Learn before you leap
A place in the sun awaits those who research market and regulations
When the U.S. real estate bubble burst, housing prices plummeted and foreclosures surged. It’s still a buyer’s market, particularly in Arizona and Florida, and Canadians are taking advantage of our strong dollar and shopping for real estate in these sun belt destinations.
A recent Leger Marketing Survey on behalf of BMO found that one in f ive Canadians would consider purchasing a home in the U.S.
“Canadians of all ages are buying property down south. Some are at retirement age, but there is also the 30-to-40 crowd who are buying these houses as investment properties,” says Matt Reid, founder of Canuck-Abroad. com, a website helping Canadians relocate outside the country.
But buying your vacation getaway is more complicated than late-night TV commercials make it sound — it can be fraught with unforeseen and sometimes expensive problems.
The key to a successful purchase is doing your homework and understanding that real estate is a very different business south of the border.
“The No. 1 mistake Canadians make when buying a vacation property is not having the right group of professionals who know the law for both sides of the border,” says Diane Costain, founder of Buy The Sun, based in Phoenix.
“This industry is not as regulated as in Canada. Here, you can become a realtor after nine days of classes.
“Buying a home in this foreign country is not diff icult, but it does take some research.”
Rhonda Scharf, an Ottawa-based motivational speaker and owner of On the Right Track Training, bought her vacation home in Fort Myers, Fla., after doing extensive research.
She paid $104,000 for a three-yearold, four-bedroom bungalow. The original selling price was $350,000.
“There are no guarantees,” Scharf says. “You may not get the home right up to the close day.
“Networking is important. Talk to someone who owns a vacation home. Get support and do your homework. We saw a lot of homes that had stopped being loved. The owners knew the bank was coming so they stopped caring.”
Repossessed homes can be sold either as short sales, foreclosures, or real-estate-owned (REO) property.
A short sale means the bank is accepting a discounted selling price, knowing the proceeds of the sale are going to fall short of what is owed.
While there can be some tantalizing bargains, few short sales get approved by the banks, and they are extremely complicated to deal with.
Foreclosure sales begin with a minimum bid that is usually more than the value of the property.
Since the properties are sold “as is,” including any current tenants, fore- closure auctions often don’t result in sales. When this happens, the property reverts back to the bank and becomes an REO.
“With foreclosed homes, you don’t know whom you are dealing with,” Costain says.
“You hire one of the bidding companies and give them $10,000 up front before they will bid for you. You pay the balance the next day. The bid companies don’t need to be licensed.
“There are so many good deals, there’s no need for a vacation homebuyer to take the chance of buying foreclosed properties.”
Foreclosed properties are often plagued with problems: tenants refuse to leave, angry owners trash the place or thieves steal the contents or f ixtures.
Sometimes, the owners don’t know their property has been sold until the new owner shows up at the door. This happened to Costain with one of her f irst properties.
“The owners had no idea their house had been sold. The woman fell to the ground in shock, sobbing. I let them live in the house free for six weeks and gave them $1,000.
“I decided not to invest in any more foreclosed properties. I can do just as well with short sales and REOs with a lot less emotional turmoil,” she says.
Reid has found that most Canadians are buying REO properties.
“REOs are easy to buy, since you pay cash up front and avoid getting a mortgage. It’s a lot more diff icult for a Cana- dian to get a mortgage in the States.
“You’re not a resident, you don’t have a U.S.A. credit rating, so for the banks you don’t have an identity,” Reid says.
“Sometimes, REOs can be a bargain, sometimes they are not. Research the home and any potential problems.
“Don’t go cheap either. Spend that few extra thousand to hire a real estate professional who specializes in these kinds of properties. It’s easy to miss something that may have consequences later on.”
Title insurance is also mandatory due to the robo-signing scandal, where thousand of mortgage documents were processed quickly with questionable electronic signatures. Former homeowners are challenging the foreclosures in court.
Title insurance protects your investment and covers any costs or payouts awarded to former owners.
“It’s not the same as buying a home in Canada, so don’t assume you are protected,” Scharf says.
Be cautious, take your time and your investment could pay off.
“We use our Florida property as a vacation home, but we also rent it out year-round. It’s been a great investment.”