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Wondering if now is a good time to think about a U.S. investment or vacation property? Interest rates, currency exchange rates, taxes and insurance can all play a role in your decision.

With the U.S. dollar strong against the Loonie and low rates in the U.S., many Canadians are wondering if it makes sense to purchase property in the U.S.

The Advantages of Buying Versus Renting

U.S. real estate prices are still low compared to Canada. For example, the average home in Calgary costs $448,030 CAD while a comparable home in Tucson, Arizona averages just $215,252 USD.1 Even when you take into account the currency exchange rate, U.S. home prices are still more affordable.

If, once the border reopens, you plan travel to the U.S. regularly and rent a property, you may save money by purchasing a house or condo to use during your visits, and renting it out the rest of the year. The rental income would be paid in U.S. dollars so there’s no exchange rate to consider, and this income could potentially cover your mortgage payment, U.S. taxes, insurance and homeowner association fees.

Should You Consider Financing?

With today’s weak Canadian dollar, it may make sense to finance your property instead of paying cash.2 Financing a U.S. property may be a cost-effective alternative to paying cash, lessening the one-time upfront impact of foreign exchange. And, since U.S. lenders generally don’t charge a pre-payment penalty, when the Loonie strengthens, you can make the exchange rate work to your advantage and pay down or pay off your mortgage.

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Your one-stop resource for your U.S. home buying journey – finding a Realtor, financing your purchase, cross-border tax and legal experts and more.

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Getting Pre-Approved

Before you begin looking for the perfect property south of the border, it’s a good idea to get pre-approved. This helps you determine how much you can spend- and means you’ll be prepared if you come across the right home for you. When you’ve found that perfect home and you’re ready to apply, keep in mind the application process takes longer in the U.S. — usually 30 to 50 days.

Down Payments and Other Costs

Down payment requirements depend on how you’ll use the property. Typically it’s 20% of the purchase price for a primary residence or second vacation home and 25% for an investment property.3 Be sure to also budget U.S. dollars for a property appraisal, title search and flood certification — all told, your U.S. closing costs can be around 2% to 5% of the selling price.

Insurance

When financing a home in the U.S., you’ll be required to provide proof of homeowners insurance each year. If you purchase a condo or townhouse that is covered by a Master Insurance Policy, you will likely need to purchase a separate policy for the interior of your unit. If your home is located in a federally recognized flood zone, you’ll be required to have flood insurance as well.

Taxation

As a Canadian who owns a real estate in the U.S., any taxes you may be required to pay will depend on where you’re filing, and how you are using the property.4

If your U.S. property is generating income, either as an investment property or as a rental income, you’ll likely need to report this income on your Canadian tax return and file tax returns in the U.S. The bright spot is since you are running a business, you can also claim expenses. Your flights to visit and check on the property as well as any repairs or improvements are all expenses that you may claim on your tax return.

There are lots of tax considerations in both countries when purchasing or selling a home in the U.S., so it’s in your best interest to speak with a cross-border tax and legal expert to fully understand your potential tax liabilities before you purchase.

Management or Rental Company

If you plan to rent your U.S. property for some of the year, you will want to ensure it is cared for when you return to Canada. You can choose to hire a management or rental company.

When you’re interviewing companies here are a few of the questions to ask.

  • How long have you been in business? Select an established company that can provide references from clients.
  • What types of properties do you specialize in? Find out if they have other Canadian clients in a situation like yours and how they manage these properties.
  • How large is the staff? Is this a large management company or an individual consultant who is providing these services? If you own a property for your personal use, employing an individual who can check on the place, pick up the mail or be there to oversee repairs and maintenance may be all that you need. If you are renting the property, you may want a company that offers a full range of management and rental services.
  • What are your fees and what services do you offer? When you’re quoted a fee, look deeper into the services that are provided. When the property is being managed remotely it may be worth paying more for the added peace of mind.
  • Who will take care of the property? Will the company provide a dedicated person or will they send anyone who is available to check on your property? A dedicated individual may be preferable as the person will get to know you and your property, so you may receive a higher level of service.

With a bit of knowledge and planning, U.S. real estate can be a good investment for Canadians, and can also provide a comfortable destination for warm weather getaways. While this article provides general information on purchasing U.S. property, be sure to consult your accountant, tax and/or financial advisor and lawyer for advice on your particular situation.

Equal Housing Lender. Member FDIC.

1. Home prices accessed from Calgary Real Estate Board and Zillow.com, April 2020

2. Mortgages are subject to approval, including verification of acceptable income, credit worthiness and property valuations. Minimum and maximum property values and maximum loan-to-value ratios apply. Homeowner’s insurance is required for all loans and lines of credit and flood insurance is required if the property is located in a Special Flood Hazard area. Escrows may be required on mortgages. There are closing costs associated with mortgage products.

3. 3, 5, 7, or 10-year term refers to the period of time the interest rate is set at the beginning of the loan period which is 30 years (360 months); after the initial fixed rate term, the interest rate will adjust annually. Example: 3-Year Adjustable Rate Mortgage (ARM) calculation assumes a $250,000 loan amount, 4.000% interest rate, 4.764% APR, with 20% down payment, amortized over 360 months = $1,193.54 monthly payment. Example: 5-Year ARM calculation assumes a $250,000 loan amount, 4.125% interest rate, 4.679% APR, with 20% down payment, amortized over 360 months = $1,211.62 monthly payment. Example: 7-Year ARM calculation assumes a $250,000 loan amount, 4.375% interest rate, 4.699% APR, with 20% down payment, amortized over 360 months = $1,248.21 monthly payment. Example: 10-Year ARM calculation assumes a $250,000 loan amount, 4.500% interest rate, 4.455% APR, with 20% down payment, amortized over 360 months = $1,266.71 monthly payment. Rates and payments are subject to increase after initial fixed period of loan. If the down payment is less than 20%, mortgage insurance may be needed on the loan. This could increase the monthly payment and the interest rate. Rates subject to increase after consummation.

4. Consult your financial, tax, legal, and other professional advisors prior to applying for a U.S. mortgage.

RBC Bank is RBC Bank (Georgia), National Association (“RBC Bank”), a wholly owned U.S. banking subsidiary of Royal Bank of Canada, and is a member of the U.S. Federal Deposit Insurance Corporation (“FDIC”). U.S. deposit accounts are insured by the FDIC up to the maximum amount permissible by law. U.S. banking products and services are offered and provided by RBC Bank. Canadian banking products and services are offered and provided by Royal Bank of Canada. U.S. deposit accounts are not insured by the Canada Deposit Insurance Corporation (“CDIC”). RBC Bank, Equal Housing Lender.equal housing lender