Despite high interest rates, many of us are buying second homes in sunshine U.S. markets thinking further price increases are inevitable and will rival the returns on quality U.S. stocks.
A while back I was interviewed about this trend on CTV. Apparently I surprised everybody when I said that buying in Florida might make sense as a lifestyle decision but was liable to be a bad investment.
Here are a couple of the “buts” they raised, and my responses.
Regardless of the pace of property value appreciation, “you’ll have use of your vacation home whenever you want.”
That’s right, and even a top-quality U.S. stock doesn’t offer that. While this may make a second-home purchase a good lifestyle choice, note that there are always plenty of Florida rentals to choose from if you aren’t tied down to going to the same place on every visit. It’s much cheaper to rent for a month or two than to pay a full year’s cost of ownership.
“But you can rent the place out to generate income.” Try doing that with by holding quality U.S. stocks
That’s true. But most renters want to rent the place in the same periods when you want to be there. You’ll get low rent, if any, the rest of the year. Then too, expectations of nice weather supply a lot of Florida’s appeal, but weather varies. A couple of cool winters could hurt rental and buyer demand for your property. So could a hurricane or two. Meanwhile, costs accumulate.
How Successful Investors Get RICH
Learn everything you need to know in 'The Canadian Guide on How to Invest in Stocks Successfully' for FREE from The Successful Investor.
How to Invest In Stocks Guide: Find 10 factors that make your investments safer and stronger.
Investing in real estate: You’ll need help from the real estate market to realize a profit
Costs may be higher than you think. Beyond the purchase price, you’ll also have to pay real estate taxes and condo fees, if that’s your choice of a dwelling.
On top of that, there’s insurance and maintenance. In addition, due to the heat and humidity, you have to run the air conditioning year-round to avoid mould. By the time the housing market stabilizes, new condos will come up for sale and compete against decades-old units. Let’s say when you sell, you pay a 5% real estate commission.
If you make any money on the sale, you’ll be liable for capital gains taxes, unlike the tax-free capital gains you can earn on your Canadian home.
You can still find attractive investment opportunities in Florida’s real estate market, but not in the kind of properties that most Canadian buyers are seeking. If you’re investing in real estate primarily for profit, you should look at multiple-unit rental housing or commercial properties, especially those with big parking lots or extra land. Investments like these can give you current income, plus long-term development possibilities, much like a quality U.S. stock can. That’s a potent combination for patient investors.
Buying a second home in the U.S. Sunbelt may be a good personal lifestyle choice. But it’s a risky investment, compared to, say, quality U.S. stocks. It’s also a bad place for any significant portion of your retirement savings.
If you have bought, or considered buying, a second house in the U.S., were you motivated by the expectation of profit or simply a lifestyle choice? What would you say to others pondering the same sort of purchase?
Note: This article was initially published in 2012 and is regularly updated.
Comments
Normand
I would kind of agree with you that Florida might not be the best place to buy if you wish to use it in the peak of winter. But there is other places in the US where the situation present itself in a much better investment opportunity then Florida. Look at Myrtle Beach, the Mecca of golfing, we recently bought a condo for one third the price of the 2006/2007 peak, the summer rental income in Myrtle (best summer rental in the US) covers the annual ownership costs. Longer term 5 to 10 years market should have corrected. As you probably know the second home market has ten year cycle in the US. We have seen it before in the nineties. As golfer, for me the best time to golf in Myrtle is April, May and September. Good luck to interested investors.
As I read this comment I am in a rented condo in St Pete’s Beach, FL. Thought about purchasing a place, but just doesn’t make sense. Invest what you would spend to buy a place in an income producing investment and use the proceeds for renting a place. Besides when you get tired of a particular locale, it is easier to switch.
Consideration to purchase a second home in the US, whether for lifestyle or profit, should include the impact of U.S. taxation on Canadians. A U.S. tax return reporting worldwide income as well as other returns must be filed by “U.S. Persons”, who include those that have a “substantial presence” in the U.S., i.e. physically present 31 days in the current year and also present 183 days that include all the days present in the current year plus 1/3 of the days in the previous year plus 1/6 of the days present two years ago. There are implications for Canadian “U.S. Persons” with RRSPs, RRIFs, RESPs, TSFAs and financial accounts of $10,000+ outside the U.S. A U.S. Person can be subject to U.S. income and capital gains tax. A “Non-resident Alien” may be exposed to U.S. estate tax on worldwide assets, particularly with the expected reduction of the current $5.12 million threshold. Even if no tax is payable, fines for failure to file required forms can start at $10,000, or $100,00 for willful violations. This whole area is further complicated by state taxes, withholding taxes, amnesty programs, and relief and planning options. We should also be aware that with the current U.S. border security systems and Canadian bank reporting requirements to the U.S., Uncle Sam knows much about all of us who cross the border and is in position to detain.
I agree lifestyle choice.I purchased spring 2010 after renting 6 years various places.Now finally feel at home.
Not sorry at all dont expect to make any money but operating costs less than former rentals and 1% at bank not very profitable after taxes.Also not necessary to get upset over possible us tax consequences do due diligence and make your reports as required.
Yes Pat, good advice and well written. We wintered for 17 years in Florida. Started with a Mobile Home but then went to a more permanent condominium Bungalow dwelling. Lost $10,000.00 when we sold the Mobile home. Found out the hardway that you don’t make money on realestate in Florida. In our Park many just walked away after failing to sell. Also if it is a Rental type Park where you own the home but your space is rented, it is controlled by Investors who raise the rent every year and it is not the Cost-of- Living raise. Our Park was Owner by Investors from Detroit. Remember Florida and hurricains. Hundreds of Mobile Homes have disappeared during wind storms. I am a handyman and was amazed when doing some renovations how flimsy the wall construction was, especially in the older Mobile homes. No 2×4 walls. Our second Florida home was more pernament and in a lovely well run Retirement Community. Solid concrete walls, attached to another similar home, 2 car garage, 3 Golf Courses, Swimming Pools, Large Auditorium where shows from New York came every so often to entertain. Lots of activity, dances, clubs of all sorts, craft clubs, choirs, anything you could wish for to be happy. It was nice when we arrived in late October to come to our own place with our furniture etc. We had to pay for someone to check the place through the summer every week. There was Condo fees, realestate taxes. Americans are great entertainers with house parties, very friendly, always having get-to-gethers and never treated us as foreigners which we were. We sold when I reached 80 and Health Insurance became very expensive, even though we were both healthy. When we sold, fortunately the American Dollar was high and the Canadian Dollars low and when it was all added up we broken even. The Condo Fees, Taxes paid, Insurance etc. was lost but we consider those dollars vacation money we would of had to pay had we had that accommodation. Didn’t gain a penny but had some wonderful winters. After we had Sold and with the Housing collapse in 2008 the Corporation that managed everything for financial reasons, offered the residents the complex which the residents bought. It was in the millions of dollars. Anyone thinking of buy should be aware of that possibily. That’s our Florida story and we would do it again even though it was costly.
I agree with your estimation of potential difficulties with the real estate market and with the second poster’s comment about getting tired of being at the same vacation place all the time. Makes sense for some folks but that was your main point–possibly a good lifestyle choice but not an investment choice. Several friends of ours have bought properties in Arizona but they like going to the same place all the time (for four or five weeks out of 52). Not a good choice for us. Thanks very much for your comments (of course it helps that we agree….).
We bought in Arizona, twice. Our scenario was a bit different, we lived there 5 mos.a year. When we figured out the cost of owning vs. renting we were better off owning. It also allowed us to leave a lot of stuff there so we didn’t need to take a lot when we went down. You’re right in that it meant we had to go there for holidays, but we founf Phoenix a great place to be, we could take day trips and see all sorts of new things. One caveat; you need a good support group in case something needs to be looked after at the home when you’re 3,000 km away. We had that, and great neighbours. And we made a few bucks each time we sold. We were extremely lucky I guess.
Learn everything you need to know in
'The Canadian Guide on How to Invest in Stocks Successfully'
FREE Special Report from The Successful Investor.
How to Invest In Stocks Guide: Find 10 factors that make your investments safer and stronger.
Get Your FREE Report Now:
How to Invest in Stocks Successfully
X No, I don’t want to make big money in the stock market.
Privacy Policy and Terms of Use
The Successful Investor Inc. and its affiliate Successful Investor Wealth Management (referred to hereafter as TSI Network) know that you care how information about you is used and shared, and we appreciate your trust that we will do so carefully and sensibly. This notice describes our privacy policy. By visiting websites owned by or associated with TSI Network, you are accepting the practices described in this Privacy Policy.
This privacy policy is applicable to all TSI Network Visitors, Clients, Employees, Suppliers, Web sites, Management, and all other interested parties. Any links to or from our site are not covered by this policy. We encourage you to read the privacy policies of every site that you visit.
The privacy of the site/store visitor is very important to TSI Network, and is respected at all times. The information we receive from customers helps us to personalize and continually improve your online experience at TSI Network.
We do not collect or disclose personal information, except when it is provided to us voluntarily by the site/store visitor with their consent.
We store subscriber and password files containing personal information securely. These files are stored in secure areas that are not accessible to the general public. We are always working to ensure the security of your personal information.
We are continuously in the process of improving our sites and services. If any new features or policies require a change to this current policy, we will post a clear notice of this change on pages of our site where the privacy policy appears. The principle behind this privacy policy is to collect information with your knowledge and consent.
What personal information do we collect?
The information we receive from customers helps us personalize and continually improve your online experience at TSI Network. TSI Network may collect personal information online for all legal purposes, which include, but are not limited to:
Information You Give Us: We receive and store any information you enter on our website or give us in any other way through sign-up forms or ordering forms for publications and services. You can choose not to provide certain information, but then you might not be able to take advantage of many of our services and features. We use the information that you provide for such purposes as responding to your requests, customizing your web browsing experience for you, improving our website, and communicating with you.
Automatic Information: We receive and store certain types of information whenever you interact with us. For example, like many websites, we use "cookies," and we obtain certain types of information when your web browser accesses TSI Network.
Information from Other Sources: For reasons such as improving personalization of our service (for example, providing better product recommendations or special offers that we think will interest you), we might receive information about you from other sources and add it to our account information. We also sometimes receive updated delivery and address information from our shippers or other sources so that we can correct our records and deliver your next purchase or communication more easily.
We do reserve the right, however, to collect and perform statistical analyses of the internet traffic to our website for our internal use. However, information collected does not allow us to identify any individual, and will not collect any personal information of the visitor. Furthermore, we do not sell, rent or loan to any outside parties the information collected and analyzed.
Although you may be able to access some of our websites without being required to register or provide personal information, certain websites and sections of our websites may require registration. In addition, if you choose to contact us to ask a question, we will collect your personal information so that we can respond to your question.
To make the visitor’s experience on our website easier, we may use per-session “cookies” (session identifiers) to track the state of the visitor session. This “cookie” is destroyed when your session with our website is over.
Cookies are alphanumeric identifiers that we transfer to your computer's hard drive through your web browser to enable our systems to recognize your browser and to provide features like "Remember Me" for our paying subscribers. Cookies are also used during the ordering process to help ensure your order is handled correctly. We do not extract any information about individual users or their computers as a part of this process.
The "Help" portion of the toolbar on most browsers will tell you how to prevent your browser from accepting new cookies, how to have the browser notify you when you receive a new cookie, or how to disable cookies altogether. However, cookies allow you to take full advantage of some of TSI Network's most useful features, and may be required to access certain areas of our website.
Internet Protocol (or IP) addresses are collected for all visitors to this site. This information is used for the purposes of traffic analysis.
Does TSI Network Use the Information It Receives?
"Contact Us" and Comment Features: TSI Network encourages visitors to its websites to contact us with questions and comments. Email addresses and other information of persons using these features may be collected in order to facilitate our responses to those inquiries.
Purchases of Merchandise: TSI Network websites may offer individuals the opportunity to purchase branded or other merchandise online. In connection with those purchases, customers may be asked to submit personal information, such as shipping addresses and credit card information, which is required to complete the transaction. TSI Network may also offer a Membership program, through which purchasers of its products may receive discounts on their online purchases. Membership registration may involve the submission of personal information to TSI Network and assignment of a user ID and password.
Agents: We employ other companies and individuals to perform functions on our behalf. Examples include fulfilling orders, delivering packages, sending postal mail and email, removing repetitive information from customer lists, analyzing data, providing marketing assistance, processing credit card payments and providing customer service. They have access to personal information needed to perform their functions, but may not use it for other purposes.
Promotional Offers: We may make our postal mailing list available to organizations offering products or services that might interest you. If you prefer NOT to receive these offers, please send an email with your name and address to service@tsinetwork.ca with "Do Not Rent Name" in the subject line. We do NOT make our email list available outside our organization.
Protection of TSI Network and Others: We release account and other personal information when we believe release is appropriate to comply with law; enforce the terms of the Legal notices that accompany this policy; or protect the rights, property or safety of TSI Network, our users or others. This includes exchanging information with other companies and organizations for fraud protection and credit risk reduction.
In addition to these limited disclosures of personal information, TSI Network may provide its affiliates or unaffiliated third parties with aggregate information about visitors to our sites. For example, we might disclose the median ages of visitors to our websites, or the numbers of visitors to our websites that come from different geographic areas. Such aggregate information will not include information of any individual visitors to our websites.
TSI Network may provide personal and other information to a purchaser or successor entity in connection with the sale of TSI Network, a subsidiary or line of business associated with TSI Network, or substantially all of the assets of TSI Network or one of its subsidiaries, affiliates or lines of business.
With Your Consent: Other than as set out above, you will receive notice when information about you might go to third parties, and you will have an opportunity to choose not to share the information.
Except as provided herein, TSI Network will not sell or rent personal information about you to unaffiliated third parties.
We may disclose personal information you have provided through our websites, for the above purposes, to persons or companies that we retain to carry out and other activities for which you have registered or in which you have otherwise asked to participate. In particular, we may for these purposes transfer information to any country (including the USA and other countries which may not offer the same level of data protection as Canada). We also will disclose personal information if required by law, including compliance with warrants, subpoenas or other legal processes.
TSI Network requires persons and companies to which it discloses personal information to restrict their use of such information to the purposes for which it has been provided by TSI Network, to adequately protect the information, and not to disclose that information to others. TSI Network cannot be responsible, however, for any damages caused by the failure of unaffiliated third parties to honour their privacy obligations to TSI Network. Similarly, TSI Network is not responsible for the privacy policies and practices of other websites that are linked to our websites.
COMMENTS: TERMS OF USE
We’re always happy to receive feedback, comments and ideas from TSI Network visitors, and we encourage you to add your perspective to any issue by leaving your comments on the site.
To make sure users get the most out of the site’s comments function, we’ve provided a few guidelines:
Do not post threatening, harassing, defamatory, or libelous material.
Do not intentionally make false or misleading statements.
Do not offer to sell or buy any product or service.
Do not post material that infringes copyright.
Do not post information that you know to be confidential or sensitive or otherwise in breach of the law.
TSI Network will not accept responsibility for information posted in the comments.
Please note that we reserve the right to delete or edit all comments. As well, we may close posts to further comments at our discretion. If a user repeatedly abuses our comment policy, we may also revoke that user’s access to our comments section.
By commenting on TSI Network, you agree that you retain all ownership rights in what you post on the site, and that you will relieve us from any and all liability that may result from those postings.
Special Note for Parents
TSI Network does not sell products for purchase by children. If you are under 18, you may use TSI Network's site only with involvement of a parent or guardian
How do we protect your personal information?
TSI Network does everything possible to prevent unauthorized intrusion to its websites and the alteration, acquisition or misuse of personal information by unauthorized persons. Notably passwords submitted by users of our websites are encrypted using encryption mechanisms. However, TSI Network cautions visitors to its websites that no network, including the Internet, is entirely secure. Accordingly, we cannot be responsible for loss, corruption or unauthorized acquisition of personal information provided to our websites, or for any damages resulting from such loss, corruption or unauthorized acquisition.
How do we maintain the integrity of your personal information?
TSI Network has procedures in place to keep your personal information accurate, complete and current for the purposes for which it is collected and used. You may review the information that you have provided to us and where appropriate you may request that it be corrected. If you wish to review your personal information please send a request to: service@tsinetwork.ca.
How do I withdraw my consent to use Personal Information? Access, Correction, Inquiries and Complaints
If you wish to request access to, or correction of, your personal information in our custody or control, or find out how we've used or disclosed that information, please make your request in writing to us. We may need to verify your identity before searching for or providing you with personal information. In some circumstances, we may not be able to provide access to your personal information, for example if it contains the personal information of other persons, if it constitutes confidential commercial information, or if it is protected by solicitor-client privilege. If we deny your request for access to, or refuse a request to correct, your personal information, we will advise you of the reasons for this refusal.
If you do not want to receive promotional offers, please notify TSI Network by sending an email to service@tsinetwork.ca.
How can you ask questions about our Privacy Policy and access your personal information?
The provision of information by you is entirely voluntary and you have the right not to provide information. Subject to applicable law, you may have the right to receive certain information as to whether or not personal information relating to you is held by TSI Network and to obtain a copy of such information that is sought. You may also have the right to require information, where appropriate, to be erased, blocked or made anonymous or to have data updated or corrected. If you do not wish TSI Network to hold information about you or if you wish to have access to information, modify information, or object to any processing of information or if you have questions please contact us.
What Choices Do I Have?
As discussed, you can always choose not to provide information even though it might be needed to make a purchase or to take advantage of TSI Network features.
You can add or update certain information as explained in the section "How Can I Change My Information?"
If you do not want to receive email or other mail from us, please notify TSI Network by sending an email to service@tsinetwork.ca.
The "Help" portion of the toolbar on most browsers will tell you how to prevent your browser from accepting new cookies, how to have the browser notify you when you receive a new cookie, or how to disable cookies altogether. However, you will not be able to use important features of TSI Network sites if you do not use cookies.
Changes to this Policy
This Policy is the sole authorized statement of TSI Network's practices with respect to the collection of personal information through TSI Network's websites and the subsequent use and disclosure of such information. Any summaries of this Policy generated by third party software or otherwise (for example, in connection with the "Platform for Privacy Preferences" or "P3P") shall have no legal effect, are in no way binding upon TSI Network, shall not be relied upon in substitute for this Policy, and neither supersede nor modify this Policy.
TSI Network may revise this Policy from time to time.
Legal Notices and Disclaimers
The contents of this web site and our publications are based upon sources of information believed to be reliable, but no warranty or representation, expressed or implied, is given as to their accuracy or completeness. Any opinion reflects the Successful Investor’s judgment at the date of publication and neither the Successful Investor, nor any of its affiliated companies, nor any of their officers, directors or employees, accepts any responsibility in respect of the information or recommendations contained in the publications or on this web site. Moreover, the information or recommendations are subject to change without notice.
Information presented on this web site or contained in our publications is not an offer, nor a solicitation, to buy or sell any securities referred to on the web site or in the publications. The material is general information intended for recipients who understand the risks associated with an investment in any securities referred to in the publications or on this web site. The Successful Investor has made no determination regarding whether an investment, course of action, or associated risks are suitable for the recipient.
I would kind of agree with you that Florida might not be the best place to buy if you wish to use it in the peak of winter. But there is other places in the US where the situation present itself in a much better investment opportunity then Florida. Look at Myrtle Beach, the Mecca of golfing, we recently bought a condo for one third the price of the 2006/2007 peak, the summer rental income in Myrtle (best summer rental in the US) covers the annual ownership costs. Longer term 5 to 10 years market should have corrected. As you probably know the second home market has ten year cycle in the US. We have seen it before in the nineties. As golfer, for me the best time to golf in Myrtle is April, May and September. Good luck to interested investors.
As I read this comment I am in a rented condo in St Pete’s Beach, FL. Thought about purchasing a place, but just doesn’t make sense. Invest what you would spend to buy a place in an income producing investment and use the proceeds for renting a place. Besides when you get tired of a particular locale, it is easier to switch.
Consideration to purchase a second home in the US, whether for lifestyle or profit, should include the impact of U.S. taxation on Canadians. A U.S. tax return reporting worldwide income as well as other returns must be filed by “U.S. Persons”, who include those that have a “substantial presence” in the U.S., i.e. physically present 31 days in the current year and also present 183 days that include all the days present in the current year plus 1/3 of the days in the previous year plus 1/6 of the days present two years ago. There are implications for Canadian “U.S. Persons” with RRSPs, RRIFs, RESPs, TSFAs and financial accounts of $10,000+ outside the U.S. A U.S. Person can be subject to U.S. income and capital gains tax. A “Non-resident Alien” may be exposed to U.S. estate tax on worldwide assets, particularly with the expected reduction of the current $5.12 million threshold. Even if no tax is payable, fines for failure to file required forms can start at $10,000, or $100,00 for willful violations. This whole area is further complicated by state taxes, withholding taxes, amnesty programs, and relief and planning options. We should also be aware that with the current U.S. border security systems and Canadian bank reporting requirements to the U.S., Uncle Sam knows much about all of us who cross the border and is in position to detain.
PAT – you didn’t mention the very high municipal taxes
and they really sock it to out of state people.
I agree lifestyle choice.I purchased spring 2010 after renting 6 years various places.Now finally feel at home.
Not sorry at all dont expect to make any money but operating costs less than former rentals and 1% at bank not very profitable after taxes.Also not necessary to get upset over possible us tax consequences do due diligence and make your reports as required.
Yes Pat, good advice and well written. We wintered for 17 years in Florida. Started with a Mobile Home but then went to a more permanent condominium Bungalow dwelling. Lost $10,000.00 when we sold the Mobile home. Found out the hardway that you don’t make money on realestate in Florida. In our Park many just walked away after failing to sell. Also if it is a Rental type Park where you own the home but your space is rented, it is controlled by Investors who raise the rent every year and it is not the Cost-of- Living raise. Our Park was Owner by Investors from Detroit. Remember Florida and hurricains. Hundreds of Mobile Homes have disappeared during wind storms. I am a handyman and was amazed when doing some renovations how flimsy the wall construction was, especially in the older Mobile homes. No 2×4 walls. Our second Florida home was more pernament and in a lovely well run Retirement Community. Solid concrete walls, attached to another similar home, 2 car garage, 3 Golf Courses, Swimming Pools, Large Auditorium where shows from New York came every so often to entertain. Lots of activity, dances, clubs of all sorts, craft clubs, choirs, anything you could wish for to be happy. It was nice when we arrived in late October to come to our own place with our furniture etc. We had to pay for someone to check the place through the summer every week. There was Condo fees, realestate taxes. Americans are great entertainers with house parties, very friendly, always having get-to-gethers and never treated us as foreigners which we were. We sold when I reached 80 and Health Insurance became very expensive, even though we were both healthy. When we sold, fortunately the American Dollar was high and the Canadian Dollars low and when it was all added up we broken even. The Condo Fees, Taxes paid, Insurance etc. was lost but we consider those dollars vacation money we would of had to pay had we had that accommodation. Didn’t gain a penny but had some wonderful winters. After we had Sold and with the Housing collapse in 2008 the Corporation that managed everything for financial reasons, offered the residents the complex which the residents bought. It was in the millions of dollars. Anyone thinking of buy should be aware of that possibily. That’s our Florida story and we would do it again even though it was costly.
I agree with your estimation of potential difficulties with the real estate market and with the second poster’s comment about getting tired of being at the same vacation place all the time. Makes sense for some folks but that was your main point–possibly a good lifestyle choice but not an investment choice. Several friends of ours have bought properties in Arizona but they like going to the same place all the time (for four or five weeks out of 52). Not a good choice for us. Thanks very much for your comments (of course it helps that we agree….).
Best to take some time down there and contemplate all the costs, property taxes will be going up for years not to mention condo fees insurance etc…
We bought in Arizona, twice. Our scenario was a bit different, we lived there 5 mos.a year. When we figured out the cost of owning vs. renting we were better off owning. It also allowed us to leave a lot of stuff there so we didn’t need to take a lot when we went down. You’re right in that it meant we had to go there for holidays, but we founf Phoenix a great place to be, we could take day trips and see all sorts of new things. One caveat; you need a good support group in case something needs to be looked after at the home when you’re 3,000 km away. We had that, and great neighbours. And we made a few bucks each time we sold. We were extremely lucky I guess.