U.S. financing from Canadian bank offsets purchase

Canadian real estate investors are often dissuaded from purchasing American properties because of the exchange rate, but a lot of needless headaches can be avoided by receiving U.S. financing from select Canadian banks.

“A $400,000 home in the U.S. will become $532,000CAD, so the U.S. mortgage makes sense to mitigate the impact of the weak Canadian dollar,” said Alain Forget, RBC’s director of business development in the U.S. “At $0.76, a lot of Canadians are backing out of purchases because they’ll still have to change their money at about 33% exchange. A lot of Canadians don’t know they can get U.S. financing from a Canadian bank like RBC, and for investment properties they rent out all year long we can finance 75% of that. But for a second home, if they use the property for six to eight weeks and want to rent seasonally for a few months, we can go with 20% down.”

Canadians are investing increasingly south of the border, spending $10.5 billion last year.

“It averaged $384,000, and that number can buy you a lot of real estate in the U.S.’s Sun Belt states,” continued Forget. “There’s a lot of opportunity in those markets to get three- or four-bedroom homes, or even nice townhomes with three bedrooms and 3,000 square feet in gated communities that have resort lifestyles.”

A home worth $1 million in Canada goes for about $400,000 in much of Florida, but choosing the right kind of home will offset the purchase price, especially during the peak season.

“In Southwest Florida, the west coast of Florida and Central Florida, for $250,000 to $300,000, Canadian investors can rent out their homes for $3,000 to $4,000 a month,” said Forget. “A lot of Canadians are using properties for themselves for up to a couple of months and then renting them out during the peak months of January to April, and they still generate enough U.S. cash flow income to cover their property taxes, HOAs, taxes and insurance. It can even cover financing principal and interest.”

A five-bedroom house in Orlando goes for roughly $450,000 and typically fetches substantial monthly rental income.

RBC has dropped its down payment requirement on investment properties to 25% from 40%—a sign that it regards Florida rental properties as low-risk, high-yield investments.

“The real estate market in Florida varies but you can buy new construction from reputable builders in beautiful gated communities for $200 to $250 per square foot,” said Forget. “It has solid rental potential from an ROI perspective. That’s the beauty of the real estate market in Sun Belt states like Arizona and Florida—you can rent homes out year round or just for a few months.”

Condo hotels are other worthwhile investments. The HOA fee is higher, but those monies are recouped with yield from as little as 65% rental occupancy. Some projects offer up to 10% lease backs, as well.