A condo in Florida—financed in Quebec
by Fabien Major
What you’ll learn
- The current real estate market
- Tightened mortgage conditions
- Expenses and incidentals
There is a long-standing love affair between Quebecers and Florida. Many choose the Sunshine State as the ideal spot for retirement. This dream has become more and more a accessible due to the bust of the speculative real estate bubble in 2009. The market bottomed out in 2011. House and condo prices plummeted, with devaluations of up to 70%. Even today in certain cases, home values are the same as they were 15 years ago! Perform a quick search on the lesPac.com and Kijiji: you’ll can find studios at $55 000 and a 3 ½ condo 15 minutes from the beach for $125 000.
The values of houses and condos have never again reached the pinnacle they did in 2008. The reason? US mortgage financing is not what it once was. Before, getting a loan was too easy. At the peak of the irrational exuberance, access to property was so chaotic that proofs of revenues and assets from borrowers were not even checked. As a result, thousands of fraudulent cases piled up—and cause the financial sector to go into a tailspin. Today, nothing in the mortgage sector falls through the cracks; the regulations are so much tighter that many foreign buyers get discouraged with the bureaucracy and decide to forgo their dream.
The US : The champions of paperwork
Naturally, if you have a stellar financial situation and don’t mind bureaucracy and paperwork, you can easily use the traditional means of purchasing a home with an American financial institution. It is important to remember that Canadian banks have branches in the United States that can help you, such as RBC, Desjardins Bank, NatBank and TD. A Multi-Prêts broker can also help facilitate the mortgage process for a home in Florida.
When you’re not an American citizen, you can easily become discouraged and amazed at the bureaucracy when purchasing property. Municipal taxes and condo fees are much higher than in Canada. What a lot of people hate the most is the fact that all documents pertaining to a transaction must be handled by lawyers. Take a look at all the TV ads for American law firms; it’s no wonder there are so many as people can sue for even the most mundane reasons. The complexity of the contracts, leases, maintenance agreements, mortgage, release, succession and others just piles on the paperwork and hikes the costs.
Refinancing for Indirect financing
For Quebecers looking to purchase a vacation property in Florida, the easiest and simplest way to go about it is through indirect financing. Do you have a mortgage-free condo, cottage or house in Canada? Great! That is your gateway to fun in the sun!
Start by getting an update on the market value of your Canadian property. Next, your mortgage broker could work with you to determine what part could be remortgaged. For example, if your house is worth $450 000, you could remortgage $250 000 for the purchase of a condo in Florida, plus a cushion of $50 000 for legal fees, permits, renovations, and the purchase of furniture and other personal items.
A survey conducted by Florida Realtors showed that 90% of Canadians that own property in Florida made their initial purchase in cash—without a mortgage. It stands to reason that these numbers hide the fact that many refinanced their Canadian properties to reach their goals. In the study, the average amount paid was $151 000. Only 16% bought a condo or house in order to rend it out. 53% made their purchases to vacation in Florida and 26% bought a property near the palm trees to both use and rent out.
You can find out more on remortgaging homes with Multi-Prêts
Expect the unexpected
Apart from the administrative hassles that are much more prevalent than in Canada, keep in mind these three major irritants: currency rates, fees and insurance. The currency rate between the Canadian and US dollar is rarely advantageous. When the Canadian economy has a downturn, it affects the Loonie and your purchasing power diminishes. Think of it as hidden tax.
Make sure you budget for maintenance fees, which can amount to several thousand dollars each year. If you don’t live full time in Florida, someone still has to regularly visit the property to make sure everything is in proper order, clean up, mow the lawn, cut the bushes and perform minor repairs. This can cost you, on an annual basis, between 3 and 6% of the value of your property.
Another important point to consider: the southern parts of the US are susceptible to many hurricanes and tropical storms. Insurance companies are very cautious when providing coverage to people with real estate in Florida. For home insurance, get ready to pay double what you would normally pay in Quebec.
You can still find great real estate deals in Florida.
- You can still find great real estate deals in Florida.
- Finance your dream vacation home with a mortgage-free property in Canada.
- Set aside enough money for maintenance when you are not in your vacation home.
- Currency rates can become a hidden tax.