Investing in US real estate: What do Canadians need to know?

Investing in US real estate: What do Canadians need to know?

As U.S. real estate is seeing consistent gains in property values and inventory, the market is not just attracting Americans. The U.S.’s neighbors to the north are also coming down to look at properties that may be turned into profitable rental homes. Of the international homebuyers investing in real estate in the U.S. in 2014, Canadians made up 19 percent – ahead of all other countries, including China and the U.K.

According to a report by the National Association of Realtors, foreign buyers accounted for $92.2 billion in U.S. home purchases in the 12 months ending in March. About 19 percent of international buyers said they planned to use the home for a residential rental property for investment in 2014, up from 17 percent in 2013. There have been higher rates of international clients looking for U.S. homes to buy as rental properties. This is part of an upward trend as the percentage of respondents who said they planned to buy investment properties has been rising since 2010.

As more Canadians are looking at properties in the U.S., they should partner with an experienced U.S.-based real estate investment firm to get the most out of their investments.

Here are things Canadians need to know about buying real estate in the U.S.:

Best states for investing

The five states with the highest rates of international homebuyers are Florida, California, Texas, Arizona and Washington, according to the NAR survey. As investors narrow down the regions of the U.S. they would like to invest in, they should look closely at the performance of the housing markets in these areas. While California offers warm weather, the housing prices in certain areas of the state make it difficult to find the right price for the home they are looking for, either as a residential or investment property. However, all the attractive things about California – warm weather, high housing demand – can also be found in Texas, which often has lower real estate prices than California. This is true even in metropolitan areas like the state’s capital of Austin or Dallas. Canadian investors could research homes and Dallas investment properties to start their homebuying journey.

Suburban or urban?

Which neighborhoods foreign investors buy in, however, could affect their property values in the future as well as their potential cash flow. The survey by NAR found nearly half of all international buyers of U.S. properties tend to purchase properties that are in a suburban area. Just about 1 in 4 buyers preferred a more urban region for their homes. NAR said the results of where international clients are purchasing homes suggest that buyers are planning to use these properties for both vacation and investment purposes.

Types of properties to buy

While real estate investors looking at properties in the U.S. are pleased to hear that inventory is rising, they also need to consider which types of properties will bring them the most profit or cash flow. Identifying desired properties is crucial in the homebuying process for Canadian investors. The NAR survey also found the vast majority of properties bought by foreign investors were detached single-family homes, accounting for 65 percent, up from 64 percent in 2013. Single-family homes are often in demand in areas of the U.S. that are popular with young families.

Financing in the US

Besides searching for properties, Canadians also need to locate the source of their financing for the home. While many international homebuyers tend to submit all-cash offers, others may need to obtain the right financing. Since there are several major Canadian banks that operate within the U.S., Canadian buyers will likely have an easier time compared to other international investors in getting the financing they need to purchase the homes they want. Canadians could seek out funding from financial institutions with large branch networks in the States like the Royal Bank of Canada or TD American Bank and more.

Canadians should consider partnering up with a real estate investment firm to guide them through the hurdles of not only finding a home, but also financing the properties.

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