Real Estate Property Investment Series – Focus Canada 2007

Posted on April 5, 2017 in Uncategorized

Canada has something of an evergreen appeal which means that not only does it welcome many new and affluent citizens to its shores annually as part of its active immigration policy, these new Canadian citizens provide fresh inward flow of demand and affordability to the Canadian real estate marketplace.

If you add to this the fact that more Europeans and Americans are seeking to either move to live in Canada for part of the year or holiday there for extended periods of time throughout the year and you have quite a new and active market seeking long term rental accommodation and even resale property units as well.

On top of this active flow of demand you have local demand which is strong particularly away from some of the eastern provinces where property prices have risen a little too high a little too fast of late, and overall there is a great deal of local affordability and demand underpinning a solid and positive property market.

Having said all that, not all in the Canadian real estate garden is rosy as we look forward to 2007…while an investor who does their due diligence carefully and astutely can reap dividends from commercial and residential real estate in Canada in 2007, there are certain economic facts that could negatively impact the real estate marketplace in Canada in 2007… this report covers both angles.

On the one (negative) hand – while Canada’s property market has not been shaken quite so significantly as other established nation’s markets it has suffered a general slowdown of both market and construction activity. This is because the question of ‘affordability’ has suddenly had to enter the marketplace…questions have been raised relating to whether average property prices have hit a ceiling beyond which home buyers cannot afford to enter the market.

On the other (negative) hand – the Organisation for Economic Cooperation and Development has reported that in 2007 Canada’s GDP growth rate will under perform previous expectations of it. GDP growth was around 2.8% in 2006 and this is predicted to drop to 2.7% in 2007 before bouncing back firmly in 2008 – in addition to this, unfortunately consumer price inflation is set to follow a similar pattern and core inflationary levels could rise from 1.9% to 2.1% in 2007. These statistics suggest that the property buying public’s activity could be depressed a little in 2007.

But it’s not all bad news! Far from it in fact…

The Canadian Real Estate Association is working with the government to change the way smaller property investors in Canada are taxed on their capital gains. A small investor is one with fewer than five employees and this type of investor is called a passive investor in Canadian taxation terms. Currently such an investor has to pay capital gains tax and suffer capital cost allowance recovery if they sell an investment property even if the proceeds from the sale are then reinvested in another investment property within one year. If CREA get their way investors will be able to defer capital gains tax and capital cost allowance recovery when they sell investment properties and then reinvest the proceeds of the sales back in to other investment properties within one year.

So – the question presents itself – where should an investor invest in real estate in Canada in 2007 if they are to reap strong returns?

To tap into strong real estate profitability in Canada in 2007 investors basically need to apply commonsense when it comes to doing their due diligence on whether a market has room for expansion and whether it is enjoying, and will continue to enjoy, strong consumer demand for either rental or resale accommodation.

Simple!

A good example for a potential investor to examine is the city of Edmonton in Alberta where demand for properties for sale is outstripping supply and where the local economy is being supported greatly by the current oil sands driven boom. This is the sort of market an investor needs to preempt to derive as much profit potential from their investment decisions as possible.

Investors should also examine which Canadian towns and cities are going to be benefiting from upgrades to infrastructure such as communications and transport links because where an area is improving so desirability will increase and house prices will always follow. Also worth examining in Canada is the expansion of the local and international tourism market where residential letting opportunities could arise as well as commercial investment interests.

Commercial property investment opportunities also exist in the likes of Ottawa as well where vacancy rates are attractively low and construction is underway to supply some 800,000 square feet of prime, grade A office, retail and industrial space to a market hungry for such space. Basically investors who tap into this new supply could find themselves generating attractive yields in a relatively short period of time and opportunities like this exist all across Canada…in fact it is a nation ripe with investment opportunity!

Canada Real Estate Investing – The Most Sought After Housing Market of the World

Posted on April 4, 2017 in Uncategorized

The financial gurus as well as the real estate experts unanimously agree that Canada provides one of the best living opportunities in the world. In fact, it has become the most sought after destination for the investors. Moreover, Canada real estate investing is vast and competitively priced as well as has good appreciation rate. Another major factor that attracted the foreign investors is its hassle free legal system. In fact, if you do a comparative study of property market in US, UK or France, you can easily realize that investment in Canada is quite affordable. In fact, despite the high standard of living in Canada, the cost of living here is much lower than most of the other countries.

With the reinforcement of the Canadian economy, more and more people are migrating to the country. This is leading to a growth in the demand for properties. The real estate experts believe that this growing demand in the Canadian property market will also radically boost the property values in years to come. One of the biggest advantages of investing in this market is that even the non-resident Canadians can property in this country.

The following are some of the factors that you need to understand before investing in the Canadian real estate markets:

The rising of average incomes:
This is one of the factors that you need to take into account while searching for strong real estate markets. It is a good idea to opt for places where the average gross income is increasing faster. This means that the property prices will also follow the same pattern. In fact, it is not the average income that accounts; you need to consider the rate of increase. You can invest in a real estate market even if the average income of that place is lower than the provincial average, provided the rate of the average income is increasing faster than the provincial average.

The flow of booming markets:
You can conveniently invest in a property market, if its neighborhoods had recently experienced a strong growth in their property values. Such increase will also have a strong impact on the surrounding areas. Though at a slower rate, these surrounding areas will also heat up eventually. This is a phenomenon that has been noticed repeatedly in surrounding areas of a booming market as well as in the neighborhoods of redeveloping and improving communities. If you follow the pattern minutely you can easily identify such real estate markets, which are about to experience such booms.

Also read statistics and information about the various economic factors that may affect the market. Reading local newspapers and visiting the particular town’s or provincial website can also help you to get a clear idea about its real estate market.

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What a Canadian Should Know Before Buying U.S. Real Estate

Posted on April 2, 2017 in Uncategorized

Many Canadians are dreaming of heading south for the winter, but not just to beat the cold. They have real estate investing on their minds. Our strong dollar combined with a collapsing housing market in the U.S. spells opportunity for many. But Canada and the U.S.A are not the same country, and as much as we have in common we have differences. Any Canadian investor considering putting money in the U.S. should have a basic understanding of some key differences between buying real estate in Canada versus buying real estate in the U.S. So, before you start putting your loonies in Florida or Texas, read on.

Tax Systems:

Talk to an accountant that is experienced with American real estate investment as the countries differ considerably in terms of taxation of investment properties.

In the U.S.

  • 1031 Exchanges allow the capital gains from the sale of an investment property to be deferred and rolled into a purchase of a similar type of property if it’s bought within 180 days. This can be done many times allowing capital gains to be deferred until the end asset is finally disposed of and not replaced;
  • If capital gains are realized (property is sold and cash is received), the seller is taxed at 15% of the total net gain (as long as the property was owned for more than 1 year, if less than, the rate is much higher);
  • Property taxes tend to be similar to those in Canada, however, if you are a Canadian and own a property in a Southern state like Florida or California, you may have much higher “non-resident” property taxes than either the locals or if you invest in other U.S. States;
  • Similar to Canadian tax laws, you will not be taxed on your primary residence, however, in the U.S., you can write-off the interest charged on your home.

Compare this to Canada

  • Sell your investment property in Canada and you’ll pay capital gains tax on 50% of the net gain. Canada does not yet have the option of deferring the gain through an exchange. The “gain” or “loss” gets added to your income and your are taxed at the applicable rate (which could be much higher than the standard 15% rate in the U.S.);
  • Similar to in the U.S., expenses associated with holding an investment property can be written off against your taxable income. See two previous articles for tax time tips: Part 1 and Part 2.

Before you send your loonie south this winter:

  • Determine if there are “non-resident” property taxes applicable in the city/state you are considering;
  • If you already own in the States and sell the property (and don’t buy another there to use the 1031 Exchange strategy) you’ll be required to pay U.S. taxes on the sale. You pay the U.S. first, but still have to file the tax return in Canada (showing the taxes paid in the States). Thus, you’ll only pay once (you get a tax credit applied to your Canada taxes), but you have to file 2 returns (February/March 2008 Money Sense has a great article on this issue);
  • Rental income requires two filings for taxes as well. You must claim the income (and expenses) in both countries, pay the applicable taxes, and get a credit for your Canadian taxes.

Lending differences between Canada and the U.S.:

The “credit crunch” or “subprime market meltdown” has had a dramatic impact on the U.S. lending environment, and has trickled over the border to Canada. Because of the economic crisis, lender guidelines and policies have changed dramatically in both countries. In the U.S., there were many mortgages given to just about any candidate. The phrase “ninja” loan was coined in the U.S. The acronym standing for “no income, no job, no assets”. Many individuals were given mortgages beyond their means. When the first large phase of ARM (adjustable rate mortgages) began to raise their rates, foreclosures began popping up all across the nation. Canadians need not fear the same crash here thanks to very different lending environments.

In the U.S.

  • Hundreds of banks across the country with hundreds of differences in lending policies and guidelines;
  • Licensing varies across each state for who can be a mortgage broker. In some states no testing or licensing is required at all!
  • Bank regulation is controlled at the state and federal level, again possibly leading to less strict lending criteria from one bank or lender to another.

And in Canada

  • One federally-regulated Bank Act that controls what banks can and cannot do across Canada;
  • Only 5 major banks in Canada that control a large majority of all banking divisions;
  • All of the Big 5 Banks in Canada are able to lend funds for mortgages, but they have also acquired (and oversee) many of the licensed trust and brokerage companies (which lend money as well);
  • Mortgage brokers are provincially regulated in Canada, but the majority of provinces require extensive training, and the successful completion of a licensing test.

Economic Conditions in Canada and the U.S.:

The Canadian economy continues to enjoy good economic times with historically low unemployment rates, increased wages, and housing appreciation. At the same time, a recession has been lurking in the U.S. Many areas of the U.S. are experiencing depreciating houses, high unemployment rates, and deteriorating consumer confidence.

There could be some real bargains to be found in the U.S. as foreclosures pile up, property/houses depreciate (well into double digits in some States – Florida, Michigan, California), and our Canadian dollar continues to sit around par with the greenback. But before you take the plunge, do your research. Most economists still believe we are in the midst of the subprime fiasco. They forecast continued depreciation across the nation (obviously much worse in some areas than others) for the better part of two years. So, unless you really know an area is going to get better soon, I personally, would wait and see what the summer and early 2009 has to bring. The election, the war, federal policies to “bail-out” millions of credit-burdened borrowers, and the worst part of the subprime scenario which is predicted to hit in the fall of 2008, are all factors that will impact investment in the coming year, and it’s a gamble to buy without knowing what will happen. But, with the strong dollar, it’s a good time to head south and start looking for that dream home in Florida, isn’t it?

Some final thoughts (in this article anyways) on investing in the U.S. real estate market. If you are intent on purchasing in the U.S. and are a Canadian citizen residing in Canada, the following three ways may help you obtain financing:

  • Take out a mortgage in the U.S. through a U.S. based bank owned by a Canadian one such as RBC Centura or Bank of Montreal’s Harris Bank;
  • Purchase using all cash so you don’t have to deal with cross border financing issues (e.g., pull equity out of your home or other Canadian properties or ask your rich aunt for money!) to buy down south; and
  • Create a corporation in the U.S. with assets (a holding company will not work as it needs to have equity or be generating revenue) which can obtain the mortgage from a U.S. lender.

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