My name is Mark Goodfield and I am a tax partner and the managing partner of Cunningham LLP in Toronto. This blog is about income tax, business, the psychology of money and investing topics and is meant for taxpayers no matter their income bracket, but in particular for high net worth individuals and entrepreneurs who own private corporations. I also blog about whatever else crosses my mind; I have to entertain myself. This is my personal blog and the views and opinions expressed in this blog do not reflect the position of Cunningham LLP. I am blunt and opinionated (at least for a Chartered Professional Accountant). You've been warned.

The blogs posted on The Blunt Bean Counter provide information of a general nature and should not be considered specific advice, as each reader's personal financial situation is unique and fact specific. Please contact a professional advisor prior to implementing or acting upon any of the information contained in one of the blogs.

Tuesday, July 26, 2011

Purchasing a vacation property in the United States: Lifestyle vs. Bargain?

The Toronto Star’s Moneyville section recently had two stories on purchasing property in the U.S., the first by Roberta Avery who purchased a home in Sedona, Arizona and the second by Alison Griffiths who purchased a farm in Florida.

I found the articles interesting, as like many Canadians, my wife and I have bandied around the idea of looking for a U.S. property while the prices are seemingly low and there are distress sales. We have also had this discussion with several friends who are also considering purchasing a U.S. vacation property.

Although professionally I know of several people who have purchased U.S. properties, some of whom have bought multiple properties as pure investments, interestingly, only one of my friends has followed through with a U.S. purchase. That is not to say the Avery's and Griffith's have not made the best investment and/or personal home buying decision of their lives, it is just in my personal circumstances, it is still not the time to buy a retirement property.

My reasoning is twofold. The U.S. property taxes for Canadians are typically very substantial and taken together with the other carrying costs such as management fees, interest, insurance and utilities, my budget estimates put me in the red several thousand dollars a year, even if I could rent the property a month or two. With the glut of homes for rent in Florida and Arizona, I am not sure how much rental income one can count on in the near future. In addition, I would prefer to not have to deal with the IRS and file a U.S. income tax return every year, although that is not a deterrent on its own.

The second reason, and the more important reason, is that I have several places in the world I intend to visit over the next fifteen or so years, including Africa, Australia, the Baltic, Greenland and Bora Bora. My wife and I feel that if we purchase a U.S. vacation property now, we would feel beholden to using that property and we want to be free of any real estate shackles.

Alternatively, we could just look at a U.S. vacation property purchase solely as an investment, working with the assumption the property will increase in value greater the the yearly excess carrying costs. I have not ruled out that possibility yet.

I would be interested to know if the Avery’s and Griffiths’ plan to travel the world in addition to carrying these properties? It sounds like both these couples are happy to spend their time in their dream homes. I guess it’s different strokes for different folks, with future travel plans and lifestyle a determining factor.