American and Non Resident Buyers Buying Real Estate in Canada
Vancouver is a great place to invest. Vancouver has matured in to a
world class city. Low interest rates, strong immigration and being the
most beautiful and livable city in the world contributed to another
record year as far as population and immigration growth.
Investment in Downtown Vancouver will still be the most secure, as
Vancouver, known by many international investors, is the Swiss bank
account of international real estate, according to Ian Watt.
In Greater Vancouver, the rental supply is generated by the investor
buyers and with 25 per cent to 40 per cent down they are buying with
serious money (in the United States the investor can put down only 5 per
cent).
Most importantly for international buyers, there are no restrictions on
non residents purchasing Canadian real estate. Financing is available
for up to 65% of the purchase price of the property and some lenders
will offer the best discounted rates to non-resident purchasers.
Mortgages in Canada generally have a twenty-five year amortization
period and most institutions will guarantee an interest rate for terms
ranging from six months to ten years. The shorter the term the lower the
interest rate.
Typically Canadian lenders (financing must be done within Canada) will
require the following documentation from non-resident client:
- Bankers reference lender from your current financial institution.
- Confirmation via a three month history of bank statements
- A personal net worth statement
- A completed application which a mortgage broker can assist you with.
In addition to the 35% down payment the lender will want to know that
the buyer has approximately 1.5% of the purchase price available to
cover the costs of closing the transaction. The typical closing costs
are as follows:
- Legal fees to transfer the title of the property and register the mortgage $1,200 to $1,500.
- Property Purchase Tax (B.C.) 1% of the first $200,000 of the purchase price and 2% on the balance.
- Bank Appraisal of the property $200 to $500.
- Goods and Services Tax. This only applies to new properties that have never been occupied.
- A Canadian bank account from which to deduct the mortgage payments. To open a Canadian bank account you must be in the country
Lenders typically want the property to be purchased for investment
purposes with the rental income covering the mortgage payment and the
property taxes.
One other thing to keep in mind is that if you intend to rent the
property the rents you receive could be subject to a federal withholding
tax (income tax) on the gross income. Another option is to elect to
file a Canadian Tax Return to report only the rental income earned in
Canada, in which case your taxes are based on the net income from the
property.
You may also have to pay a capital gains tax when you sell the property.
In simple terms the capital gains tax requires that you pay tax based
on the increase in value of the property at the time the property is
sold.
Regarding insurance, condo insurance for fire, theft or flood etc. will
probably run you a few hundred dollars for the year but most condo
strata councils will make it mandatory that you acquire insurance before
renting out your unit.
I hope this gives you some ideas of investing in Canadian real estate,
and if you have any questions please email me at your convenience.
My best,
Ian
Ian Watt - American and Non Resident Buyers Buying Real Estate in Canada
Blog by Ian Watt | March 24th, 2013
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