Buying a condo in the USA

[philintheblank]

Morning all,

I am looking for some advice and expeirience from people who have bought property in the US.

The wife likes going on vacation in Maui but it seems like every time we look for a hotel or rental to stay in, the price keeps getting higher. I started looking into buying a condo that could be used as a short term rental to offset the cost of owning.

I have done some research already about financing and different laws, but am wondering if there are some people that have been through that process. Hawaii in general seems to gouge anyone living off island, US citizen or not, and that has started to take the wind out of my sails. Doesnt seem like there will be much of anything left after fees and taxes have been paid up, then on top of that I will have a 2nd mortgage to look after.

I should add that I am already incorperated in Alberta and not shy of doing the business and tax side of things, but if i am going to be gouged either way, i will just pay the higher price per night and forgo the hassel of trying run a side hussle.

[Dean2]

You will want to take a REAL hard look at the economics of doing this in Hawaii. You need to look in detail at the specific Island and location you are looking at. Property taxes vary greatly, even from one part of town to another, as do the taxes on rental properties. Some areas treat you like a Hotel and have all sorts of hospitality taxes and levies and as you have already seen, non-residents of Hawaii are taxed very heavily in most locations. You also need to factor in the cost of the management company, condo fees/yard maintenance, cleaning and repair costs as well as quite high fumigation costs.

A friend was trying to talk me into investing with him on a few properties so I ran the numbers on a whole bunch of options on the big island when the dollar was still 90 cents. None of the high rise condos worked unless you had 100% rental and that won't happen. Townhouse style near the beach was a bit better at 92% and detached with two rentable suites was the best at 80%.

The other thing I will say is, unless you are spending at least 2 months a year there, you are way better off renting. Put your down payment into a good safe Bank stock yielding a 4-5% dividend, which is tax free up to $41,000 a year each, and use that income to pay for the trips.

[lmtada]

Excellent advice Dean. I second your comments.

Originally Posted by Dean2

You will want to take a REAL hard look at the economics of doing this in Hawaii. You need to look in detail at the specific Island and location you are looking at. Property taxes vary greatly, even from one part of town to another, as do the taxes on rental properties. Some areas treat you like a Hotel and have all sorts of hospitality taxes and levies and as you have already seen, non-residents of Hawaii are taxed very heavily in most locations. You also need to factor in the cost of the management company, condo fees/yard maintenance, cleaning and repair costs as well as quite high fumigation costs.

A friend was trying to talk me into investing with him on a few properties so I ran the numbers on a whole bunch of options on the big island when the dollar was still 90 cents. None of the high rise condos worked unless you had 100% rental and that won't happen. Townhouse style near the beach was a bit better at 92% and detached with two rentable suites was the best at 80%.

The other thing I will say is, unless you are spending at least 2 months a year there, you are way better off renting. Put your down payment into a good safe Bank stock yielding a 4-5% dividend, which is tax free up to $41,000 a year each, and use that income to pay for the trips.

[fishtank]

Know a couple family’s that has sold their condominium in Hawaii last year . They are pretty knowledgeable of the real estate scene in the us

[Dean2]

I should have said that we used the Big Island for a base line as it had the cheapest total costs of ownership. It had the lowest property taxes, about $10/1000 at the time and did not charge the double rate, A class properties" or the over 1 million premium that Oahu does. It also has one property tax rate for the whole Island. It did not charge hospitality tax on short term rentals. It is also not near as popular as Oahu so rental occupancy will tend to be lower.

Property taxes on the Big Island are relatively low compared to many other U.S. jurisdictions. Chicago is 5 times as expensive and certain parts of Phoenix are 8 times higher but places in Apache Junction are less than Hawaii, so like I said, it is really location specific..

[Drewski Canuck]

There were all kinds of Alberta Professionals who owned rental condos in Honolulu in the 1970'S AND THEY WOULD RENT THEM FROM ALBERTA. There was a cleaning service that came in at the end of the stay, and you had a place in Discovery Bay near the beach.

That all ended when the occupancy by owner rules came in (something like 6 months out of 18) or you paid all the same taxes as the hotels.

Now there was the added expenses of filing taxes in the US and Canada that had to be factored in as well.

Everyone that I knew who owned a unit for "rental" sold it. They did not make money, and the hassles were considerable.

Drewski

[philintheblank]

Thanks for the replies.

Not far off from the reading I have been doing already. I was quite surprised by this. Before doing any research it seemed like short term rentals were a decent way to get into a vacation home and make some side cash as well.

Ce La Vie. The wife will be more bummbed out than I am Haha

[Dean2]

Maybe she won't be too bummed out. Considering there is very little for less than 600,000, and most are 1,000,000 and up for something that will rent easily you are talking 150,000 - 250,000 just for the down payment. A stock yielding 4% provides $6,000 to 10,000 a year in tax free income. You can go on a pretty ritzy holiday with that kind of money.

[Xbolt7mm]

U mentioned a second mortgage, putting the primary residence at risk for a vacation property did not sit well with me. when I was looking I couldn’t find a canadian bank that would give a mortgage on property in another country or a bank in another country that would give a mortgage to a person from another country, we were even putting 80 percent down. Had to save for another two years to pay cash. We also bought when the dollar was at par,,,tough go now at 30 percent exchange. We also do not rent out our place but will do side deals with friends a family at times. We dont mess with US income taxes.

[Full Metal Jacket]

I would add the consideration of insurance costs including rental insurance and liability, along with casualry/damage.

Also consider currency risk and capital gains taxes$/transfer taxes. Your cost base may be locked in at the time of purchase and you could end up paying capital gains taxes even though you lost 'real' money on disposition due to currency exchange.

Also, messing with the IRS may give them access to your Canadian asets or your heirs.

[58thecat]

Why, we discussed this at work one day, want to see other areas of the country etc but got this place to maintain etc.....I have buddies who did this and a year later they complain about things.....not me I just pay and go wherever I want with no possible headaches etc.
But to each their own.

[darren32]

Hi Phil,

This is Darren, I believe we did some sheet metal work together a while back.
I could set up a meeting with you and my boss (when she is back in the country). She has 10+ houses all over the place but mostly the US and Mexico. She has at least 6 in the US and has had property there for 15 years or more. Some are vacation rentals, some are full time rentals some are recreational. She is well familiar with how everything works and could answer any questions you have.

Also, my buddy that owns the sheet metal shop has had property in the us, you could talk to him as well.

What I get from the boss lady is that some of her vacation rentals near Disney (in Florida) make money ... when the economy is good and they are rented 75%+ (mostly rents to Canadian). Everything else is break even at best (if you have a mortgage). She has made money buying and selling in the US.

(I am sure you will get a lot of great advise here but talking face to face with people that have experience would be of benefit as well)

Thanks

[dmac]

I have a friend who purchased a condo in Maui in 2008 for about 480 K$. Exchange rates were much better then. The market collapsed shortly thereafter and the value of the unit dropped like a stone, say 400.

She rented it about 180 - 200 days per year. They would use it for 45 days per year, at times they rented a place because their place was committed to a renter. They could never get the kind of rents that real estate people would suggest.

After all costs minus rental income she had to kick in 800 - 1000 US per month to carry the property. She described the rental process as a part time job, work with no pay.

Sold the place in 2015, selling price was a little lower than purchase price. Only saving grace was the forex gains as the cdn dollar was much lower when converting the US funds received.

[Red Bullets]

Don't know much about Hawaii. Just thinking you might want to consider looking at places like Belise to buy a vacation property. I know a couple families that own in Belise and really enjoy it. Better prices too.

[Ken07AOVette]

We looked at buying in Hawaii, but for all the reasons people have listed prior we decided against it. They absolutely smile when Canadians buy, because they know it will be up for sale in the next couple years after the gouging is done, and we can no longer afford to stay there. Years ago it was a different story, but everything good comes to an end. Almost everyone I know with Hawaii property has sold it, mostly at a loss. VRBO is ridiculously cheap because people are losing their shirts. The last time we went we paid $97 per night all in on the 34th floor right on the beach $Canadian through VRBO, through the hotel was $329 plus hotel and ammenety tax plus $25/day parking plus plus plus plus plus.
If you have too many million $ laying around and aren't worried about it because your interest will pay all the exhorbitant charges go for it, but for the majority of the working class it is a lose lose, especially with the current exchange.

[Dean2]

Originally Posted by Red Bullets

Don't know much about Hawaii. Just thinking you might want to consider looking at places like Belise to buy a vacation property. I know a couple families that own in Belise and really enjoy it. Better prices too.

Buying in Canada or the U.S. may or may not be a money making proposition but at least you know you will retain title to your property. Buying in what are effectively third world countries means the property is cheap, but there is a very good reason why demand for them is low. You just never know when your ownership may be completely invalidated. On top of this risk, many of these locations lack the civil law structure that allows you to enforce your property rights. For instance many allow squatters to obtain effective right of occupancy after only a very short period of living on the property. Another issue is zoning or lack thereof. In Belize there are virtually no zoning laws, and even in the States you can easily end up with heavy industry or a sour gas well mere feet from your property. Also in Belize specifically, land you think is yours may not be if you are on waterfront, or along a road. This is true in many places.

These are only a couple of the risks you need to research and understand. Be darn sure you research in detail all the legal aspects of owning and enforcing property rights before laying down money on foreign property.