When the 2007/08 crash in the US happened, real estate was a scary thing for many US property owners. Too many people bought into the teaser rate mortgages with only a stated income requirement for qualifying, and consequently got burned when the crash happened.
No one thought the gravy train would end and many regular work-a-day folks had 4 investment properties which they couldn’t sustain when the values dropped and the rate went up.
For Canadians, this was a great time to buy investment property as the prices were ridiculously low and the Canadian dollar was near or at par with the green back. Fast forward to today (March 1, 2019) as of this writing. What is the prospect for Canadians now?
Here in Canada, many of our Canadian real estate markets are still overblown price wise and many properties will not cashflow…especially single family rentals up to 4 plexes located in Canada’s major cities. Additionally, the stress test (B20) in most cases, making mortgage qualification challenging coupled with lenders requiring a short novel of documents in order to qualify.
So, can US can still be a viable option? Well, that depends on where you choose and what your strategy is. The truth is, we have a low Canadian dollar at the moment, compared to the US dollar, making purchase prices, renovation costs and closing costs higher…about 1/3 higher as of this writing.
However, there is a bright side. Let’s talk available cities to invest in.
According to our friend Google, as of 2019, Canada has 3 cities with more than a million people,51 cities with between 100,000 and 1 million people, and 233 cities with between 10,000 and 100,000 people.
In the U.S., there now are 285 cities in the six-figure club, up from 275 when the most recent federal census was conducted in 2010, according to the latest population estimates from the U.S. Census Bureau. Most of these cities in the US have lower acquisition prices, cashflowing properties, lower cost of labour and available financing. It is also turning into a renter nation, which is reason 1 why the US a worthwhile venture.
As reason 2, we must consider our profits are coming back to us in US dollars, making the profits 1/3 higher.
Of course, we have to do our research to understand local markets etc. Now, if you understand the process of building a strong, trustworthy team locally (Realtor, mortgage broker, insurance, contractor, appraiser, property inspector, accountant, property manager), where to go to gather necessary local real estate data, and how to properly analyze local property, you can do the same anywhere.
It is important to understand that as a real estate investor, you need to live where you choose to live and invest where it makes sense…this is often not the same place. You don’t necessarily need to be able to drive by that investment property everyday to insure it is still there.
Reason 3. In the US, the tax laws regarding US real estate have changed…and very much for the better for real estate investors.
Read the article here: https://www.realwealthnetwork.com/learn/2018-tax-law-benefit-real-estate-investors/
Reason 4. Thanks to a recent drop in interest rates, there is a new level of affordability. The 10-year Treasury rate fell to around 0.7 percent from the height in October and November. When this happens, mortgage rates follow. In the fall the prediction was that rates would take the 30-year fixed-rate mortgages above 5 percent, but after a recent drop in rates its possible mortgage rates will fall below 4 percent.
Reason 5. Considering the increase in values in many areas, people potentially have alot of equity and may be looking to refinance. What’s the point here? Consider this. Although we may not see the craze like the last boom, it is not out of the question that people will use their refinance money to purchase real estate, being that real estate is back in favour again.
Here’s the potential opportunity. As this potential real estate (mini) boom starts happening, it can be a great time to get in on the buy – fix – sell strategy. Hold the properties for as short a period of time, make your profit, use the 1031 Exchange (Purchasing a replacement property of equal or greater value and deferring the capital gains. You must identify a replacement property for the assets sold within 45 days and then conclude the exchange within 180 days) purchase the next property and repeat.
Make sure you pay attention to where real estate is trending to identify the signs of the next crash. If/when you do, get your money out, wait until the dust settles and then buy multi-family property. This reason 5 is certainly more of an opinion, but do some research and make your own assesment.