Buying and Selling U.S. Property

Rent or Buy?

2017-01-17

Trying to decide whether to buy a U.S. property or simply rent one? It can be difficult.

On the one hand, there’s the emotional allure of a second home – perhaps a vacation home – that you can escape to whenever you like. On the other hand, there’s the cold, hard truth that a second home will require time, attention and money to maintain. Do you follow your heart and buy a place or follow your head and rent one? To help answer that question, it may be helpful to look at the numbers.

Buying

Let’s say you’ve found a perfect two-bedroom, two bathroom condominium in Fort Lauderdale, Florida, selling for US$300,000. If you put down $50,000, the $250,000 mortgage would cost you about $1,315 a month ($930 of the monthly payment would go towards interest with the rest applied to the principal). In addition to the mortgage payment, there is a strata – or condo fee – of about $350 a month and annual property taxes of $2,500. You will also have other planned expenditures (utilities, lawn cutting, insurance) and some unplanned (breakage, cleaning, repairs) so let’s conservatively add another $250 to your monthly costs. Total them and the amount of money required to carry the purchase of the condo is US$2,150 per month or US$25,800 per year.

Buying as an investment

How much does the $300,000 property have to increase in value to recoup your $26,000 annual investment? You would need the property to increase by about 5.3% a year just to recover your costs after taxes on the capital gain realized. Compounded annually, your property would have to list and sell for $450,000 after ten years to recover your monthly cash payments and initial $50,000 downpayment.
The challenge with this scenario is that it requires a substantial amount of crystal ball gazing. Nobody really knows how much any property’s value will increase (decrease?) over the years so let’s just say you’ve got a 50/50 chance of recouping your money after 10 years. There is one other scenario to consider: what if you buy and rent?

Buying and renting

Let’s say you want the place for four weeks every year and are prepared to make it available to rent the rest of the time. If you look at the annual cost of buying – $26,000 on a $300,000 property – you will have to rent the place out for about three months a year to get your money back.

That can be a lot of work.

Renting

For simplicity sake, let’s say you have the opportunity to rent the same condominium unit. Based on comparable rental units, it would cost $2,000 a week during high season. That means you could rent the two-bedroom, two-bathroom condo for approximately 13 weeks ($2,000 x 13 = $26,000) for about the same money you would spend buying it.
Thirteen weeks is a substantial amount of time. Depending upon your individual circumstances – empty nester versus new parent – it may be too much or too little. One thing’s for sure: if you rent the place for just a couple of weeks, you’re going to have cash left over. Although you won’t have anything tangible for the money spent. Perhaps it makes sense to buy if you think the condo will appreciate in value over the next ten years.

Important Note:

The estimates above do not take into account the foreign currency translation effect, which can be material depending on the value of the Canadian dollar versus the U.S. dollar at the time. For example, at the time of writing, the Canadian dollar was worth about 80 cents versus the U.S. dollar. In other words, the annual costs of carrying the condominium would be about $32,000 in Canadian dollars.

Next steps

Every property is unique and will have its own set of numbers and circumstances. Talk to your Advisor about your financing and lifestyle options when it comes to a U.S. property and what makes sense for you based on your personal situation, as well as the cost to maintain one or more properties.