Beware U.S. real estate bargains

Thanks to a slumping U.S. real estate market, historically low mortgage rates and a Canadian dollar that's once again approaching parity with its U.S. counterpart, buying a vacation property south of the border is starting to sound like a can't-lose proposition.

But even though prices in many areas of Florida and Arizona have dropped by as much as 30 per cent from their peaks of a couple of years ago, buying real estate in the U.S. — particularly so-called "distressed" properties — is simply more complicated than buying property here.

Before jumping in, take the time to learn about property taxes, rental restrictions, insurance and other pitfalls that can undermine your quest for a place in the sun.

* Video: Find a great U.S. home for under $500,000

First off, with the U.S. lending market still largely offline, forget about getting much financing help from a U.S. bank. A better option is to set up a line of credit or remortgage your home here, and then pay cash.

According to the U.S. National Association of Realtors, the number of Canadian buyers who paid cash for U.S. properties jumped to 81 per cent in 2009 from 47 per cent two years ago.

This made-in-Canada strategy also has the added benefit of protecting you a bit should the Canadian dollar eventually drop from its lofty perch.

More on real estate:

Is the Canadian housing market over-valued?
Toxic drywall? Goodbye, insurance
Fixed or variable?
Tapping your home equity in retirement
Blog: Cross-border shoppers search for better deals

Another thing that you should know is that many states discriminate against out-of-area home owners.

Florida state law, for instance, allows municipalities to impose different property taxes on out-of-staters than on "homesteaders" as local residents are known. So if you're looking to buy a property from a Florida resident, expect the quoted tax bill to jump sharply from the outset — despite the fact that you'll probably use only some of the municipal services and then only for part of the year.

* Related: Where U.S. home prices are hitting bottom

Once you've found a place, one of the first things you'll need to do is buy home insurance, just as you would here. But the fact that you're likely not going to be in residence all the time could have a big impact on the price and insurability.

Although this may be why you went south in the first place, the weather can also be an issue. In many states, for instance, you'll have to purchase hurricane or flood insurance, as well as liability coverage, all of which can be surprisingly expensive — and that's assuming you can get it.

Florida in particular is awash with relatively new homes constructed with defective building materials like tainted Chinese drywall. Knowing this, insurers have been refusing to issue policies on many resale properties until these problems are fixed.