Real Estate

Buying US properties for Canadians

  • Last Updated:
  • Apr 7th, 2021 11:49 pm
[OP]
Member
Apr 25, 2019
270 posts
113 upvotes

Buying US properties for Canadians

After reading through many of RFD post it does seems like the real market will take a hit here in GTA however my gut feeling is that real estate in GTA might again go against the fundamentals.

For this reason, being an IT guy :) I am looking for a comprehensive guide to purchasing a property in the US being a Canadian citizen/non-resident US. Some of the questions that pop in my mind are:

1) If I have a job in Canada, would the local banks here give a mortgage to purchase a property in the US? If yes, then would the mortgage be in USD or CAD?
2) Can the banks in the US provide a mortgage to a Canadian if he/she has a job in Canada? In this case, I assume the mortgage would be in USD and less complex. Probably US banks would require less downpayment than typical Canadian 20%.

Appreciate it if anyone can share their stories of how they acquired properties in the US being Canadian. Please also include tax implications if you could.
16 replies
Member
Aug 2, 2003
476 posts
64 upvotes
Toronto
I haven't purchased a US property but have looked at the opportunity.

RBC has a very thorough site for cross-border mortgages . Here is the LINK

You will have to keep in mind which State you are buying a property and other multitude of tax implications - Here is a good report to get you in the right direction. Your text to link here...
Sr. Member
Dec 6, 2008
938 posts
258 upvotes
Which would be a good place to invest now - Florida, Arizona?
Deal Addict
Nov 26, 2004
2992 posts
1473 upvotes
itemsale2003 wrote: Which would be a good place to invest now - Florida, Arizona?
Jacksonville, FL

It will probably go slightly over list, may be $55k to 60k.

https://www.realtor.com/realestateandho ... 8180-76024

This condo can be rent out for $900/month, not a lot of risk here. After property tax and insurance, it will be close to 10% cash on cash return. Though there is no financing, so you may be better off if you were to buy Amazon shares with that money.
Sr. Member
Dec 6, 2008
938 posts
258 upvotes
William W wrote: Jacksonville, FL

It will probably go slightly over list, may be $55k to 60k.

https://www.realtor.com/realestateandho ... 8180-76024

This condo can be rent out for $900/month, not a lot of risk here. After property tax and insurance, it will be close to 10% cash on cash return. Though there is no financing, so you may be better off if you were to buy Amazon shares with that money.
Thanks. So are you saying we won't be able to finance this via Canadian banks (what if I take a line of credit?). Also, would the realtor rent this or would we have to hunt for a renter?
Deal Addict
Nov 26, 2004
2992 posts
1473 upvotes
itemsale2003 wrote: Thanks. So are you saying we won't be able to finance this via Canadian banks (what if I take a line of credit?). Also, would the realtor rent this or would we have to hunt for a renter?
There are management companies that charge half to one month rent as leasing fees.

I am sure you will be able to take a personal line of credit or homeowner equity line of credit to finance it. But given the exchange rate, the tax implications, it doesn't really make sense to do it right now if you're looking at it as a pure investment rental. Or simply there are better opportunities else where. For example if you want to stick with real estate, both Riocan and Brookfield Properties pays 10+% in dividend.
Deal Addict
Nov 13, 2013
2599 posts
1313 upvotes
Ottawa
William W wrote: There are management companies that charge half to one month rent as leasing fees.

I am sure you will be able to take a personal line of credit or homeowner equity line of credit to finance it. But given the exchange rate, the tax implications, it doesn't really make sense to do it right now if you're looking at it as a pure investment rental. Or simply there are better opportunities else where. For example if you want to stick with real estate, both Riocan and Brookfield Properties pays 10+% in dividend.
This 10% will be dropping or at least the market is anticipating this given the collapse in share price. Basically the market anticipates a deteriotinf in rents and occupancy. The individual market generally lags so possibly not the best time. Also the cross border risk higher rates you will pay and tax issues and compliance costs make it a less desireable investment all things being equal. Of course they aren’t always equal and some cash flow is possible that simply doesn’t exist in Canada. I think it makes the most sense if you plan to retire in the US or elsewhere in USD.
Deal Addict
Nov 26, 2004
2992 posts
1473 upvotes
fogetmylogin wrote: This 10% will be dropping or at least the market is anticipating this given the collapse in share price. Basically the market anticipates a deteriotinf in rents and occupancy. The individual market generally lags so possibly not the best time. Also the cross border risk higher rates you will pay and tax issues and compliance costs make it a less desireable investment all things being equal. Of course they aren’t always equal and some cash flow is possible that simply doesn’t exist in Canada. I think it makes the most sense if you plan to retire in the US or elsewhere in USD.
Definitely buyer beware and one has to do their own homework and risk tolerance and how they read the market. With Riocan, their CEO recently came out saying they will not be cutting dividend even taking into consideration the current climate, and their payout ratio of 75% based on this year's lower earning seem manageable. Same thing with Brookfield, they declared their dividend a couple of weeks ago, and it looks like they are able to maintain their dividend. Not saying they will not slash dividends like Chorus Aviation or Inter Pipelines, but given current borrowing rates and the current valuation of the REIT sector, FWIW, I do think they are better investment than buying unleveraged individual real estate property.

Like I said previously, I don't think this is the right time to invest in US real estate, 10 years ago, yes, but not now. And this is coming from someone that has acquired a portfolio of properties that span three different cities in the US. Though, my view can be tainted as I just spent a couple of days to fill out my 1040NR returns as I'm too cheap to pay someone to fill it out on my behalf. BTW, I have no intention to retire in the US or elsewhere, but it is always nice to have the diversification as well as not having to worry about exchange rate whenever I need USD. Also, I was able to triple my initial investment in 10 years is a big positive. As a little bonus, being able to write off travel expenses when I need to fly to meet my property managers is also nice. Just make sure the property you acquires are in cities that you like to vacation.Smiling Face With Open Mouth And Smiling Eyes
Deal Fanatic
Jul 4, 2004
6134 posts
2222 upvotes
Ottawa
dentonic88 wrote: After reading through many of RFD post it does seems like the real market will take a hit here in GTA however my gut feeling is that real estate in GTA might again go against the fundamentals.

For this reason, being an IT guy :) I am looking for a comprehensive guide to purchasing a property in the US being a Canadian citizen/non-resident US. Some of the questions that pop in my mind are:

1) If I have a job in Canada, would the local banks here give a mortgage to purchase a property in the US? If yes, then would the mortgage be in USD or CAD?
2) Can the banks in the US provide a mortgage to a Canadian if he/she has a job in Canada? In this case, I assume the mortgage would be in USD and less complex. Probably US banks would require less downpayment than typical Canadian 20%.

Appreciate it if anyone can share their stories of how they acquired properties in the US being Canadian. Please also include tax implications if you could.
1) To get a mortgage in the US, you need to get a mortgage from a bank in the US and the mortgage would be in USD. However you can certainly use a Canadian LOC to finance the purchase (in this scenario, you are essentially buying the property cash as far).
2) A US bank can give a mortgage to a non-resident (it's not so much that you are Canadian, it's that you don't live / work in the US) but it is not easy to qualify and the rates are typically not great (you would typically pay more than a US resident). As a non-resident you should probably expect to put at least 30-40% down (possibly more for a condominium).

There are absolutely tax implications (if you are collecting rental income) so you want to do more research on that (you'll have to remit taxes in the US and you have to be careful that the US doesn't tax your world income (it shouldn't be you have to make sure you do everything right)). There are also estate (i.e. will) implications so that's something you want to consider. The best way to set that up is through a trust but it may not be worth it for just one property. Net worth also makes a difference but I don't think it's an issue for most people on RFD (basically individuals worth in excess of $5.5M and couples worth in excess of $11M are subject to estate tax so anyone that falls into that group needs to plan it carefully (e.g. if you have $10 million in Canada, buy US property and then die, your $10 milion estate could now be subject to US estate tax)).
Member
Jul 26, 2015
214 posts
135 upvotes
Vancouver, BC
dentonic88 wrote: After reading through many of RFD post it does seems like the real market will take a hit here in GTA however my gut feeling is that real estate in GTA might again go against the fundamentals.

For this reason, being an IT guy :) I am looking for a comprehensive guide to purchasing a property in the US being a Canadian citizen/non-resident US. Some of the questions that pop in my mind are:

1) If I have a job in Canada, would the local banks here give a mortgage to purchase a property in the US? If yes, then would the mortgage be in USD or CAD?
2) Can the banks in the US provide a mortgage to a Canadian if he/she has a job in Canada? In this case, I assume the mortgage would be in USD and less complex. Probably US banks would require less downpayment than typical Canadian 20%.

Appreciate it if anyone can share their stories of how they acquired properties in the US being Canadian. Please also include tax implications if you could.
Canadian banks do not advance loans against US properties. You may check with East West Bank or another similar bank in the US. They are friendly to foreign buyers most of the time. The will require you to put 50% down though.
Sr. Member
Oct 22, 2016
666 posts
567 upvotes
Comox Valley
dentonic88 wrote: After reading through many of RFD post it does seems like the real market will take a hit here in GTA however my gut feeling is that real estate in GTA might again go against the fundamentals.

For this reason, being an IT guy :) I am looking for a comprehensive guide to purchasing a property in the US being a Canadian citizen/non-resident US. Some of the questions that pop in my mind are:

1) If I have a job in Canada, would the local banks here give a mortgage to purchase a property in the US? If yes, then would the mortgage be in USD or CAD?
2) Can the banks in the US provide a mortgage to a Canadian if he/she has a job in Canada? In this case, I assume the mortgage would be in USD and less complex. Probably US banks would require less downpayment than typical Canadian 20%.

Appreciate it if anyone can share their stories of how they acquired properties in the US being Canadian. Please also include tax implications if you could.
In the Years 2011-13, I brought 5 houses, 3 townhomes in the Phoenix area. It was just like playing monopoly as they were so cheap. I have sold out of all of them now, as close to retirement.

I did put a mortgage on 2 of them, and I went with a local bank there. Paper work extensive, but it was not too bad. From my understanding, it is best to go with a local bank, or a credit union there. Try to stay away from the big ones, like, B of A, Chase, and of course Wells Fargo. I had access to a HELCO up here, for buying. Once I ran out of those funds, I started to buy owner financed properties. Make sure they give you at least a 5 year term. You may pay a couple % higher, but sometimes these work out.

Because I was concerned about lawsuits, I used a LLLP (https://en.wikipedia.org/wiki/Limited_l ... artnership). If I had to do it again, I would have just put it in my personal name. For me the extra paperwork was just a nuisance, and not needed. Just make sure, you have an excellent insurance policy, and excellent Property Manager. Especially been a long distance landlord, you cannot go cheap here.

USA tax return, get a good Accountant. Can deal with one in the USA, or in Canada that does USA return. I have found it is better to deal with a smaller firm than a large Canada wide firm.
It is obvious buying in those years, that a person could not go wrong. But even at this date, if I had a choice to buy in the USA or Canada, I would choose the USA. I feel they are more business friendly there, and their taxes are not draining, as they are up here. We are all looking for a return on our money, and I feel the cash flow will be better in some states.

From my understanding, Arizona, and Texas (check out their property tax rate first) seem good to invest. Business friendly, taxes low, and people moving in (important). California might be too regulated for some. For Florida, look for their property tax rate for out of state landlords, and insurance policy’s re weather concerns. I have heard good things about people buying in Alabama, but have no inside knowledge of. Of course there are exceptions to what I say, each to their own.

Listen to some podcast in the USA for real estate investing. https://affordanything.com/podcast/ is not too bad, for brand new real estate investing, start at the beginning of hers.
Have fun with it,
Newbie
Apr 5, 2021
5 posts
Hi there, you mentioned you sold some properties in US which you had mortgage on them. I am in the same situation, I bought a rental house in US back in a year when USD and CAD were almost at par (USD/CAD = 1) and sold it last year in 2020 when (USD/CAD=1.4). I got my mortgage from Harris bank in USD. When I sold the house still I owed the bank almost half of the price. The price of the house didn't appreciate that much therefore capital gain in the US was small as well as tax on capital gain, how ever capital gain in Canada became huge because of FX gain. For simplicity imagine I bought the house for 100K USD and had 50K USD mortgage, then assume I sold the house 100K USD with the same 50K USD mortgage (just paid only interest). Capital gain in US would be zero USD but ignoring the mortgage (assuming I bought the house in cash) capital gain in Canada would be 40K CAD.

(100K x1.4 - 100K x 1.00) = 40K CAD.

In real world I didn't make FX gain on the mortgage and real gain was only 20K CAD considering 50K USD mortgage.

(100K - 50K) x 1.4 - (100K - 50K) x 1 = 20K CAD

My accountant says you should report 40K to CRA, while I made only 20K and I think I should not be taxed on the money I didn't make. How did you deal with this issue? I would appreciate if you help me, or refer me to an accountant that knows how this should be done.

Thanks a lot.
Last edited by Highnote on Apr 7th, 2021 11:45 pm, edited 1 time in total.
Sr. Member
Oct 22, 2016
666 posts
567 upvotes
Comox Valley
Highnote wrote:
In real world I didn't make FX gain on the mortgage and real gain was only 20K CAD considering 50K USD mortgage.

(100K - 50K) x 1.4 - (100K - 50K) x 1 = 20K CAD

My accountant says you should report 40K to CRA, while I made only 20K and I think I should not be taxed on the money I didn't make. How did you deal with this issue? I would appreciate if you help me, or refer me to an accountant that knows how this should be done.

Thanks a lot.
That is interesting. I can see your point, and it does make sense to me. But I cannot answer, as it is quite specific. There is an accountant on the Personal Financial thread, I would do a search on there, and ask them. Also do an online search for accounting forums, both your questions their. You know how it is this time of year, most of them are quite busy.

Keep in mind some accounting is more aggressive, and the accountant you stated my be less in that line. So it may all depend on a professional viewpoint.
Sr. Member
Mar 30, 2017
615 posts
410 upvotes
Texas, the mass exodus from California will not stop until the left stop trashing SF & LA. high tech billionaire and their corps are moving away, ask the Technoking of Tesla Elon Musk lol
5/11/18: profit YTD -3.50%😥
Deal Addict
May 9, 2017
1127 posts
1182 upvotes
Highnote wrote: Hi there, you mentioned you sold some properties in US which you had mortgage on them. I am in the same situation, I bought a rental house in US back in a year when USD and CAD were almost at par (USD/CAD = 1) and sold it last year in 2020 when (USD/CAD=1.4). I got my mortgage from BMO Harris in USD. When I sold the house still I owed the bank almost half of the price. The price of the house didn't appreciate that much so therefore capital gain in the US was small as well as tax on capital gain, how ever capital gain in Canada became huge because of FX gain. For simplicity imagine I bought the house for 100K USD and had 50K USD mortgage, then assume I sold the house 100K USD with the same 50K USD mortgage (just paid only interest). Capital gain in US would be zero USD but ignoring the mortgage () assuming I bought the house in cash) capital gain in Canada would be 40K CAD.

(100K x1.4 - 100K x 1.00) = 40K CAD.

In real world I didn't make FX gain on the mortgage and real gain was only 20K CAD considering 50K USD mortgage.

(100K - 50K) x 1.4 - (100K - 50K) x 1 = 20K CAD

My accountant says you should report 40K to CRA, while I made only 20K and I think I should not be taxed on the money I didn't make. How did you deal with this issue? I would appreciate if you help me, or refer me to an accountant that knows how this should be done.

Thanks a lot.
That would really suck if you had to pay tax on the 40k. So if you financed the full 100k in USD and made zero in USD your accountant is saying you'd still have to pay taxes on 40k.
Seems absurd.
Newbie
Apr 5, 2021
5 posts
NotRobot wrote: That would really suck if you had to pay tax on the 40k. So if you financed the full 100k in USD and made zero in USD your accountant is saying you'd still have to pay taxes on 40k.
Seems absurd.
Yes it does suck. Everyone agrees that what the real gain is and fx gain on the mortgage shouldn't be counted in, but in CRA schedule 3 that everyone reports capital gain there is no place to properly to disclose this case. You report converted sale proceeds, converted sale cost and converted adjusted cost base cost all in CAD. So if you deduct the mortgage from both sides of cost and proceed to get the real gain you are misrepresenting the values base on CRA form instructions.
Newbie
Apr 5, 2021
5 posts
User452441 wrote: That is interesting. I can see your point, and it does make sense to me. But I cannot answer, as it is quite specific. There is an accountant on the Personal Financial thread, I would do a search on there, and ask them. Also do an online search for accounting forums, both your questions their. You know how it is this time of year, most of them are quite busy.

Keep in mind some accounting is more aggressive, and the accountant you stated my be less in that line. So it may all depend on a professional viewpoint.
Thank you User452441, you are right, it is busiest season for accountants indeed. I followed your advise and posted the case for an account in financial section.

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