As the loonie rose along with heat this week, some folks who could summon up the energy in these dog days of summer no doubt would have been thinking about buying a U.S. property. After all, prices have never been more affordable, especially for Canadians. If not now, then when?
Financial Post
The Toronto Sun published a great article pointing out some of the pitfalls of buying U.S. Real Estate without consulting expert first:
“Or similarly, buying a house in a sub-division and finding most of the other properties are unoccupied. He has also increasingly been made aware of scams close to the Mexican border, where properties are being sold with a rental contract in place, which evaporates shortly after the purchase.”
Read the full article here
As Canadian “Snow Birds”, flock south for the winter, they are encountering the fact that the cost of Florida real estate has drastically declined in recent years, making the idea of owning property in the sunny south increasingly palatable. One of the biggest fears of owning foreign real estate is the question of what happens when I die?
The recently passed Tax Relief Act, in the United States (“US”) has a $5 million indexed exemption and a 35% rate for tax payable. As a result, Canadians who own US real estate held personally will not be subject to U.S. estate tax where their worldwide estate is less than $5 million at death. However, in 2 years the exemption drops back down to $1 million unless there are new tax law changes. For the purposes of this article we will discuss purchases in Florida.
In essence do we need to subject the Executors (Estate Trustees) to dealing with IRS and disclosing the full value of the deceased’s assets and getting into all of the myriad of cross border tax issues that appear the minute we need to deal with the US Authorities? Not if we can avoid it.
Canadians who purchase property in Florida have certain advantages: first, Canada and the US have a tax treaty that prevents Canadians from paying double tax in many circumstances. This will protect Canadians from double taxation in many circumstances, on the sale of the property. Second, for both tax and succession purposes the property can be placed into a carefully constructed Florida family trust.
In order to determine the eligibility of a given purchaser for such a vehicle it is necessary to meet with a legal and/or financial professional (tax accountant) familiar with all of the complex issues that affect the area and in order to make the professionals understand the individual needs of the person or family requiring the advice. This will allow for the careful planning necessary to make these vehicles work and comply with the tax legislation of both the US and Canada. The cost to establish the trust and administer it, is a small price to pay to avoid the extremely expensive time consuming, frightening and complex world of US tax.
Now is a great time to purchase land in Florida – if done properly. Speaking to a law firm such as ours together with the right tax accountant can greatly decrease your potential risks in falling afoul of either the Canadian or US taxation authorities When done properly the Florida family trust will provide peace of mind and security. In other words: use a Florida family trust to shelter you from the cold!
Jayson Schwarz is a Toronto business and real estate lawyer and partner in the law firm Danson Schwarz Recht. Aaron Grinhaus is his Associate. If you have questions, use the web site, www.dansonschwarz.com, email us at info@dansonschwarz.com and give us your questions, concerns, critiques and quandaries.
By: Jayson Schwarz and Aaron Grinhaus
Realty Times explores what happened with the recent American housing crisis and what needs to be done to prevent such a meltdown. David Fletcher’s interviews Harold Green of Central Showplace in a article that sheds light on the America Need for A Trust-Based Mortgage System.
Here are some experts from that interview:
RT: What caused this recession?
There is always going to be a reason that people point to when the economy slows down. I believe that most people would agree that a credit crunch caused this. The credit crunch was caused by too much easy credit inflating the price of everything including housing. It ended when lenders, for all practical purposes, quit lending.
RT: When do you think it will turn around?
It will turn around when liquidity returns. Many of the funds that were the tried and true sources of liquidity were virtually put out of business when the bubble burst. These funds took years to create and they will not suddenly re-appear.
RT: How long do you think it will take to rebuild the funds?
It will take years for these funds to rebuild. Until then, we will have to rely upon the sources that are available and they are going to be limited to banks that are solid and programs that are sponsored by the government.
RT: What can we expect from banks in the near term?
You should expect banks to move to more secure business models where taking risk is removed and replaced with more banking fees. Qualifications will tighten and the cost of borrowing will be significant. This will relax and get back to a normal market when the alternative sources of capital become healthy again.
RT: What does a ‘normal’ market look like?
A properly balanced money supply will enable reasonable people acting reasonably to acquire assets for reasonable prices and obtain reasonable financing from reasonable lenders. Right now the source of funds to create liquidity in the markets is pretty much going to be provided by the FED, the government and foreign investors.
RT: How did we get where are today?
From what we see from the sidelines, the lenders created this situation. Traditionally the people that are on the front line writing the paper, approving the loans and the lender’s themselves, are compensated based on their ability to write good loans, build and maintain profitable loan portfolios and make some money servicing those accounts. There is nothing wrong with that. It is a well established, proven business model. This model changed.
RT: How did the lender model change?
Simply put, the primary focus on how to make money in the mortgage market changed for some big lenders. While there were a number of factors involved, the sudden and significant demand for mortgages that came from the Wall Street was the straw that broke the camel’s back.
RT: How so?
Lenders saw this demand and rushed to fill it. Some of these lenders created programs that never existed before to get the paper to satisfy the hunger that arose for the mortgage-backed securities. These investments secured by first mortgages, sounded like a safe place to invest.
RT: The demand for mortgage-backed securities caused the problem?
This demand created an opportunity for companies to potentially generate huge profits by simply writing and selling loans. If they really wanted to be in the business, they could also build and keep a large loan servicing business that in normal times would not have been possible.
RT: It sounds like the new products helped no one but the lenders.
Lenders created new mortgage products that put a lot of investor’s money into the mortgage market and that money simply should not have been available. People that did not have the ability to repay were getting mortgages that they could not afford.
RT: The Lender, Not The Homebuyer, Created The Market?
You might say that. The ever increasing need for more and more paper to satisfy the appetite of the mortgage-backed securities that Wall Street was selling so quickly meant that the lenders that participated in this program needed to create a market.
RT: How did they do this?
They did this by marketing new mortgage products that were outside of the norm. They effectively relaxed lending rules to accommodate higher risk mortgages.
RT: The government did not have the authority to regulate this, true?
This unregulated transactional-based profit center was one of the primary factors fueling the housing bubble. They transferred the entire risk for the loan to the investors that bought the mortgage back securities and kept the profit center for servicing.
RT: How could this risk be minimized?
The incentive to take unreasonable risks would be greatly reduced if the pay check of the people writing and approving the loan was based on the quality and performance of the loan. For instance, fees should be earned and paid out over the term based on performance. Compensation should be reduced if the loan defaulted or if it was terminated.
Harold Green of Central Showplace was quoted in a recent interview with Paula Kulig of the Toronto Star, “If you’re a Canadian and you are looking to get a second home in the U.S., now is the time everywhere. There are deals to be had anywhere in the U.S. There are some places, like Las Vegas and Miami, where the deals are extraordinary. All of Florida has great deals.”
Paula’s article explores how Canadians are snapping up the great bargains that the US Sunbelt has to offer.
First-time home buyers reached the highest market share on record during the past year, according to the latest consumer survey of home buyers and sellers by the National Association of Realtors.
NAR mailed an eight-page questionnaire in July 2009 to a national sample of 120,038 home buyers and sellers who purchased their homes between July 2008 and June 2009, according to county records. It generated 9,138 usable responses.
“Tax incentives, record high affordability conditions and a pent-up demand brought a record share of first-time home buyers into the market,” he said. “These buyers are critical to housing and a general economic recovery because the market always heals from the bottom up – they absorb inventory, free existing owners to make a trade and stimulate related goods and services.”
“It’s interesting to note the last cyclical peak of first-time home buyers was during the last noteworthy economic downturn, with first-time buyers starting the chain reaction that led the nation out of recession,” according to Paul Bishop, NAR vice president of research.
The number of first-time home buyers rose to 47 percent of all home sales from 41 percent of transactions in last year’s study, and was the highest on record dating back to 1981. The previous high was 44 percent in 1991.
The profile shows the median age of first-time buyers was 30 and the median income was $61,600. The typical first-time buyer purchased a home costing $156,000, down from $165,000 in the 2008 study, and plans to stay in that home for 10 years.
Pending home sales rose for the eight consecutive month. The longest growth streak streak since measurement began in 2001, according to the National Association of Realtors.
The Pending Home Sales Index based on contracts signed in September, rose 6.1 percent to 110.1 from a reading of 103.8 in August, and is 21.2 percent higher than September 2008 when it stood at 90.9. The gain from a year ago is the largest annual increase on record, and the index is at the highest level since December 2006 when it was 112.8.
“What we’re witnessing is a rush of first-time buyers trying to beat the expiration of the tax credit at the end of this month,” he said. “Home values will stabilize sooner rather than over-correcting. That, in turn, will mean wealth stabilization for the vast number of middle-class families and lay the foundation for a durable economic recovery.” according to Lawrence Yun, NAR chief economist.
An index of 100 is equal to the average level of contract activity during 2001, which was the first year to be examined as well as the first of five consecutive record years for existing-home sales.
A forecast for housing and the economy will be released November 13. Existing-home sales for October will be reported November 23 and the next Pending Home Sales Index will be on December 1.
Foreclosures and short sales in US Real Estate seem to be great deals, but let the buyer beware: You could be buying a money pit.
A foreclosed home is bought as is and will not have the history available that a seller would be able to give you. This means you will buy the home and accept the flaws it may have; in many cases the former owner will have ceased taking care of it before the home went into foreclosure. Remember you’re dealing with people with big financial problems and you don’t really know what you’re getting.
Buying a foreclosed home will often result in additional waiting time as well as work. Also remember you need to have cash on hand because of the short time frames involved in closing.
Do your homework:
The US Real Estate market has been in decline for almost 3 years. Despite what many analysis believe will be a slow recovery, there are signs that 3 years of pent up demand and current low interest rates can start a very fast recovery.
The economic environment is going to get better based on the stimulus packages and the Fed easing. This will intern provide the fuel needed to propel the depressed US real estate market forward very quickly.
An example can be seen in Canada, while in the middle of a recession, Canada is also experiencing a major housing boom. Low borrowing costs, more affordable prices in many markets and some pent up demand after the fall and winter sales freeze provided heavy-duty support for housing. The Canadian national residential average price in May reached the highest monthly level on record.
The major factor holding down the US real estate is liquidity; preventing many would be homebuyers from getting the financing they need. Once liquidity is available to the US market, the homes sales will have all the ingredients needed to propel the US real estate market higher much like the Canadian market.
Signs are already starting, the National Association of Realtors said that sales jumped 7.2 percent to an annual rate of 5.24 million units, the highest since August 2007, beating market expectations for a 5 million unit pace. Sales were at a 4.89 million pace in June.
July’s percentage increase was the largest monthly gain since the series started in 1999 and marked the fourth straight monthly advance. The last time sales rose for four consecutive months was in June 2004, the NAR said.
The release of housing start data on June 17 has sparked a furry of responses on the Internet. Some commentators are horrified by the increased number of housing start while others are seeing the data as a sign of real estate market bottom.
One side argues that the market is currently over-supplied with months of existing inventory to consume as well as hundreds of thousands of homes under foreclosure. Adding more supply to the market would only drive prices down further and create more chaos.
In the West, housing starts jumped and incredible 28.6%, followed by the South with a 16.8% increase and the Midwest with a 11% increase. In absolute terms, overall starts were at a seasonally adjusted annual rate of 432,000 in May vs 454,000 in April. However, reader of this data must bear in mind that April suffered a significant drop from March data.
Most of the national wide increase came from multi-unit structures (Condos and Apartments) which is a very volatile number. Comparing year over year data,multi-unit homes are still down 54.6% and single family start are down 40.9%. Hence it is difficult to call this short term rise in housing start a “rebound”.
“Residential real estate has finally found a floor”, Jim Cramer told CNBC viewers on Tuesday.
The cheering camp argues in addition of the jump in housing start, the Building Permits also showed encouraging increases.. The South and the West jumped 17% and 29% respectively. They believe the Building permits is a more accurate indicator to the market’s future. This camp is confidant that the government’s stimulus package, inflow of immigrants and capital from foreign bargain hunters will ease current condition and results could be seen as soon as the end of 2009.
Has the US real estate market turned around?
Despite the different reasoning of each camp, both sides agree that the housing start data alone may not imply a bottom in housing prices. But both sides agree the downward spiral of the US real estate market have eased in the near term and further data is needed to see if this temporary stabilization can be sustained.