For the past five months, we have featured a series of stories to help teach Canadians about the opportunities for cross-border real estate investing in the U.S. Overall, the message has been that, though the U.S. and Canada may seem similar, when it comes to real estate there are actually many differences – some subtle and some large – that Canadians need to be aware of in order to ensure their purchase in the U.S. goes smoothly.
Through our conversations with Alain Forget from RBC Bank, a common message has always come up: that Canadians need to consult trusted professional advice when looking to purchase across borders.
“The main thing is to understand that the U.S. is a different country, even if things look the same,” said Forget. “And it is important to understand that rules, laws, regulations, business practices, and terminology are all different. That’s why you need to do some homework to understand those differences.”
Forget is a Canadian himself who has spent almost 20 years working with RBC Bank in the U.S. to help Canadians find their homes under the sun. His caution in this regard comes from years of first-hand experience seeing well-meaning Canadians make all too common mistakes that can end up causing headaches and costing them money.
If you are buying in the U.S., you are probably looking for a place to enjoy the weather and relax, and your home purchase process should be just as stress-free. In this article, we will look at three major areas in which Canadians should endeavour to seek cross-border professional and trusted advice to make sure everything goes according to plan to ensure peace of mind with no unexpected surprises.
Financing and mortgages
The first area that Canadians need to be familiar with is the financing of their home. Though the U.S. system resembles the Canadian system on a surface level, there are many differences that can cause hiccups along the way if you are not prepared. Even if you have been through the process in Canada, you can make important mistakes if you assume that everything is the same over the border.
For one, there is the ever-present exchange rate between Canadian and USD. You need to be aware of this exchange rate and how it will affect your purchase. Not only do you need to remember that your Canadian dollar will be diminished in the U.S., but you will also need to understand the process of bringing funds over the border and different strategies to mitigate the exchange.
You also need to be aware of how your U.S. lender will qualify you for your mortgage. If you work with a U.S. lender that is not used to handling cross-border purchases, it may be hard to qualify you based on your Canadian assets and credit history, which can present a major barrier when trying to buy.
You should also simply be aware of the differences in the mortgage approval process. For one, the process can take a lot longer to complete and has different steps. In addition, U.S. mortgage terms do not work the same way they do in Canada, so in order to make sure you get the best deal, you will need to work with a mortgage advisor who can help you understand the differences.
The ideal mortgage advisor will understand how things work on both sides of the border so they can not only inform you on different processes but also manage your expectations coming from Canada. That is why RBC Bank, as a U.S. national residential lender, is dedicated exclusively to helping Canadians.
Real estate agents
When it comes to working with real estate professionals such as your real estate agent, it’s important that your agent understands how buying across borders can affect your purchase.
For example, real estate agents may offer advice for buying a property, such as owning it under an LLC, which may be a good option for U.S. citizens but may not necessarily be the right move for Canadians. If your agent does not understand the cross-border implications, you can find yourself acting on bad advice.
A good agent can also help you understand what kind of home you should look at buying. For example, if you only plan on spending three or four months a year in the U.S., you don’t want to find a property that will need a lot of regular upkeep. However, a real estate agent who is experienced in working with cross-border clients may also be able to connect you with reliable property management companies, which will be especially helpful for those planning to rent.
A good agent will also be able to offer you feet on the ground if you are looking at properties remotely. A house may look good on an online listing site, but it could be a different story in reality. A real estate professional will be able to help you tell the difference and steer you away from potentially bad properties with valuable local market knowledge and experience.
Legal and tax concerns
The legal and tax aspect of cross-border purchases may be where the largest number of complications and confusions arise, so it’s important that you get trusted advice and do your homework. This applies not only to the process of buying, but also owning, renting out, and selling property in the U.S.
A legal expert trained in working with cross-border clients will also be a crucial help when it comes time to review your purchase agreement and close your sale. There may be a lot of terminology, acronyms, and conditions on the legal side in the U.S. that Canadian buyers are simply not equipped to understand. Having a second set of eyes to make sure everything is in order can save you a lot of problems and potentially a lot of money.
For those who plan on renting, you should be especially mindful to protect yourself from any issues that may arise in the process. Problems with the property or its management can lead to issues with U.S.-based tenants up to and including potential lawsuits. By consulting the right legal advisors, you can protect your property and yourself in the long run while taking advantage of your property’s potential cash flow.
Tax professionals can also help you to navigate cross-border tax implications to avoid situations like having to pay double tax on capital gains, resulting in huge amounts of money being lost when selling a property. The U.S. and Canada have a robust tax treaty, though, like any tax legislation, it is often complex and nuanced in its applications. A tax professional can help you take full advantage of your options from an ownership structure standpoint for your specific set of facts or family situation.
Taxes will also play a role when it comes to issues surrounding currency exchange and bringing money across borders. This can be especially important if you plan to tap into your U.S. home equity and are bringing money back home to Canada.
Avoid advice from well-meaning friends and family
Many people, before making a large investment like a home purchase, like to talk about their decision with friends and family. This can, to some extent, help you solidify your decision and learn from others’ experiences.
However, unless your acquaintances are professionals in the area of cross-border real estate, you should be wary of following any free advice offered to you in passing. In this case, free advice can end up being some of the most expensive advice of all.
The problem is that really only professionals are qualified to understand what is best when it comes to cross-border real estate. Even if a family member used a certain strategy when purchasing a U.S. home, this does not mean it will apply to you in the exact same way. Everyone will have different circumstances and this can make a big difference in how sound this advice will actually be.
If you do want to look into a tip from friends or family, discuss it with your cross-border experts who can help you understand why or why not this may be a good idea for you.
How RBC Bank can help
For over 18 years, RBC Bank, the U.S.-based division of the Canadian bank and national residential lender, has specialized in working with Canadians and has helped clients make the journey from dream to doorstep as convenient as possible. Over that time, they have seen firsthand the struggles that Canadians have experienced when trying to make sense of the complexities of international real estate transactions. To help Canadians like you, they have developed a program to give you access to everything that you need to make your cross-border purchase as painless as possible, accessible all in one place.
With the RBC Bank HomePlus™ Advantage program, Canadians have access to qualified financial, real estate, legal, and tax professionals who are trained and experienced to work with Canadian clients. They also offer mortgage financing to Canadians and can qualify you based on your Canadian credit history and income, and mortgage terms designed to be familiar to homeowning Canadians.
Visit their site today for access to mortgage advice, tools, and a free e-guide to U.S. homeowning, to get you started on your journey.