Fly snowbird fly, but there are a few things you should know before you settle

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by TD Insurance

Looking to invest in a vacation home outside of Canada? Before planting roots abroad, experts advise doing additional exploration

Travelers walking through Concourse D at Miami International Airport in Florida. Photo by HE CANADIAN PRESS/AP, David Santiago/Miami Herald Files

MONEY MILESTONES: In an ongoing series, the Financial Post explores personal finance issues tied to life’s big milestones, from getting married to retirement.

For those approaching retirement age, choosing a more permanent vacation property to avoid Canada’s frigid temperatures each winter may seem very appealing.

Nearly a million Canadians winter in the United States each year, according to the latest statistics from the Canadian Winter Bird Association, and half of them live in Florida.

It’s no wonder then that South Florida condo and townhome sales in October 2021 were up almost 25% from a year earlier, but the median home sales price of $345,000 to $406,500 is a bargain by the standards of big cities this side of the border. . Even those snowbirds who sold their Florida properties during all of the COVID-19 uncertainty are expected to reinvest as economies settle.

“For a lot of people, the pandemic became a bit of a retirement drill because they realized they could work from anywhere…so this idea of expanding your horizons and being in warmer climates is certainly more appealing post-COVID. said Darren Coleman, senior vice president of the Private Client Group and portfolio manager of Raymond James Ltd., a provider of cross-border financial services.

For many people, the pandemic became a bit of a retirement drill as they realized they could work from anywhere.

Darren Coleman

But he advises all clients investigating buying property abroad to first spend some serious time in their target destination to experience it as a resident rather than just a tourist.

Coleman said easily accessible services like Airbnb and Vrbo make it easy to live in many destinations for a month or two, or longer.

“That can be very helpful in realizing if you have close enough proximity to a grocery store, dry cleaners and health care services,” he said. “We encourage people to go and try out a few real estate markets so they can see where they can build friendships and experience the lifestyle they really want.”

Bicycle tourists on the beach in Miami, Florida. Photo by DANIEL SLIM/AFP via Getty Images Archives

Please note that living outside of the typical tourist areas may require a good command of the local language, depending on the country.

Once you’ve determined the right location, look at the full purchase price, including real estate and legal fees, property taxes, homeowners association and maintenance fees, as well as future income tax implications.

“A lot of times we go online and look at the price tag, but that’s not the whole story,” Coleman said. “And if you’re going to get income from this property, that’s going to create some tax reporting obligations as well.”

A lot of times, we just go online and look at the price tag, but that’s not the whole story.

Darren Coleman

If you’re considering a condo, he also advises checking the financial health of the condominium corporation.

“One of the things we saw after the financial crisis, when properties became cheap, was that we had to advise clients to go in and look at the (financial) books,” he said. “If they ran out of money because people aren’t paying, they’re going to hit you with that bill.”

Although she was still far from retirement, Elke Rubach, financial advisor and founder/president of Rubach Wealth in Toronto, was seriously considering buying a vacation property in Tulum, Mexico, this year due to its warm climate, beautiful beaches, and low cost of living. Mexico is home to more American expatriate retirees than any other country in the world.

He found a property at the right price, with a built-in maintenance service and rental income option, but still decided not to buy.

The world economy is not stable, inflation is out of control (and while) real estate is arguably a safe bet, it doesn’t look too good for tourism.

Elke Rubach

“The world economy is not stable, inflation is out of control (and although) you can say that real estate is a safe bet, it does not look very good for tourism,” he said. “I will visit again next year as there is no shortage of new projects.”

For any property purchase outside the country, Rubach said it’s essential to run cash flow models using different assumptions, such as currency fluctuations, rising interest rates and inflation.

“Always run best and worst case scenarios and ask questions like: How stable is the currency? How trustworthy is the legal system? And do you have the network in place if something goes wrong? she said. “So if you buy, make sure it’s in your will and you have an estate plan.”

If the numbers work out, the next hurdle may be securing funding, Coleman said. In theory, it might be possible to obtain financing in a foreign destination, but he said banking systems are often not integrated in all countries, so accessing credit bureau reports can be difficult.

“We recommend that your Canadian financing be used first to secure the property,” he said, adding that that could mean using, for example, your home’s line of credit to make the purchase abroad. “You really have to get your ducks in a row to make sure it’s done correctly.”

Regardless of where you shop, Rubach said foreign property buyers should seek out local advisors and real estate agents to work with, even if they already have Canadian representation, to ensure no details are missed.

“Make sure they are trustworthy, tried, true and proven,” he said. “Going for the cheapest can end up costing a ton later.”

Finding a financial expert and legal counsel well-versed in both markets is the ideal scenario, Coleman said. “Or at least make sure they talk to each other, as you don’t want decisions to be made in isolation.”