Should I look south for my next Real Estate Investment?

I continually come across Canadians who are looking south to invest their money in Real Estate. Complaining that Toronto is too expensive, sick of bidding wars and afraid the bubble is going to burst. They are lured by foreclosures, reduced prices and friends who have said how amazing the opportunities are. Apparently, you can buy a 3 bedroom house in Florida for just over $100,000. Who wouldn’t be tempted to look south with these facts! In fact, over the last two years Canadians have purchased over $40 Billion in US Real Estate. So why not join the bandwagon?

As a real estate investor myself, I believe there are a few rules you should live by when investing in Real Estate.

1. Know the market
2. Have a good team of experts (including a knowledgeable property management company)
3. Plan your exit strategy
4. Understand the financial implications of your decisions (like taxes)

First ask yourself, how well do you really understand the US market? Do you have an exceptional Real Estate agent who shows you more than just the listing? You want to know comparable sales and the property’s market rent. Always get an inspection so you can anticipate potential future costs in the near and distant future.

Who is going to manage the property, collect rent, secure new tenants and deal with emergencies? Obviously, you can’t effectively do this from Canada so you will need a strong team who is looking out for your best interests. Know your team intimately, meet with them…don’t just use referrals or base this important decision on a phone call conversation or fancy website.

What happens if you can’t rent the property? Renters eventually become buyers, will your property attract buyers when the pendulum swings the other direction?

Are you making profit with this investment or breaking even? There are some significant tax implications for Canadians investing in the US. If you don’t start your investment off right, you could face financially devastating consequences. I’ve read that non-residents can pay up to 30% tax on the gross rental income – this means before expenses if the proper tax forms are not filed.

I’m not dismissing investing in the US but suggesting it is riskier than initially thought. Do your research, and make sure you follow my 4 simple rules before taking the plunge. You might find the water is too deep south of the border.