Key Questions Answered: Canadians Buying U.S. Real Estate

The U.S. real estate market continues to be a magnet for international investors, with Canadian investors particularly prominent. In 2023 alone, Canadians invested $6.6 billion into U.S. properties, making up 10% of all foreign purchases and positioning themselves as the third largest group of foreign real estate investors in the United States. This trend highlights Canadians' growing interest and active participation in the American real estate market, with an average property price increase from $485,000 in 2022 to $779,300 in 2023.

Recognizing the keen interest from our northern neighbors, we hosted a webinar to address the complexities and opportunities of U.S. property investment for Canadians. The session provided a platform for attendees to have their most pressing questions answered, ranging from financing to legal considerations.

We recap the key and recurring questions asked by first-time Canadian investors in the U.S., providing detailed answers that will empower you to navigate this lucrative market confidently.

Your Questions Answered

Navigating the U.S. real estate market can be complex, especially from abroad. During our webinar, we fielded numerous questions from Canadian investors eager to understand the intricacies of purchasing and financing properties in the U.S. Below, we’ve compiled and responded to the most frequent and significant queries to help demystify the process for first-time Canadian investors. Here’s what you need to know:

How much can Canadians cash out on a refinance in the U.S.? Canadian investors can typically cash out up to 65% Loan to Value (LTV) on a refinance in the U.S. This range can vary depending on several factors, including the type of property and the borrower's financial profile. For a purchase, the LTV ratio might be slightly higher, generally around 70-75%.

What are the average interest rates for Canadian investors? Currently, interest rates for Canadian investors purchasing U.S. properties generally fall between 7-9%. This rate depends on various factors, including the down payment amount and the property type. Compared to U.S. residents, who might see rates in the upper sixes to sevens, international clients often face rates that are about 1-1.5% higher.

Does Milo finance multifamily properties, and what are the guidelines? Yes, we finance multifamily properties. The financing guidelines vary slightly depending on the number of units. Properties with one to four units are treated similarly to single-family homes, while those with five to eight units are still considered residential but require additional considerations such as a larger down payment and more rigorous property reviews. Properties with more than eight units are typically classified as commercial and are outside our financing scope.

What’s the best way for me to qualify for a loan with Milo and safeguard my deposit? The main concern for many investors is whether they can secure a loan and safeguard their deposit. With a down payment of roughly 30%, reflecting about 70% LTV on a purchase, investors should feel confident about qualifying. The key is having liquid assets, such as funds in checking, savings, or stocks, readily available for the transaction.

What factors influence getting a better interest rate? The most significant factor is the size of your down payment; larger down payments typically secure lower interest rates. Other important factors include the type of property, with single-family homes generally receiving lower rates than condos, and your overall financial profile, as we assess loans based on a comprehensive view of the borrower's circumstances

Do I need to be in person for closing a property purchase in the U.S.? In most states, you don’t need to be present in person. Thanks to Milo’s digital applications and remote closing capabilities, many of our clients have successfully purchased properties without ever visiting the U.S. However, some states like California require physical presence at closing. It’s always best to check the specific requirements of the state where you are purchasing.

Can I use my own Canadian lawyer to close a transaction in the U.S.? You can certainly have a Canadian lawyer advise you, but they must be licensed to close transactions in the U.S. if they are to handle the closing directly. Typically, the seller selects the title or escrow company in the case of a purchase, which is the common practice in the U.S. If you're refinancing, we can work with various trusted title agents, and if your Canadian lawyer is licensed appropriately, we can explore that option.

What is the minimum down payment for Canadians buying multifamily properties (1-4 units)? For multifamily properties ranging from one to four units, the minimum down payment required is generally 30%. This aligns with the standard practices for such investment properties in the U.S., ensuring that the investors have substantial equity in their investments.

Can a Canadian create a company (LLC) in the U.S. to buy properties? Yes, creating a U.S. company to purchase properties is not only possible but often recommended for several reasons, including potential tax benefits and liability protection. However, the structure of your company should be straightforward to avoid complicating the financing process. If the company is overly complex, it might create unnecessary hurdles.

What are the typical fees involved in property transactions for Canadians in the U.S.? Typically, you should expect closing costs to be around 4% of the purchase price. This includes all lender fees, title fees, and any applicable taxes and insurance required at closing. These costs are crucial to budget for when planning your investment.

If I close on a property in cash, can I refinance immediately afterward? Yes, this is a strategy known as delayed financing. If you purchase a property in cash, you can opt for a cash-out refinance soon after. This allows you to regain liquidity while potentially locking in a lower interest rate, depending on the market conditions at the time of refinancing.

Final remarks As we've explored today, the U.S. real estate market offers tremendous opportunities for Canadian investors, and understanding the nuances of financing and purchasing property here is key to your success. Whether you're looking to finance a multifamily unit, navigate the complexities of international loans, or simply find the best investment opportunities, our team at Milo is here to guide you every step of the way.

I hope the answers provided in this discussion have clarified some of the common concerns and have made your investment journey a bit easier. Remember, investing in real estate is a significant decision, and being well-informed is your greatest asset.

The opinions expressed in the Blog are for general informational purposes only and are not intended to provide specific advice or recommendations for any individual or on any specific security or investment product.