Avoid cross-border investment pitfalls | Canadian Real Estate Wealth

Canadians investing in U.S. real estate might have the right idea, but they’re prone to errors, says a Florida-based expert.

Lauren Cohen, international legal and real estate expert of E-Council Global, noted that many of her company’s deals fell apart at the beginning of the pandemic as few knew how deleterious and disruptive COVID-19 would be, but the pendulum swung the other way during American Thanksgiving. Since then, Canadians have been enthusiastic about investing in real estate south of the border—although their overtures are often mistake-laden.

“What they usually get wrong begins with professional guidance, like getting an LLC without the help of a cross-border expert, and the consequence is often that they pay a price later, like being penalized with double taxation,” Cohen said. “The second thing is people invest in the United States without regard for how that will impact them in Canada—if you invest in the U.S. and take money to Canada, there’s potential double taxation, so you have to make sure your structure is set up properly. People try to cut corners but it never works because they’re looking for the cheapest options, and if it seems too good to be true, it is too good to be true. If you do that, you create a path that’s fraught with obstacles.”

Establishing cogent short- and long-term strategies, Cohen says, paves a path that enables investors to run their U.S.-based real estate investment as a business, but that usually requires securing various visas or green cards. If the Canadian investor’s relationship to the United States will be “casual,” a different structure is required, especially if the investor intends on moving to the country at any point.

“The No. 1 problem is lack of strategy; they do things haphazardly,” Cohen said. “There’s no one-size-fits-all. For example, do you have children, are they in school, and what are your ultimate plans—do you want to go back and forth? Some clients want to come here to the U.S. and never go back, in which case they should look for an Adjustment of Status Visa. They would do that internally in the U.S. but when they leave, they lose that designation because it’s not intended for somebody who goes back and forth across the border.”

Cohen added that most clients want flexibility now because of the pandemic and unpredictable lockdown measures that differ from city to city, even country to country. That isn’t the only factor they fail to consider, though.

“You need a social security number in the U.S. to build credit because that helps you get financing,” Cohen said. “People don’t realize they can run out of money, so they need to figure out how to get financing, which could even be pooling other people’s money as investment funds.”

South Florida is a hot real estate market and Canadians comprise a notable share of purchasers, but as many are finding out the hard way, approaching American real estate is vastly different than it is in Canada. Setting up the correct legal structure is the first thing to do, Cohen advises, followed by crunching the numbers and ensuring the investment is neither undercapitalized nor over-invested with personal funds.

“Get your financing in place before you make an offer,” she said. “Cross-border investing is much more accessible and now is the perfect time. But remember that having a visa in your pocket is like an insurance policy; it doesn’t mean you have to move or be in a certain place at a certain time, but it gives you the option to go back and forth and to have the opportunity to run a business or real estate investment across borders. It also allows you to look for new opportunities.”

2021-09-30 19:12:24

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Canada’s housing sector is highly vulnerable: CMHC

Canada’s housing market entered a high degree of vulnerability in the second quarter, says the Canada Mortgage and Housing Corporation.

Previously facing only a moderate degree of vulnerability, Toronto, Ottawa and Montreal are the country’s most risky markets because of rapid price acceleration and overvaluation. Moreover, there have been persistent imbalances in a few markets in Ontario and Eastern Canada.

“Exceptionally strong demand and home price appreciation through the course of the pandemic may have contributed to increased expectations of continued price growth for homebuyers in several local housing markets across Ontario and Eastern Canada,” Bob Dugan, CMHC’s chief economist, said. “This, in turn, may have caused more buyers to enter the market than was warranted.”

The federal agency noted that historically low-interest rates, financial support provided to Canadians due to the pandemic, more disposable income and elevated employment during the first half of the year strengthened housing market fundamentals. Additionally, mass vaccination programs have also played a role in increasing purchasing power, but CMHC doesn’t believe those are the only reasons for stronger fundamentals.

Canada had historically high home sales in Q1-2021 thanks to demand outpacing available supply, and while transactions slightly moderated in the second quarter, the market remains overheated at the national level, CMHC says, largely because of insufficient inventory.

In the Greater Toronto Area, home sales decelerated in Q2 but there still wasn’t enough supply to meet demand, which resulted in persistent price acceleration.

In Montreal, CMHC says prices have risen higher than existing fundamentals, including labour income, justify. Consequently, there are signs of overheating in the market even though sales softened and inventory rose in Q2.

However, CMHC adjusted Vancouver’s rating from moderate to a low degree of market vulnerability because price growth in the city eased in the second quarter. Additionally, homeowners in Vancouver are listing their homes in droves—certainly in a larger-than-usual quantity—and it is quelling competition between homebuyers.

But there remains a high degree of vulnerability in both Hamilton and Ottawa because of price acceleration and overvaluation in the former and low listings in the latter, despite sales having slowed down since April, which has resultantly put upward pressure on pricing.

2021-09-30 19:16:56

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Downtown Hamilton brims with multifamily sector prospects

Hamilton’s smaller multifamily dwellings are still commanding strong rents, but they’re flat in the city’s taller apartment buildings, says a local investor.

“Plexes are where the money’s at with rent,” Sandy MacKay, founder and CEO of the Sandy MacKay Realty Network, said. “You get parking and other things, too, that people put a high emphasis on these days. A lot of these properties create more space for the tenants, including yards. If you put some extra money into these types of dwellings, even though you might not have in the past, to create a nice outdoor space, you can collect a lot more in rent.

“It’s easier to do this in small multifamily apartment buildings and it’s harder to do in taller apartment buildings.”

Downtown Hamilton is where MacKay recommends investors should search for multifamily apartments. Although rough pockets of the district still exist, much of the city is unrecognizable from years past, especially around James St. N. where gentrification is in full effect. As more people become inoculated against COVID-19, street life is returning to normal and adding an extra layer of allure to the city’s burgeoning downtown.

“The downtown core has some awesome spots now, and with life coming back to the area, with restaurants opening and people generally doing stuff outside, there’s more inventory on the market than in the summer,” MacKay said. “The area is seeing a lot of growth happening—there’s been gentrification and higher quality tenants moving to the area. For multi-residential, we are seeing prices not go up substantially but they are up in the downtown core with a lot of opportunities to cash flow.”

Rents have grown by around 10% in the last 12 months, MacKay says, and by as much as 20% in the last several years. Cash flow opportunities are, however, becoming tighter because property valuations are rising, as tends to happen in economically diverse cities. MacKay says there are still opportunities for growth, although investors may have to look harder than they have in years past.

One reason rents are quickly rising is that there’s downward pressure on vacancy because a lot of Torontonians have decided to settle in the city, and not just because their jobs brought them there. As a result, Hamilton is beginning to experience a big city problem, MacKay says.

“We’ve seen a high uptick in fake applications in the city. There is decent demand for tenants but we’re seeing so much more fraud than we did in the past, so landlords really have to do their due diligence today,” he said. “As tempting as it can be for someone to come in and offer six months’ rent up front, you have to do your due diligence now more than ever. I’ve seen so much more fraud because of technology like e-signature tools, and this is especially the multifamily sector, so I work with a really good property management company.”

2021-09-28 13:07:01

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Detached home sales catch fire in Calgary

The Calgary Real Estate Board’s (CREB) latest statistics revealed the city’s housing market had a strong, if balanced, August, with detached homes leading the way.

And according to Jesse Davies, a local Calgary realtor who runs his own team at Century 21 Elevate, those are positive developments.

“As a realtor, I prefer this over hectic markets. It’s a lot more stressful for buyers and sellers and it makes life and real estate more stressful because any time a listing hits the market, everyone scrambles for the next 12 hours,” Davies told CREW. “In the detached segment of the market, prices increased across all districts in the city, but they trended down in the city centre compared to last month. However, I felt like August was a vacation month for most people, and while volumes dropped off for the most of the month, the last week of August and the first week of September were hectic again.”

Sales in Calgary rose by 37% year-over-year in August to 2,151 units, says CREB, albeit at a moderated pace compared to earlier this year. Nevertheless, there were 19,516 year-to-date transactions recorded, smashing previous totals during the same eight-month periods during each of the last six years.

“Sales have far exceeded expectations throughout most of the pandemic, driven mostly by demand for detached homes. At the same time, supply could not keep pace and conditions shifted to favour the seller, something that has not happened in over six years,” Ann-Marie Lurie, CREB’s chief economist, said in a news release.

“With more buyers than sellers, prices rose, providing opportunity for may of the move-up buyers in the market. Over the past several months, we have seen some adjustments in supply relative to sales, helping move us toward more balanced conditions.”

Noting that August 2020 was an aberration because of the pandemic, Davies pointed out that detached home sales during August are 81% higher than they were during the same month in 2019, citing COVID-19 as the preponderant driver, because “people want their own backyard, privacy, and their own front door, as opposed to sharing common spaces.”

The fact that Calgary has starter homes in the detached segment hasn’t been lost on the rest of the country, added Davies.

“The work-from-home movement has definitely brought a different kind of buyer to the Calgary market, and that would be people who can’t afford to live in Toronto or Vancouver, and for $800,000 you can get a beautiful house here,” said Davies. “We’re getting quite a bit of migration from outside of the province. With the pandemic, we’re not getting people from different countries but that’s also a sign that when the borders start opening, and when people get more comfortable with the idea of relocating, they might choose Calgary.”

The city’s real estate market is balanced because of the laggard condo sector, but that’s actually where all the opportunity is, says Davies, because there’s long-term appreciation potential. Due to the inventory glut of the last few years, most condo projects are recalibrated into purpose-built rental developments, but the condo inventory will gradually get absorbed over the next few years.

“The rest of the housing sectors have had really healthy gains but the condo market, because of both COVID and the surplus of inventory, has seen downward pressure on pricing,” said Davies. “But the mid- and long-term horizons should see healthy appreciation. When the pandemic is behind us, people won’t be afraid of sharing elevators and touching buttons. I’m already getting a lot of calls from Vancouver and Toronto about condos because there’s an overabundance right now. As the spread between low- and high-rise homes becomes too wide, which it inevitably will, affordability will push people back into the condo market, so it’s a good idea to get in early while the prices are still low, because they won’t be for long.”

2021-09-28 13:13:37

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80% of luxury buyers are millennials: Engel & Völkers

Millennials, entering their peak years, and are slated to comprise 80% of North American luxury home purchasers in 2021 and 2022, says a new report from Engel & Völkers.

“The past year has seen a significant surge in housing demand, resulting in record-low inventory levels with rising prices to match and a red hot market across North American real estate,” Anthony Hitt, president and CEO of Engel & Völkers Americas, said. “However, in every market situation there are homeowners willing to sell. The key is to identify which consumer segments fall within this group, and that is what we have done in this new trend report. At a time when the market is moving very quickly, we’ve gathered the intelligence that will allow real estate professionals to stay ahead of consumer trends and provide their own clients with an edge when buying or selling a home right now.”

The report noted that 65% of millennials with household incomes of at least $250,000 are planning to sell their homes, adding significant inventory to markets that, in part because of the pandemic, have seen downward pressure on new listings, thereby driving up sale prices. Moreover, Engel & Völkers’ data suggests that 60% of these sellers don’t intend to move out of their current cities, with 83% already property owners in urban centres. Additionally, a whopping 96% reported either sharing their present households with parents or having them move into their new homes, signifying that multigenerational living, a relatively nascent trend, is not going anywhere.

Millennial-aged entrepreneurs comprised two-thirds of luxury home sellers in the process of getting businesses off the ground, and they’re abetted by remote work capabilities, with 29% opting to relocate. Although the overwhelming majority want to be in urban areas, 28% reported a preference for rural settings, which Engel & Völkers believes is indicative of family-oriented individuals—they’re more likely to either be married or living with a partner or have young children, and 20% are responsible for caring for at least one parent.

The report also identified what it calls COVID HENRYs—high earners, not rich yet—who are young professionals with household incomes of $150,000-250,000 and who belong to the millennial and zoomer generations. During the pandemic, this cohort ascended to the aforesaid level of remuneration but has not yet reached the same level of wealth as older generations who’ve spent significantly more time in the workforce. According to Engel & Völkers’s data, over 50% of home sellers this year and next will be COVID HENRYs, a third of whom work remotely and nearly half of whom desire travelling globally, and 41% of whom already own a second home. However, 49% of COVID HENRYs want to live in cities and 43% prefer suburban lifestyles.

2021-09-28 12:57:33

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New reverse mortgage product available in Ontario

Bloom Financial Company has entered the reverse mortgage market with a new product for Ontarians aged 55 and over.

The fintech firm intends to roll out the product, which allows senior homeowners to access up to 55% of their home’s value in tax-free funds, in other provinces soon. In a news release, Bloom said the interest-only mortgage product will only require payment when the homeowner moves out, sells the home or passes away.

“Canadians over 55 have more than $1 trillion of wealth built up in their homes, but many are retiring without enough savings to maintain their standard of living throughout their full retirement,” Ben McCabe, founder of Bloom, said. “Canadians need a simple, comfortable way to access home equity as part of their overall retirement strategy.”

Reverse mortgages are niche products in Canada but not elsewhere, like the United Kingdom, where wealth advisors commonly recommend the product for retirement planning. However, with reverse mortgage rates declining and home equity surging, concerns about the product are dissipating.

“Attitudes are shifting around home equity release solutions, and people are rethinking the idea that a responsible retirement plan means ignoring a fully equitized home. With the rise in home prices in recent years, more and more 55+ Canadians are beginning to realize just how wealthy they are, when they consider their full financial picture,” McCabe said.

“Our vision is to make home equity seamlessly accessible as a tool to support retirement. We believe Canadians have a right to a standard of living in retirement that is aligned with their true wealth, which by definition includes the wealth they’ve built in their homes.”

Noting that HomeEquity Bank and Equitable Bank are the two dominant lenders in the reverse mortgage space today, mortgage broker Frances Hinojosa says more consumer choice is a good thing because they typically benefit from competitive pricing. Hinojosa added that baby boomers will soon comprise a quarter of Canada’s population and it’s about time they were offered more choice.

“Consumers have more choice as more lenders and innovative companies, such as this fintech company, start to open their eyes to the opportunity and the solution needed for this age group,” Hinojosa, managing partner of Tribe Financial, said. “Baby boomers make up almost 20% of the Canadian population and they will increase to 25% in 10 years. The majority of baby boomers own their home and they can access equity. Now they can give an early inheritance to their kids to allow them to purchase their own home or use that money to their benefit. They will also be able to cover unforeseen costs to their own homes if they don’t want to move into a retirement facility.”

2021-09-22 13:51:27

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Liberals slammed for not spending election money on housing

Canada’s 44th federal election cost an estimated $610 million—money that could have been better spent on affordable housing, a Toronto real estate broker says.

“Our government says they want to help people and make housing more affordable but their actions speak louder than words. That money could have been used on housing that people need, but instead it was used on someone’s ego. As taxpayers, we should all be very upset by that,” Davelle Morrison of Toronto-based Bosley Real Estate Ltd. said.

The 36-day election campaign, which the Liberals called in vain to bolster their government to majority status, was full of promises Morrison doesn’t think will be fulfilled. One of the Liberals’ most notable pledges pertaining to the housing sector was increasing supply in a bid to stem runaway prices, but the problem falls out of the federal government’s jurisdiction because, as Morrison reminds, it’s primarily a local problem.

“That problem falls with municipal governments,” Morrison said. “The quick fix would be to fire everyone in the permit department and start fresh because these people are slowing things down and then we have development charges, so if someone were to take a large home and turn it into a triplex, which is the fastest way to create affordable housing, that wouldn’t happen quickly because of existing rules. The city would also charge over $120,000 in development charges.”

M5V Developments, named after the first three digits of downtown Toronto’s area code, is currently building in Simcoe County and the Niagara region, where the company’s CEO says there haven’t been any delays. In fact, the reason M5V Developments chose to build projects in those areas is because their municipal governments support growth through a process that’s both reasonable and expeditious.

“The typical time for approval in these areas—and I can only speak first-hand about these areas—is 12-14 months,” Sherard McQueen said. “Our purchasers are receiving continuous updates via social media but since the approval and permitting process is so seamless, no delays have occurred.”

McQueen also says that both regions’ municipal governments have pre-consultation processes that bring together all stakeholders before land is even purchased to advise how to tender an application successfully.

“During the pandemic, the process became even more streamlined, which is a testament to the leadership in these areas, as these meetings were moved online and all city staff remained easy to get in contact with,” McQueen said. “The wait time for a pre-consultation is around one month to six weeks, so it allows developers the opportunity to make real-time decisions without delays.”

2021-09-22 13:54:43

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Action needed to solve the housing crisis

We are in the middle of a housing crisis, plain and simple, because demand is outpacing supply and, consequently, we’re seeing some very dramatic spikes for the price of homes.

It’s a big deal, as evidenced when it became a key issue on the federal election campaign trail, with each party leader outlining what steps they would take to rectify the situation.

Embarrassingly, Canada has the lowest number of housing units per 1,000 residents of any G7 country. The number has been falling since 2016.

In a healthy housing market, there would be about six months of housing supply, but that is not the case here. Across Canada, there is about 2.8 months inventory, according to Statistics Canada.

I am glad that housing was on federal leaders’ radar. It is a critical issue, and they are now paying attention. However, it’s long overdue as the shortage of housing threatens to derail our economic recovery.

We cannot grow the economy or build back better if we can’t provide enough affordable housing for the workforce. There’s also a social cost, as the crisis is preventing younger people from buying a home and starting a family. A recent survey from RBC found that more than one-third of Canadians between ages 18 and 40 no longer believe they will ever be able to own their own home.

So, what needs to be done?

We can’t keep doing things the same way. We need to think out of the box because the current system is not working. We must find a way to eliminate red tape and speed up the development process.

Countries like Japan, Germany, Austria and Switzerland have excellent systems in place for approval of developments. Japan, for example, has an unusual degree of national control over zoning and building codes. As a result, the country has an abundance of affordable housing in compact neighbourhoods.

Germany, Austria, and Switzerland, meanwhile, employ rule-based permitting systems for construction, so if your plans check the boxes, building authorities have no choice but to sign off on them.

In Canada, our permitting systems are more often discretionary, giving municipal officials the power to approve or reject applications.

In Ontario, for example, developers must deal with excessive red tape, an abundance of zoning bylaws and an antiquated and cumbersome development approvals system that stymie new housing. It takes far too long to get an application approved. We need a standardized, digitized e-permitting system to make the process more efficient and speed-up routine approvals for projects.

Having a planning coordinator at the local level might help. Such an individual could work with a developer’s team to help coordinate approvals between municipalities and various agencies and authorities. This is done in the State of Texas and Denmark for bigger projects with solid results.

The population of our country is expected to grow by up to 50% over the next decade, resulting in even more pressure on the housing market. It is essential, then, to tackle the problem head-on.

Yes, it is good that the federal parties were listening during the election. However, the Canadian government doesn’t control all the levers to housing policy. An appropriate start then would be to have a provincial housing summit to get industry representatives and government in the same room to work on a solution.

Housing is a basic need. Our economic recovery will stall unless we find a way to bring more on stream. Minor tweaking of the system will not get us to where we need to be. It is time for some bold action.

Richard Lyall, president of RESCON, has represented the building industry in Ontario since 1991. Contact him at [email protected]

2021-09-22 13:58:55

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‘We want to be the Shopify of real estate’

Converging E-commerce and real estate hasn’t always been simple because of the latter’s exorbitant price points but a Calgary-based company has done it.

Proptech platform Ownly will power a digital marketplace for the real estate industry where people can purchase homes. The company purports to be the first of its kind—it says there are a couple of newer companies south of the border lagging Ownly by 15-18 months—and has onboarded three homebuilders in the Calgary area, with another four slated to join in the coming weeks.

“It’s very disruptive to the entire industry. We think the time is now,” Jason Hardy, founder and CEO of Ownly, told CREW. “This is the way consumers want to be able to shop, as evidenced by everything else we shop for and buy today. You get price transparency online but the last holdout is the real estate industry, which isn’t transparent about pricing and what’s included in the details.”

Hardy says the pandemic accelerated demand for such services because, in addition to embracing virtual tours, homebuyers were educating themselves at home and then attending Zoom meetings with sales reps very prepared.

“Homebuilders in the single- and multi-family segments saw a 300-400% increase in website traffic during the pandemic, but they had no means to allow customers to shop,” Hardy, who worked 19 years in real estate and land development, said.

The company has integrated other platforms like YouTour to help buyers feel like they’re walking through their desired property without actually having to be there. Customers can also get online mortgage preapprovals as well as identity and credentials certification the same day, ensuring the entire process from start to finish occurs on Ownly, for which Hardy has lofty goals.

“If you look at all the integration pieces, we’re venturing to become like. Shopify. We want to be the Shopify of real estate,” he said. “When we describe what we’re doing, people don’t get it. We talk about the automotive industry, which introduced online shopping 22 years ago in 1999. Twenty-two years later and the real estate industry still hasn’t embraced it. Shopify has been successful because more than 90% of retail transactions online are powered by Shopify and you don’t even know it. We will do that with real estate.”

Shane Homes Group of Companies joined Ownly in August and Melanie Gowans, the company’s GM of sales and marketing, says leads and consumer engagement have been strong. Moreover, Shane Homes is receiving calls from real estate investors all over the country.

“It’s very new. We’re being very transparent, which comes with being vulnerable when we do this, but we’re essentially putting as much information out there for everyone to see, including our competition, and it’s been heavy lifting for the marketing department because it’s a unique value proposition,” Gowans said.

Shane Homes, which builds everything from condominiums to custom estate homes, could even benefit from a slightly faster sales cycle, Gowans says, because customers are more prepared than they have ever been.

“It would be faster because they’ve already done so much research on their own and they’re coming in very educated and very qualified,” she said. “We have to do less educating, so the time from lead to sale will definitely be quicker.” Hardy believes that the future of home buying will be “frictionless,” although he concedes that presentation centres might not completely disappear. “With e-commerce, it isn’t an ‘if,’ it’s a ‘when,’” he said. “E-commerce is in its infancy as it relates to real estate but the future of real estate is 100% frictionless. I think the long-term shift will move towards completed showrooms and completed units, but the actual presentation centre will become less and less necessary. If you want to meet a trusted advisor, they can meet you at the presentation centre.”

2021-09-22 13:48:04

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Will Liberals honour promise to increase housing supply?

The Liberal Party of Canada staved off a strong Tory challenge for a consecutive minority government, and now Justin Trudeau is expected to keep his election campaign promise to increase housing supply.

“We are very much dependent on housing to support our economic recovery,” RESCON president Richard Lyall said. “We must find ways to significantly increase the number of new homes being built across the country. The leaders of all three major parties recognized this as a key issue on the campaign trail.

“The dire lack of housing is a critical issue that must be addressed, or our recovery will stall. Red tape is presently delaying construction of much-needed new housing developments and we are pleased that the Liberal housing plan includes a pledge to remove some of this unnecessary paperwork by providing tools to streamline the application and construction process as well as tackle NIMBYism.” RESCON says the only way to cut through the red tape is by digitizing the entire approvals and rezoning process, but in order for that to happen consultations must first take place between all levels of government.

“During the election campaign, all three major political parties recognized the severity of the housing supply problem and pledged to tackle the issue,” Lyall added. “It was also acknowledged that the federal government can’t fix the situation on its own. We need a housing summit to bring other levels of government to the table with industry leaders to solve the growing housing problem.”

Ahead of the Sep. 20 election, Nanos Research surveyed 500 adults in the GTA and found that 32% said affordable housing was the most pressing issue facing the region, followed by 17.6% who said it was the COVID-19 pandemic. The results suggest that Trudeau might not be so lucky next election if his government doesn’t solve the affordability crisis gripping Canada’s major cities.

“The thing is that, especially in the GTA, folks are worried about the cost of rent. They’re worried about the housing supply. They’re worried about the cost to pay their mortgage,” pollster Nik Nanos told CP24 on Sep. 15.

2021-09-21 21:25:39

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