Buying a 2nd Home in the U.S.

What Canadian Citizens Need to Know

     Many factors have contributed to the decline in real estate sales in Florida, but an increase in foreign home buyers has helped to decrease the amount of damage. A 2008 National Association of Realtors (NAR) research paper surveyed over 4,800 Realtors who completed over 4,000 sales transactions involving a foreign buyer and found that foreign buyers recognize U.S. real estate as a desirable, profitable and secure investment.

     The U.S. credit crunch, along with the glut of Florida homes for sale has created some fantastic opportunities for foreign nationals. Snowbird buyers from Canada and the United Kingdom are taking advantage of this opportunity in droves, flocking to the warmer climates in the U.S. and 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.

     Before you purchase your warm-weather retreat, though, you would be well-advised to acquaint yourself with the differences between the 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

  Many real estate consultants advise foreign nationals to prefer already-existing properties in well-established developments. This avoids the problems associated with unsuccessful developments where the nature of the development may change considerably if the original developer defaults and the property is taken over by a different developer.  While this may mean the buyer misses the opportunity to buy at so-called "pre-construction" bargain prices, the reduction in risk may prove worth the slightly higher price to be paid.

• 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

  It’s wise to begin the loan pre-approval process before you begin searching for a property, so when you find the one you’ve been looking for, you are negotiating from a position of strength.
  
  Expect the term of the mortgage loan to differ from what’s available in Canada. Rather than the one to ten-year mortgages you’re used to in Canada, U.S. mortgages are typically written for 15 or 30 year terms.


The length of time it takes to complete a sale in the U.S. is longer than in Canada. Be prepared to wait three to five weeks to close on your U.S. property from the time that 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

  As a Canadian "snowbird," you may be treated as a U.S. citizen for tax purposes if you spend too much time at your American 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.
  
  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 doesn’t have a state income tax, your income from the property will only be taxed by the federal government.

• Avoid Estate Taxes with a Non-Recourse Mortgage

  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" 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 are other potential benefits of a non-recourse mortgage on a second home in Florida that can best be explained to you by a qualified attorney.

• Don’t Get Hung Up in Probate

  Probate, the process by which real estate is transferred to a deceased owner’s 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's 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.

     In summary, as a Canadian citizen considering buying a second home in Florida, there are several things you need to understand, but overall, there has never been a better time to buy that seasonal get-away spot you've been dreaming about, especially here in the Sarasota and Bradenton area of Florida.