My name is Mark Goodfield. Welcome to The Blunt Bean Counter ™, a blog that shares my thoughts on income taxes, finance and the psychology of money. I am a Chartered Professional Accountant. This blog is meant for everyone, but in particular for high net worth individuals and owners of private corporations. My posts are blunt, opinionated and even have a twist of humour/sarcasm. You've been warned. Please note the blog posts are time sensitive and subject to changes in legislation or law.

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.

The blogs posted on The Blunt Bean Counter provide information of a general nature. These posts 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.


  1. Great post!

    My wife and I recently thought about the idea of buying a condo in Myrtle beach of Florida but after evaluating things, it just doesn't make sense for us despite the attractive purchase prices that can be seen in many areas in the U.S.

    For one thing, property taxes for foreigners can be substantial depending on the state, and with a condo, what really irks us the most is the uncertainty involved in the monthly expenses for a condo. On top of the purchase, it's almost as though you've committed to an additional mortgage. It's not uncommon for regular condos to charge between $600-$900 per month in expenses. And they will go up over time.

    Don't get me wrong, I love real estate and I have some of my own investment/rental properties, but I own the units entirely (in comparison to only having ownership to part of a building with a condo), I have full control of my expenses, and they are in Canada.

    When we travel to the U.S. we rent on short-term basis only. For example, my wife and I went to Orlando for our honeymoon and we stated at Sheraton Vistana Villages. We booked through Air Canada Vacations and we knew exactly what we were paying. A relative of mine rents a condo in the U.S., sometimes for a month at a time, but when he leaves, he washes his hands and plans his next trip elsewhere.

    By not investing in a property in Florida, we will not feel 'obliged' to go back right away. That way, if we want to visit another location, we won't have to fret about our home or condo elsewhere.

    That's just my take on things.

    Nice post!

  2. I just came back from Orlando last week and purchased 4 properties, all as investment. 2 from Mattamy homes in the burbs (Lake Nona) and 2 condos downtown.

    I crunched all the numbers, and if you borrow from your home line of credit (which you can write off, you can easily make 5% to 10% return. Please do all your homework first and it makes sense to visit any area first.

  3. Thanks for the two comments TWC(I will be sure to check out your blog) and Anon. You clearly represent the two views I discussed in my blog. There is no right or wrong answers, lifestyle decisons and number crunching as noted above are required in all cases. For some, lifestyle trumps investment and for some like Anon, the numbers make sense and when the real estate market in the US bounces back, these purchases may prove to be very prudent.

  4. Thanks BBC! I will be filing a tax return in the U.S next year for those properties. 2 of which were rented out before my closing (very happy)

    I understand I get a credit for that when I file my Canadian tax does that work

  5. Hi Anon

    When you file your US returns you will report your rental income and expenses. You will then be required to claim depreciation under US rules and most likely your net income will be a loss. If you still have net income after depreciation, you will owe US tax.

    In Canada you must also report your US rental income and expenses, however, the depreciation rules are different (US you claim full depreciation, Cda only depreciation to bring income to nil). Anyways, if you owe any tax in Canada on your rental income, you claim a foreign tax credit for the US taxes paid to offset the tax on your Cdn return. The idea is to only pay tax once to the country where the income in earned.

    Finally, you may have to file Form T1135, so make sure you or your accountant looks into this.

  6. I think that all too many 'investors' are blinded by the 'real' in real estate. That having something tangible trumps the ability or necessity to understand even basic ROI, PV or FV calculations.

    To make a best case 5-10% return then add the tax hassles, dealing with tenants - and don't get me started about opaque price discovery (my investment rental condo is worth what..!?), liquidity (lack there of) and transaction costs when it comes time to sell... Forget it. I for one could never make the numbers work.

    One of my colleagues at work is the would be Condo King of Orlando and he has yet to show how he is making a better return then if he would have just bought a handful of REITs. At least he's been buying at the bottom(?) of the market.

    For the other Jr. Landlords that I work with and their 600sq ft investment condo's in downtown Toronto - all I can say is that the swimming pools in the rec centers will be filled with the tears of the investors....

  7. We too are looking for an investment home, currently most investments from your broker or bank are doing poorly! We are in the process of selling a rental townhome that will yield us enough to buy a single family dwelling for cash in Phoenix, Arizona. Our thinking is somewhere to go for warm getaway and the market should eventually pick up and increase its values. The taxes in Arizona are the same for residents and foreigners and are half of what they are here in Canada. Our families will visit it and maintenance will be 100 - 150/mos (take care of pool and have a company look at it every few days) Now so far a good idea, anyone have another negative we don't know about, we would love to hear about it. Thanks

  8. Anon, some tax considerations are: 1) potential US estate tax upon death 2) US tax return filings if you ever rent the property.

    You mention you are looking for an investment home, however, you are also using this as a vacation home, so this is really not a pure investment play. One question I would have is if you are taking monies from your investment account to purchase the home, I would assume you do not need any cash flow from this investment, since the home will not only reduce your cash flow (less investment income), but it will decrease your cash flow as you pay for taxes and maintenance.

    If you ignore the personal enjoyment component, from an investment perspective it is a pure real estate play, on will AZ home prices bounce back and how quickly. Although one would think that is a pretty good bet, I have been startled the last few years in talking to people and preparing income tax returns about how little money many peoples parents have made on Florida properties that they purchased 20 or more years ago and sold in the last few years. Granted, if they had sold before the US meltdown, they would have made some profit, but at least with Florida properties, the increase in value in many cases has surprisingly not materialized.