Diversifying your Portfolio: Adding US Real Estate Investments as a Canadian Investor

Regardless of where you are from, there is something intoxicating about the US market. This can range from the liquidity and diversity of businesses on the various stock exchanges to the range of homes located in all kinds of weird and wonderful locations! If you are a Canadian property investor, one of the main factors that tend to be most attractive is the wealth of properties in areas that are less prone to inclement weather and more likely to generate a higher amount of passive income. 

Learn About The Advantages Of Us Real Estate Investments Compared To Canadian Investments

Before taking any step that involves investing in assets outside your home nation, you need to perform due diligence on the advantages to ensure it’s worth the effort. This is true for any investment opportunity since regulation and potential can differ depending on the jurisdiction. Nevertheless, the advantages are evident when comparing Canada and the USA regarding real estate. For starters, the US real estate market is far less overheated than the Canadian one, which boasts some of the most expensive properties outside of Hong Kong and Singapore. 

Secondly, the weather is much more varied and amenable to comfortable living than the harsh winters in the North. While Canada does have pleasant summers, locations such as Alligator Point in Florida are far better places to wait out the notoriously brutal Canadian winter months. However, possibly the most significant consideration when choosing to invest your money in US real estate is the potential to realize far greater returns, either via capital appreciation or rental income. Last but not least, there is a much greater variety of possibilities in the USA when looking at the two nations, if only due to the sheer size and variety of its population. 

Identify The Costs Associated With Purchasing Property In The US As A Foreigner

What you might gain in increased exposure to better investment opportunities, you might lose out on when it comes to fees. However, and this is a big “however,” you really need to do your best to ensure that you can avoid paying taxes you don’t need to and pay those that are utterly required for foreign investment. One of the biggest costs to consider is the Foreign Investment in Real Property Tax Act (FIRPTA), which requires foreign investors to pay a withholding tax of 15% on the property’s gross sales price. This tax can be reduced or waived if certain conditions are met, such as the property being used as a primary residence (which might not be the case for you if you’re looking at it from an investment perspective).

Consider Using Real Estate Investment Trusts (REITs)

If all else fails and you simply don’t have the funds or meet the requirements to invest in your neighbor to the south, you can still put your money to work by investing in what are known as real estate investment trusts (REITs). These are shares in businesses that purchase and operate certain property types, such as hospitals, housing associations, trailer parks, etc. You name it; there will be something that appeals to you. Not only do you gain access to a professional property management company that oversees an extensive portfolio of properties, they are also required to pay a portion of their earnings via a dividend. The frequency of these dividends varies with each company, but some, like Realty Income, pay monthly and have a well-diversified portfolio. Moreover, because you are a foreigner, you will only have to pay a 15% withholding tax regardless of the size of your investment, which is a darn sight better than the up to 37% US citizens have to pay!

Investing in the US poverty market as a foreigner, Canadian or otherwise, is no different than how you might do it in your home country. Nonetheless, you will gain exposure to a larger and more diverse market that you can utilize for wealth creation.

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