What Canadian Citizens Need to Know about
Buying the U.S. or Florida.
Posted April 07, 2011
While there have been many contributors to the decline of home prices and home sales in Florida, an increase in foreign nationals buying Florida homes and condos has helped limit the damage. The National Association of Realtors (NAR) conducted a research survey in 2008 of more than 4,800 Realtors who had completed
in excess of 4,000 real estate transactions involving a foreign buyer. They found that foreign buyers recognize U.S. real estate as a desirable, profitable and secure investment.
The U.S. credit crunch and the almost overwhelming flood of homes and condominiums for sale in Florida created some outstanding opportunities for foreign national investments. Many "snowbirds" from Canada and the United Kingdom are taking advantage of this opportunity flocking to the warmer climate particularly in Florida.
The relative weakness of the dollar and the dramatically reduced prices have given "snowbirds" who have dreamed of owning a second home in the warmer climes of the United States the opportunity to fulfill their dreams.
if you are a Canadian citizen, before you purchase your winter get-away spot, you would be well-advised to understand the differences between Canadian and U.S. home buying processes, as well as the tax implications of owning a
second home south of the border. An experienced Realtor like Brian Ward, can best help you understand the U.S.-based real estate buying process and its implications.
Focus on Existing Properties in Established Developments
Real estate consultants have been recently advising foreign nationals to give preference to existing properties in established developments. This avoids the problems associated with unsuccessful developments where the nature of the development and the surrounding area can change quite dramatically if the original developer goes into default and the
property is taken over by a different developer. While this may mean that you the buyer miss the opportunity to buy at so-called "pre-construction" bargain prices, nut the reduction in risk may prove well worth the slightly higher price you'll pay.
The Up-Front Costs
Since it is more difficult to track down foreign nationals in case of a mortgage default, lenders require more up-front evidence of financial stability from their foreign national buyers. Some lenders require that buyers place closing costs plus 12 months of principal, interest, taxes, and insurance (PITI) in a U.S. bank account.
They may also require foreign nationals to put more money down, as much as 25 - 30% and demonstrate that they have liquid reserves available to cover three to six mortgage payments.
Financing and Closing for Canadian Snowbirds
Begin the loan pre-approval process before you begin searching for a home or condo in Florida. In this way, when you find the
that dream second-home you've been searching for, you will be negotiating price with the seller from a position of strength. The seller will know upfront that you are fully prepared and "qualified" to buy.
Expect the length of your mortgage loan to differ from the Canadian standard. Rather than the one to ten-year mortgages you find in Canada, U.S. based mortgages are typically written for 15 or 30 year terms.
It takes more time to complete a real estate sale in the U.S. Be prepared to wait three to
five weeks or more to close on your Florida real estate property once you have a signed purchase contract. During that period, all of
the third-parties involved (inspectors, appraisers, insurance companies, title companies, etc.) will be conducting their parts of the transaction.
How to Maximize Your Profit and Minimize Taxes
Understand that even though you are a Canadian citizen, you may be treated as a U.S. citizen for tax purposes if you spend too much time at your Florida
get-away. A good rule of thumb is to spend less than six months each year in the U.S. This minimizes the tax implications for you and
does not compromise your Canadian health care benefits.
Be aware that non-residents of Florida do not get all of the property tax advantages granted to permanent residents of Florida, so be sure to inquire as to the difference this will make in your on-going costs. Again, your realtor will be able to
explain this to you. Understanding this difference in property tax exposure may be the best single reason to use the services of an experienced Florida Realtor.
Property insurance in Florida can be very expensive. One way to limit this at least somewhat is look for properties built after the most recent set of building code updates, mandating
that structures be able to withstand higher winds. Insurance companies charge less to insure properties that
meet the latest code requirements. Also, properties that are not located directly on or adjacent to the waterfront or in designated "flood zones," cost less to insure.
If you decide to rent your Florida property for the portion of the year that you spend up North, you will need to file a federal U.S. income tax return. On it, you will
declare your rental income, but you may be able to deduct expenses such as maintenance, utilities or mortgage interest. Since Florida doesnt have a state income tax, your income from the property will only be
taxed by the federal government.
Avoiding Estate Taxes
Canadians can reduce their exposure to U.S. estate taxes according to Terry Ritchie, a certified financial planner at Transitional Financial Advisors and author of "The Canadian Snowbird in America: Professional Tax and Financial Insights
into a Temporary Lifestyle." One of the best ways is by placing a non-recourse mortgage against the property. A non-recourse mortgage gives the mortgage-holder recourse only against the
property, itself, not against any other assets of the borrower. There can be additional benefits of using a non-recourse mortgage on a second home in Florida that can be explained to you by a qualified attorney.
Avoiding Probate Issues
Probate, the process by which real estate is transferred to a deceased owners beneficiaries, can be a lengthy,
and costly process. Putting the deed for a second home in the name of a Cross Border Revocable Living Trust (CBRLT)
rather than in an individual name offers several advantages. Properties held by a CBRLT are exempt from
Florida probate and thus have no filing requirements for U.S. or Canadian tax authorities. Your attorney can explain these benefits in greater detail.
As a Canadian considering purchasing Florida real estate, there are several things you need to understand, but one thing is certain.
There has never been a better time than now to buy that seasonal or second home you've been dreaming about, especially here in Sarasota or Bradenton Florida.