March 07, 2009

Don't Forget to Do Your Homework - You Might Win Big!

Due Diligence UPDATE

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Just the other day, I glanced at the letter addressed to me from the Planning Department of the city hall of a town in which I have invested.  To tell you the truth, I avoided opening it, as I thought it was yet another complaint from the lady who owns a house behind one of my properties.  Over the last few years, her daughter and her daughter's boyfriend have built some sort of tent/shelter out of an old trailer.  This 'building' actually sits on a portion of the rear of my property.  Even though I staked out the property (officially by a surveyor, nonetheless) and proved that this 'shelter' was infringing on my property, nothing was done!   (Lesson:  "Understand the Community Where You're Investing - to avoid annoyance.")  However, when this same woman complained that my willow tree was blowing stuff on her daughter's 'shelter', I was asked officially to either remove the tree or spend thousands trimming it!   (This is small town Ontario, you know!)   I have been narrowly avoiding the cost of this ridiculous requirement for several years - oh, the problems of landlordship!   Less facetiously, the minor annoyance of this problem (notwithstanding its 'entertainment value') will not likely supercede the thousands in income this property has afforded me.  (Lesson: "Buy Cashflow Properties in Stable Markets").  But, I digress.   Finally, I decided to face the music and open the envelope, which led to my pleasant surprise!    (Lesson:  "Never Avoid")    This envelope contained a Notice of Application, not a Willow Tree Compliance Order!   (Lesson:  "Think Positively")    Apparently, the historic mill in this town will be undergoing a huge revitalization, starting with the proposal of a 60-unit condominum development!     (Lesson:  "Real Estate Pays Off").  Now, truthfully, this may never happen, but I do remember talking to the elderly lady and owner of the property next door to my property.   I was listening to the list of ailments that had been afflicting her husband at that time (you have to actually talk to neighbours in small town Ontario), when she seguayed into the potential for this very condo development.  At the time, I thought it was just wishful thinking on her part.  Today, I am humbly embarrased by my arrogance:   somehow, she had known all along(Lesson: "Listen to Older People - they know more".)  And know, I know, too.   I will definitely not be one of the complainers who shows up at the new development committee meetings to whine about the advancement of new property developments!

Buying in Florida


Property Taxes
Property taxes are sky high for foregin investors. The current taxes on listings are NOT what you will be paying - ask what taxes YOU will be paying after purchase. You may be in for a big shock.   For example, in Florida, the state's Homestead Act and "Save our Homes" amendment gives permanent residents of Florida the first $25,000 of the assessed value of their home tax free and caps the rest of their property tax at three per cent", but this advantage isn't conferred upon visitors - who end up paying much of the difference. 
Property Insurance
Property insurance is also sky high, IF you can get it. In  Florida, for example, tax and insurance alone are more than a lot of mortgage payments. Talk to Canadians (or anyone) who has been a snowbird for a few years = many are desperately trying to dump their properties here for this reason.   Escalating problems with condos near the water and without hurricane proof windows (i.e. anything not built recently) is sometimes very difficult to insure - some purchasers finding that insurance is impossible to get. 
Condo, Association and Homeowner Fees
These fees, which are known as a variety of different things in the US, can and DO change without notice. When insurance for the development goes up, you get hit with an fee to cover it. Hurricane damage to the development (even if you have none) - you get hit with a fee. 
Residual Cash Requirements for Cash-Strapped Municipalities, Counties, Insurance Agencies, Condo Association and Banks
One particularly intelligent and forward seeing comment at one of our meetings was about what was going to happen to the tax base for municipalities if a large majority of the properties were being place in positions of default?   It stands to reason that the costs will end up being shared by the remaining howeowners who will be left holding the bag.   This comment should be considered possibly being applied across the board, i.e. what about a condo development only receiving 1/2 of the fees it had grown to expect from past years?
Neigbours and Emptiness
In a development where flippers bought property, and are now desperate and unable to sell (with the 18 months of stock holding up in Florida, this seems likely), homes and condos will sit empty or be rented to anyone available.  This means you could end up with neighbours who don't maintain the property, seedy renters as neighbours, or lots of vacant houses, which for vacation property could be dangerous.
Immigration and Border Changes
Immigration and border-crossing policies are changing, so make sure you know what restrictions you'll face. As of 2007, Canadian citizens who spend less than 183 days in the US, calculated over a period covering the current year and two previous years (where even a few hours in the US on one date is counted as a day), are considered non-resident aliens, but landed immigrants residing in Canada experience greater restrictions, some countries of origin require the landed immigrant to get a US visa if being a permanent resident in Canada has been less than 10 years. Longer stays involve a wide range of complications depending on the state involved.
Income Tax
Selling real estate in Florida is easier than in North Carolina or Georgia since Florida has no state income tax. If you are a non-resident in Florida you may be subject to holding tax if the selling price is more than US$300,000. To pay this tax, each seller must file a US tax return—another expense. Then, there's capital gain on the profit you make. You'll pay tax on this to the US government in US dollars and also to the Canada Revenue Agency (CRA), with a credit for US tax already paid.
If your Florida property is not your principal residence, you will pay much higher property taxes than locals, capital gains and estate taxes if you sell. One way around this is to place your sunbelt property in a Canadian limited liability company which will pay capital gain but not U.S. estate taxes. Also, rental properties held by foreigners must file separate annual tax returns to the U.S. tax officials. This is an annual cost which must be included.
Another tax trap that many couples fall into—buying in one spouse's name, expecting to switch ownership to the other spouse later as easily as they could in Canada. However, in the US, this name change may be subject to gift tax, which starts at about 18% and may go as high as 48%. This expensive mistake is one example of how, although buying seems easy, problems may materialize on selling or when the owner dies.
More on the tax implications in this article:
Estate Taxes
U.S. estate tax, which kicks in after death, applies to non-residents who own property in U.S. and taxes property at 45 per cent if the deceased's worldwide holdings are worth more than $2 million - which is the trap that a lot of people get into is that they buy U.S. real estate without knowing about the estate taxes.  Some accountants suggest having outside of the U.S. owned by one spouse and assets in the U.S. owned by another spouse, such that the spouse that owns the U.S. property gets the worldwide estate under the $2 million."
Taking Title
Most Canadians treat buying in the US as if they are buying a property  in Canada, but buying in the US is very different.  Depending on which state is involved, there are about 6 ways to title property, each with different implications for taxes on sale or at death, and on how to go through probate. Many estate issues go into a decision of how to take title [when you buy]. In a state like Arizona there is common property, so that's two more choices for title. 
Making an Offer
Prices are so low now and inventory is so high, it is really a buyer's market.   Diane Francis (the National Post) offers this suggestions for making an offer on a Florida property:  find out the 2006 value, divide in half - and offer that price.
I hope these tidbits satiate your interest in purchasing Florida property, as well as warning you about the possible pitfalls.   Remember, investing in property can be a windfall with the appropriate research and tempered understanding of the market, its fluctuations and our correct understanding of where we are in any market.   This is probably the single best moment during the last 30 years or so to buy property in Florida.   Take advantage of it, but take care in your decision-making.
For general information about buying US property to retire to, or as a Canadian, check out the Canadian Snowbirds Association's website for lots of great information.   They've been around for along time and have an excellent knowledge base: 

January 25, 2009

My Pride and Joy


December 30, 2008

Real Estate is the Best - Besides My School! LOL

There is no business like real estate.   It's been interesting to say the least - and money-making for me, for sure.   What is there to complain about?   Well, let me give it a try.

Well, tonight for the first time since the 1980s, (!) I went to Wine'n'Cheese (or cocktail party)!   I generally don't do that, but I have to admit it was an incredible experience.   I had fun, enjoyed some good times with new friends, had some good food, and learned a few new things!   What could be wrong with that?  Nothing.   But damn it!   Real estate is changing me.  

Another thing is that real estate (and especially my incredible monetary successes in real estate) have made me interested in money.   I was the ultimate 'granola girl' (coined by one of my students) until a few short years ago, but now, I have millions in equity and no more friggin' granola!  Now:  I actually want money!   Well, that's not as bad as it sounds (lol).   I actually want the security behind it.   What is wrong with that?   Nothing, of course.  But damn it!   Real estate is changing me.

A third thing is that real estate has recently MADE me take a weekend off, fly to Florida, and cruise through the Caribbean.  I taught a few people something on the 'real estate' cruise; I learned a few things, and I enjoyed some time in the sun with a few good friends, great food and good wine.   I left my kids, my school, my family, my headaches AND all of the stress of my life.   What's wrong with that?   Well - nothing!   But damn it!   Real estate is changing me.

And finally of course is that now with my club and my part-time real estate career, I have met a lot of new real estate friends.   Previously my life was a series of commas between the days of hectic and fractious teenage output!   Now, my life is punctuated with adult conversation and less "Yo - miss, where's my math back?"   What could be wrong with that?   Well - nothing, of course.   But damn that real estate!   It is changing me!