Pros & Cons of owning a home in Florida by Canadians

Thursday, May 29th, 2008

Questions, questions

Ozzie Jurock

“He who asks a question is a fool for five minutes. He who does not ask a question is a fool forever.” – Chinese Proverb.

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I do admit, dear Reader, I enjoy your questions. The most asked questions now center on ‘whither the market’ and ‘should we the United States‘. Here are a few more commonly asked ones on these topics.

Q: We are Canadian and considering a purchase of property in Florida as a vacation rental for our family and friends.

1. When is the downturn to near bottom?

2. What tax issues will we have there and in Canada?

A: Buying real estate in Florida by Canadians is tricky, since full-time residents are treated differently than vacationers, according to the Canadian Snowbird Association. Seasonal residents pay more tax on the same property than a resident. Florida’s new Homestead Act and “Save our Homes” recent amendment gives permanent residents of Florida the first $25,000 of the assessed value of their home tax free and caps the rest of their property tax at 3 per cent. That advantage isn’t conferred upon visitors – who end up paying much of the difference. Example: A Canadian snowbird buys a house and pays $4,800 tax, while his next door neighbour, a Florida resident is charged only $1,800.

Property tax costs on vacation properties are escalating, which snowbirds need to be aware of. You are not necessarily inheriting the tax bill from the previous owner (resident) when you are looking at an assessment notice. Another downside to buying a home in Florida is finding home insurance, vital in a state frequently hit by natural disasters. Vacation home owners are also not eligible for government aid in the event of a disaster like Hurricane Katrina.

As far as tax issues go…the US and Canada do have a tax treaty, which means whatever taxes you will be paying there, you can deduct from taxes you pay here. However there are other state by state issues (e.g., in California you must declare world income), you must file annual income tax statements and you should get independent accounting advice….before you buy.

Q: We are thinking of buying a vacation home in Scottsdale and rent it out until we retire in 7 years. The prices have come down and the dollar is par. Do you think the market has bottomed?

A: Lots of questions on ‘Has the market bottomed’. If I had a dollar for every question I been asked in my lifetime on whether the market has bottomed, I would … wait a minute, I do have a dollar for every time I’ve been asked that question. Unfortunately, the only time you will know whether any market has bottomed is six months after it has. More important are these questions:

How much research have you done and are you doing on an ongoing basis to allow you an intelligent assessment of what is available and whether it is a good deal?

Do you have a good realtor? You need a ‘Canadian oriented’ realtor that understands your problems. Do you have money lined up? Financing is very, very tough to get down there.

Have you converted your likely down payment now when our dollar stands at over par? Invest $200,000 and if the dollar is down to 95 cents that will cost you $10,000.

Do you know you are not allowed to collect rent, repair or even paint your rental unit yourself? Do you have a property manager?

Do you have a good area (A and B type only)? Most foreclosures are on tough areas.

Finally, if you wait for the magic ‘bottom’ is it likely the good deals you want are still there, or have the banks and tough luck owner divested themselves now. Take a few days, go there, subscribe to the local paper, get daily listings and price reductions…get your (mortgage, property management) ducks in a row. Then – stay in touch …and make offers. In life you do not get what you deserve – you get what you negotiate.

Q: Do you think investing in a condo for homeownership in the West end – one block from the ocean is a good investment? Please call me and leave a message.

A: Not going to happen. First of all, I have no time to call people, but even if I would have the time and inclination, how would I answer it? How much, how big, how old, co-op or strata is the unit you are contemplating?

Q: I am investing in Edmonton condos right now – but there have been a lot of conversions from apartment rentals to condos. Do you think this created an oversupply in the condo market and are condo conversions a good bet or should I steer clear of these?

A: Conversions are as good as the developer/converter whether in Edmonton (which now is oversupplied – listings up 400 per cent) or elsewhere. I convert rental buildings. My buyers see engineer’s reports, inspections, by-law requirements, etc. They can also see what else I have done and how recent. Check out your developer thoroughly. Ask questions. Actually that is no different than what you should do in a new project. The ones in trouble today are less experienced developers.

Q: I am concerned to spend $880,000 on a fully renovated, very beautiful condo in the West end. Can our values go possibly higher? My husband says that since we have a lot of foreign buyers here, we don’t have to worry about affordability.

A: Well, affordability now at 72 per cent is totally out of whack and while we may have more foreigners bringing their cash here, they represent probably less than 5 per cent of the market. In the meantime we are dragging tomorrow’s buyer into today’s market by offering zero down mortgages over 40 years. When tomorrow comes they may not be here. Markets are the stories people tell about them. And the stories are turning all negative. When the numbers come out this week…there will be a lot more. (We expect volume in Vancouver to come in at least 40 per cent lower with listings rising sharply.) So, no need to run… you have time to look, assess. However, long term, we will see much higher prices…as we live in the most unreported inflationary period of all times. I have talked and warned about it for 10 years…it is now here. We are increasing our money supply (M3) at 17 per cent…that means all hard assets will continue to rise. However, Vancouver will take a breather now.

Q: Hey Ozzie. A buddy and I are in our early 20s and have stable jobs in the field that we want to stay in for a career. We are thinking of going halfers and getting a house around $400,000. It would be an investment into the future for the both of us… also makes sense as right now we live at different locations and are paying rent which does nothing for the future. My questions:

1. Do you thinking going halfers with a close friend is a good idea?

2. What area in the Fraser valley is going to be the best bet to purchase a house in?

3. Should we wait to buy a bit later?

A: Hey you, I salute you for thinking about this early. I think it is a feather in your cap. If you buy any real estate with a friend – particularly a good friend – you want to make sure you stay friends. That means you have to have a joint venture agreement – in writing – spelling out the expectations you have. What happens if the market goes against us? Who pays repairs? If one wants to sell and the other does not, what happens? When do we sell? (Always have an exit strategy.) Who cleans what and what if he doesn’t? Can we sublet?

Do all that and you’ll have a great time. We like all of the Fraser Valley…markets are really slowing and we expect the rest of the year to have higher than usual listings and fewer sales. Great time to do your research.

That brings me to the end this week. I have received a lot of questions on inflation and why I keep saying that it is unreported or underreported. Next week my reasons why long term all prices of everything will be higher, and also why we must go through a valley of uncertainty first. Why in my point of view inflation really runs at 12 per cent when we measure ourselves against Ronald Reagan’s 1980 ‘basket’. Why I refuse to believe that all prices, wheat, corn, gas, oil, have risen by 40 per cent to 100 per cent in nine months by accident…and why they actually did. Next week I’ll tell you why…and why you ain’t seen anything yet in terms of hard asset price explosion.

Ozzie Jurock

Jurock’s Real Estate Insider


email: [email protected]

© The Vancouver Sun 2008

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