Nicole Lopez (00:01):
Picture this. It's a crisp autumn morning in Toronto. And Sarah, a seasoned Canadian entrepreneur, sips coffee on the balcony of her condo while skimming through the latest financial news. Her eyes light up as she reads about the booming real estate market in sunny Florida. Intrigued and excited by the prospect of diversifying her investment portfolio. She envisions palm trees and ocean park properties. Doesn't that all sound lovely? However, with this opportunity comes potential challenges such as foreign tax laws, currency exchange rates, and a different real estate landscape. Just to name a few. In this episode of Real Estate with Nicole, we will provide you with some basic information for you to get started or perhaps restart your cross border investment journey. Join me as we explore the promising world of US real estate for Canadian investors, whether you're a novice, curious about international investments or a veteran looking to refresh or expand your knowledge. Are you ready? Great. Let's get going.
(01:43):
Did you know that Canadians are among the top foreign buyers of US real estate? Let me share some statistics with you. In the past 15 years, around half a million Canadian citizens have bought real estate in the us. They bought vacation homes, short and long-term, rental properties and main residencies. According to the National Association of Realtors or nar, 20,023 international transactions and US Real Estate Report, Canadians bought a whopping $6.6 billion worth of US residential properties in 2023. I'd like to put this in context, however, the US real estate transaction volume for existing home sales was $2.3 trillion in 2023. Of that, 53.3 billion or 2.3% of this was generated by foreign buyer transactions, and Canada was in the top five countries. China was number one at 13% of foreign buyers at 13.6 billion. Mexico was number two at 11% foreign buyers at 4.2 billion volume. And as I mentioned before, Canada had a 6.6 billion volume and that accounted for 10% of the foreign buyers in the US to round up the top five.
(03:39):
India came in fourth at 7% of foreign buyers at $3.4 billion volume, and Columbia came in at 3% of foreign buyers with $0.9 billion volume transactions. Given that Canadians are investing in the us, let's look at the popular destinations where investors like Sarah, I mentioned earlier for Canadians, the top areas for investment are Florida, where 55% of Canadians are buying real estate. Next is Arizona at 14%, and then we have California, Louisiana, Montana, Nevada, and Texas and Washington State all tied for the third most popular locations or states. And each of those states is about 4% of buyers are Canadians. And then to round out the next few states, 2% each are North Carolina, the us, Virgin Islands, and Vermont. So what does this mean? Let's put this into context versus all foreign buyers.
(04:57):
We look at Florida. Florida is the top destination for foreign buyers with a 23% share of foreign buyers purchasing. Here trends show that the main buyers are coming from Latin America, 46% and Canada at 24%. And as I mentioned before, Florida was the top state for Canadian investors. Let's take a look at California. California had the second largest buyer's share at 12%. The majority of California's foreign buyers came from Asia or Oceana at 61%. It was the top destination among Chinese and Asian Indian buyers for Canadian buyers. California, as I mentioned before, was tied for third most popular state for investment at 4%. Texas was the third top foreign buyer destination across the board with 12% share. 55% of Texas buyers came from Latin America or Caribbean, and 25% came from Asia or Oceana. Texas was the top destination among Mexican buyers and the second top destination among Chinese buyers for Canadians, Texas was tied for third most popular state for investment. North Carolina was the fourth top destination and attracted 4% of all foreign buyers. 50% of North Carolina's foreign and buyers were from Asia and Oceana where 22% were from Europe and 22% again were from Latin America and the Caribbean.
(06:59):
Now, let's take a look at Arizona. Arizona was the fifth most popular destination with 4% of all foreign buyers purchasing here. 37% of Arizona's foreign buyers were Canadians. And as I mentioned earlier, Arizona was the second most popular state for Canadian buyers, up 14%. Wow, that's a lot, lot of investment across the board for these top five states across all foreign buyers. So what's the appeal for US real estate? Why are people investing here? In a word, at least for Canadians, snowbirds, remember for calls, Sarah was sitting on her balcony on a crisp morning, and I'm sure the palm trees and the Sun of Florida are very enticing, especially if she's anticipating a bitter cold winter ahead for the coming year. Another enticing element of US real estate is residents. Many Canadians move to the US for work. They could be relocated to take up higher paying jobs, often in states that have lower taxes and potentially a lower cost of living.
(08:35):
In addition to that, another draw for real estate in the US is diversity. The US real estate market is about 92 times larger than that of Canada. So just imagine how much more opportunity and availability across the vast land of the US in order to make a deal potential deals. In addition to that, in many of the states and locations there are established Canadian communities. For example, in the Los Angeles area, there are about 42,000 Canadians living in that area. In Phoenix, there is a population of about 31,000 Canadians in Tampa, about 20,000 Canadians are there. And in Miami, Fort Lauderdale area, there's another about 33,000 Canadians in that locale. Major communities in these areas. Just even from my own personal experience of attending a wedding in Myrtle Beach, there was a significant Canadian population there and it was just very surprising for me to see that.
(10:00):
So that's another key draw for individuals investing in the us at least from a Canadian perspective. Another key factor is affordability and investment opportunities. So home prices in many US metro areas are comparatively inexpensive compared to prices in central areas of global cities. And since I'm focusing primarily on Canadians for this episode, I'm going to use a Canadian city. So Toronto, Canada as an example. So according to global property guide, data shows that the cost per square meter for an average property in Toronto, Canada is about $10,947 for a similar property in some of the various cities that I mentioned. For example, Dallas, Fort Worth, Arlington area, that cost per square meter is about $2,190. That's approximately 20% of that $10,000, 94 9, 47 for a similar property in Toronto. So just consider that also another example in California. So let's take Los Angeles, California, a similar property would have a square foot, a cost per square foot of $4,740. That's approximately 43% of what that property would cost in Toronto, Canada. So you can see the range of potential opportunity and how it seems enticing or it is enticing for many investors that are not only coming from Canada but from other areas in the globe that have higher cost per square meter.
(12:17):
And just one thing to note, Canada was about nine or 10 on that list of costs per square meter. So just imagine many individuals are coming from areas with much higher cost per square meter for our typical home. So that is a really strong key driver. It's that affordability factor that really truly drives a lot of individuals. So what are people buying? What are the types of homes that people are looking for based on that report from nar? The majority, so about 59% of foreign buyers bought a detached single family home whether they lived abroad. So 53% of them who lived abroad or whether they lived in the states, 66% of these lived in the states nationally, 89% of all existing buyers purchase single family homes. There is a slightly higher preference for townhomes among foreign buyers who live abroad with about 20% purchasing townhomes compared to foreign buyers who actually live in the us and that's about 15% of them who purchase a townhome. In terms of the median price purchase price, Chinese buyers also had the highest median purchase price of $723,200, followed by Canadians who purchased at an average of 572,900 Canadian buyers were more likely to purchase in common vacation destinations.
(14:17):
55% of Canadians purchased in Florida, and as I mentioned, 14% purchased in Arizona. So buyers who reside or live in the US tend to purchase homes for primary residence and single family homes compared to those who live abroad, which I mentioned before.
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Canadians were most likely to purchase a condominium as they were more likely to use the property for vacation use. So when you look at statistics, 49% of Canadians were using the property they purchased as a vacation home, 7% were using it as a residential rental. 11% were using the home for a vacation and rental, and about 29% were using that home that they purchased in the US as their primary residence. In terms of the types of properties that Canadian purchased, 71% of the properties purchased were single family detached with 4% being townhomes and 18% being condominiums. They purchased residential land and other in a smaller percentage. One thing that is also interesting to note is that foreign buyers would tend to purchase property in suburban areas. So about 45% of foreign buyer purchases were in those areas.
(16:01):
Canadians were more likely to purchase in a resort area and nearly half of those purchase those homes as a vacation property. So as I mentioned before, snowbirds, that is a key reason, a key factor. Canadians do investing. Many individuals invest in a home in the south in warmer climates where they can get away from the cold, harsh winter months, enjoy time with their family, have a nice quality of life, oftentimes having a less cost of living so they can enjoy that time. So all those statistics really do point out to strong investment opportunities, quality of life, and having that opportunity to get away from harsh winter months in Canada. So key factors that make us real estate attractive not only for Canadians, but the relatively lower property prices as I demonstrated before with the cost per square meter averages, the diverse markets. So the various markets that foreign buyers could choose from, can be in the south, can be in the west, the southwest, northwest, all across the US and the US has varying geographies, culture and opportunities, and then also that potential for rental income as an investment for many of the foreign buyers.
(17:43):
Some of the potential benefits to US investments could be related to favorable exchange rates, maybe not for Canadians, but foreign nationals, a strong potential for appreciation in the us similar to what is happening in Canada, there is a high demand for properties, however, supply is not as available to meet that demand. So you're seeing the same pricing pressures occurring, maybe not at the same rate as Canada, but you see appreciation and the potential for appreciation depending on the locale where you are, and there are potentially opportunities for some tax advantages depending on your particular situation. So there gives you a nice overview in terms of what the trend is from a general foreign buyer perspective and then details with regards to Canadians and the motivations, the reasons, the benefits, and the factors that influence Canadian investors for the US real estate market. So what are some of these challenges and maybe considerations that we as investors need to consider when looking at the US residential properties?
(19:16):
In some cases it may be the cost of the property, depending on the locale where you want to select or purchase your property. Maybe you have a specific area, but there's no properties for sale. That could be a challenge that you might need to face. There could be challenges obtaining financing or not be able to qualify for a mortgage. There could be specific laws related to immigration that could prevent you as an investor for occupying the property for a long period of time or for the full year. I know for Canadians, we have the ability to take advantage of the North American Tree Trade Agreement or the Canada US Mexico agreement, and we have the opportunity to stay in the US for a certain period up to six months. However, individually we need to make sure that you are abiding by the laws, the rules, any visa requirements that may need to be adhered to.
(20:34):
Property taxes may be a concern or issue related to your potential investment. And then the exposure to US tax laws depending on your particular situation, whether you are currently working or going to work in the us whether you previously worked in the US and you may have obligations or a tax situation that would need to be assessed, or whether you're planning to have a vacation home. Just making sure that you truly understand what that exposure is to the US laws. In addition to that, there could be condo or maintenance fees that could be a concern or issue to you.
(21:20):
They have similar condo fees or HOA homeowner association fees that are levied for the homeowner. So really understanding what your obligations are, those can be challenges or issues or things that you really need to understand before you make that investment leap. Another item that could be concerning is difficulty moving money into the us, making sure that you have the appropriate finance set up, you have the ability to make your transactions accordingly, having your bank accounts, your financial institution, making sure that is all set up appropriately so you can execute not only the initial transaction, but any other payments or transactions that follow through insurance costs. And then potential loss of home country benefits. There are rules wherein if you are outside of the country, say in Canada for a specified period of time, you could lose your benefits such as me living in Ontario could be OHIP benefits, your health benefits, and as I mentioned before, exchange rate, depending on what country you are in exchange rate could be a factor that you really need to consider a challenge in order to ensure, does this make sense?
(22:50):
Is this a financially sound investment that I'm making or is it in the long run? Taking a look at the big picture, it might not be in the short term, but in the bigger picture it might be something that is beneficial to you. Those are some of the key challenges and key items, areas that it's important for you to really consider and understand before you dive right into US. Real estate investing, just like to say that the main difference between a US citizen and a Canadian purchasing and owning residential real estate in the us, I think it rests primarily on the required documentation and additional taxes. As I mentioned earlier, Canadians must pay if we choose to sell our US property, so this be the capital gains tax and also foreign investment in real property tax act. Those are things for you to consider and really understand.
(23:55):
In terms of documentation, you would need to ensure that you have a valid passport. You have your Canadian citizenship or residency documents if you are participating in the Nexus program, having a valid Nexus card, if you have a social security number, having that available, or if you don't have a social security number, you worked in the US and you obtained an individual taxpayer identification number or an ITIN number, making sure that you have all of this information available. Having a valid US visa, so if you're intending to work in the us, making sure that your visa documentation and all that information is valid current and you have the documents available. And then really important is any financial documentation or records that you need, such as your job history, credit loan reports, earning reports, anything that provides details with regards to your financials. These are some of the documentation that's required. You may be required to obtain additional information, but these are the key pieces of information that you should have available and start to compile if you don't have it available. I'd like to provide you with some practical advice and tips with regards to US real estate investing or cross border investments. So one, be able to answer the question, why do I want to make this investment?
(25:47):
This understanding why you are considering or want to make this investment will really help you focus in or it can impact the location that you plan to invest in or look at. It can impact the type of loan that you might want to get if you need to get a loan so you could impact how are you going to finance the purpose can impact the type of property that you want to purchase. Are you going to be purchasing a single family home? Are you going to be purchasing a condominium? Are you going to be purchasing like many Canadians near a resort? Are you going to be purchasing to rent it out and use it as a vacation? All of these factors really are important for you to consider in this. Why? Why am I doing this? If it's purely an investment, you may only be concerned with the financials or the numbers and your return on investment, and that might be what's driving your decision, making sure that the numbers make sense.
(26:52):
It's also important with your why research and understand any visa requirements, anything that may impact the benefits that you have in your home country here in Canada. Really understand how this purchase, why you're doing it and how it could impact you. And if you're moving for work and you want to get more opportunities, is that your impetus or is it culture or is it cost of living or is it weather? Do you need to be in Florida or do you need the dry heat of Arizona? For health reasons, really focus in on your why, because that really truly helps you to hone in on where you might be living and the type of property you might need to purchase and how you might want to finance that particular property.
(27:46):
Tip number two, work with a trusted realtor. Hire someone who can help you through the process and help you to understand the market and someone who can help you as a Canadian to walk through this process. I can say if you're looking for a referral, I'm connected to a large network of realtors in the us so please reach out and I would be happy to help you and provide you with some names of some realtors who could help you. Three, I spent a little bit of time on this, but have your documentation prepared and in order getting the paperwork ready ahead of time without rushing. We'll help you in the long run. You might need to fill out some forms or other documents and make sure you review the documents. Leave time for review because sometimes simple errors or typos, these small seemingly insignificant errors could lead to significant delays in getting the property of your dreams or the property that you want or missing out on an opportunity. So really try to get that paperwork ready ahead of time and really know what you need and verify what you need ahead of time. Number four, investigate your finance options. Have your down payment ready. This could be 20, 25% down payment depending on the finance options that you have. If you require financing, explore your options. As a Canadian, there are for national mortgage programs that exist, and it's important for you to investigate this. If you do need to finance your purchase, really understand what's available to you, what are the pros, what are the cons of each of the opportunities to help you make the most informed decision for your particular situation.
(30:04):
Most importantly, build a team of local experts. I cannot stress this enough, have experts alongside you as you make this cross, cross-border investment journey.
(30:22):
Experts such as a realtor I mentioned earlier, a mortgage broker or financial institution, someone at a financial institution, a certified home inspector, a lawyer to help you with title, search, escrow, and other closing requirements, a tax accountant, someone with knowledge and who's certified with regards to the US tax law because you really need to understand what your obligations are, fully know what you are getting into. So whether you like Sarah are planning across border investment journey to whether it's explore more career opportunities for personal growth, whether you're going to settle in an area with lower costs of living and owning a home relative to other developed countries. Whether you want to take advantage of the exceptional higher education system, you want to be close to world-class medical facilities, or just enjoy the diverse landscape weather and natural beauty of many of the US states. Maybe Sarah's considering all of these. How fun would that be?
(31:38):
However, I cannot stress enough the importance of conducting due diligence and investing in a long-term planning. It's important to understand your goals and the options, tools, and opportunities at your disposal. My motto, know more, be prepared. Be confident in the way of knowing more. You will be confident that you are making a well-informed decision in your cross-border venture. Thank you for tuning in to today's episode of Real Estate with Nicole. I hope you were able to gain valuable material related to Canadians looking to invest in real estate in the United States. If you enjoyed this episode, please subscribe, leave a review and share it with one friend or a family member who might benefit from this information. Let me know what topics may be of interest to you. It could be the subject of a future episode of Real Estate with Nicole. This episode was a result of a request from a listener. I appreciate you. Until next time, this is Nicole Lopez signing off. Stay informed, stay proactive, and take care.
