Jonah Z. Spiegelman, lead of our western Canada practice and based in Vancouver, BC, was recently interviewed for an article in the Vancouver Sun newspaper. In the article, Jonah reviews some of the real estate trends that Canadians are following when purchasing in the US and what Snowbirds need to be aware of and plan for if purchasing a US property, please scroll down to read the piece where Jonah is quoted.
Glory Restored: Holiday, investment real estate’s; Whether it’s a Sun Belt getaway or a cozy casa in Mexico, get advice before you sign
The Vancouver Sun
Saturday, October 26, 2013
With news reports full of stories on a turnaround in the American economy, Canadian investors and recreational property buyers might wonder if the train has left the station and all of the good deals have been snapped up.
And for a while there, the hangover from the mortgage crisis definitely created some almost unbelievable opportunities.
“I heard of people buying 150-unit apartment buildings in Phoenix for the price of a single-family home in Vancouver,” says Jonah Spiegelman, a Canadian lawyer who is also licensed in California. He works in the Vancouver office of Altro LLP, a law firm specializing in cross-border tax and estate planning and U.S. real estate.
Of course, that was at the bottom of the market – the kind of place that will always attract risk-tolerant investors. Spiegelman adds: “The mortgage crisis in the United States affected not only the creditworthiness or people who lost their homes, but the buying psychology as well. A lot of people simple wanted to rent back their homes and get out of the market entirely.”
Since that time, the stars aligned as they seldom ever do and present an almost once-in-a-lifetime opportunity. The effects of the global recession were never felt in Canada like they were south of the border. The Canadian dollar rose to parity with its American counterpart. And in many western Canadian cities, the homeowners were unlocking the rising value of the equity in their homes and taking advantage of low interest rates in order to explore other investments. Cash-rich Canadians were now in a position to make the kind of fully financed deals that American sellers were desperate for.
The mortgage crisis should act as a warning signal to Canadian investors or prospective owners of vacation property that buying American real estate comes with a very, very different set of rules. Careful planning is the key to making a satisfying, profitable long-term investment. Hiring the legal services of a Canadian firm well versed in American real estate law can head off unforeseen problems that, frankly, a real estate agent likely won’t divulge or even be aware of. “Real estate agents are not lawyers and vice versa,” Spiegelman says.
He sees the turnaround in many American markets as a positive development, even if the screaming deals of 2011 might not be there – though states like Michigan and North Carolina remain highly discounted. “A market rebound is good for everybody. More cautious investors are buying because the risk has been reduced and there are signs that resale prices are on the way up and some capital gains being shown.” But many home prices are still well off those stratospheric mid-2000s highs.
Canadians have many choices when it comes to both recreational and investment opportunities. There are golf course properties in Palm Springs. New condo developments near the downtown core of cities like Seattle, San Francisco and San Diego. Cash-flow positive apartments throughout the Sunbelt. And even attractively priced weekend getaways in Birch Bay, Point Roberts, and even Cannon Beach, Ore.
He advises: “If you’re purchasing for possible second home or retirement use, you have to like the area that you’re considering. Do your research in terms of the rental market, demographics, and where you see yourself in the future.”
Speaking of the future, Spiegelman says that “Estate planning is absolutely essential. Will and probate law in the United States is very different than here in Canada, especially around what we call power of attorney.” The situation can get particularly challenging if you’re suddenly incapacitated and your asset is frozen. It can cost a lot in legal fees to transfer ownership to a spouse or relative.
If you need financing, keep in mind that the U.S. mortgage industry is very different. Banks and other lenders will not consider a Canadian credit rating, and there are a lot more fees that borrowers generally have to pay. Structuring your investment in U.S. dollars also means potential volatility when it comes to exchange rates. A big swing in currency can affect future profitability and cash flow.
Spiegelman also notes that politicians fiddle with immigration and tax policy; even the recent fiscal cliff had the potential to impact Canadians. “For now, the United States exempts estate tax if your personal wealth is under $5.25 million in assets worldwide. But there has been pressure from some interest groups to revise that figure downward, which could mean a tax bill in the future. You might not have a problem today, but you could in future years,” he says.
Whether it’s for investment purposes, recreational use, or maybe even considering a career move to the United States in order to work full time, buying American real estate is far more complex than declaring a few gallons of milk or items of clothing. Get solid advice and rest easy at night – regardless of which country you’re sleeping in.
