With real estate costs soaring in many parts of Canada, some property buyers are looking south of the border to a market soured by the sub-prime mortgage crisis.
If you're looking for waterfront property in Canada's retirement mecca of Victoria it'll cost you.
The average price for a single-family home in Victoria was well over half a million dollars in November - with waterfront properties on MLS at least double that.
Even a one-bedroom condo with ocean views will fetch more than $400,000 - more than the average price for a single-family home in most other parts of the country. Fancy a second bedroom? You'll have to come up with more than three-quarters of a million.
While sky-rocketing real estate costs may be pricing properties out of the reach of many potential home buyers, it's a different story in the U.S.
"The market has really, really fallen out of a lot of areas in the States - especially places like Florida that had a really overheated real estate market," says Robert Warren, business professor and director of the Asper Centre for Entrepreneurship at the University of Manitoba.
From modest one-bedroom apartments to fairy-tale mansions, American house prices are falling faster than the U.S. dollar.
"Prices are softer than they have been for several years and there's lots of selection," says Tony Macaluso, a veteran real estate agent in Palm Beach, Fla. "It's really the pick of the litter for buyers and with the Canadian dollar so strong, it's certainly an amazing investment opportunity."
Take the popular vacation and retirement beach communities in south Florida along the coast between Palm Beach and Fort Lauderdale. You can now find two-bedroom, two-bathroom oceanfront condos in the $300,000 range.
Even spacious 1,500-sq.-ft. apartments with direct ocean views and luxury amenities can be found for less than that condo in Victoria.
In Cape Coral, on Florida's Gulf Coast, prices are even lower. With more than 600 kilometres of waterfront canals, prime real estate is on the block for prices that are unheard of in Canada.
"People can now buy Gulf-access properties on the water, either condos or single-family homes, for a couple hundred thousand dollars," says Coldwell Banker realtor Susan Ball, who specializes in international sales. "Those are prices we just haven't seen in the last few years."
A one-bedroom condo on the water - with a slip to park your boat - is going for US$97,000. A couple years ago, at the peak of Florida's real estate bubble, Ball says that same property would have sold for double.
With a considerable number of homes on the market that are foreclosures or pre-foreclosures, some builders are now promising to furnish new homes for free or offering cash-back incentives. Other properties are selling at a loss, for far less than the land alone was worth two years ago.
"A three-bedroom, two-bathroom home that's 2,036 sq. ft., on the water with Gulf access is listed at $299,000," Ball says. "This is a brand-new house - it's never been lived in - and it would have been worth $470,000 before the sub-prime crisis, so there are definitely opportunities here."
The experts agree - the real estate bust in the U.S. combined with our relatively strong dollar can certainly be a boom for Canadian investors.
"There are several reasons why it's a good investment," says Robert Warren. "If you want to get into a vacation destination, save money on hotels or get a retirement place, it's a good idea and if you can get a good deal in a place like Florida that will come back (economically) - and it will come back - it would be a good investment."
And that's the key. A good deal isn't a good deal if where you buy is a bust.
"If I lived in Toronto, I wouldn't be rushing down to Buffalo to buy a house," Warren warns. "Places like Texas, Boston and San Antonio that have had a big correction - those are going to come back."
Warren says sun states and vacation destinations, including Colorado and Wyoming, are also good bets because real estate there will always be in demand.
It's also important to research the tax implications of the state and county you're heading to before you go house hunting.
"You're dealing with a different country and different laws, so you have to know what you're getting into," says tax expert Lyle Moline, a partner at Meyer Norris Penny in Calgary and president of Continental Tax. "This is what blindsides a lot of people. I get calls from people a few days before they're going down to buy and by then, it may be too late."
Who will own the property and whether it will be rented out are two of the biggest questions to consider. From a tax perspective, it may be more advantageous for a couple to put the property in only one person's name.
If a property is being rented, you can write off expenses and claim any losses - typically the case with a rental property - on your Canadian tax return.
You'll also need to file U.S. federal and state tax returns. If you don't, your tenants are required to hold back 30 per cent of the rent for taxes. When it comes time to sell the property, you'll have to pay taxes on any gain.
Several states, including Florida, Nevada, Texas, Wyoming and Washington State, don't have any state income tax. While that means you could save some money, Moline says it shouldn't determine where you buy.
"I never use tax planning to decide what I'm going to invest in. The typical state tax rate is about five per cent so if a property goes up $100,000, you'll pay $5,000 in tax in that state and if I'm going to decide where to buy a property based on that, I shouldn't be buying property."
When it comes to cross-border property shopping, talking to someone who knows the tax laws of both countries is crucial, experts say. If you're not buying a property outright, you need to understand the risks of financing in a foreign currency.
"It's so simple for someone in Calgary to go down to Phoenix and buy a property and get a mortgage and then two years later, if the Canadian dollar tanks, people can't afford their property anymore," Moline says. "It's all fine and dandy today, but if the dollar goes down to 70 cents next year, your mortgage just increased by 30 per cent."
Economists say that's unlikely, predicting the dollar will remain strong as long as the demand for oil continues.
(Tess van Straaten can be reached at tess@businessedge.ca)
