# Placing retired parents in vacation rental outside of Canada



## envision33 (Aug 20, 2015)

Would like to have some opinions on my situation. I am 34 years old. Have been working for 15 years for National Defence. In 10 more years I can retire with 50% of my current salary + bridge benefit. Obviously it will not be enough to lead the same lifestyle as I do now, so I would need to find another source of income. One thing I know for sure, I wouldn't want to keep doing what I am doing now once I reach that 25 years of service. 

That's why I keep thinking about the idea of purchasing a vacation rental outside of Canada, more specifically in Hawaii. Now I know that Canadian residents cannot spend more than 6 month in US, this is where my parents come in play. My parents are both in their late 50's. My dad is still working full time and my mom part time. Their salary is only about 35-40K per year total and no savings so they are renting a small apartment. By the time I will have my 25 years, they will no longer be working and will probably pay for their rent from the government pension.

So I was thinking, instead of making them live through our cold winters, why not buy a B&B in Hawaii or another vacation rental somewhere in Caribbean and put my parents there ? The same rent that they would pay in Canada would go towards the mortgage for vacation rental. And if we the property would allow for additional rental income such as renting it out for tourists then even better. To keep their medical coverage they would need to come back to Canada after 6 month at which point I could be the one living there and receiving guests.

This is a general idea and obviously still far away in the future, but just wanted to hear some thoughts on whether it is feasible and what obstacles I might face with this plan.


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## sags (May 15, 2010)

Where do your parents and you live in Canada during the other 6 months ?

It would seem simpler to buy an apartment condo in Canada and rent it to them.

In southwestern Ontario, you can get a nice one bedroom condo for $100,000 or a 3 bedroom townhouse condo for $160,000.

No travel back and forth, no health care coverage issues, no currency exchange issues, no banking issues..........


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## OnlyMyOpinion (Sep 1, 2013)

I know you are probably looking for feedback re/ the merits of investing in a vacation property, and retiring to Hawaii sounds great at first blush - but you don't mention whether you've discussed this with your parents, or whether they have ever expressed any interest in such a plan?
Their health is a big consideration - they'll be around 70 yrs old by the time your plan would take affect. They may not be up for the long flight twice a year and getting insurance for living outside of their province might be very expensive or unavailable.
Another thought - have you considered Florida/Arizona which are much closer?


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## OhGreatGuru (May 24, 2009)

This raises so many questions I doubt that it can be dealt with in a simple thread. Suggest you do some reading on expatriate/snowbird issues and think about it carefully.

Tax status/costs of living abroad 6 months/yr;
Legal residency status of living abroad 6 months/yr;
Health care & health insurance status (both in Canada and abroad)
Tax status of owning an income property abroad;
Currency risk of living expenses in $USD when your income is in $CDN.

As others have suggested, you might look at closer-to-home options first. If one of your main concerns is long-term retirement plans for your parents, you should realize that most snowbirds eventually have to give up long stays abroad due to health care. Vancouver Island is one of the warmer places in Canada. And it's within reasonable travel distance of snowbird communities in California for visits of a duration tailored to their health needs.


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## OldPro (Feb 25, 2015)

My immediate response is forget it. That is based on the simple fact that you are looking too far into the future and a lot could change by the time you are ready to implement such a plan.

Beyond that, I don't think Hawaii is a good choice even if you were doing this today. Read the following just as an example of only one aspect of issues facing vacation rentals. http://www.civilbeat.com/2014/12/re...acation-rentals-far-outnumber-permitted-ones/

My advice to your parents is to start planning their own retirement. My advice to you is when you reach your 25 years and out with pension, then you can sit down and decide what you want to do from there. That may or may not include your parents.


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## Eclectic12 (Oct 20, 2010)

envision33 said:


> ... That's why I keep thinking about the idea of purchasing a vacation rental outside of Canada, more specifically in Hawaii. Now I know that Canadian residents cannot spend more than 6 month in US ...


I'd recommend looking at this more closely. Six months is a "rule of thumb" sort of number - the trouble is spending as low as 121 (approx. four months) over three consecutive years is enough for one to pass the IRS "substantive presence test". Without extra steps - this means one would have to file a US tax return on worldwide income, in addition to the Canadian tax return that also taxes worldwide income.


I would want to build into the plan a thorough review of how to maintain a closer connection to Canada, be familiar with the paperwork to file each year with the US gov't to avoid having to file a US tax return and keep monitoring the US legislation. 

Sorry if you already know this and are prepared but I have been running into a lot of people lately who don't realise that the test is based on a three year period (% of previous two and 100% of current year).

http://www.irs.gov/Individuals/International-Taxpayers/Substantial-Presence-Test
http://www.vivantfinancial.com/snowbirds-know-legal-obligations/
http://www.vivantfinancial.com/snowbirds-know/




envision33 said:


> ...So I was thinking, instead of making them live through our cold winters, why not buy a B&B in Hawaii or another vacation rental somewhere in Caribbean and put my parents there ? The same rent that they would pay in Canada would go towards the mortgage for vacation rental. And if we the property would allow for additional rental income such as renting it out for tourists then even better. To keep their medical coverage they would need to come back to Canada after 6 month at which point I could be the one living there and receiving guests.



Sounds like it could work but more research is needed. For example, if it is the US - as I understand it, one can't work on the B&B (ex. replace a roof, paint etc.) without getting a green card. I'd also want to get advice from a cross-border tax expert as owing the property seems to mean some combination of US capital gains taxes or estate taxes is possible.

http://www.agtax.ca/us-canada-taxes/canadians-buying-us-property/
http://www.theglobeandmail.com/glob...to-the-perils-of-real-estate/article14534720/


It does not mean it won't work but that a plan is needed to pay what one owes and no more.


There are some on CMF who have US rental properties so maybe they can provide more current details or info on how they are keeping any taxes owed to the minimum.



Cheers


*PS*

I'd also want to check costs in Hawaii. 

I was shocked to have my relatives from Oahu talk about how the solar panel system they are leasing has cut their monthly electrical bill from something over $600 a month down to about $400 a month. Their house didn't seem that large and had no basement so that seemed huge.

Ontario's peak rates supposedly at $0.14 a kWh or so seem cheap compared to this web site saying the average residential prices for 2014 ranged from $0.35 to $0.41 a kWh in the islands.

http://www.heco.com/portal/site/hec...nnel=10629349798b4110VgnVCM1000005c011bacRCRD


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## kcowan (Jul 1, 2010)

Good advice Eclectic
I was wondering if all bases had been covered. Just the cost of health insurance would put a dent in his plans. I have had friends get caught in the green card requirement for their ski cabin in Baker.


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## carverman (Nov 8, 2010)

Nice to dream about retiring away from the harsh Canadian winters, but as you get older, health care,and health insurance availability overrides a lot of earlier dreams.

There have been a few threads on this forum with snowbirds being stuck with HUGE US hospital bills for even just a couple days in a US hospital and having a few tests run.

One recent one was for over $100,000 when the travellers insurance refused to pay because of pre-existing condition and the insurance company refused to pay for the bill 
citing they had a "pre-existing condition".

If they are on ANY medication or visited a doctor before travelling, omitting that medication or the reason for visit to the doctor, probably means that the insurance company could refuse to pay after checking their medical records.
Very risky to just take out a 6 month medical travel insurance these days, especially when the parents are now in their late 50s/early 60s.

*Watch this CBC video....it is an eye opener of what is happening now in the travel insurance industry!*

http://www.cbc.ca/news/canada/briti...-rejected-by-travel-insurance-firms-1.1407701



> Coupled with the complicated medical questionnaire, it seems like the snowbird is often having a* stick of dynamite in one hand and a lit match in the other*. It’s a very volatile situation."
> 
> He suggests senior travellers be wary of policies with the one strike you are out clause, and the "open barn door" clause, *where unreported changes in health status between application and departure can result in cancellation of a policy*. He also warned about policies that don’t cover pre-existing conditions.


Moral of this story..the insurance companies are always eager to take your premium..but not so eager to pay out when you have a substantially large claim.
and it's not always convenient to fly back to Canada when you are seriously sick either.


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## AltaRed (Jun 8, 2009)

Eclectic's post is a good one.

As already stated, health insurance, exceeding one's stay vis-a-vis US taxes and the risk of 'working' in the USA are all major pitfalls of snowbirding in the USA. The rules are firm and there are no excuses/leniency. Know them well.

The biggest flag I saw in the OP was the B&B idea. Nada, no, not a chance. No Canadian without a work permit could so much as lift a finger 'doing work' in the B&B while in the US. Not so much as holding a hammer, painting a wall or delivering bags to a guest's room. All bookings would have to be done by a legal US resident or from Canada.


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## carverman (Nov 8, 2010)

All these vacation rental schemes have pitfalls. It's not that simple anymore.
Not just the cost of conversion of Canadian to US funds, but most vacation rentals come with maintenance fees that have to be paid by the users, not to mention
other costs while living there. Buying a property to be used as a B&B (and not personal use) involves other considerations with the US gov't as non-residents.

The other problems is the US taxation of the parents estate in the US. 

This article helps to explain the problems of owning and renting out US properties owned by Canadian citizens.
It is dated (as the strong Canadian dollar does not apply any more) but still shows that things are not as simple as first thoughts, to just buy some retirement property in the US and
go about your business. 
http://www.wolrigemahon.com/tax-implications-canadian-owning-u-s-vacation-property/


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## OldPro (Feb 25, 2015)

Don't yah just love it when someone posts and then never returns and acknowledges replies.


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## marytres (Aug 24, 2015)

Seems like your reasons for getting the place and inviting your parents to live there are not exclusively financial. It's great if you can afford to support your parents and even better if you can help them live in a nicer climate for part of the year. Having seen plenty of people spend a lot of money to put their parents in something like a retirement condo in Scarborough , that sometimes the residents don't enjoy, you may get more bang for your buck with the general idea laid out in your post. It's really a question of can you afford to get a place in Hawaii and have your parents live their a few months of the year. Right now the answer is yest,pending another source of income your hoping to find after you retire. I'd say stick to the plan if it still makes you happy since it seems generally feasible and you\ll be doing something for your family they'll appreciate more than money.


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## TomB19 (Sep 24, 2015)

OldPro said:


> Don't yah just love it when someone posts and then never returns and acknowledges replies.


I don't blame him, given the replies.

I've noticed that, whenever someone asks a group about an idea, the response will be primarily or entirely negative. In order to succeed in life, a person needs to be able to disconnect from the stream of negativity and break their own path.

It's an interesting idea. I know plenty of people who have wintered in the United Sates for years (Florida, Arizona, and Nevada). In each case, they have absolutely loved it and it has been a wonderful part of their lives.

Real estate appreciation: The expenses out weigh the potential appreciation, in most cases, but I expect Hawaii would offer both higher expenses and higher return than the continental US. Build area is limited by law and they will run out well within your time domain. That won't send prices down, to say the least.

Six month limit: Sure, there is a six month limit and I know lots of people who have exceeded it, for various reasons, but I've never known anyone who suffered a negative consequence from either government.

Rental: My Mom was mayor of a retirement community in AZ where renting homes is common place and she never heard of any issue for Canadian owners, including herself. A B&B may be pushing it a bit, though. I'm not sure but I suspect the worst you will suffer is a cease and desist order and perhaps a small fine. If it were me, I'd keep it on the down low and just carry on. I wouldn't put a sign on the lawn and also keep in mind you will have municipal zoning restrictions to either observe or quietly fly below. An free advert on Craigslist can put a lot of money in your pocket, though.

Investment opportunity: This is an interesting one. I like real estate, particularly in Hawaii. The long-term upside is tremendous. The short term upside is the potential to capture money your parent's are spending on rent and direct it toward an appreciating asset. If you can't eliminate their rent, the upside will be extremely limited. If you can, you could be onto something if everything else falls into place.

Risk: I love property but I decided long ago that I didn't want to own property that I can't manage myself with a short drive. Things go wrong (break-ins, natural disasters, etc.). Lawns need mowing. Property carries responsibility. If you pay someone else to manage a property, it will be a considerable expense and they are extremely unlikely to take care of it the way you'd like.

In my opinion, it could work if both parties were to approach this as a partnership and structure their lives accordingly. Your parents would need to live there 5~6 months per year and you'd need to live there a large portion of the rest of the time. Perhaps you could rent it out for 3 of your six months to long term snowbirds... maybe from Australia because your parents will soak up the primary Canadian winter period.

You'll also need a Canadian living arrangement. It would make sense to consider a house with an inlaw suite or perhaps a basement suite.

If this is important to both your happiness and that of your parents, it's likely doable. I wouldn't count on getting rich off of it but there is more to life than getting rich.


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## Eclectic12 (Oct 20, 2010)

TomB19 said:


> I don't blame him, given the replies.
> 
> I've noticed that, whenever someone asks a group about an idea, the response will be primarily or entirely negative. In order to succeed in life, a person needs to be able to disconnect from the stream of negativity and break their own path.


As long as one is prepared for discovering they broke their own path by repeating other's mistakes, I suppose that's okay. I prefer to sift through the input and be better prepared.




TomB19 said:


> It's an interesting idea. I know plenty of people who have wintered in the United Sates for years (Florida, Arizona, and Nevada). In each case, they have absolutely loved it and it has been a wonderful part of their lives.


Same here ... however, most I know who looked at something like a B&B evaluated what that meant from a US tax perspective and Canadian tax perspective then avoided it. People who were running a business went for it.




TomB19 said:


> Six month limit: Sure, there is a six month limit and I know lots of people who have exceeded it, for various reasons, but I've never known anyone who suffered a negative consequence from either government.


Question is ... do you know all of the actions they took?

On the tax return front, if they were able to claim a closer connection to Canada and avoid filing a US tax return - life is good. Having has to file a Canadian and US tax return for work ... there's no way I'd want to put myself in a situation that I had to do so.

Then there's the non-gov't consequences. As I recall, my dad's benefit package in retirement - they could come back to Canada every three months to reset their out-of-province insurance. Those in the park from the Maritimes talked about paying around $5K out of pocket to have health coverage.




TomB19 said:


> Rental: My Mom was mayor of a retirement community in AZ where renting homes is common place and she never heard of any issue for Canadian owners, including herself.


So she's been filing a US tax return?

The IRS says:


> Rental income from real property located in the United States and the gain from its sale will always be U.S. source income subject to tax in the United States regardless of the foreign investor's personal tax status and regardless of whether the United States has an income treaty with the foreign investor's home country ...
> A nonresident who fails to submit a timely filed income tax return loses the ability to claim deductions against the rental income, causing the gross rents to be subject to the 30 percent tax.


https://www.irs.gov/Individuals/Int...ceiving-Rental-Income-From-U.S.-Real-Property


http://www.canadianlawsite.ca/vacationing-us.htm
http://agtax.ca/us-canada-taxes/canadians-buying-us-property


Then from a CRA perspective, assuming the house owned is over $100K, with the Canadian tax return - has a Form T1135 Foreign Income Verification Statement been filed?
http://www.taxtips.ca/filing/foreign-asset-reporting.htm


Is she's working through a tax specialist, maybe all the details are been taken care of ... for a fee.




TomB19 said:


> A B&B may be pushing it a bit, though. I'm not sure but I suspect the worst you will suffer is a cease and desist order and perhaps a small fine.


Hmm ... so the US gov't that on paper at least, assigns a penalty of $10K for each FATCA form they decide isn't filled out correctly for a "US person" who never goes to the US in one situation is going to give someone who is running an under-the-table business to evade US taxes a "cease and desist" order? 

I'm not sure I'd want to take that bet.




TomB19 said:


> Investment opportunity: This is an interesting one.


To me ... as soon as there's a rent or B&B, that is what this is. And just like any other business - the legal requirements, costs and potential clients will need to be considered. One can still choose to do it, despite not making a year over year profit - one needs to do one's homework to avoid nasty surprises.


At the end of the day, only the OP as well as their parents can determine if they want to setup this situation. The only cavaet is they need to do their due diligence to have a plan in place.



Cheers


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## TomB19 (Sep 24, 2015)

Eclectic12 said:


> As long as one is prepared for discovering they broke their own path by repeating other's mistakes, I suppose that's okay. I prefer to sift through the input and be better prepared.


You seem grumpy. You have my best wishes on having a wonderful day. 




Eclectic12 said:


> Question is ... do you know all of the actions they took?


Yes I do.


You just cut and pasted an inaccurate presentation of the facts. First, a small amount of rent can be collected without filing a return. Second, this is a family situation with opportunities for optimization such as having the parents to own a portion of the property so he could put himself in a position of only having to justify a small amount of 3rd party rent. Lastly, you cut and pasted a few things that appear to support your grumpy position but you didn't post anything about deducting expenses such as a mortgage, etc., in the event he did have to file a claim. Things work differently in the US so it may still be worth it, particularly if the OP's dream is to live part or full time in Hawaii at some point in his life.

The B&B is probably a hot potato that will not be worth it but it could be worth it and it could get him living full time in HI, if done on a large enough scale.

Someone I am acquainted with purchased a business in Florida three years ago and now lives there full time. The stipulation was that he employ two full time American citizens on staff and show profitability on an annual basis.

A B&B, if large enough, could carry two full time staff. This doesn't sound like what the OP is talking about but, if he could scrape together the money to get a mortgage on a somewhat larger scale B&B, he may be able comfortably carry 2 FTE. There are B&Bs that comfortably command upwards of $350 per night. With multiple rooms, he may be able to do very well and live in paradise.

I'm not familiar with the law on doing this in Hawaiian but I know that dreams can often be made to happen with work, perseverance, and not letting grumpy people take the wind out of your sails.


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## Eclectic12 (Oct 20, 2010)

TomB19 said:


> You seem grumpy. You have my best wishes on having a wonderful day.


It's going great so far ... I'm not sure why pointing out that ignoring info to blaze one's own trail is risking bad decisions so due diligence is required is "grumpy" but whatever.




TomB19 said:


> You just cut and pasted an inaccurate presentation of the facts. First, a small amount of rent can be collected without filing a return.


Where it's a vacation property for family use only ... I'd expect so but the Americans in Florida I talked to be told that any rental meant filing a return. Again - an area to confirm.

Where it's a B&B with enough rent to cover $600 a month of electrical bills on say the island of Oahu or the two full time person B&B you talk about - I suspect there would be no choice.




TomB19 said:


> Lastly, you cut and pasted a few things that appear to support your grumpy position but you didn't post anything about deducting expenses such as a mortgage, etc., in the event he did have to file a claim.


I didn't mention them specifically in my post but if one reads the links posted, at least one of them does say:


> The net rental profit on your US real estate is calculated as the gross rental income less ordinary and necessary expenses.
> 
> The following is a list of the common expenses that are allowed.
> 
> ...


So yes - there are advantages and disadvantages - which IMO is all the more reason to investigate/plan.




TomB19 said:


> Things work differently in the US so it may still be worth it, particularly if the OP's dream is to live part or full time in Hawaii at some point in his life.


 ... and all the "negative" info is to highlight the US *is* different so investigate and have a plan.




TomB19 said:


> The B&B is probably a hot potato that will not be worth it ...


Aren't you being negative?
Shouldn't the OP investigate and see what the possibilities are before making a decision?


To repeat ... it's not the same as Canada - investigate and plan. 


Cheers


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## OhGreatGuru (May 24, 2009)

envision33 said:


> Would like to have some opinions on my situation. ...
> 
> This is a general idea and obviously still far away in the future, but just wanted to hear some thoughts on whether it is feasible and what obstacles I might face with this plan.


As noted above, OP asked for opinions and thoughts on feasibility and obstacles. Pointing out the potential problems (as requested) is not dumping on his ideas with negativity.


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## envision33 (Aug 20, 2015)

I want to thank everyone for their opinions and suggestions. Lots of information to consider and keep in mind indeed. 

I guess the key thing I forgot to mention is that after visiting Hawaii last year we all felt in love with this place. It's not just to get away from cold Canadian winters to any other warm places like Arizona, Florida or Mexico. And, despite the unreasonably high cost of living there, I am trying to find any ways to be spending as much as possible of my time there after my military career. Something about Hawaii that makes me want to go back at any cost !


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## TomB19 (Sep 24, 2015)

Good luck, envision33.


My parents have been spending 6 months minus a day in AZ for decades and my brother just moved to NV full time and is working there. I have so many relatives and friends spending large amounts of time in the US, it's way too many people to list. The point being, it can be done.

I've noticed that people with a military background tend to be far more likely to succeed than those without. I expect you will be full time in HI, one day.


Regards,

TomB19


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