4 Tips for Investing in Canadian Real Estate

As a real estate investor, opportunity knows no borders. But before you cross over into Canada, you’ll want to be sure you understand some of the unique aspects …

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As a real estate investor, opportunity knows no borders. But before you cross over into Canada, you’ll want to be sure you understand some of the unique aspects of investing outside of the United States. Once you do, you’ll discover a wealth of new properties to choose from.

Benefits of Investing in Canadian Real Estate

The United States real estate market continues to boom, even in spite of the pandemic. But as someone with a large portfolio and a desire to tap into new markets, you may find Canadian real estate to be another option. Here are some of the specific benefits American investors enjoy:

  • Exchange rate. The exchange rate for U.S. citizens is definitely a plus. It means the American dollar stretches further in Canada and has the opportunity to buy you more real estate than it would in the United States. 
  • High demand for rentals. If you thought real estate prices were high in the U.S., get familiar with Canada’s booming market. Many households are being totally kept out of the home ownership market. As Zeifmans explains, “For the first time since 1971, the percentage of home ownership in Canada has fallen, and rentals now account for 32% of Canada’s homes. Rent prices are being driven higher, making the decision to become a landlord in Canada a decidedly lucrative one.”
  • As any investor knows, diversification is a must. And while you might be diversified across different property types and locations in the United States, you’re still entirely dependent on the American economy. Venturing into Canada gives you some international exposure in your own “backyard.” 

We’re not saying Canadian real estate is a good investment for every American real estate investor, but it’s worth considering.

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In many respects, the same fundamentals of real estate investing hold true regardless of which side of the border you’re on. However, there are some nuances and things to keep in mind. Here are a few helpful tips: 

  1. Put Boots on the Ground 

While not a requirement, it’s always recommended that you see a property in person before investing in it. This is true whether the property is located down the street from your house, or it’s across the border in Canada. (In fact, it’s more important that you see an international property than a local property, simply because you don’t have as many reference points to leverage as assumptions.)

When traveling to Canada, you’ll need to make sure you have the proper documentation to enter the country. It’s also helpful to meet with a local real estate professional to get a feel for the property and the area around the property.

  1. Understand Taxes 

Taxes are sky-high in Canada. If you don’t account for these taxes, you may think an investment opportunity is more profitable than it truly is. Thus it’s imperative that you do some research on the front end.

As an American investor, you should be familiar with terms like personal income tax, withholding tax, sales tax, speculation tax, and land transfer tax. These are complicated issues that require in-depth analysis. Thus, it’s a good idea to meet with a Canadian tax professional to get a feel for how these different taxes will impact your rate of return.

  1. Get Familiar With Financing

One of the best parts about investing in Canadian real estate is that you have plenty of financing optionsavailable to you. In fact, you don’t have to use private money or a Canadian bank. There are plenty of U.S. banks that will fund your purchase of Canadian real estate (assuming you meet the underwriting requirements). Start asking around to see which options you have available to you.

  1. Try Investing in REITs

Not quite ready to buy your own Canadian property? You can get your feet wet by trying a Canadian real estate investment trust, or REIT. These funds operate in much the same way that U.S. REITs do – giving access to a portfolio of income-producing properties without the risk or burden of owning it all yourself. 

Adding it All Up

You’ll have to decide whether or not Canadian real estate has a place in your investment portfolio. And if it is, you’ll want to take the time to study each opportunity until you find the one that makes the most sense for your finances and goals.

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