Forever Canadians have been scooping up cottage country in Muskoka, Kawartha, and Rideau Lakes; and no one has ever really thought much of it. But what about when we start buying our second properties in foreign countries like the United States, or even Europe? For some reason, then it becomes a much bigger deal. Not only do people start questioning whether that’s the most beneficial thing for the economy, but whether those second properties should even be purchased.
Author Talbot Stevens says that buying abroad is “an ego thing.”
“People just want to say ‘my house is in the south of France.,'” he says. “To be honest, I have more respect for people who are truly wealthy and don’t need to let anyone know.”
That’s harsh, but Stevens’ bigger point might be that people are taking on these properties, and the second mortgages to go with them even when they can’t afford it; and aren’t even using it most of the time throughout the year.
Brad Lamb, one of Toronto’s most well-known real estate brokers, and star of the HGTV show Big City Broker,disagrees.
“The same logistics apply to a cottage if you are only going to use it three or four weeks of the year,” says Lamb. “What’s the difference between owning a condo in New York for $800,000 or a cottage on a lake, it depends on what your thing is.”
And it seems that buying in the United States is a lot of Canadians’ “thing.” The National Association of Realtors reported that as of March 31 of this year, international buyers had purchased $82.5 billion worth of real estate. 25% of that was purchased by Canadians.
Prashant Patel, vice-president of RBC Wealth Management agrees with Mr. Lamb, saying that it’s not uncommon for people to buy abroad – but they have to be careful. Not only do they have to make sure they can afford it, but there are other issues that also need to be dealt with.
“That’s probably one of the main issues our team deals with quite a bit, all the tax and financial planning issues of owning U.S. real estate. When we have clients saying, ‘I’m thinking about buying a cottage or property in the U.S.’ we say, ‘Let’s step back and make sure it does not impact your future retirement or lifestyle.”
But neither Mr. Patel nor Mr. Lamb are alone in their thinking that buying foreign property is becoming a very popular thing – and a very acceptable thing.
Kimberley Marr, author of How to Buy U.S. Real Estate says that an entire industry has sprung up for wealthy clients that are buying and selling property. And that new industry is allowing people to market their properties in whole new ways, and connect with people an ocean away.
“The big one is Canada-U.S. but there is a growing trend of Boomers purchasers abroad, especially in Europe,” she says. “Say I have a property of a Canadian in Toronto, it’s higher-end. The buyer could be someone from Toronto but it could be someone from France, Germany, Hong King. Through the network, they market property. Someone in Paris might market their property in Toronto.”
She goes on to say that often, buyers will purchase property (usually through an agent that does all of the communicating for them,) even though they’re only going to live in it for a small portion of the year. However, that agent or another property management company will then rent out the property for the remainder of the time – again, with the buyer not needing to be all that involved in the process, but still collecting all the income. Ms. Marr points out that while this is too much like a timeshare for many people’s liking, it’s different in the way that puts you in full control.
But also, she warns, doing this also gives you all the “responsibility and the liability.”
What do you think? Is it a big deal if people purchase a second property abroad instead of here at home? And should they be purchasing second property at all? Is that for the individual to decide or is it, as Mr. Stevens’ put it, “an ego thing?”
