Are Two Addresses Better Than One?

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Whether it’s a cottage in the Muskokas or a vacation home in Cabo, multiple homeownership is becoming more and more common among wealthy Canadians. Now, more than ever, Canadians are picking up secondary properties, many of them south of the border. While statistics are hard to come buy, numbers from the National Association of Realtors show that foreign buyers are having a big impact on the United States housing market… and many of these buyers are Canadian.

International buyers purchased roughly $82.5 billion worth of property in the U.S. in the year ending March 31, 2012, compared to $66 billion the previous year. Canadians are estimated to represent about a quarter of those buyers. 

But is this really a smart investment? If you’re considering securing a great mortgage rate in order to go after a second home, make sure you’re aware of both the risks and rewards. While the idea of having a place to call home in another city might seem glamorous, it could also cause you some serious headaches.

The Argument Against Owning a Second Home

Real estate investments are a great way to diversify your portfolio. However, many financial experts insist that this is only the case if you rent the property out in order to generate income. In most cases, wealthy Canadians purchase a second home or cottage as a temporary lodging; by only using the property 10 to 20 percent of the time, they are essentially paying for their home to sit empty. Over time, the costs can really add up. Even the super wealthy often find that it’s an ineffective use of their money.

The Argument For Multiple Homes

Of course, there’s always a flip side to every argument. For some, having a second address in another city or country can be quite beneficial. This is especially true for individuals who travel a lot for work. The convenience and comfort of having a place to call your own, even when you’re out-of-town, can never be underestimated.

Multiple homeownership normally begins with a vacation property; for Canadians, this is often a summer cottage. However, the U.S. is becoming a popular place to hold second or even third properties. Low prices and great mortgage rates are making it difficult for Canadians to pass on the idea of owning a foreign address.

If you’re thinking about entering the American real estate market, make sure you take the time to surround yourself with a team of knowledgeable experts. From tax issues to legal implications, you’ll have to navigate a number of regulations and restrictions before you can make the move. What’s more, it’s important that you look at the future implications of such a purchase. Will buying a second home now hurt your ability to save for your retirement? The mortgage brokers at recommend doing a financial plan prior to signing any purchase agreements. This will help you to predict your cash flow.

Finding a Happy Medium

The smartest way to purchase a second home is to do so with the idea of renting it whenever you’re not actually using the space. It may sound like a strange timeshare setup, however the difference is you’ll have complete control of your property. Real estate agents can help you tap into a rental market full of professionals seeking temporary living arrangements. All you have to do is sit back and enjoy the profit and price appreciation of your property.

Of course, being a landlord, especially an absentee one, isn’t always easy. Again, it’s important that you consult with your network of financial and real estate professionals in order to understand the pros and cons of this type of property investment.

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