Is it a good time to buy real estate? This is a question you can hear most days, in most cities. However, for Canadian snowbirds this is a big question as they venture south to spend the winter months in the sun of Florida and other sunbelt states. This begs the question: is it a good time for Canadians to buy US real estate?
When considering this question a few factors come to mind right away: the ever-dropping value of the Canadian dollar and the US market crash from 2007/2008. The market crash created the “perfect storm” for Canadians looking to invest in a vacation property, but is the current market just as promising in 2016? Our analysis is that Naples, FL is.
But, the question still lingers: what about the value of the Canadian dollar? If you already have US dollars, then the Florida real estate market may be a sound investment for your money.
Investing with US Dollars
Who already has US dollars? Many Canadians already have US currency and may not realize it. Any Canadian who already owns property in the US falls into this category since the transaction for the sale of that property would be done in US dollars. Other Canadians who fall into this group are those who own US stocks or bonds. Already owning these may allow for an easy return on investment simply due to the currency exchange rate from US dollars to Canadian dollars. However, there may be a better way to invest, or re-invest, those US dollars.
Market analysis supports that investing US dollars in the Florida real estate market, and specifically in Naples, may generate more return than mere traditional investing in the market. This statement is supported by the Globe and Mail article titled A not-so-sunny outlook for Canada’s economy where it is clearly stated that “the stock market is sliding, wiping out asset value in almost every sector and hurting pension plans.” Another Globe and Mail article from early January 2016 reported on Canada’s shrinking manufacturing activity, which indicated that Canadians may be best off investing their US retirement funds in the US; instead of jumping on the currency gain in Canada.
Real Estate Market
The real estate market in Florida has shown steady growth over the past two years. A survey conducted by Local Market Monitor in the second quarter of 2015 predicts the Naples-Marco Island area will have the highest cumulative gain (41%) in home prices over the next three years.
With all this in mind, it is important to remember that there is no guarantee with any type of investment, but we can use statistics and trends to make educated decisions with our money and future.
US Vacation Property
If you are looking to purchase a personal use property, then the sun will always be waiting for you in Florida. With a long-term investment like this, there is less risk with a market that has undergone recent adjustments. That being said, Naples has experienced particular heightened growth over the past few years, and is predicted to continue growing for the next two to three years.
US Rental Property
If you are looking to purchase an investment property, then rental rates are still high since lots of people are still renting (perhaps under the influence of the low Canadian dollar, but there has always been a market for rentals in Florida). Having a revenue property, defined as a property bought or developed to earn income through renting, is a great way for Canadians to benefit from both already having US real estate and the weak Canadian dollar. Turning your US real estate into an income property is a great way to generate US income which you can then convert (with a gain) to Canadian dollars or re-invest in the US market.
At Altro LLP we always advise Canadians to meet with a cross border professional to review their personal facts before investing, or re-investing, in the US to ensure the proper tax and estate planning is in place.