The U. S. Sunbelt states have a well-known history of attracting large numbers of domestic and international tourists along the U. S. coastline.

Tourists have several available options when it comes to their choice of accommodations, ranging from hotels and motels to the luxury condominiums and resorts.  For families, providing accommodations over a extended vacation, hotels and resort daily rate cost become significant. A growing trend is to choose Short Term Vacation Rentals.

Short Term Vacation Rentals typically offer accommodation by the week or by the month and are generally located in the heart of vacation destinations which have access to local amenities and attractions like the beaches that line the coast of the Carolinas or the Gulf Coast as well as the vacation hot spots like Orlando’s Disneyland Resort or Galveston’s Moody Gardens.

Instead of renting a hotel room for mom and dad, a room for the kids and a room for the grand kids, the extended family rents a three or four bedroom vacation home.  When you do the math for three or four hotel rooms, diners out and add a collection of rental cars, it is easy to see how quickly the costs jump up and how attractive a $3,500 a week vacation home can become.

THE VACATION RENTAL MARKET

The future for Short Term Vacation Rentals is bright. 

The Recent Vacation Rental Management Association (VRMA) has compiled research that confirms that the vacation rental industry is in fact growing and becoming more professional and competitive as more and more products are brought online to provide more and more opportunities for vacationers find that vacation home for the family.

VRMA also reports that the inventory of short term vacation homes that are being offered for rent is increasing every year.  As more second homes are purchased, more short term leasing opportunities are being created.  Obviously a second home owner will not want to enter into a long term lease, so their only opportunity to benefit from owning a second home is to rent it for a short period of time.

There is data confirming the fact that more and more of the second homes are being purchased for use by homeowners and that these homes are also being rented out or used as investments.

As a result, there is a growing market of second homeowners that are seeking out properties that have quality vacation rental management firms that can provide rental services and property management in place.

When you research the second home and the Short Term Vacation home industry, it is pretty easy to confirm this trend.  Almost all of the data you will find will confirm that the inventory of short term rental homes is continuing to rise in many of the destination vacation real estate markets where second homes are being purchased.

VRMA also reports that the income from vacation rental operations is continuing to rise as the Short Term Vacation Property become a more recognized and sought after alternative.

MANAGED OWNERSHIP SOLUTION

Owning a well located, professionally managed, short term furnished vacation property provides an excellent opportunity for Canadians to enter into the US Real Estate market.  The fact that the lease term is short and that the stay is being compared to hotels and resorts increases rents to a point where properties can break even when they are only rented out half a year or so.

This is the ideal situation for a Canadian that would like to rent out their property in the summer in the high season and vacation down south in the winter avoiding the sleet and snow of our winters.  They will quite often be able to manage a scenario where they will be able to stay for a few months for free.

Central Showplace is featuring buying opportunities of short-term rental properties of two, three and four bedroom furnished condominiums and homes that are located in the heart of tourist hotspots and that are ideally suited for families who want to vacation together. 

Harold Green

Central Showplace

A U.S. real estate investment expo held in Beijing, China April 10th - 12th had a great turn out as Chinese buyers took advantage of the discounted U.S. real estate. The Chinese economy is far less affected by the current crisis compared to the U.S. combined with the high savings rate of Chinese households, puts the Chinese buyers in a great investment position. Chinese buyers flocked to the expo to finds ways to take advantage of the situation and buy discounted U.S. real estate.

Exhibitors showcases new developments from all over the U.S. as well as discounted resale and government auction solutions. Central Showplace interviewed buyers show particularly strong interest in Florida and Texas. One Texas developer used China’s own Yao Ming to draw crowds of attention and making front page of a local newspaper.

The three-day event concentrated on investment potential of U.S. real estate. Despite the strong Chinese economy buyers were interested in diversifying investments. While other were drawn by the investment U.S. green card opportunities available though the EB5 program. Investors say this is a great time to participate in an investment immigration U.S. green card because the underlying property is so heavily discounted.

More images from the China-USA real estate expo visit our photo gallery

The frenzy is consistent with comments by Lawrence Yun, National Association of Realtors chief economist, “A steady share of investment-home sales results from buyers taking advantage of deeply discounted prices in many areas, with a smaller portion of new homes in the sales mix.”

Many analysts believe that the U.S. government plans are starting to turn around the U.S. real estate market. “Over time, lower mortgage rates should help to improve conditions in the housing market, whose persistent weakness has had a major impact on economic and financial conditions more broadly,” Bernake said.

Forecast by the mortgage bankers’ group raised its 2009 home-loan originations by $800 billion to $2.78 trillion last month. Refinancing will increase to $1.96 trillion in 2009 and purchase originations will total $821 billion. This is evidenced by a surge of refinancing and low interest rates sent homeowners to apply for new loans.

For foreign investors the interest shown by the Chinese buyers is definitely a sign that this is the right time to take advantage of the U.S. real estate discounts.

More images from the China-USA real estate expo visit our photo gallery

U.S. Federal Reserve Chairman Ben S. Bernanke is delivering record low mortgage rates and a refinancing boom that’s putting cash in home owners pockets and helping to stabilize house prices.

Fixed 30-year mortgage rates fell to a record low for the second consecutive week last week, hitting 4.78 percent, Freddie Mac said yesterday in a statement. The rates are the lowest in records dating back to 1971. This has helped mortgage applications in the U.S. rise for the fourth straight week as a decline in borrowing costs spurred homeowners to refinance, and new home sales rose in February. The Fed’s effort to bring down fixed rates may give consumers as much as $25 billion, said Mark Zandi, chief economist of Moody’s Economy.com.

Cheaper Home Prices

Cheaper financing may also help to turnaround the housing market. Sales of previously owned homes rose 5.1 percent to 4.72 million at an annualized pace in February from the prior month as low mortgage rates spurred demand. The National Association of Realtors affordability index rose to a record in January, due to lower home values and mortgage rates. NAR said in a March 23 report, the median U.S. home price fell to $165,400, down 28 percent from its 2006 high.

Bernanke cited lower mortgage rates in testimony in February as evidence that Fed policies were working. He said the decline in financing costs caused by the central bank’s purchases of mortgage-backed securities this would help ease the financial strain on homeowners.

Improving U.S. Housing Market

“Over time, lower mortgage rates should help to improve conditions in the housing market, whose persistent weakness has had a major impact on economic and financial conditions more broadly,” Bernake said.

Forecast by the mortgage bankers’ group raised its 2009 home-loan originations by $800 billion to $2.78 trillion last month. Refinancing will increase to $1.96 trillion in 2009 and purchase originations will total $821 billion. This is evidenced by a surge of refinancing and low interest rates sent homeowners to apply for new loans.

“We have seen evidence that home sales are bottoming,” said Jim O’Sullivan, senior economist with UBS Securities LLC, in Stamford, Connecticut. “This should be positive.”

While clearly no one has a crystal ball with definitive answers there does seem to be some general focus around:

1)   The market will hit bottom when the psychology of homebuyers becomes positive, optimism improves, and people are willing to stick their necks out again.  While some areas such as New York are on a decline, clearing other harder hit areas show signs of optimism as Florida’s existing Home, Condo sales rose in February 2009 and other indications that March figures may reflect the same.

2)   The market will hit bottom when employment turns around. While unemployment is clearly still a big problem the pace as definitely slowed.

3)   The market will hit bottom when credit loosens and businesses can borrow for working capital, expansion, and long term plans. This is clearly an issue between banks protecting there capital during uncertain times mixed with capitalization issues with many of the major banks. All indications are this is yet to be resolved.

4)   The market will hit bottom when the stock market turns around and consumers see a positive trend. While many believe the current market rally in March and April may not last, most analyst agree we are in the mist of a bottoming process and many indicators show that Americans are optimistic that despite corrections that may occur in this rally, that the market will generally have a positive grown over the course of the year.

5)   Finally, the market will hit bottom when government stimulus programs begins to work. This will bring back consumer confidence, which will then reduce unemployment, re-capitalize the banks, loosen credit, and bring the stock market back.

It is obvious that all of these problems are interrelated and feed upon each other. But they are all symptoms - the outward manifestations of the problems - and not the causes or the cures. What is scary is the speed at which these symptoms appear to turn around in the pass month once people seem to have developed a sense of optimism in the market.

It seems many buyers are not waiting to find out when the real estate market will hit bottom and have begun buying.

Not too long ago, many real estate speculators made a bundle of money through quick purchases and sales. Speculators and their followers were snapping up real estate without truly analyzing the market and forecasting changes. Then came the sub-prime crisis..

According to an article published on the Wall Street Journal a week ago, most Americans still see real estate as their best shot at wealth despite the current economic downturn. In October 2008, Zillow.com conducted a survey of 2000 adults and 61% believed that the value of their home would either remain level or rise over the next six months. Another survey of more than 1000 homeowners sponsored by Realogy Corp., found that 91% thought that owning a home was the best long-term investment they could make. An online survey of 5000 people commissioned by Citigroup found that only 32% believed it was a good time to invest in stocks, (One must keep in mind that Nasdaq has declined over 78% since its peak at the internet bubble and many stocks are trading below their cash value) - but 51% surveyed said it was a good time to buy a home.

In the same week, it was announced that the November payroll decline of 533,000 was enormous and biggest since December 1974.  Some economist even predicted that the fourth quarter contraction in GDP could hit 8%., which is 0.2% more sever than the 1980 recession.

In this mix of bullish consumer confidence and bearish economic news, where should investors head?  To real estate investors; research and analysis of the fundamentals must be performed and followed diligently.  Many economists agree that fundamentals data such as immigration, birth rates, size and nature of households are difficult to predict on the long term basis, but it is not difficult to follow the trails of income and employment growth as well as increase in immigration rate to the next “hot” city with potential growth.

The same article quoted William Frey, a demographer and senior fellow at the Brookings Institution, Washington, says that young people and immigrants are likely to flow to Florida, Georgia, South Carolina, North Carolina, Tennessee, Virginia, Nevada, Arizona and more affordable interior parts of California.

Another researching firm, Newland Communities LLC based in San Diego named Washington DC, Raleigh and Charlotte, North Carolina, Atlanta, Dallas, Houston, Phoenix and Las Vegas as their top cities for growth potential.

For someone who are interested in taking advantage of the down market for the purpose of self enjoyment, second home investment, rental income investment; the above areas may be worth a closer investigation. Cities with low growth and falling populations must be avoided.

The real estate market is inevitably cyclical in nature. The market has seen its recent peak and has fallen hard to its bottom (?).  At these conditions, and with a long term perspective in mind, the returns generated from tax deductions, rent, amortization, and property appreciation increases.  After all, investing in properties with great potential in a down market is definitely wiser than buying and “chasing” the market when it is over inflated.

Americans may not be buying homes, but international buyers are finding the U.S. housing market an enticing place to invest their money.

International buyers are driven to the US real estate market by bargains and currency rate advantages. Additionally, as 30 percent of these buyers tend to buy with cash, the mortgage credit crunch is not a worry for them.

Florida, California, Arizona, and Texas are the top destinations for international real estate buyers according to a National Association of Realtors (NAR) survey.

NAR Chief Economist Lawrence Yun says, “the real estate sold to foreign buyers in Texas tends to be modest-priced homes … More than 60 percent of the homes purchased … are priced under $200,000.”

The comparatively strong Canadian economy continues to drive Canadians to look for real estate deals in the US. National Association of Realtor (NAR) Studies show that almost double the number of Canadians are buying US real estate compared to 2007 and that number is likely to keep pace or grow as Canada will lead the other G7 countries in economic growth in 2009 according to a new International Monetary Fund (IMF) study.

While Canada is clearly not immune from the ongoing global financial crisis, the country is expected to see economic growth in the range of 1.2 percent in 2009 according to IMF. While that is less than half of what Canada experienced in 2007 it is expected to be the best performance among Japan, the United States, Italy, France, Germany and the United Kingdom.

The IMF anticipates the U.S. economy will continue to be slow next year, posting an almost zero growth rate of 0.1 percent for 2009.

Applies to: Non-resident aliens (form 1040NR)

If you sell US real property then you have two issues to think about: Withholding tax and a tax return.

US real property, by the way, is not just land and building. It includes any interest in real property other than as a creditor. It includes, among other things:

• Personal property associated with the use of real property, such as furnishings sold with the property. This is quite common with Florida and Arizona vacation properties.
• Shares of a US corporation, where more than 50% of the value is derived from real estate (shares of certain public corporations are exempt).
• An option to purchase real property.

Withholding tax

The purchaser must remit 10% of the gross sale proceeds to the IRS. This applies whether or not the purchaser is a US person or not. However, this FIRPTA withholding can be:

• Eliminated, if the sales price is under US$300,000 and the purchaser warrants that s/he will use it as a principal residence.
• Reduced, if the standard 10% is higher than the actual tax, and the purchaser obtains approval from the IRS, using form 8288.

Filing a return

You must file a US return to report the sale. It doesn’t matter whether there was a gain or a loss on the property, or whether the tax withheld is more than sufficient – you must file the return.

If you have held the property for at least a year, the tax will generally be 15% of the gain, and some may be taxed at only 5%.

This communication is designed for the information only.  Readers should not act on any of the information without seeking professional advice.  This communication does not constitute professional advice.  SF Partnership accepts no liability or responsibility whatsoever for any loss or damage suffered by any user of this information.

This written advice was not intended or written to be used, and it cannot be used by any taxpayer, for the purpose of avoiding penalties that may be imposed on the taxpayer.  The foregoing legend has been affixed pursuant to US Treasury Regulations governing tax practice [Circular 230 §10.35]