Real estate investments head south

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At a recent U.S. home-buying session at Allan Gardens in Toronto, hundreds of prospective buyers attended – so many they had to add chairs to accommodate the overflow. And though you might expect the crowd to be filled with soon-to-be retirees, there were a significant number of young people hoping to profit from bargain-basement properties south of the border.

Paula Thomas, 29, of Toronto was attracted by price, she said with a laugh. "The potential we are looking at is in Orlando so you can rent it out … and it's pretty much paying for itself. And hopefully when we retire, we could use it or pass it to our kids."

"I've scoped out a few places online, and I can get a four-bedroom, four-bathroom house for cheaper than I can get my 680-square-foot condo in Toronto," said her partner, Brian Rupnarian, 30.

The couple has enough money for a down payment, but said they would likely get a line of credit to finance the rest of it. "We did the math, and if we can rent it out for $1,000 a month, it will be paid off in roughly three years," he said.

The overflow event was run by Florida Home Finders of Canada, a Vaughan, Ont.-based real estate company that connects Canadians with U.S. property, holding regular information sessions around the country. Co-owner Wayne Levy says interest in their Florida properties, which range in price from $60,000 to $150,000, has been growing steadily. "We've sold more units … in these first three and a half months than we did all last year."

Is U.S. property the new gold? Well, yes and no.

Danielle Park, a partner at Venable Park Investment Counsel in Barrie, Ont., and founder of money management blog JugglingDynamite.com, travelled five weeks this winter surveying real estate in Arizona and Florida. She says that there can be great opportunities, but points out this kind of investing isn't for everyone.

"Don't do it on debt," she says.

"When people are taking capital out of their primary residence in Canada, overvalued as it is, and saying, 'Hey, we can borrow $500,000 on this and buy a place down south,' I think it's the wrong thing to do," Ms. Park said.

"As long as you're not taking it on with the necessity of positive cash flow to carry the thing, because that could set you up for a lot of risk."

More and more Canadians are jumping into the game, hoping to benefit from rental income, while watching their investment grow. According to the U.S.-based National Association of Realtors, Canadians accounted for 23 per cent of all foreign sales of U.S. property in 2011. A recent Bank of Montreal survey showed that one in six, or 16 per cent, of Canadians polled would consider buying a property in the United States.

"[U.S.]house prices are down by one-third across the nation from the peak, and down more than half in some states like Florida, Nevada, from their peaks," making U.S. property attractive to investors, said Sal Guatieri, a senior economist at BMO Nesbitt Burns.

But the trick is timing the market: In snowbird destinations like Florida, Georgia, Nevada and Arizona, where foreclosure rates remain high, market watchers predict prices could dip further in the short term, Mr. Guatieri said. It could still be a smart move, he said, if investors are planning to hold their property for the next 10 or 20 years.

When Calgary's Andrew and Lisa de Silva decided they were in the market for a rental property last year, they didn't go looking across town. They decided to buy a house nearly 4,000 kilometres away in Atlanta.

The de Silvas, both in their late 30s, had accumulated a nest egg, and had a friend who was willing to invest with them. They purchased a 1,700-square-foot, four-bedroom house in suburban Atlanta this past January. Including the cost of renovations, Ms. de Silva said they spent around $52,000. With a renter moved in this month, she says they will be pulling in "pretty close" to $1,000 a month in rental income. They are also counting on the value of the property rising in the long term.

"It gives us the ability to create a legacy for our kids," said Mr. De Silva, who works in sales. "It's something that we can pass on to them where they can generate some income, or it's an education fund."

The de Silvas found their Atlanta property after attending a three-day workshop last fall, run by Ottawa-based Steve Martel (who bills himself as "Canada's only U.S. real estate expert and mentor"). Mr. Martel, who has purchased more than "2,000 doors" in the United States with investment partners, runs workshops across the country to teach Canadians how to find and purchase properties in the U.S., covering everything from title companies to taxation to property management.

(Property management fees typically eat up about 10 per cent of the monthly rent, he said.)

"If somebody's looking to buy an investment property and they have $50,000, they can go out and get dual-digit returns on their investment," Mr. Martel said, although he points out, "There's still a lot of work involved in building U.S. real estate. It's not a get rich quick thing."

Mr. Martel's "23-step system" involves extensive Internet research to find the right home to buy, checking out every facet of a neighbourhood, from job-growth statistics to crime rates, from average rents to school reports.

In the de Silvas' case, he also found them a mentor with experience buying property in the United States, who helped them find a reputable realtor, inspector, property manager and contractor in the area. They flew down to Atlanta to check out the property before closing.

"It is a bit of work, but it's exciting, because you can see things happening," said Ms. de Silva, a stay-at-home-mom who runs a health and nutrition business.

The de Silvas had one close call when their first bid proved to be less of a gem than it seemed. "Online it looked good. It was in a good area. But when we had inspectors look at it, they said the house was caving in the middle," Ms. de Silva said.

Mr. de Silva acknowledges that there is always a risk with any investment. "You have to take that leap of faith, pull the trigger and buy," he said.

Steve Martel's website resources:

Rentometer.com – Find comparable rents in the area, by entering an address and a rent amount.

Homepath.com – Lists foreclosed homes for sale by Fannie Mae (Federal National Mortgage Association). Along with Homesteps.com, which is Freddie Mac's site (otherwise known as Federal Home Loan Mortgage Corp.), this is the best place to find deals on foreclosed U.S. properties with clear titles.

Neighborhoodscout.com – Find crime, school and real estate appreciation reports for any address in the United States.

Zillow.com – Helps determine the estimated market value of a home, including the after-repair value (ARV), rental average and sales history.

Servicemagic.com – Matches investors with contractors or service providers in a geographical area.

Google street view – Mr. Martel says, "I tell my realtor, 'Take a picture of the five houses on the right, five on the left and 10 houses in front,'" Then you go to Google street view, and it's about two to three years outdated. ... that's a good thing. When you've got today's pictures, it gives you a timeline. Is the neighbourhood going up in value or down in value?"

Special to The Globe and Mail