Beaches and sunshine — along with the thrill of getting a property at post-crash prices — were long key drivers of Canadian interest in Florida vacation homes.
But the weakening loonie, combined with double-digit increases in Florida home values, have a growing number of Canadian buyers asking about rental opportunities, in addition to their usual questions about the beach, brokers and cross-border tax, specialists say.
To mitigate the impact of the weaker dollar, some Canadian buyers are now looking to buy their Florida homes with a U.S. mortgage — instead of the usual route of buying the properties outright. And Canadian investors are considering purchasing Florida rental properties where they would be paid by their tenants in U.S. dollars.
The loonie — which closed down 0.18 of a cent on Wednesday to a fresh 41/2 year low of US89.46 cents — has dropped 10 per cent from a year ago, when it was at parity with the U.S. dollar.
“If you’re buying properties with tenants in place, you’re earning U.S. dollars and it helps to mitigate the drop in the loonie,” said Wayne Levy, marketing director of the Ontario-based real estate brokerage, Florida Home Finders of Canada.
“Don’t forget the cash flow you have coming is in U.S. dollars. Right now, the way it sits at 90 cents you’re losing it on one side, but you’re making up for it on the other side because the rental income from your tenant is in U.S. dollars.”
Last year the U.S. rental market emerged as a prime housing asset, driving demand from private equity funds on both sides of the border for distressed properties.
“What we see is the rental market is good in the U.S.,” said David Altro, a Montreal-based specialist in cross-border tax, estate-planning and real estate. “So we have many Canadians buying condos and single family houses, or multiples of those, for rental income. They are getting a better return there than we would be getting in Montreal or Toronto where real estate values are pretty high.”
In 2013, 52 per cent of Canadian home buyers in Florida were shopping for a vacation home, compared to 18 per cent who wanted to buy a rental unit for investment purposes, data from the National Association of Realtors show. Another 20 per cent were looking for a mixed-use home, which they would use for a few months and rent out for the remainder of the year.
Canadians made up just under 30 per cent of foreign buyers in Florida last year — down from a high of 39 per cent in 2011.
They’re facing increased competition from foreign buyers from Latin America and China, along with rising Florida home prices. In December, the median price of a Florida townhouse or condo climbed to $137,500, a 17 per cent increase year-over-year.
Single family home prices rose 11 per cent year-over-year to $172,630, data from Florida Realtors show.
“It definitely doesn’t look good,” Levy acknowledged. “But we’re still seeing the demand.”
Florida developers have been aggressive in their efforts to lure Canadians, either by offering special incentives, or coming to Canada to meet directly with buyers. Florida developer Moses Bensusan, a former Montrealer, held an investment night recently in his hometown to showcase his 307-unit Costa Hollywood condo resort project.
“The developers are willing to either reduce the price ... or pay condo fees for up to two years in some projects, offsetting some or all currency differential,” said Alfonso Ballester, a Montreal real estate broker who specializes in sales of Florida properties to Canadians.
And some Canadian banks say they are seeing an increase in Canadian customers who choose to take out U.S. mortgages, instead of purchasing their Florida homes with cash generated from a Canadian line of credit.
There are no penalties when paying off a U.S. mortgage early so these customers anticipate paying off their mortgages when the Canadian dollar goes up — using a Canadian line of credit if necessary — according to Joanne Lavigne. She is an RBC manager in Florida who specializes in clients from Quebec.
“They can turn around and just pay off their mortgage,” said Lavigne, who estimates demand by her Canadian customers for U.S. mortgages is now up 10 per cent.
“Since there’s not going to be a penalty to pay it off, it’s better than changing a whole $300,000 to U.S. dollars to purchase a home.”
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