Buying Real Estate in the US - Tips for Canadians

Buying Real Estate in the US - Tips for Canadians

by Mike Fears

The recent turmoil in the US housing market has a lot of Canadians looking at the southern states. There are opportunities, but there are also major problems for the first-time investor. Here are a few things to keep in mind if you are looking to get that sunshine property.
Know what you want to do with the property. If you are going to "buy and hold" - find out how much that will cost in terms of taxes, insurance, utilities, maintenance, security, etc. Make sure you have a good idea of your expenses before you discover you have bought a money pit. If you are going to resell, make sure you can resell at a profit. The costs of buying and selling can vary a great deal between states and counties - do your homework - and not all markets are created equal. Know how much you can sell or flip a house for before you spend your cash. If you are renting it out, make sure you can rent it at a profit. If you are willing to take a loss in order to realize appreciation in the future, you are braver soul than I. I don't do negative cash flow and don't recommend it to anyone.

Don't jump into a rapidly depreciating market. Most areas of the southern US are declining real estate markets. The number of houses and condos for sale in many markets is huge and growing daily. This only reduces prices for buyers and landlords. That's one thing that you need to know if you want to rent out an income property - rents drop along with house prices. It's tough to resell a house, for a profit, if the value keeps going down. Even though people tell you "it's a buyer's market" or "now is the right time to buy" - do your own homework. If the trend is down, wait it out a bit. You'll protect yourself from losses, regrets, or both.

Confirm the information you receive from local realtors. Let's be frank - realtors need to sell property and they want you to buy that property. They will tell you "the market is at bottom" and "this is an incredible deal" and "it won't last long" - even when, in their hearts, they know better. You need to verify for yourself - is the market at bottom, really? Is the property really at its lowest price? We've dealt with good and not-so-good realtors. Even the good ones slide into the sales routine that we need to buy the wrong properties, in the wrong places, at the wrong prices - just because they need to sell something. With the current frenzy in the southern US, this is a real problem for new investors. Don't get blinded by the "expert" opinions on local real estate markets.

Last year was great - so what? Our recent time in the southern US was spent listening to how many "deals" there were. Every realtor and asset manager told us how great this or that price was, what a steal a particular house was. It was constant, but it was all about last year's prices. It had nothing to do with the price right now, what the property would be worth next month, and whether or not we (as investors) could make money at it. It's important to realize that many areas of the southern US real estate market were very overpriced - the "deal" today is only a deal compared to yesterday. Based on today or next week, you might actually be paying way too much.

Costs will eat you alive. When you are buying - for yourself or as an investment - keep a close watch on your costs. Verify the taxes, insurance, maintenance, and all that stuff. Closing costs can exceed 10,000 in some areas, really throwing your budget into the dumpster. Make sure that special assessments, reassessments, and additional charges are disclosed or itemized so you know what's happening. If you need to renovate - well, that's a separate discussion on how to lose money in real estate. As a Canadian, the income you generate from rentals can be very heavily taxed in the US and in Canada. Get decent tax advice - it could be the difference between making and losing money.

Here are a few tips which I hope Canadians will take to heart before they jump into the southern US real estate market.