What’s the best way for Canadians to buy U.S. property?

Canadian investors have long been attracted to U.S. real estate markets, with popular destinations like Florida and Arizona offering appealing climates, lower property prices, and promising rental income. Recent data shows that Canadians accounted for $5.9 billion in U.S. property purchases between April 2023 and March 2024, representing 12% of all international transactions.

When it comes to financing these purchases, Canadians have three primary options: using a Canadian bank, securing a loan from a U.S.-based lender like Milo, or paying cash. Each option has its own set of advantages and disadvantages depending on the investor’s financial situation and investment strategy.

Option 1: Canadian Banks

Many Canadian investors are naturally inclined to explore their home banks for U.S. mortgage options. However, Canadian banks often require strict qualifications based on Debt-to-Income (DTI) ratios, meaning borrowers need documented income to qualify. This can be limiting for investors whose income comes from non-traditional sources or those who prefer qualification based on property value.

• Advantages: Familiarity, especially for first-time U.S. investors; in-person support.
• Drawbacks: Strict DTI requirements, extensive documentation, longer processing times (45-60 days), and less flexibility in mortgage programs.

Option 2: U.S.-Based Lender (Milo)

Milo, a U.S.-based lender, provides an alternative that caters specifically to international investors, including Canadians. Milo’s programs focus on property income potential and liquid assets, rather than personal income, allowing more flexibility. Their digital-first approach also speeds up the application process, with approvals and closings in as little as 21 days.

• Advantages: Flexible qualification based on property income (DSCR) and liquid assets; fully digital process; quick approvals.
• Drawbacks: Higher down payment requirements (25-30%).

Option 3: Paying Cash

Some Canadian investors may consider buying U.S. properties with cash to avoid the complexities of financing. Paying cash has the advantage of streamlining the buying process, eliminating the need for mortgage applications, interest payments, and loan fees. However, while this may seem advantageous, it also ties up a large amount of capital that could otherwise be invested elsewhere for potential gains.

• Advantages: Simplified buying process, no interest payments, and immediate ownership.
• Drawbacks: Ties up capital that could be leveraged for higher returns through financing.

Financing vs. Paying Cash: Why Financing May Be More Advantageous

While paying cash can simplify the process, financing offers a greater opportunity to leverage your investment. For example, consider the following calculation:

Scenario:

• Property Price: $500,000
• Down Payment for Milo Loan: 25% ($125,000)
• Interest Rate: 7% fixed over 30 years
• Monthly Payment: $2,494

Instead of paying $500,000 upfront in cash, the investor can finance $375,000 through Milo. By keeping $375,000 invested elsewhere with a modest annual return of 5%, that investment could grow to approximately $755,000 in 15 years—more than doubling the original amount.

Cash Purchase:

• Total cash outlay: $500,000
• Return after 15 years (assuming 5% property appreciation): Approximately $1,039,500 (property value only)

Financing:

• Total investment in down payment: $125,000
• Total loan payments over 15 years: $448,920
• Investment growth on remaining $375,000 at 5%: $755,000
• Total value (property appreciation + investment returns): $1,508,420

By financing, the investor could potentially net an additional $468,920 in gains compared to purchasing the property outright with cash. This example highlights how leveraging a mortgage can free up capital to generate additional returns while still benefiting from property appreciation.

Choosing the Right Option

For Canadian investors, the decision between a Canadian bank, a U.S. lender like Milo, or paying cash comes down to individual preferences and financial goals. While Canadian banks offer a familiar, albeit slower, process, Milo provides a modern, flexible alternative for those looking to maximize their investment potential. Paying cash may offer simplicity, but it also limits opportunities for leveraging capital to achieve greater long-term gains.

Ultimately, investors seeking to grow their portfolios through U.S. real estate will often find that financing, especially through a lender like Milo, provides the most efficient path to optimizing both property and investment returns.

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.