Is it time to buy that place in Florida?
Home prices in the U.S. Sunbelt have dropped sharply. But most Canadian buyers should still think twice before they jump in.
Thanks to a soft U.S. real estate market, historically low mortgage rates and a Canadian dollar that's once again hit parity with its U.S. counterpart, buying a vacation property south of the border seems like a can't-lose proposition.
At least that's what I kept hearing on a recent trip to Florida. And, while I left unconvinced, there are clearly lots of believers these days.
According to the National Association of Realtors, Canadians accounted for 23 per cent of all international U.S. home buyers in 2011, up from 11 per cent in 2010.
But even though prices in many areas of the state are still off as much as 30 per cent from their peaks of a few years ago, buying real estate in the U.S. — particularly so-called "underwater" properties — can be a lot more complicated than buying property here.
First off, with the U.S. lending market still on shaky ground, getting financing help from a U.S. bank is still tricky. A year ago, any requests would have been met with a blanket refusal. Now, however, a 50 per cent down payment might do the trick.
The preferred option is still to set up a line of credit or remortgage your home here, and then pay cash. Keep in mind though that you'll be looking at a variable rate which could rise faster than fixed-rate mortgages down the road.
This made-in-Canada strategy does, however, have the added benefit of protecting you a bit when the Canadian dollar goes back down in value against the greenback.
The big draw in buying a place now, rather than when you actually retire, is the promise of picking up a bargain and then renting it out to offset your costs. But, while properties are definitely cheaper than they were three or four years ago, the assumptions I've seen supporting this strategy still seem a bit out of whack.
First off, the Florida rental market is heavily saturated. In fact, unless you're located in a highly desirable part of the state (near a beach, etc.) you'll likely have more difficulty finding qualified renters than you think.
The market is also being temporarily fuelled by thousands of Floridians who have lost their homes and can't qualify for mortgages — not really the kind of tenants that absentee landlords are looking for — and who certainly don't leave any room for your March break visit.
Nor are all of these properties in areas where you'll likely want to settle to begin with.
At the same time, it's important to remember that the vacation rental period down south isn't simply 52 weeks minus the time you personally plan to spend on-site.
While there's certainly some theme park traffic during the summer months in central Florida, most out-of-state visitors come to escape the snow — just like you. So forget renting in the really hot months.
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