Cheap prices is the reason Andrew Vitch, owner of Sunny Point Resort in Muskoka, Ont., snapped up his Florida winter hideaway in late 2008. “The subprime mess burst and prices were declining,” recalls Vitch, who is convinced he bought his vacation villa at the perfect time.
But what about now? With U.S. real estate making a comeback, is it still a good time to shop for a south-of-the-border vacation condo? According to NAR, Canadian snowbirds and investors are still finding good deals. Residential home prices in the U.S. are slowly climbing back to pre-crash levels, but prices on vacation homes are still 20% to 40% lower than half a decade ago. “It’s not just retirees who are interested in a U.S. vacation home,” explains NAR’s Harry DeLeeuw. These days families in their 30s and 40s are also making the leap and buying a U.S. condo investment.
Condos top the list for U.S. property purchases by Canadian investors. They suit people who plan to vacation in the same spot year after year, but want to cut their lodging and food expenses, without being saddled with the responsibility of renovating and maintaining a property. They are also cheaper than single family homes and, very often, are much easier to rent out to either vacationers or long-term tenants.
But before rushing out to cut a cheque, check your motivation. “Purchasing an investment property is different than purchasing a vacation property,” explains D.G. Southen, a London, Ont. real estate investor. Southen explains that an investment requires an objective analysis of a property, along with research on the local market and an accurate assessment of costs.
(On the other hand, a vacation home is purchased as a way to enjoy your disposable income. This doesn’t mean ignoring the financial fundamentals, but your search should start with your own family’s needs.)
For those looking to buy a condo as a investment, you’ll need to keep in mind the one-time purchase costs, which include $300 to $1,000 for a standard home inspection. In hotter climates, such as Florida and Arizona, you’d be well-advised to pay another $1,000 for a separate termite inspection. If you’re getting a mortgage, budget 1% to 2.5% of your mortgage amount—not your purchase price—for title search and insurance.
Then, turn your attention and spreadsheet to ongoing expenses, which include:
* Condo fees are relatively cheap—typically under $300 for a two-bedroom
* Property insurance will cost $350 to $800 per year
* Property tax differs from state to state: it can be as low as 0.5% (in Arizona and California) and as high as 2% (in Florida)
* Also find out if the state charges extra non-resident taxes. For example, Florida charges foreign property owners twice as much tax as it does state residents—and these rates can rise, sometimes quickly, with no cap
If, after crunching the numbers, you’re still convinced a U.S. investment condo is the most cost-effective option for you, it’s time to turn your attention to finding the right property.
The best way is to enlist the help of a realtor. Before purchasing his two-bedroom, two-bathroom condo in Phoenix, Ariz., Toronto resident Jim Chuong searched online for U.S. realtors who had experience working with Canadian buyers.
Working with his realtor, Chuong would cross-reference the listings from his realtor with local crime stats, which he found on free and pay sites dedicated to tracking state, city and neighbourhood crime data.
Chuong’s realtor also helped him find properties with the greatest chance of future appreciation. For instance, the realtor warned against buying a stacked condo—two, three and four-storey buildings—which appreciate at a much slower pace than do side-by-side or townhouse-style condos in the Phoenix, AZ area.
Once you have a few interesting listings, you’ll need to examine the properties based on your end goal. If you plan on renting the place out for short-terms, you’ll need to consider what other vacationers want. For example, your potential rental income can drop by half if you’re even a block away from a beach.
Also, for rental purposes, stick to well-travelled cities and neighbourhoods. Good areas include (but are not limited to):
—> Tampa, St. Petersburg, Miami, Fort Lauderdale and Orlando, all in Florida.
–> For snow destinations try Stowe and other ski areas in Vermont. These may appeal to people from Toronto, Ottawa, Montreal and the East Coast, where flights are plentiful and relatively cheap.
–> Vacationers from Winnipeg, Calgary and Vancouver often buy in the Phoenix/Scottsdale area of Arizona—where condos prices dropped by 50% after 2008 and the state has low property taxes and homeowners’ association fees.
–> Also B.C. residents like spending time in Seattle and Puget Sound.