Canadian Investors? No Problem

July 20, 2017

 

 

Investing in real estate in the United States has continued to become more popular as time goes by. It’s no argument that people who have been holding onto properties in the United States over the past decade have seen great returns on not only the appreciation of the property, but also the income gained from renting out houses or multi family properties.

 

 

The Data

National Association of Realtors 2Q Report on Commercial Real Estate (CRE):

  • CRE sales prices have increased between 7-15 percent every year over the past 7 years

  • CRE sales volume have increased from around $60 Billion in 2010 to around $120 Billion at the 2016 year end.

  • Commercial Vacancy rates have decreased by 50% over the past 7 years in all sectors (Office, Industrial, Retail, Multifamily, and Hotels).

  • CRE and Residential Homes prices are expected to increase by year end, but not as much as in 2016 alone.

 

Federal Housing Finance Agency U.S. House Price Index

  • US house prices rose by 6.0% in 2016

  • US house prices have rose 6.8% from April 2016 - April 2017

 

2Q Census Vacancy Rates

  • Rental vacancy have decreased from 11% in 2009 to 7% in 2017.

 

Americans aren’t the only one’s who are seeing these trends and wanting to take action. Investor’s from all over the world are looking into buying property in the United States. A lot of this attention is coming directly from our oh so wonderful Canadian neighbors (Okay that was a little bit too much brown nosing, but I do really love Canada and its people).

 

MORE DATA!

 

World Property Journal; Foreign Buyers of U.S. Residential Sales

  • In 2015 and 2016, foreign buyers/investors purchased $103.9 Billion and $102.6 Billion in residential U.S. property, respectively

  • Between April 2016 and April 2017, foreign buyers/investors purchased $153.0 Billion worth of residential property. That is a 49 PERCENT INCREASE from 2016.

  • Canadian Investors accounted for $8.9 Billion the $102.6 Billion in 2016 (8.7%)

  • Canadian investors have accounted for $19.0 Billion in the past year of the 153.0 Billion (12.4%).

 

Cushman & Wakefield Capital Watch Report

  • Total Foreign Investment in CRE totaled $66 Billion in 2016

  • Chinese accounted for $19.2/66 Billion (29%)

  • Canadian Investors accounted for $13.1/66 Billion (19.8%)

 

As we can see, there has been a ton of movement in purchasing both residential and commercial investment properties by our Canadian neighbors, especially in the past 12 months alone. Even with this information, we are still seeing Canadian investors not investing in real estate.

 

What are these investors' reasoning?

  • They don’t want to be overly/double taxed

  • Banks are turning them down due to:

    • Nationality

    • Assets in multiple accounts

    • Not being able to account for non-citizen’s assets

 

To be clear, although we at The Sound Mortgage Brokers are constantly reading tax code and keeping in constant contact with multiple CPA’s, we are not certified accountants and one should always consult a certified accountant who specializes in cross-border taxes. We have plenty of connections with cross-border specialists, so don’t fret if you don’t know where to start!

 

The Solution: Form a Limited Partnership and Use a (great) Commercial Mortgage Broker

 

The easiest and most simple way for a Canadian to go about purchasing investment property in the United States is to form a Limited Partnership. A limited partnership is an attractive choice for a handful of reasons:

  • It doesn’t matter if some of the partners are not U.S. citizens; their assets can still be counted

  • The interest in the partnership are intangible assets, so after the death of a partner, their heir would receive the interest without U.S. probate

  • The U.S. would only be able to enact estate tax if the value of their entire estate was worth more than $5.34 upon death

  • Limited Partnerships are classified as flow-through entities, so that way limited partners receive full tax credits in Canada for income tax paid in the United States and that means No Double Taxation

  • Limited Partners are taxed less on capital gains than if it was a corporation.

 

What makes using a Commercial Mortgage Broker the right solution for getting turned down by the banks? There are many reasons for doing so, especially with foreign investors, but the two following reasons are how a Great Commercial Mortgage Broker will create value and save money:

 

  1. All the work that goes with finding a lender, filling out forms, calling agents, getting quotes, and getting other people to do their jobs will be done BY the broker. The amount of time this can save is time investors can spend doing ANYTHING else they want.

  2. The broker will have relationships set up with lenders so that: ​​

    • They have so many niche options available that the client may not know anything about

    • They can solve asset issues by writing a letter of explanation and speaking with the lender about it. 

    • Have par/discounted pricing so that way the price that the client would be getting would be the SAME EXACT price as if they worked with the lender directly and did all the work themselves.

 

There's no doubt that smart real estate investment in the U.S. pays off, no matter where you're investing from. We at The Sound Mortgage want to serve as your resource for information, connections, and partnership in the U.S. to streamline your investment and clarify the process. Request a consultation for any and all inquires. 

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