Real estate investment is a popular topic right now, especially among beginning or low level investors. The world’s largest markets appear vulnerable, and most are stalled. Almost nobody is seeing the returns that stock investors expected during the 90’s, and those who are doing so are achieving their ends through more sophisticated means. Meanwhile, housing and commercial property markets are looking like a comparatively solid bet. This is proving especially promising for Americans eyeing the Canadian real estate market.
The main factor is the strength of the US Dollar compared to the Canadian Dollar. At the time of this writing the USD:CAD is about 77 cents USD to 1 Dollar CAD. For Americans interested in buying real estate in Canada (or anything else for that matter), this means that they can essentially make this purchase at a discount. For real estate investors, this in an enormous incentive. Let’s look a little closer at the math, to get a better idea of why.
In most real estate markets, residential in particular, owners enjoy appreciation in the properties that they own. This is usually 2-4% annually, though obviously it can be a lot more or less depending on the market. By comparison, stock market investors typically hope for returns in the 7-9% range, though the annual return is often a good deal less than that. Still, even 5% beats 4% appreciation on a house, and doesn’t require all the hassle of buying, and perhaps renovating, property.
But appreciation isn’t the only way that real estate investors make money. There’s also tax subsidies. In America, homeowners can write off their interest payments each year. This lowers a homeowner’s tax burden considerably, and can be considered a return in itself. If that’s a 4% savings on the investment made in the purchase price of a property, that can be added to the 2-4% return already achieved in appreciation.
But that’s not all. If you’re buying with a valuable currency in a market with a comparatively depressed currency, you’re getting that discount added to your gains. An American buying in Canada (at the time of this writing) achieves what amounts to a 23% discount (not accounting for exchange fees and all that). If you then add that 23% to the 6-8% we’ve already seen from investing in property at all, we’re seeing an over 30% return in a single year! That’s mammoth for any investor.
There are those who will protest the logic that lead to these numbers. But the end result is still easy to see. All of the factors mentioned work to the advantage of the buyer. It’s usually not as economical to buy a second or third or fourth property, as tax advantages are usually revoked, but it’s still immensely profitable for Americans to buy in Canada, if good market conditions can be found. Take the time to research key markets like Vancouver, and great companies like North Delta Real Estate, and you’ll find that your dollars go farther and grow faster than the exact same motions made in the United States.
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