Last year when I wrote on this subject, I counseled, despite prices having plummeted by more than 30 per cent, that Canadians need to use extreme caution before plunging into the U.S. residential market as an investment.
Although my caution toward such investment remains, I do feel the subject merits revisiting. A number of my clients have invested very successfully in real estate south of the border, usually in select areas of California. Others have not fared well, taking major paper losses on their investment.
The primary key to success seems to be in locating areas where the selling prices are significantly depressed, but the rental market is strong. This anomaly is showing up in quite a few towns and cities where sadly, folks have lost their homes, but still need a place to live. Their solution is to rent. Lenders are generally unwilling to have tenants in foreclosed properties, so the displaced parties must find other rental solutions.
Some Canadian purchasers have not only bought residential properties in California or Arizona, at about one half their value of three years previously, but also immediately rented them out to residents of the area. Some owners have achieved, after all costs, including property management, consistent returns of around 10 per cent. The objective was not to cater to the vacation-rental crowd, but rather to the long-term residential tenant.
This investment option is not without risk. But if one is young enough to be patient however, earning a return-on-investment approaching 10 per cent, while awaiting the inevitable market upswing a few years down the road may produce handsome capital gains.
Long-term investment in the U.S. housing market is clearly not for those who are retired or nearing retirement. However, for the younger investor who can afford to accept a decades-long time horizon, and who researches and purchases carefully, the U.S. residential market may represent a unique opportunity for both income, and eventually, significant capital gains.
Peter Dolezal is a retired corporate executive and financial consultant who has authored three books.
The information in this column is for information only. The investments mentioned may not be suitable for everyone. Contact an independent financial advisor before making any investment decisions.