascar races.February is my birthday month so my husband has been taking me down for Daytona 500 for past few years.


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## nxtime1 (Jul 2, 2012)

*US ecconomy, appreciation and taxes.*

I guess none of us have a crystal ball with any of this. I look at what history tells us about economics. Where the US dollar will go is only as relevant as you make it. Your plan should include an exit for both scenarios. However, history tells us that when a nation starts printing money, they must eventually balance that with increase in interest rates. We may see numbers as scary as the 80's were(20% interest). That would be a very good time to offer private mortgages to US home owners. That is part of out corporate plan. As for appreciation, FL will likely appreciate and this is based on statistical data and they tendency of markets to do the same thing repeatedly. FL markets usually go way up when they go up. Having said that, sound financial advise would be buy low and cash flow. That way if it goes up YAHHHHH!! but if it does not, your still in the gravy. As for taxes, you should never hold a property in your own name. EVER! It should be in a protected entity. This gives you tax write offs where your human self would pay double taxation. Any trips down become legitimate cost of business, and you write off a lot of your increase. May be a better move to leave your money in the US as a business asset and reinvest. As for management companies, you have to manage them. You have to run your numbers monthly. I always plan at least quarterly trips down and compare the work they say was done with what I see. If it is not done to my satisfaction......I am most un-Canadian about it. This is a business and needs to be approached as one. Sometimes you have to fire your staff. Make sure going into an agreement with a management company that you can fire them with thirty days written notice.


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## the-royal-mail (Dec 11, 2009)

Tonyromo said:


> Not a problem, as we'd only use the property for a few months each winter. Besides, you can't sit on the back deck of your REIT in February and sip margaritas!


Seems you have already made up your mind?

You don't need to buy and manage property if you just want a place to drink margaritas in February. You can accomplish the same thing in a rental, B&B or hotel suit yourself.

Besides, if you want to go there for a few months a year what are you going to do, kick out the tenants every 6 months? Good luck with that.

I'm not a huge fan of swiss cheese.


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## crazyjackcsa (Aug 8, 2010)

Gotta agree with TRM, the whole plan is half baked. Perhaps a time share is the way to go? 

You can always take the money you make from the REIT to rent that back porch. I'm even a person that believes that the U.S. dollar is bound to rise against the loonie over the next few years and I still think it's a terrible idea.


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## Square Root (Jan 30, 2010)

i would not buy US real estate to rent out. The tax issues are very complicated and having one place would simply not be worth it. We have personal use RE in Arizona but don't rent it out. Owned by cross border trust to get around some of the estate tax issues. This really isn't for hobbyists.


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## marina628 (Dec 14, 2010)

I agree with you Square Root and have investigated this for myself.We thought about renting a place out but have decided to wait for few years until we can use it ourselves.Not worth it to buy for 2 months a year.


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## kcowan (Jul 1, 2010)

We made the same decision in 2007 when we purchased in Mexico. We have been snowbirds since and never rent it out. But all the speculators are hurting big time.


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