USA Investing

August 8th, 2010 · 9 Comments · Property Management, Rental Property

Should you buy American?

Should you buy American?

I got a question a few days ago about investing in the USA. I am split on the whole idea of investing in the USA because there are significant risks. It could be very profitable or it could be a nightmare. I would be very cautious of “amazing opportunities”. It’s definitely not for the new investor. Doing due diligence on an entirely new market will also mean going there and that costs money. Money that might be better spend on a property  in Canada where you can get financing.

Things I Like About Investing in the USA

  1. Prices are extremely discounted
  2. Landlord & Tenant law are more landlord friendly

Things I Don’t Like About Investing in the USA

  1. As a non citizen you have reduced rights
  2. More complex taxes
  3. Far away

Things I Don’t Like about Investing in Far Away Locations

  1. Travel costs
  2. It’s hard to check on your property
  3. If something happens, you are dependent on staff who may or may not be reliable.
  4. You don’t know the area

Real Estate is Completely Regional

One of the challenges I have found with real estate even for this blog is that it is extremely regional, you are dealing with very small areas. Bylaws change from city to city significantly even just in the Toronto Area. I personally know of 2 investors who have had problems with second suites in their houses in Brampton and Mississauga. Toronto city proper it’s no problem. So that’s one example of how even 20 kilometers makes a difference.  In the house I live in had I bought south of Kingston Road I would be in Guildwood Village which would mean about 50K increase in price. I didn’t know this when I bought. Further opportunities present themselves when you know an area intimately. You get to know the people individually.

Just yesterday I spoke to a landlord who got a great deal on the property next door to his. He knows his chosen stomping grounds and got a property that was very dated and ripe for renovation for an awesome price.

Laws that govern the landlord &  tenant relationship are also limited to areas. They are also very complex. I know a lot about Ontario Landlord & Tenant law but next to nothing about Quebec law or BC law. This can cost you big time because every province has their own way of doing things. As a landlord you have to learn this law to keep yourself out of trouble. You might buy into a province that has rent control without realizing the impact of this.

The United States of America

In this case you are dealing with the impact good or bad of an entirely different country. In the USA the states have much more autonomy then the provinces do. So much so that every state can be treated as a different mini country.

Crime

It was a real eye opener for me to visit Monrovia, California. The streets are empty by 8 p.m. Every single house sports a riot door. (a steel door similar to what you see at your local convenience store when it’s closed.) It wasn’t a slum either just a middle class neighborhood. The crime is very high compared to what we are used to. You’ll have to steer clear of sketchy areas.

Heath Care For Canadians

You’ll need to have health care insurance for even the shortest visit. There’s way too many stories about people getting sick and financially ruined in the United States for even the healthiest among us to risk this. The latest horror story I heard was from a lady who’s father had a heart attack in Florida and even with insurance received a six figure bill because his insurance didn’t cover the entire amount. Another visitor received a $4000 bill after a kidney stone. When I was pregnant I wanted to go visit but didn’t because if I had the baby that would not be covered under the insurance. You’ll want to read the fine print on your insurance coverage to make sure that it actually covers something.

Vacation Homes

Many Canadians enjoy the balmy southern weather. If you want to retire to the States, visit for extended periods or have other business dealings there, then a vacation home might work well for you. You’ll want to make this a long term plan because no one knows when the real estate market is going to turn around. It’s hard to go wrong when the purchase price is less than the cost of materials used to build it!

Investment Properties

You’ll want to pick an area, get to know it and invest there. This way you can learn your chosen area, laws and tenant profile. You can probably move this process along faster if you have friends or family in the area to help build your due diligence knowledge base as well as cut down on your travel expenses. It’s probably a good idea to skip the “popular” spots like Pheonix, Arizona and head a little further afield. When the market recovers you’ll be competing with all the other speculating buyers to sell.

Financing

One of the biggest problems with investing abroad is the financing. There isn’t any to speak of. You’ll have to convince your Canadian bank to lend you money. Cash is king. You’ll have to weigh out if it makes sense for you to invest on this basis. Can you make more attractive returns here with the benefits of leverage? You’ll have to decide.

Evils of Counting on Appreciation

Do you invest your money in lottery tickets? If you are comfortable with this strategy, you can buy any property you like and cross your fingers for appreciation. If you are a little more conservative you will expect the property to pay for itself with rental income. This is by far the saner path.  The savvy investor buys for income and considers appreciation the icing on the cake. Don’t let people get you pay for your icing before you get it! The investment property be good on it’s own without counting on future increases. This is true wherever you buy income property.

Getting Scammed

I’ve spoken to more than a few investors who have been burned and scammed. These are savvy guys who bought in the USA previous to the last downturn. The scenarios involve not being on site to know what was going on and getting ripped off by business partners. One guy bought an apartment building in Texas and his “partner” didn’t pay the bills and the place was auctioned off before he knew it. Nice. You’ll want to keep your wits about you and stay the hell away from anything that sounds even remotely fishy.

My Conclusion

There are a few ways that you can invest in the USA that make sense to me. The first is to buy a vacation home that you can enjoy. The second is to invest in a larger portfolio in a location you are familiar with or are willing to get familiar with. Friends and family in the area can help a great deal.

Being far away complicates owning a property. You’ll have to hire people to do the simplest of tasks. Even picking up a light fixture at the store can take on a horrible life of it’s own. You have to pay someone to do things that you can do yourself and this will add to the expense.

All said and done if you have cash, chances are it is a worthwhile long term investment. Successful real estate investment is not easy even in your own backyard and just gets more complicated when dealing with a different country. A little more patience will have the Canadian investor finding good deals right here…

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9 Comments so far ↓

  • Bee Ly

    My sister from oversea is interested to invest in USA real estate and I will be the one helping her over see her property. However, we need to get information regarding the law & taxes for a foreigner to own property in USA. Do you or any one that might have this information to share?
    Thanks,
    BL

    • Rachelle

      Dear Bee,

      You can contact this gentleman. he invests in the USA. His website is here http://www.ticonline.com/. He made his money investing in stocks and he seems decent enough. He’s been around the sites I go to for several years now and has been investing in the US personally. Possibly you could get some tips!

  • Bee Ly

    Thanks Rachelle. I will check out the website. I’m really appreciate your input.

    BL

  • Ray

    Rachelle,

    The comment about crime is 100% wrong, quite the extreme stereotype based on 1 city in California. I have personally lived all over the US, including CA, never had a single problem…wasn’t until I moved to BC that I had to deal with vandalism, dumping of trash at my driveway (and way more littering in general), and for once I have to lock my doors due to theft! In 25 years in the US I never had a thing stolen, here only 4! When I lived in the mid west I never locked my doors or shut my garage, do that here and all my stuff would be gone. Don’t get me wrong, I love the lower mainland, I live in a nice area, but crime for me has been far more of an issue…and let’s not even get into gang violence and grow ops!

    Just some perspective for those who haven’t spent much time in the US or lived there!

    • Rachelle

      I wouldn’t say my observations are 100% wrong. That is in fact what I observed.

      I have spoken to a fair amount of investors and the wise ones check which ZIP code has a high crime rate and avoid those areas.

  • David

    Rachelle, are you sure on the financing? I was told the exact opposite, that you cannot get financing from Canada for a US property, and that you must get financing in the US.

    • Rachelle

      No I’m not 100% sure but it is my understanding that Canadians as foreign nationals cannot get loans from USA banks. I could be wrong about this. The investors I have spoken to are using Home Equity lines of credit or cash to buy. After the property is purchased then you might be able to get a loan on it. It may even depend on the State and of course the mortgage broker. For the purchase though people are just paying cash. It seems to be the wild wild west. If you want more specific info look up Rickson9 on the REIN forum. You’ll have to join and it’s free, he’s buying condos in Pheonix.

  • Mark

    Hello Rachelle,

    Love the article. I would like to read more about investing in the USA real estate market. Can you suggest some good resources to get informed please.

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