Things to Consider When Buying U.S. Property

Monday, September 17, 2012

Housing prices in the United States are at their lowest in years, with many regions pricing a third to even a half lower than just six years ago. Canadians have taken note and, for the fourth consecutive year, account for fully 23% of the foreign purchases of residential property in the States.

Although a recent survey by Leger Marketing suggests somewhat of a dip in Canadian interest in U.S. properties over the past year (16% of respondents said they would consider buying a home in the United States, down from 20% in 2011), many report an interest in purchasing a vacation or second home, or a rental property, there.

What draws Canadian interest? According to a survey released last year by the National (U.S.) Association of Realtors, mild winters, affordability, investment potential and the strong Candian dollar head the list. Warm-weather regions such as Florida and Arizona, which, incidentally, also have some of the lowest prices, are among the most popular destinations, while Canadian housing activity in areas including Puget Sound (Washington state), Las Vegas (Nevada), the Carolinas, northwest Montana, Texas, Georgia and Vermont is increasing.

If historically low prices are inspiring you to take a look at the United States, keep these points in mind as you consider buying property there:


Never buy a property without first spending time there. Research local crime rates and property valuations. Drive around the neighbourhood and surrounding neighbourhoods during the day and after dark to see what kind of activity occurs. Talk with neighbours. You are about to make a substantial purchase; make sure the location is right for you.

Property Manager

If your intent is to spend a limited amount of time at your U.S. property, then you will need to hire someone to take care of it (maintenance and protection from vandalism and burglary) when you are not there. Factor this cost into your plans.

Home Insurance – It is vital for you to protect your U.S. home just as you do your Canadian home. Home insurance offers you protection from vandalism, burglary, weather, fire, water and other damage. It also offers liability protection in the event a worker, property manager, neighbour or guest is injured while on your property. Ask your licensed insurance representative what kind of homeowner’s insurance policy offers the best coverage for your new home.

Travel Insurance

Whether you are visiting properties to decide on a purchase or you have already bought property and now make regular visits to the United States, travel insurance protects you from unforeseen circumstances while you’re there. A good travel insurance policy offers coverage for unexpected medical emergencies and more, potentially saving you thousands – or even tens of thousands – in out-of-pocket costs.

Mortgage Terms

Mortgage financing is different in Canada and in the United States. Make sure you understand the implications of financing as well as special considerations if the property you are buying is a foreclosure or short sale. Consider financing through a U.S. bank that has Canadian ties or a Canadian bank that is well-established in the States.

Income Tax

If you spend more than 121 days in the United States in any tax year, you may have to pay income tax to both countries. The United States considers anyone who spends this length of time in the country a resident (for income tax purposes anyway). Be sure to read up on the tax laws or talk with a knowledgeable accountant to understand what this could mean to you.

Rental Property Tax

If you buy a residential rental property in the United States, you must pay taxes on your rental revenues or income. You may either pay a tax of 30% of your gross rental revenue or pay taxes on a net-profit basis, which entails filing form W-8 ECI and a U.S. personal or corporate tax return. If you are not familiar with U.S. tax laws, enlist the help of an accountant who specializes in U.S.-Canada tax services to ensure you have all of the information you need.

Property Tax

Remember to also factor in the cost of property taxes. Find out about the laws of the state in which you are buying, because some of them charge a higher tax rate to out-of-state owners.

Withholding Tax

If you decide to sell your U.S. property, you face a withholding tax of 10% of the gross selling price. Consult a tax advisor for information about exceptions to this rule.


Sources: Aylett Grant Tax Services LLP,, Global Edmonton, International Business Times