Snowbirds cash in on strong U.S. house prices, low loonie

[A “For Sale” sign hangs in front of an existing home in Atlanta. (AP Photo/John Bazemore]

A weak loonie and rising U.S. house prices are spurring some Canadian snowbirds to sell their U.S. homes and cash in on the exchange rate.

Diane Olson, a Canadian expat and realtor based in Phoenix, Ariz., can only call the current housing situation in that state the “reverse perfect storm.” Olson says that since Christmas she has been deluged with calls and emails from dozens of her Canadian clients thinking of selling their winter homes.

“I sold a lot of homes to Canadians, hundreds and hundreds during the down market. From all that business I’ve had before, I’ve had a trickle of clients in the last year say they wanted to sell. But now, with the foreign exchange, my clients really see the opportunity to cash in.”

With the loonie trading at around 70 cents US, some Canadians who purchased winter homes in areas hard-hit by the U.S. housing crisis during are jumping on the chance to profit on the weak Canadian dollar. In addition, says Olson, mounting maintenance and tax costs are making home ownership in the states increasingly expensive.

“Some say they are tired of coming down here and some say it’s the after-cost, because it costs between $10,000-15,000 to run a house here,” she explains.

“By the time you pay taxes and maintenance, and yard and pool and heating, electrical, homeowners [insurance], on the low end it’s $10,000 but it can go up to $15,000 or higher depending on the house.”

The slow but steady recovery of the U.S. housing market has also encouraged snowbirds to sell. According to Olson, homes in Arizona once bought for between $60,000 and 90,000 are now selling for $125,000 to 170,000.

Steven Levy, a lawyer and partner at Altro Levy — a firm that specializes in cross-border tax issues — says he hears from people who are selling because they see the potential for a huge profit, as well as people selling because they’re tired of the upkeep costs associated with keeping a home in the U.S.

Many Canadians bought their properties in the aftermath of the U.S. housing crisis that hit its peak in 2008. That crisis, which saw housing prices explode in early 2006 only to crash shortly after, is believed to have been the primary cause of the U.S. financial recession.

The situation in Florida, another hotspot for Canadian snowbirds, is much the same. One Canadian who owns a home in central Florida and asked to remain anonymous, told Yahoo Canada News that in the past month, one of his snowbird neighbours sold their house to capitalize on the faltering loonie, and another couple put theirs up for sale.

Still, he isn’t feeling the pressure to cash in himself.

“We bought in April 2013 when the Canadian dollar was close to a U.S. dollar., so we would make some money if we sold,” he says. “Many in our park though bought 10 years ago before the housing collapse and the home values are still not back to what they paid.”

“In our case the annual operating costs are about $9,000 US and a $.70 raises our costs $4,000-5,000, but still not enough to make us want to sell.”

When it comes to making decisions about whether or not to sell, Levy believes it all comes down to one factor.

“At the end of the day, everything is about tax,” he says. “When doing the analysis of a sale of a property, other than worrying about compliance with all the legal requirements of the real estate transaction, the big question is what are the tax ramifications of my sale?”

“We want to make sure people are aware that the U.S. tax system is going to be subjecting sellers to U.S. rules,” he adds.

According to Levy, Canadians who make a profit on U.S. real estate sales are subject to taxes in both the U.S. and Canada. In order to avoid double taxation under the Canada-U.S. Tax Treaty, a number of conditions must be met. In addition, a withholding tax intended to cover any potential unpaid U.S. taxes is applied at sale time, and that money can stay tied up with the IRS for up to a year and a half. There are, however, ways to have that tax exempted, and Levy emphasizes how important it is to hire someone well-versed in cross-border tax issues.

“People don’t realize that they get to closing and sold for a million, you’re not actually walking away with your full equity. There’s $100,000 that’s going to sit there, sometimes for a year, and it doesn’t make any babies [interest].”