“Snowbird’s dilemma” Buying versus renting and 7 factors to consider - Kerr Financial
Accounting & Tax
“Snowbird’s dilemma” Buying versus renting and 7 factors to consider
Category: Accounting & Tax, Estate & Trust, Financial Planning, Investment Management Tags: Canada-U.S. tax, Florida, Rent vs Buy, retirement, Snowbird, U.S., U.S. Estate Tax, U.S. Property, U.S. Tax

“Snowbird’s dilemma” Buying versus renting and 7 factors to consider

Are you a snowbird facing the dilemma of whether to buy or rent a property in the United States?

If so, here are 7 factors you should consider before making your  decision.

1. Consider the length of time you plan to spend in the U.S. each year. 

Do you plan to be in the US for four months or more in a given year? If so, owning is generally better than renting where you expect longer stays each year. But you should be careful to manage the time spent in the U.S. to ensure you do not exceed 183 days in any given year – that is full days in the U.S. at any time of year. So, a trip to Vermont or a golf game in Massachusetts will add to the number of days and complicate your life. How so?  You will be deemed to be a resident of the United States for tax purposes and will have to supply additional tax information each year to avoid U.S. personal and  estate taxes.

2. Don’t overpay for the property. 

Interest rates are very low at this time and it may be tempting to take advantage of them. But you should make sure that you are not overpaying for the property. Housing prices in the United States are expected to level off next year but not necessarily beachfront properties. There is also the uncertainty around inflation. Higher and steady inflation will drive up the value of house prices.  That being said, inflation is expected to cool off in late 2022, all this while keeping in mind that there are certainly reasons for inflation to continue to rise.

3. Watch out for the hidden costs of buying. 

Buying entails condo fees, maintenance, taxes, and insurance and will require security costs and visits for all months when you are not in occupation. Individuals sometimes fail to consider these costs when thinking of ownership. You will likely pay at least $2,000 per month in home-ownership costs. You will also need to have some occupancy throughout the year to verify the status of the property.

4. Be mindful of the potential impact of global warming and general weather conditions. 

Given threats of global warming, you should ensure that the property is not in a flood zone.  This can be done by checking the history of flooding for the last 100 years. And keep in mind that extreme weather conditions can result in property damage and higher insurance costs.

5. Evaluate the purchase of a property against your expected investment returns.

If investment returns drop below 8%, which is possible for the short term but unlikely for the long term, then the real estate purchase might be a profitable alternative. But one study done on real estate prices in Holland since the 1500s to date established the long-time growth rate equal only to the long-term inflation rate of 3% for real estate.

6. Consider how the Canadian dollar is performing versus the U.S. dollar.

If the Canadian dollar is at $0.80 or more against the U.S. currency, then it might be a good time to buy with Canadian dollars.

7. Perhaps most important factor is whether you will be happy to stay in the new property for the next 10 years or more.

After all, there are many other places to visit in the world. An article in the Wall Street Journal compares ownership to rental dealing with where you might be most comfortable.

In conclusion, there are a number of planning ideas that you may want to consider when purchasing a property in the U.S. to ensure you don’t trigger unwanted U.S. estate or personal taxes, which could include using Non-Recourse Mortgage or Family Trust.  Speak with your professional financial advisor to review what strategies may be right for you.

Kerr Financial

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Kerr Financial Group was formed in 1979 for the purpose of assisting individuals to maximize their personal financial resources, alleviate their financial and retirement concerns and simplify the administration of their affairs.

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