Often I get asked by friends and family alike, and even some investors, “What do you think of investing in the United States?”In a few short words, with respect to my American friends, in my opinion, this is not yet the time to be investing in real estate south of the border.I know; there are numerous people who are spending millions of Canadian dollars there. I am not one of them, and will probably not be for at least a couple years… if ever.
There are several factors which lead to my decision. The current stimulus package is going to lead to US inflation, and have a depressing affect on the value of the US dollar.Those bills have got to be paid somehow, and without increasing taxes, the Government is going to have to print money, with inflation to follow.I doubt our American friends will see inflation as they had in Zimbabwe.But, it will drive the value of the US dollar down compared to other currencies, including the Canadian dollar.
As the US dollar falls, the price of oil, which is expressed in US dollars, goes up. Oil is not going up in value.The dollar is falling.That has a positive affect on resource based countries like Canada and Australia.Our currencies will strengthen in response.
One factor to watch is the price of gold.It is another measure of the US economy.It is hovering around $950 an ounce today, with many predicting it could hit $1,200 by the end of 2009.
In terms of falling values alone, any Canadian considering investing in real estate in the United States needs to really consider the inflationary impact on that decision.
Then we have the current housing crisis in the US.There are some centres that are doing alright.But, from the news I hear, I suggest that as a whole, the US has another year to go before it hits bottom. July 2009 was one of the hardest months in terms of the number of foreclosures.
Then I hear, “But, I can get it for $60,000.”Right!You can get it for that.But, who is going to rent it?What is the neighbourhood like where you are looking?There are large expanses of Detroit, an exception, I agree, that have been bulldozed to prevent the vacant buildings from becoming a blight.Large sections and subdivisions in other cities sit vacant, and are deteriorating.Houses that are vacant for even a short time become subject to vandalism and theft of the metals, such as copper wiring and pipe, used in the construction.
And as for that $60,000 building… wouldn’t it be better to pay $30,000 or $40,000 for it later.A drop in value of the US dollar of, let’s say 25%, would wipe out any ROI for a long time.And if values come down, rents are going to follow.
There is a huge inventory of property across the United States that needs to be absorbed before there will be a significant swing in values.
Next we have taxes, and dealing with income tax issues on both sides of the border.Anyone seriously considering investing on the other side of his or her own border needs to consult an accountant or tax expert familiar with both countries’ laws.
Now, the final concern I have is physically crossing the border.A Canadian investing in the United States needs to be scrupulously clean about his or her intentions when entering the US.If Border Services discovers that you are not where you said you were going to be, or doing what you said you would be doing, the possibility of your being barred from ever entering the United States again is high.
There are ways for Canadians to invest in the United States and do well.However, it is not a field for amateurs or new investors to enter without knowing all the facts, and rules to play within.Do your due diligence before you decide to play south of the border.
