July 5, 2005

Blurb: Many Canadians spend part of the year abroad. But the stakes become much higher if they acquire foreign property.

Buying and owning foreign property

By Peter Diekmeyer o Bankrate.com

David Altro lives the life many Canadians dream of. Altro is a lawyer (http://www.altrolaw.com/) who is licensed by both the Quebec and Florida bars. Since he runs legal practices in both jurisdictions, he gets the benefits of living close to his Canadian family, combined with the pleasure of going south several times a year.

"Florida is a wonderful place, which for obvious reasons is very attractive to Canadians," says Altro. "It's no wonder so many of them come here."

Altro isn't kidding. According to the Canadian Snowbird Association, (http://www.snowbirds.org/) hundreds of thousands of us travel to Florida each year. There they take advantage of the temperate climate and relaxed lifestyle that is increasingly tailored to meet the needs of retirees. While many Canadians also vacation extensively in other southern U.S. states such as Texas, Arizona and California, Florida remains the most popular.

To buy or to rent?
The vast majority of "snowbirds," --as Canadians who travel south like to call themselves,-- go there simply for short-term vacations. Many take full advantage of U.S. government provisions that allow Canadian citizens to spend up to six months a year in the U.S. without having to fulfill any visa requirements. For them, buying a Florida home or condominium can seem like an irresistible option.

"Florida real estate has historically been an amazing investment," says Altro. "Prices keep going up and up. As a result, a lot of Montrealers who come here have chosen to buy rather than rent."

Lawrence Barker, executive director of the Canadian Showbird Association agreed. "Canada's weather can be pretty tough, especially on older people or those with asthma," Barker said. "Florida gives them a chance to get away from all of that, and to live a healthier lifestyle."

Paying for 12 months, but using only six ....
But buying foreign property, even in a country as close to Canada in its laws, customs and business practices as is the United States, is not as clear cut as it may seem. Although it's fairly easy to travel there, getting a U.S. permanent residency permit is expensive and time-consuming. And there's no guarantee of success. As a result, many Canadians who own U.S. property end up making payments 12 months a year, but using it only six months a year or less.

America has tough immigration standards and doesn't take just take anyone. "You have to have a good reason for wanting to live there," says Barker. "Otherwise they won't accept you."

Just applying for permanent residency costs U.S. $195. And if you are accepted, there are additional complications. For example if you live in the U.S. more than six months a year, you'll have to file U.S. income tax returns, and you could lose your access to Canada's Medicare system. The upshot is that for most Canadians, buying U.S. property brings key disadvantages, which make any proposition far from clear.

Legal and taxation issues
Canadians thinking of buying Florida property are also penalized on another key front. Key provisions in the state's Homestead Act and in an amendment to its constitution mean that out-of-state residents pay higher property taxes. And the differences can be huge. "You could be paying $3,600 in real estate tax on a two-bedroom condo, and the guy across the hall with the exact same apartment will be paying $1,800," says Barker. "And sometimes the difference is much larger than that. It's really not fair."

Last year, The Canadian Snowbird Association sent a letter to Florida's governor protesting the discriminatory taxation, which affects not just Canadians but also Americans who are not Florida residents. Unfortunately the provisions are enshrined in the state's constitution, making them difficult to amend. As a result Barker advises Canadians who are thinking about buying Florida property to check out both how much real estate tax the previous owner was paying as well as how much you would be paying if you bought the same property.

But real estate taxes are only one of many complexities that Canadians who buy foreign property need to be aware of says Altro, who specializes in income tax law, estate planning and other cross border issues. "Many snowbirds aren't aware that they could be subject to probate fees and a "death tax," if their affairs aren't structured properly," says Altro. "They also will have to pay capital gains tax when they dispose of their property."

The bottom line, says Altro, is that buying foreign property subjects you to a variety of legal, fiscal and regulatory challenges, which, although they are manageable, require foresight and planning to handle effectively.

Healthcare and insurance
Barker also advises potential acquirers of foreign property to carefully consider additional hidden costs, which can seriously break the average person's budget. For one, while travel insurance for short-term trips is relatively inexpensive, supplementary health insurance coverage for a couple in their 50s, can run in the $5,000 CDN range each year.

"People don't always realize that Canadian Medicare only covers part of your medical care costs if you are out of the country. During his years at the Canadian Snowbird Association, Barker has heard enough tales of $900 ambulance rides, $1,200 emergency room consultations, and in one case a $20,000 fee for an overnight stay, to make him wary of the costs of U.S. medical care.

Another potential problem says Barker, is that most mobile and manufactured homes, which many Canadians living in Florida tend to own, are not covered by conventional insurance. As a result, many Canadians who suffered property damage during the recent hurricanes had to finance the entire costs themselves.

Rent first then buy
The upshot is that while the advantages to living abroad for at least part of the year are undeniable, there are many complexities and potential pitfalls. As a result it pays to go slow and to take your time before getting involved. Study the area you want to buy in carefully, talk to potential neighbors and consult the experts.

"In most cases it pays to rent an apartment or condo for a few years to learn the ropes," says Barker. "Then if you really like the area and you decide to take the plunge by buying real estate, at least you'll know what you are getting into."

Peter Diekmeyer (www.peterdiekmeyer.com) is the Montreal Gazette's management columnist.

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