This resource is for Canadians living abroad who wish to buy real estate in Canada as an investment while living abroad, when getting ready to move back, and for those new to Canada.
This primer covers important questions, considerations, and steps for buying a condominium, house, or rural property in Canada. Many of my expatriate Canadians clients have asked me to help them navigate the real estate purchase process while they are living in the U.S. and further abroad, leading to common questions, concerns, and challenges that I address here. I work with a team of professionals across Canada who continually inform my understanding of the evolving realities of opportunities, risks, laws, mortgages, and rental markets, so this resource is kept up-to-date.
Obviously, there are many different motivations for buying property in Canada. Here are the common contexts of my clients:
There are many others who wish to purchase real estate in Canada: Flight capital investors from China, international investors who buy property in cities around the world, reverse snowbirds, businesses who need housing for their professional employees, and more. I have met many of these, all with their own contexts and reasons for buying real estate in Canada.
The following table is a snapshot of key variables relating to real estate investment in Canada right now. Your life context determines location needs and desires, of course. If you have 3 children, for example, condominiums are really not on your radar. similarly, if you are "empty nesters", you may be very much focused on condominiums in urban areas, rather than rural land.
Use the information here to identify the mix of investment level and future oriented income and cost streams, including tax impacts, that fits your goals and needs. Being strategic with your purchase make sense regardless of the life context you are in:
Type of property
Scale of price/investment:
Rental Income Potential:1
|House in urban location||Large: $400k - $1,000,000+||Flattening (dropping in Toronto specifically from 2017 peak highs)||Good||High|
|Condominium - urban||Medium: $300k - $1,000,000||Increasing||Very Good||Medium|
|House - suburban||Large: $300k - $1,000,000+||Increasing||Good||Medium|
|Condominium - suburban||Medium: $200k - $750k||Increasing||Modest||Medium|
|House - vacation/destination2||High: $300k - $2,000,000+||Increasing||Varies||Medium|
|Condominium - vacation/destination||Medium: $200k - $750k+||Increasing||High||Medium|
|Rural home||Medium: $300k - $750k||Increasing||Low||Low|
|Rural home + acreage||Large: $300k - $2,000,000+||Increasing||Low||High|
|Empty land - suburban||Medium: $200k - $500k||Increasing||N/A||Medium|
|Empty land - rural acreage||Varies: $100k - $2,000,000+||Increasing||N/A||Medium|
1. Rental Income Potential = rental income compared to the value of the real estate purchase and costs of owning it, such as property taxes. Example: $1,500 rental income per month on a $300,000 condominium is better than $2,000 rental income per month on a $900,000 house.
2. Examples: High demand cottage areas such as "cottage country" in Ontario and year-round tourist destinations like Whistler, BC. where you might rent your property by the night through AirBnb.
As of mid-2018, the opportunities for investments in real estate (for capital gain and/or income) are in the following areas:
Notice something interesting about the areas of opportunities above? They are NOT in the big city centres. While there will be growth in Vancouver, Calgary, Toronto, and Montreal, for example, in the coming years, the prices are already high now, density is approaching maximum, and there is community push-back happening against increasing standalone house prices. Indications from my clients and professional associates are that if capital gain is a priority for you, larger gains will be found outside of the cores of big cities in Canada, and currently in condominiums and townhouses.
"What will happen for the rest of 2018 & 2019? Will prices keep rising?"
These are, of course, the questions most people investing in real estate are asking. Here are three factors that will encourage stable or increasing prices in Canada in the coming years:
This is a big topic area, so in the interest of keeping this resource reasonable in length, here are some key areas of consideration:
(even if you know where you want to buy)
Whether you are living abroad and plan on staying there for 20 years or you are moving back in 6 months time, visiting here is essential to understanding the current realities of the property market, lining up the professionals you need, and starting your search.
Many of my clients hire me to help them navigate the whole process and it is our discussions before, during, and after their visit to Canada that really clarifies their options and preferences, allowing them to be laser-focused on what they want to buy, and where.
Another reason to visit: If you and your spouse are planning on moving back to Canada, there will often be unconscious or unspoken thoughts, preferences, and concerns that will come to the surface when visiting, discussing, and hearing each other. Why? Because you have made space in your busy lives for this to happen. Such discussions pay BIG dividends in aligning your preferences and creating a common real estate focus. No, I am not a marriage counselor, but trust me when I say that a visit together to explore real estate is an investment with a big payback in the future for marital harmony. :-)
You can buy a property in Canada while you are living abroad. Once you know what you want, a real estate agent, mortgage broker, and lawyer can do all the legalities remotely now.
Caveat: There are more sophisticated professionals...and those much less so. Be sure to find a real estate agent, mortgage broker, and lawyer who understand that you live abroad and do not plan to come back several times to handle all the paperwork in-person (unless you plan to!) I cannot stress enough the importance of finding "worldly" and more sophisticated professionals to work with for your real estate research and buying process.
There are specific government filings required if you are non-resident and will rent out your property, such as the NR6 form. Nothing onerous, but necessary to understand and there are simply legal processes you must prepare for. See the "Managing a rental property from abroad" below, for more on this.
Here are the key players who can be helpful:
This is a major concern for Canadian expatriates living in the U.S., or anywhere in the world for that matter. Some insights that may be useful:
For most people, the lowest interest rate rules their decision making around mortgages. They have a very small tolerance for differences in rates. For example, if a bank in Canada quotes a mortgage interest rate of 3.25% and a different lender charges 4.50%, they will go with the 3.25%.
No surprise, right?
Well, why would you go with the 4.50% when you can get the 3.25%?
Because as an expatriate investor, or returnee to Canada, you may have a wider range of concerns, including the fact that banks won't give you a mortgage unless you put a 35% down payment before you return and can prove a Canadian income stream. And interest is deductible from rental earnings, so if you plan to rent the property out, the impact of a difference in interest rate is not so significant, especially for a shorter-term mortgage (1-3 years).
How I became less sensitive to interest rates: For me it was easy: My first property, purchased in 1989, carried an interest rate of 12.25%. My next one? 8.50%. My latest: 2.84%. When the mortgage agent offered me the 2.84%, with a look on her face of "Is he going to complain it is so high?!", I just laughed and told her my mortgage history. 2.84%? So what? 4.50%? Not a problem! 6.00%? Still not a problem for me. My parents paid 5.25% on their mortgage in 1951 - 2.84% is just about half that rate.
Who cares about these low interest rates when you are going to pay off the mortgage with every payment, the value of your property is going to increase over time, and your tenants (if you are renting out the property) are paying you income from which you can deduct interest costs. And you can always re-finance at lower interest rates in a year or two! The goal as an expatriate is to get in the market in a way that works for you initially, while you are living abroad or before you move back.
Becoming less sensitive to interest rates can reduce your stress and improve your mortgage options because you no longer look to Canadian "big 5" banks as your only sources of mortgage options!
The number #1 "fact" that I hear from all my clients and expatriate contacts? "We have to put 35% down. It is a fact."
No, it is not a fact. It is the percentage Canadian federally chartered banks require to give you a mortgage at a low interest rate. It is not true of other mortgage options, such as provincially regulated credit unions or private lenders.
Which leads to the next topic:
There are many trust companies, credit unions, private mortgage companies, and some individuals who lend money in the form of mortgages. These mortgages are just as legal, clear, and honest as a mortgage from a bank. These companies and individuals just want to make a good, safe return on their investments...just like a bank.
So why do most Canadians only look to banks for a mortgage?
Because there is an uncertainty, a lack of understanding, and a sense that dealing with anything other than a major Canadian bank is fraught with unsavoury, dangerous risks. "Trust companies? Credit Unions? What are they?" Many of my clients didn't even know such companies exist, though credit unions are provincially regulated and just as safe as a bank. Private lenders? The private lender is seen be out to "rip you off" or will somehow take advantage of you. There certainly are a some "sharks" out there, but there are also many very legitimate private lenders. In fact, from some of the horror stories I am hearing from people dealing with the "Big 5 banks", there are "sharks" in banks, too! So, care is required regardless of the lender you choose to work with.
Canadian banks laugh, of course, as they count their $42 Billion in profits in 2017 year. "It is amazing how Canadians only know about and trust us! Boy, what a profit we make on that innocent trust!"
Where does this lead to? I personally have a bank mortgage now. I had a private mortgage for 1 year before that, because it met my needs at the time...for a whole 0.5% higher interest rate than what a typical bank charged at the time.
Would you be willing to explore non-bank mortgage options?
Options where you are not locked into the 35% down or Canadian income streams, for example?
Which leads us to "how do I access non-bank mortgage options?"...
One of your best friends as a Canadian expatriate investor, returning Canadian, or foreign investor is a "mortgage broker" in Canada. These people take into account your whole situation and present your requirements to many lenders. And the best mortgage brokers work not only with banks and credit unions, but also with private lenders. They understand that you have an unusual situation, are not currently living in Canada or are returning after having been in the U.S. or abroad for many years, and have little or no credit history in Canada.
Suggestion: Find a more sophisticated and professional mortgage broker in the area you are considering buying real estate. By "area" this can mean "province" as a mortgage broker can get a mortgage anywhere in the province they operate. They are not tied to a specific city.
Private lenders are another option. These are companies who have a few million or more in capital to invest and would like to make a good return on their investments compared to leaving their money in a bank account (which about 1% or 2% at best!) This group also includes private individuals who want to do this kind of lending, sometimes simply because they enjoy investing in mortgages in their community.
Sometimes the seller of a property will hold a mortgage for 6 months, a year, or longer. Exploring such an option with them may make sense, should you wish for transition time as you move back to Canada and get your job and credit history started, and allowing you to access a more traditional lender later.
Another option that was shared with me was the use of an "international bank". HSBC, in this example, funded a mortgage in Victoria, BC when the person was still living and working in Dubai. Why? Because unlike Canadian banks, HSBC is global in scope and thinking. The branch manager in Victoria simply got proof from the branch manager in Dubai of the income and credit rating of the person who was working in Dubai and the mortgage in Victoria was approved.
And one more option: A client moving to Ontario found that getting a mortgage in Canada was a challenge. So they took a home equity line of credit on their home in California and bought a house in Ontario for cash. Then, they put their house in California up for sale and paid off the home equity line of credit from the proceeds of the sale. Interesting and empowering option, no?
And one MORE option: A client moving to British Columbia from Europe was able to withdraw funds from his investment/pension fund there tax free to use as a downpayment on their house in Canada, lowering their mortgage level and making it much easier to negotiate one. (See how many options you might have?!)
Before you let the Canadian bank portcullis slam down on your plans to buy real estate in Canada with a 35% minimum downpayment requirement, and other rules such as a recent Canadian credit history and a Canadian income stream, explore your real estate investment goals and financing needs outside of the traditional box. You might be surprised at what you find is available to you!
One rule that seems to be sticky for any major lender is to have your downpayment in a Canadian bank account 30 days ahead of the finalization of a mortgage and purchase of a property. A mortgage broker and former bank mortgage expert shared this with me. Please note that this applies to major banks and credit union lenders. As noted above, you have private mortgage options that do not have such constraints.
The new Canadian mortgage stress test rules that came into effect on Jan 1, 2018 will not affect you, the returning resident, expat investor, or foreign investor if you have a signficant downpayment and the means to afford the payments on the property (including through rental income).
The mortgage "stress test" at a glance:
This is important: Your real estate in Canada must be kept as an investment, or as a pure "recreation property", until you move back, or you risk becoming a "deemed resident" and therefore liable for income tax in Canada.
Key principles to follow:
My work with clients usually includes careful consideration to ensure continued non-residency status and we construct a clear plan for the property. For those living in a low-tax environment abroad, it is essential to be careful with your non-resident tax status if you own real estate in Canada.
If you are leaving your property empty, as many "flight capital" investors do (with much gnashing of teeth in Vancouver by locals), you don't have much to worry about, other than Vancouver's new "Empty Homes Tax".
But if you plan to rent out the property, here are some suggestions:
Buying real estate in Canada can be a great investment, as an anchor for your future return, as a pure investment, or for your first time move to Canada. Choose a team approach to your research, planning, financing, purchasing, and property management steps to ensure you can see all options available to you and put together a plan that works best for you.
I work with many expatriate Canadians purchasing real estate in Canada, either before they return to live in the property or as a strategic investment. They engage my support to advise and guide them starting with the research phase, working through the purchase process, and onward right to taking posession, and renting the property out, if desired.
We start by working through a methodology of identifying key preferences and how to act on those preferences in a desired geographic location.
My scope is wide: From researching the best neighbourhoods for schooling to choosing a great mortgage broker and real estate agent. From making an offer to transferring funds to Canada for the purchase. From supporting renovations to an existing property to new home construction. And I offer professional research, guidance, and support for purchases anywhere in Canada!
A. Professional Real Estate Consultation
When you need real estate questions answered, want to compare options you are considering, and wish to hear new possibilities, this consultation is for you! I can help with a full range of your concerns including legal, tax, mortgage financing, purchase logistics, referals to professionals, and purchase considerations in Canada when you are living abroad.
Includes a pre-conversation identification of your needs by email, a phone (North America) or Skype/Zoom voice/video consultation (world-wide) and a follow-up email summary of the key points and recommendations discussed.
Get the clarity and confidence you need to move forward with your Canadian real estate research, planning, and purchase!
B. Email support for your real estate research and purchase process.
This is working together by email, where I help connect you to key people, researching and reporting on options directly to you, and providing analytical support for your real estate purchase. This differs from a real estate agent in that I work only for you, not for a sale, commission, or kickback from a referral, and therefore am more responsive, focused only on your needs, and have minimal bias as your advisor. Support for the duration of your research and purchase process (even if it takes 2 years!)
Professional guidance and support so you can feel clear and confident about your real estate purchase!
Fee: $400 for the duration of your research and purchase process.
C. Active representation of your interests for a real estate purchase.
Working by email, phone, online video consultations, and meeting in-person with you, if possible. Visiting properties on your behalf, reporting with photos, video, and written analysis of how they match your criteria. Connecting you to key people (legal, financial, real estate, inspection, insurance, etc.) and meeting with them myself if necessary, ensuring your interests are being served at all times. Closely following the purchase process to conclusion to ensure all key steps both legally and logistically take place professionally and with integrity.
Have a professional represent your interests so you can relax and carefully consider all your options, knowing you are free to decide and act without pressure!
Fee: $1,500 + travel expenses, for the duration of your research and purchase process. Includes initial consultations with you, on-going communication, 3 property visits and full analytical reports to you on the properties for your consideration. Subsequent visits: $150 each. My communication and incidental costs are included. Costs such as a travel expenses, professional home inspector fees, and legal fees are not included in this price.
D. Active management of the real estate research and purchase process.
Full on-site support from the start of your real estate research process to taking posession of your property, including post-purchase work, managing renovations, and arranging of property management (if any of these are required). Includes all of packages A. and B. above, but customized to the on-going needs of your research, purchase, and post-purchase processes. This work is done for you as a consultant, but I can also do it under a formal legal representation as well (power-of-attorney).
A professional you can trust who gets it done from start to finish!
Fee: $100 per hour (daily and weekly rates available) + travel and out-of-pocket costs.
Latest update to this resource: September 2018.